SP CI L TT NTION drected to the cautonary notce on ths page that pub-

shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn I -2
ULY-D C M R, 1935
IN T IS ISSU
p
Introductory Notes
Contents - II
Rungs Nos. 75 4-7884
oard of Ta ppeas 1
Income Ta
Part I (1935 and 1934 cts) 4 -151
Part O (1932 ct) 152-1 7
Part m (1928 ct) 1 8-2 5
Part I (192 and Pror cts) 2 -328
Msceaneous Ta es
state Ta 329-3 2
Saes Ta 3 2-409
Capta Stock Ta 410-417
Msceaneous 418-534
Msceaneous 535- 04
Inde 05- 24
The rungs reported n the Interna Revenue uetn are (or the nformaton of ta payers and ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do not commt (he Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of tbe aw and Treasury Decsons to the entre
state of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera facts arc dentca wth those of the reported case. s t s
t afwaya feasbe to pubsh a compete statement of the facts underyng each rung, there can be no assurance
that any new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers of the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
1y on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a per-
I provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used as
I n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons prevousy
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna Revenue
to pubsh a rungs and decsons, ncudng opnons of the ssstant Genera Counse fo the ureau of Interna
Revenue, whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or decson, or for other reasons, are of such mportance as
to be of genera nterest It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke, modfy,
amend, or a feet n any manner whatever any pubshed rung or decson. In many nstances opnons of the
ssstant Genera Counse for the ureau of Interna Revenue are not of genera nterest because they announce
no new rung or no new constructon of the revenue aws but smpy appy rungs aready made pubc to certan
stuatons of fact whch are wthout speca sgnfcance. It s not the pocy of the ureau to pubsh such opnons.
Therefore, the numbers assgned to the pubshed opnons of the ssstant Genera Counse for the ureau of
Interna Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer
or empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness othe
apecncay
| ndcated, aU pubshed rungs and decsons have receved the consderaton and approva of the
trstant Genera Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC , W S INGTON : 193
wsae by the Superntendent of Documents, Washngton, D. C
See bach of tte for prces
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The Interna Revenue uetn servce for 1030 w consst of weeky
buetns and semannua cumuatve buetns.
The weeky buetns w contan the rungs and decsons to be
made pubc and a Treasury Department decsons (known as Treas-
ury decsons) pertanng to Interna Revenue matters. The sem-
annua cumuatve buetns w contan a rungs and decsons (n-
cudng Treasury decsons) pubshed durng the prevous s months.
The compete uetn servce may be obtaned, on a subscrpton
basts, from the Superntendent of Documents, Government Prntng
Oftce, Washngton, D. G, for 2 per year. Snge copes of the weeky
uetn, 5 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contans dgests of a rungs appearng n Cumuatve uetn 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, 1923, 1924, 1925, 192 , 1927, 1928, 1929, 1930, 1931,
1932 1933, 1034, and 1935, may do so at prces as foows:
Cumuatve uetn 1-1 ( anuary- une, 1922) 40 cents
Cumuatve uetn 1-2 ( uy-December, 1922) 80 cents
Cumuatve uetn II- ( anuary- une, 1923) 80 cents
Cumuatve uetn II-2 ( uy-December, 1923) 40 cents
Cumuatve uetn III- ( anuary- une, 1924) 50 cents
Cumuatve uetn III-2 ( uy-December, 1924) 50 cents
Dgest No. 13 ( anuary, 1922-December, 1924) 0 cents
Cumuatve uetn I -1 ( anuary- une, 1925) 40 cents
Cumuatve uetn I -2 ( uy-December, 1925) 35 cents
Dgest No. 17 ( anuary-December, 1925) 25 cents
Cumuatve uetn - ( anuary- une, 192 ) 40 cents
Cumuatve uetn -2 ( uy-December, 192 ) 30 cents
Dgest No. 21 ( anuary-December, 192 ) 15 cents
Cumuatve uetn I-1 ( anuary- une, 1927) 40 cents
Cumuatve uetn I-2 ( uy-December, 1927) 40 cents
Dgest No. 22 ( anuary, 1925-December, 1927) 35 cents
Cumuatve uetn II-1 ( anuary- une, 1928) 35 cents
Cumuatve uetn II-2 ( uy-December, 1928) 50 cents
Cumuatve uetn III-1 ( anuary- une, 1929) 50 cents
Cumuatve uetn III-2 ( uy-December, 1929) 55 cents
Cumuatve uetn I -1 ( anuary- une, 1930) 50 cents
Cumuatve uetn I -2 ( uy-December, 1930) 50 cents
Cumuatve uetn - ( anuary- une, 1931) 5 cents
Cumuatve uetn -2 ( uy-December, 1931) 30 cents
Cumuatve uetn I-1 ( anuary- une, 1932) 30 cents
Cumuatve uetn I-2 ( uy-December, 1932) 30 cents
Cumuatve uetn II-1 ( anuary- une, 1933) 30 cents
Cumuatve uetn II-2 ( uy-December, 1933) 50 cents
Cumuatve uetn III-1 ( anuary- une, 1934) 50 cents
Cumuatve uetn III-2 ( uy-December, 1934) 50 cents
Cumuatve uetn I -1 ( anuary- une, 1935) 50 cents
Cumuatve uetn I -2 ( uy-December, 1935) 50 cents
Dgest (Income 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.
()
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn I -2, n addton to
a decsons of the Treasury Department (caed Treasury decsons)
pertanng to Interna Revenue matters contans ssstant Genera
Counse s opnons, and rungs and decsons pertanng to ncome,
estate, saes, capta stock, and msceaneous ta es, as ndcated on
the tte page of ths uetn, pubshed n the weeky uetns
( oume I , Nos. 2 to 52, ncusve) for the perod uy 1 to
December 31, 1935. It aso contans a cumuatve st of announce-
ments reatng to decsons of the Unted States oard of Ta
ppeas pubshed n the Interna Revenue uetn Servce from
anuary 1, 1932, to December 31, 1935.
Income Ta rungs are prnted n four parts. Rungs under the
Revenue cts of 1935 and 1934 are prnted as Part I ( , 1935
ct, , 1934 ct), the secton headngs correspondng wth the
sectons of those cts. The rungs under the atter ct are pub-
shed under the artce headngs correspondng to the artce headngs
of Reguatons 8 . Rungs under the Revenue ct of 1932 are pub-
shed as Part II, the secton and artce headngs correspondng
wth the secton and artce headngs of the Revenue ct of 1932 and
Reguatons 77. Rungs under the Revenue ct of 1928 are prnted
as Part III, the secton and artce headngs correspondng wth the
secton and artce headngs of the Revenue ct of 1928 and Regua-
tons 74. Rungs under the Revenue ct of 192 and pror cts are
prnted as Part I , the secton and artce headngs correspondng
wth the secton and artce headngs of the Revenue ct of 192 and
Reguatons 9.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, eta The names of ndvduas.
. s. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. . oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson.
D. C. Treasury Department crcuar.
. T. state Ta Dvson.
G. C. M. -Genera Counse s or ssstant Genera Counse s memorandum.
L R. . Interna Revenue uetn.
I. T. Income Ta Unt
M, N, , T, 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.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
(m)
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I
8. T. Saes Ta Dvson.
II Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. . Soctor s recommendaton.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. D. Treasury decson.
nnd v 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 192 ct, cause to be nsttuted
a proceedng n court for the coecton of any part of a ta deter-
mned by the Commssoner to be due but dsaowed by the oard,
provdea that such proceedng s commenced wthn one year after
fna decson of the oard. s to appeas heard by the oard after
the passage of the 192 ct, the 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 Dy 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 Comms-
soner to be due, announcement w be made n the weeky uetn
at the earest practcabe date. notce that the Commssoner has
acquesced or has nonacquesced n a oard decson reates, however,
ony to the ssue or ssues decded n favor of the ta payer. Dec-
sons 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.
Treasury decsons:
44 1
4582
4 3
45 4
45 5
45
45 7
45 8..
45 9..
4570..
4571..
4572..
4573..
4574..
4575..
457 ..
4577..
4573..
4579..
45S0..
4581..
4582..
4583..
4584..
4585..
458 ..
4587...
4588...
4589...
4590...
4591...
4592...
Rung No.
4594..
4595..
459 ..
4597..
4598..
4509..
4 00..
4 01..
4 02..
4 03..
4 04..
4 10
4 11
4 12
4 13
4 14
4 15
4 18
4 17
4 18
4 19
Court decsons:
983
984
985..
98 ..
987..
I -2 -7577
I -28-7588
I -28-759
I -29-7 01
I -29-7 03
I -30-7 13
I -30-7 1
/ I -30-7 14
I -30-7 1
I -31-7 29
I -31-7 27
I -31-7 28
I -31-7 24
I -31-7 25
I -31-7 34
I -32-7 42
I -33-7 53
I -33-7 54
I -33-7 57
I -34-7 5
I -34-70 7
I -35-7 71
I -30-7 S4
I -3 -7 S5
I -37-7 88
I -37-7 95
I -37-709
I -38-7707
I -38-7708
I -40-7722
I -42-7749
I -12-774
I -43-77 4
I -43-77 5
I -44-7777
I -44-7775
I -15-7791
I t5-77S
I -45-7792
I -45-7793
I -4 -7800
I -4 -7805
I -4 -7803
I -1 -7804
I -4 -780
I -48-7807
I -4 -7803
I -4 -7809
I -4 -7810
I -4 -7811
I -4 -7812
-4 -7813
I -4 -7814
I -47-782
I -48-7839
I -48-7837
I -48-7838
I -50-7S57
I -50-7858
I -51-78 2
I -51-78 4
I -51-7870
I -52-7875
I -52-7SS0
I -52-7882
I -52-78S1
I -52-7884
I -2C-75 9
I -2 -757I
I -2 -7570
I -27-7582
I -27-75S3
Page.
512
113
507
313
437
527
508
42
427
39
3
392
373
3 4
314
413
4 0
524
525
483
517
150
31
318
113
54
445
427
522
523
3 3
2 5
508
4 1
421
142
492
52a
503
521
03
453
58
07
373
57f
378
379
379
381
383
: sh
38
491
524
518
519
4 4
4.::
09
139
510
310
28
531
47
489
2 0
294
292
172
198
Rung.
Court decsons Contd.
9 8
989
990
991
992
994.
99 .
997.
999
1000
1001
1002
1003
1004
1005
100
1007
1008
1009
1010
1011
1012
1013
1014
1015
101
1017
1018
1019
1020
1021
1022
1023
1024
1025
102
1027
1028
1029
1030
1031
1032
1033
1034
1035
103
1037
1038
1039
1040
1041
1042
1043
1044
1045
104
1047
1048
1049
1050
1051
1052
1053
1051.
ssstant Genera Counse s
memoranda:
14952
14957
14970
15052
15055
Rung No.
I -27-7584
I -28-7591
I -28-7592
I -28-7594
I -29-7 00
I -29-7599
I -30-7 10
I -30-7 11
I -31-7 23
I -31-7 22
I -32-7 39
I -32-7 40
I -32-7 43
I -33-7 51
I -33-7 52
I -34-7 2
I -34-7 3
I -35-7 73
I -35-7 72
I -3 -7 82
I -3 -7 81
I -37-7 89
I -37-7 90
I -38-7 99
I -38-7701
I -39-7712
I -39-7713
I -40-7725
I -40-7728
I -40-7727
I -41-7734
I -41-773
I -42-7744
I -42-7745
I -42-7747
I -43-7758
I -43-7759
I -44-7789
I -44-7770
I -44-7773
I -45-7783
I -45-7784
I -45-7785
I -4 -7798
I -4 -7799
I -7801
I -47-7821
I -47-7822
I -47-7824
I -43-7830
I -48-7833
I -48-7834
I -49-7845
I -49-7844
I -49-784
I -49-7847
I -49-7848
I -50-7854
I -50-7855
I -50-785
I - 1-78 5
I -51-78
I -51-78 7
I -52-7874
I -52-787
I -52-7877
I -52-7879
I -31-7 20
I -2 -75 7
I -29-7598
I -30-7 09
I -23-7593
Page.
2 2
177
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2

0
4
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1

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2
7
/

n
u
.
3
0
0
0
0
0
8
9
0
5
4
2
9
4
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h
a
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#
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I
uDg.
ssstant Oeners Counse s
memoranda Contd.
1 073
15101.
15151.
15218.
1 305
1 401
oard of Ta ppeas:
17527-.
29470.
2958 .
29 94....
29 95
32940....
41145....
42053
42833....
4380 .
437 .
44 55....
44852
48749 .
50134...
507 2
509 2
5 30 .
5-1 43 .
51947.-..
5231
52328...
52 77
52987 .
53881 .
5393 ....
54033 .
55195 .
5 95....
557 8....
5 1 0
501 1
501 2....
5 1 3
5 348
50438 .
50439
5 440-..
5 441
5 442
5 41
5 943
57319
57320
57321
57322
7503
58025
58 03
58720
58790
59070-.
Rung No.
1 -33-7050
I -2 -75 5
I -28-7590
I -27-7581
I -35-7 9
I -41-7735
1 -38-7 98
-45-7782
I -39-7711
I -41-7733
I -52-7873
I -44-7771
I -44-7772
I -41-7738
I -45-7788
I -42-7743
I -48-7S32
I -49-7843
I -4 -7787
I -48-7 29
I -4 -7797
I -50-7852
I -30-7 0
I -3 -7 78
I -3 -7 78
I -38-7 78
I -3 -7 78
I -3 -7 78
I -31-7 19
I -4 -7779
I -49-7840
I -48-7827
I -48-7827
I -48-7827
I -48-7827
I -4S-7827
I -48-7 -27
I -48-7827
I -29-75 4
I -40-7721
I -45-7779
I -48-7827
I -43-7754
I -2 -75 4
I -40-7721
I -41-7731
I -40-7721
I -31-7 19
I -81-78 0
I -39-7709
I -40-7721
I -11-7731
I -4 5-7779
I -29-7597
I -29-7597
I -52-7871
I -33-7 47
I -43-7754
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I -29-7597
I - 1-78 0
I -41-7731
I -48-7827
I -48-7827
I -48-7827
I -48-7827
I -30-7 0
I -43-7754
I -49-7840
I -44-77 7
I -44-77 7
I -43-7754
I -40-7721
Page.
t
(
h:)
103
80
242
9
IM
n
IM
105
237
240
419
370
IM
325
IM
183
118
127
ICO
12
1
20
8
13
33
2
19
19
10
19
19
19
19
43
7
33
19
41
43
18
23,44

8,31
31
1
17
38
33
14
27
39
9,1
21
2
10
2
13
2
8
24
2
2
23
40
34
19
19
19
19
19,41

2
15,37
21

17
Rung.
oard of Ta ppeas Con.
9747
01 7
0432
0434
059
0729
C840
08 4
154 .
25 9..
02 04.
2 42
2825
2979
3321
3407
3 45
3737
2131111 .
511
7108
7238
7283
7335
7415
74 8
7470
7471
7472
7473
7474.
7475.
747 .
780 .
0S433.
8434.
8435.
8511.
sua.
9193
9481
9525
9534.
9 94 ,
9750
9855
70183 ,
70219
7029
70297
70298 ,
70813
70820
70999
71117
71157
71338
715 5
71 37 ,
71800 ,
718 7
723 5
72389
72424
72788
73029 ,
73034 ,
7318
7340
73591
73479
73785 ,
74047
74348
74411
No.
I -29-7597
I -31-7 19
I -29-7597
I -35-7 8
I -2 -75 4
I -31-7 19
I -44-77 7
I -51-78 0
I -32-7 35
I -39-7709
I -49-7840
I -29-7597
I -5C-7851
I -41-7731
I -45-7779
I -45-7779
I -2 -75 4
I -51-78 0
I -31-7 19
I -31-7 19
I -27-7578
I -42-7741
I -35-7 8
I -39-7709
I -39-7709
I -45-7779
I -51-78 0
I -51-78 0
I -38-7 97
I -40-7721
I -29-7597
I -34-7 58
I -34-7 58
I -34-7 58
I -34-7 58
I -34-7 58
I -34-7 58
I -34-7 58
I -34-7 58
I -31-7 19
I -34-7 58
I -34-7 58
I -34-7 58
I -51-78 0
I -31-7 19
I -34-7 58
I -51-78 0
I -42-7741
I -29-7597
I -29-7597
I -31-7 19
I -45-7779
I -42-7741
I -50-7851
I -41-7731
I -41-7731
I -29-7597
I -29-7597
I -29-7597
I -2 -75 4
I -52-7871
I -39-7709
I -42-7741
I -2 -75 4
I -41-7731
I -47-781
I -41-7731
I -41-7731
I -3 -7 78
I -42-7741
I -52-7871
I -45-7779
I -2 -75 1
I -32-7 35
I -31-7 19
I -3 -7 78
I -29-7597
I -30-7 0
I -45-7779
I -4 -7794
r -27-7578
I -34-7 58
I -39-7709
G
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L

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g

(
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Y
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U
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3
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5
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II
Rung.
oard of Ta ppeas Con
7 424
74425
744 4
744 5
7 541
74720
75304
75428
7551 .
75 24
757 5
7 058
7 059
7 108
7 255
77508
77557
77 38
Offce decsons (I. T.):
2900..
2901 __
2902
2903
2904..
2905
290
2907
2908
2909
2910
2911
2912
2913
2914
2918
291
2917
2918..
2919.
2920
2922..
2924.
2925.
292 .
2927.
2928..
2929.
2930..
2934.
2935.
2938.
2937.
2938..
2940
2941
2943..
2945
Rung No.
I -48-7827
I -48-7827
I -34-7 58
I -34-7 58
I -3 -797S
I -40-7721
I -29-7597
I -44-77 7
I -34-7 58
I -37-7 8
I -32-7 35
I -52-7S71
I -52-7871
I -39-7709
I -43-7754
I -30-7 0
I -39-7709
I -51-78 0
I -39-7709
I -41-7731
I -28-75
I -2 -75 8
I -27-7579
I -27-758
I -28-7589
I -30-7 07
I -30-7 08
I -31-7 21
I -32-7 3
I -32-7 37
I -32-7 3S
I -33-7 48
I -33-7 49
I -34-7 9
I -34-7 0
I -34-7 1
I -35-7 70
I -3 -7 79
I -3 -7 80
I -37-7 87
I -38-7700
I -38-770
I -39-7710
I -40-7723
I -40-7724
I -41-7732
I -42-7742
I -43-775
I -43-7757
I -43-77 0
I -44-77 8
I -45-7780
I -45-7781
I -4 -7795
I -4 -7790
I -47-7817
I -47-7818
I - 7-7819
I -47-7820
I -48-7828
I -48-7831
I -49-7841
I -49-7842
I -50-7853
I -51-7881
Page.
41
41
33
33
43
3
11
2
31,44
31,48
13
17
24
29
27
38
18
31
34
4
7
138
7
32
151
71
11
150
72
13
182
73
75
77
70
98
121
83
293
88
25,5
151
88
133
148
go
145
102
108
533
M
1
117
3
91
92
123
189
144
3
287
114
9
12
Rung.
Offce decsons (I. T.) Con.
294
2947
2948
Offce decsons (S. T.):
814
815
81
817
818
819
820...
821
822
823
824
Offce decsons (P. T.):
28
29
30
31....
32..
33
34
Offce decson (S.):
8
Offce decsons (T.):
12
13
14
1
1
17
Offce decsons (MS.):
1 4
1 5
1
1 7
1 8
1 9
170
Mmeographs:
4349
4349
4357
4399
4380
4383
4397.
Msceaneous.
Rung No.
Page.
I -51-78 3
109
I -51-78 9
114
I -52-7872
158
I -2 -7572
372
I -29-7 02
3 8
I -31-7 2
407
I -32-7 41
3 4
I -34-7 4
3 9
I -39-7714
402
I -41-7737
3 2
I -42-7748
3 7
I -42-7750
394
I -44-7774
3 9
I -47-7823
3 8
I -27-7573
423
I -32-7 44
422
I -32-7 45
424
I -37-7991
418
I -37-7 92
418
I -37-7 93
420
I -45-7789
425
I -31-7 30
490
I -27-7585
COO
T -31-7 32
00
I -35-7 74
00
I -40-7728
01
I -44-777
01
I -49-7849
901
I -2 -7578
93
I -30-7 18
894
I -35-7 75
98
I -39-7720
98
I -43-779
97
I -48-7838
98
I -52-7883
599
I -27-7580
148
I -30-7 12
09
I -29-7 05
412
I -3 -7 77
592
I -40-7729
144
I -t3-7755
3
I 3-77 1
591
I -4 -7815
48
f I -29-7574
539
I -31-7 31
533
I -33-7 53
70
I -38-7702
49
I -38-7703
50
I -38-7704
84
I -39-7715
551
I -39-771
552
I -39-7717
52
I -39-7718
559
I -41-7739
538
I -42-7751
528
I -42-7752
539
I -13-77 2
5 9
I -52-7878
902
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CONT NTS O CUMUL TI ULL TINS (I- T.) 1 TO 8 S. T. OR 1920 ND 1921 INT RN L
revenue -. -2. n-. n-2. ra-. n-2. v-. v-2, v-, v-2, v-, v-2. vn-. vu-2. vra-, vn-2,
I 1. 1 2. -. -2. I 1. I 2. n-I. I 2. IU-1. III 2. I 1. ND I 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 1)
uy-December, 1923 (No. II-2) .
anuary- une, 1924 (No. III-)
uy-December, 1924 (No. III-2)..
anuary- une, 1925 (No. I -1)..-
uy-December, 1925 (No. I -2)..
anuary- une, 192 (No. -)
uy-December, 192 (No. -2)...
anuary- une, 1927 (No. I-1)--.
uy-December, 1927 (No. I-2).-
anuary- une, 1928 (No. II-1)
uy-December, 1928 (No. II-2).
anuary- une, 1929 (No. III-1)..
uy-December, 1929 (No. III-2)
anuary- une, 1930 (No. I -1)..-
uy-December, 1930 (No. I -2)..
anuary- une, 1931 (No. -)
uy-December, 1931 (No. -2)
anuary- une, 1932 (No. I-1)
uy-December, 1932 (No. I-2)..
anuary- une, 1933 (No. II-1)-.
uy-December, 1933 (No. II-2).
anuary- une, 1934 (No. III-1).
uy-December, 1934 (No. III-2)
anuary- une, 1935 (No. I -1)..
uy-December, 1935 (No. I -2)
( III)
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O RD O T PP LS.
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T UNIT D ST T S O RD O T
PP LS PU LIS D IN T INT RN L R NU UL-
L TIN S R IC ROM NU RY 1, 1932, TO D C M R
31, 1935, INCLUSI .
nnouncements reatng to the acquescence or nonacquescence of the Commssoner In
decsons of the Unted States oard of Ta ppeas, as pubshed In the weeky Interna
Revenue uetn, from December 22, 1924, to December 31, 1931, ncusve, are prnted n
Cumuatve uetn -2, pages 1-100. The st beow, therefore, contans ony such announce-
ments pubshed In the weeky uetns from anuary 1,1932, to December 31, 1935, Incusve.
0 I -52-7871
The Commssoner acquesces n the foowng decsons of the
Unted States oard of Ta ppeas:
Ta payer.
oard of Ta ppeas.
No.
oume.
Page.
4054
24
435
37 95
24
435
37 93
24
435
37 94
24
435
37 9
24
435
41034
24
435
25194
3S 87
-
429
39980
25
211
39593
25
124
39593
25
124
5 9 0
9007
28
58
207 5
24
37
41295
27
1091
0700
28
1291
39019
27
1210
448 0
30
3
25414
25
834
31704
25
127
40039
28
8 8
30133
)
31998
5 024
30
1182
313

.
bees, Chares T
bees, Cfford
bees, rancs, estate of
bees, ohn T
bees, atherne
bees, Wemene II
cme Manfodng Co., Inc
deade Park Land et a., trustees
fremow, Davd, estate of
fremow, Sarah, e ecutr
abama Mnera Land Co
bert Lea Packng Co., Inc
brecht et a., atherne ., e ecutrces 1
coma Corporaton
e ander, . ., estate of
egheny Garbage Co
en, Irene C
ed mercan Corporaton
mbassador Petroeum Co
mercan Centra Lfe Insurance Co.
state ta decson
1 cquescence reates to
upon forecosure.
Teates to deducton of 133,000.
whether pettoner receved nterest on mortgages when It bd n property
Rung No. 7871 ncudes a acquescence and
nue uetn servce from anuary 1, 1932, to December 31, 1935.
notces pubshed In the Interna Reve-
(1)
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2
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume
mercan Cgar Co
mercan eature m Co
mercan Prntng Co
mercan Securty Trust Co. et a., e ecutors 1
mercan South frcan Lne, Inc
nco Investment Co
nderson, C.
nderson, Gustave
nderson, .
nderson, Staney S
nn rbor R. R. Co
rgumbau, rank M
rmstrong, C. George
rmstrong, Wam
rnod fe Wnsor Co
shforth, bert ., estate of
shforth et a., Mabe ., e ecutors2-
tkns, . ., estate of.
tkns, Mrs. .
tantc Coast Lne R. R. Co.
ton, dwn D.
ton, Robert L.
ton, Wood ._
IS.
abbtt, Inc., . T. (Deaware)
abbtt, Inc., . T. (New York)...
aker, I.
adwn, orence G
afour, Sr Robert
a, Php D. C
atmore Oho R. R. Co
atmore Oho R. R. Co.
ankers Dary Credt Corporaton.
arber, rthur
arber, Php C
arber, St. George
arber Trusts, Sarah P
arcay, W. L
arker, red
arnes, enrv II
asch, N.
Ice Coa Co.
easey, W.
1 229
27 23
39721
391 7
f 2955
S830
70701
58 47 1
33242
3 224
3827
42053
258 9
73 14
58400
58 03
1553
47190
4h009
I 49354 |
f 47190 I
I 48009
49354
38520
38519
58958
5310
5311
5 100
5 102
5 441
74047
74047
5 348
32387
40230
3 737
53702
37239
48329
2 747
2 755
2 757
2 747-
2 757
8743
51102
5 440
45928
7 37
00 1
21
24
27
24
30
30
27
2
30
33
29
31
31
32
29
2
2
28
28
31
32
32
32
32
32
32
23
25
27
29
30
2
25
25
25
25
2
28
32
30
27
31
1 state ta decson.
Nonacquescence pubshed n uetn 1I-1, page I, wthdrawn.
1 cquescence reate to ssue n vo vnp contrbutons by shppers for constructon of sde and spur tracts
and deducton for nterna revenue stamps aff ed o bonds.
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3
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume
eaumont, Lous D
ebb, Rchard ., estate of .
eggs, ohn L (Trusts)
ehr, Chares ...
e, Ivor . -
eows as Power Co
enedum, M. L.
ent Co., R. G
erde, r., Chares P.
ernsten, Isaac M
est, rank .
ups, George W
ngham, Robert W
rckhead, Over W
rdneck Reaty Corporaton.
scayne ay Isands Co
ar, r., Mrs. Wey .
oodgood, dth ...
um, uus, trustee-
umentha, Lucy
oehrnger, Rudoph 4
oos ros. Cafetera Co
org eck Co
ostck, r., ohn, trustee.-
owden, Pau kers
raun, rthur ., trustee--
rnton, Lan McDonad-
rown, erence
ryan et u ., C.
ryan et u ., L.
uck, ohn ., estate of 1
uck et a., Mary M., e ecutors 5
uena sta Land Deveopment Co.
uffao Unon Iron urnace Co.
ungton, Orve
780
895
439
212
state ta decson acquescence reates to deducton of 133,000.
1 cquescence reates to that part of decson hodng that Water . ettman Is not abe as a transferee
tn mtaton I
31931
4 5 9
49422
41295
5 75
39534
22335
1S592
29104
30990
57312
5979
70298
3 729
3 74
54917
51051
72389
4 079
27 1
35098
40147
9 82
2 750
39242
40939
45741
51507
4975
49891
39200
24223
349 4
8382
54923
5455
53715
24 7
3 37
2403
24037
32584
44153
44 84
32584
44153
44 84
2025
1 075
1 07
9 84
25
27
30
30
27
25
28
2
32
28
2
29
27
33
25
23
31
25
25
30
29
25
24
31
2
29
28
25
19
19
25
25
13
23
31
474
1091
370
1290
377
195
917
00
744
1070
804
18
4
1084
731
212
513
119
591
8
51
995
25
1410
11 1
472
814
111
111
780
and to 1
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1818.
cquescence reates to Issue nvovng secton 115(g) of the Revenue ct of 1928.
1 state ta 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
for support of the wdow.
cquescence reates to Issue regardng deductons for obsoescence of bast furnaces.
G
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cqt|escences Contnued.
Ta payer.
ungton, Mrs. Sade
us, een
uock, George 1
urdck, a P., trustee-..
urdck, oe W., estate of.
urnham, Sas _
urroughs, mbrose ., estate of.
urton, en|amn T
uter.U.
yers Trust, . T. -
C.
Caforna Coast O Co
Camp Manufacturng Co
Canaday, Inc., Ward M
Canfed et a., rances Marsha, e ecutors.
Canfed, George ., estate of
Cannng, ohn
Capta Compress Co.
Carman, .
Carne, Goude Manufacturng Co.
Caro, Sue (Mrs. Nck Stuart)
Carona, Cnchfed Oho Ry...
Carona Contractng Co
Carter Pubcatons, Inc
Caspar Lumber Co
Cathey, George
Cathev, Luke -
Catn , Dane
Catn, Thcron
Centra Market Street Co.1
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.
Docket
No.
9 79
81 4
73954
31209
4 322
4 322
1009
53795
59797
1055
4 055
8382
oard of Ta
oume.
31
32
23
29
29
29
29
25018
25
902
35955
25
537
58 32
29
355
8415
31
724
8415
31
724
41482
29
99
49303
31
273
f 44321
1
I 44939
25
1 2
I 50178

f 20074
27095
-
79
/ 39 3
71025
30
443
/ 71 49
71 50

730
77 38
32
1171
/ 44838
891
28
1 0
57729
30
579
4 05
24
50
4 057
24
50
25421
25
834
25413
25
S34
24837
25
499
42587
29
530
28701
25
1123
2077
24
37
42588
29
530
9345
31
7 4
/ 555 9
3818
27
1312
555 8
27
1312
/ 37403
51059
| 25
11
( 334
47130
37402
25
11
51058
5019
1
1 cquescence reates to ssue 2 of decson.
cquescence reates to ssue regardng apportonment of ta es among affated corporatons.
cquescence reates to bass upon whch gan or oss upon redempton of stock shoud be computed.
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1
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cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Chcago Northwestern Ry. Co.1.
Cty ank farmers Trust Co., e ecutor..
Cty ank armers Trust Co. et a., e ecutors1
Cark et a., ames, e ecutors
Ceand state Co., Inc., enry . .
Cements, W. L
Ceveand Trndad Pavng Co.4
Cnchfed Securtes Co
Cnton Cotton Ms, Inc
Coats, Inc. (R. I.), . P.
Cogate, Mary
Coorado Utah Coa Co .
Coumban Carbon Co.
Coumbus rck Te Co.7
Commerca Investment Trust Corporaton s.
Cone, mma S., e ecutr 1
Cone, Irvng ., estate of 1
Connay, Mary W. T -.
Connectcut Rver Power Co.
Conney, ames . .
L. . .
, Mary . ...
vc Gas Co.
Contnenta Lega and Protectve ssocaton.
Contractors Constructon Suppy Co.10
Cook, zabeth .
Cook, M. M., estate of
Cook, P. W
Cooke, eatrce
Coombs, zabeth M.
Coombs, . oward...

3 343
47704
59797
318 9
34499
33585
40890
51197
4 058
419 2
4 297
40554
54880
38904
1882
53799
42743
42707
43495
50051
8034
8034
0434
18591
2910
44081
45833
4 2 7
519 7
05
948
44083
45834
44082
72391
44859
419 3
38579
53044
54740
(10228
2 751
447 8
447 9
2
29
23
24
29
24
20
25
28
28
27
2
25
2
28
31
31
32
25
30
30
30
30
30
20
25
27
32
25
25
25
oqtescenoe reates to foowng ssues: Matera and suppes ad|ustment amortzaton of bond
premum assessment of ssocaton of Raway ecutves aroad Y. M. C. .
state ta decson.
cquescence does not reate to bass of property devsed sub|ect to a fe estate.
1 Nonacquescence notce pubshed In Cumuatve uetn -2, page 83, revoked.
cquescence reates to contrbutons ssue and ssue respectng deducton of amount pad to treasurer
of Rhode Isand on account ot ncreasng capta stock.
Nonacquescence pubshed n uetn I 14, page 1, revoked.
cquescence reates to ncuson n consodated nvested capta of capta stock ssued 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.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
Income.
Nonacquescence notce pubshed In Cumuatve uetn -2, page 84, revoked.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
G
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a
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2
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1
3
-
0
1
-
2
2

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:
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1

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2
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0
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8
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5
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cquescences Contnued.
Ta payer.
Docket
No.
oard ot Ta ppeas.
oume. Page.
Cooper, ohn I
Corbett, ott R
Cornng Trust Co., trustee
Cornwe, . L
Cosmopotan ond Mortgage Co.1.
Costeo, oseph
Cotton, G.
Couchman, Wam ennng
Co , tta
Co , Carre G
Crane, e ander ., estate of3
Crane et a., e ander M., e ecutor
Croker, ua
Cromwe et a., Wam Neson, e ecutors
Crousc, George N
Crowey, oseph ., estate of 5..
Crownnshed Shpbudng Co.
Cuver, Wmer T
Cunard Coa Co.8.
Curts, Laura M__
D.
Dah, ndrew ., estate of
Dah et a., ua, e ecutors..
Daey, ugene S., e ecutor
Day, Margaret P
Dana Mver
Dancer, dth M., estate of _
Davs, ohn
De orest, ate R.7
Deaware udson Co.8
Dennett, Car P.
Dennett, Mare G. ...
Denns, rank ., estate of
Denns, Merry M., e ecutr 5
Detrot Trust Co. et a., e ecutors s
Dckey, Water S., estate of
Dcknson, bert G
Don, erbert L
Drksen, nna L., e ecutr
Drksen, Theodore ., estate of-
Dttmar, mmy

32 10
40115
4092
29252
30303
44 17
22 40
59 55
7729
70957
9 98
9 98
71718
71718
41121
42 19
4344
51419
35472
18987
37574
2 874
2 875
28792
5 314
44845
44845
2 45
5213
50248
7045
20703
37284
50553
50 29
71858
72023
502 3
502 3
35472
1 43
35015
4317
58025
59280
17717
17717
3931

24
21
27
388
2
1359
24
915
30
717
27
377
25
8
30
118
31
819
31
819
30
29
30
29
27
588
24
4 1
2
477
25
340
24
925
24
1013
2
234
28
31
24
11 7
24
11 7
25
949
32
9 5
30
83
30
1277
24
3
27
373
2
520
30
49
30
49
2
1120
2
1120
25
340
32
1283
23
1211
32
1254
24
11 2
It
O
n
Otf
1 cquescence reates to ssue Invovng method of accountng used by ta payer.
cquescence reates to that part of decson hodng that Water . ettman Is not abe as a transferee
and to mtaton ssue.
Nonacquescence pubshed n Cumuatve uetn ff-1, page 20, wthdrawn.
state ta decson nonacquescence pubshed n Cumuatve uetn -2, page S4, revoked.
state ta decson.
cquescence reates to deductons for addtona royates and offcers saares and drectors fees.
I Gft ta decson.
Nonacquescence pubshed In Cumuatve uetn I-2, page 12, wthdrawn.
cquescence reates to deductbty of osses sustaned by pettoners upon aeged saes of stock to
each other durng the ta year.
G
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2
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1
3
-
0
1
-
2
2

0
4
:
3
1

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2
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/

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3
0
0
0
0
0
8
9
0
5
4
2
9
4
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#
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7
cquescence s Contnued.
Dockweer et a., Isdore ., e ecutors and trustees 1
Doernbecher Manufacturng Co.
Dohme, fred R. L
Doese Shepherd Co. Syndcate No. 3...
Dome Co
Domnon Natona ank
Donney, Catherne, estate of
Donney et a., Garrett ., e ecutors
Dorc partment Co
Dougas Co., ohn
Drake, rancs
Dre e Packng Co
Duff, Robert C.
Duncan, T. P - -
Duncan, Mrs. T. P -
Dunham, Water
Dunne, ney Peter
du Pont, Perre S.
.
age Pass Pcdras Ncgras rdge Co.
asterwood, r., W.
asterwood, r., Mrs. W. . -
scndrath, dwn W --
sendrath et a., dwn W., e ecutors.
sendrath, Maron
sendrath et a., Rose L., trustees
sendrath, Wam
sendrath, Wam N., estate of
drdge, ce .4 ---
drdge, . S.4 -
gn Compress Co
ott-Grante Lnen Corporaton
more Mng Co
nameed Metas Co
nns Ice Co.
Docket
No.
50828
34853
43527
4 421
50 07
3 28
71534
8159
4113
41S87
521 5
5 443
5 443
44 55
3872
4 804
20775
37552
5921
5924
308
54444
2 99
424 0
40181
341
40182
3417
3 72
3 724
3 727
3 728
3 725
3 724
4779
4778
49302
48212
4 7 8
52972
19011
22021
22022
2 259
42184
292 0
4397
2 4
43044
3072
rb et a., Ray L., e ecutors
vans, . T
vans et a., nson, trustees
vans Products Co
vergreen Cemetery ssocaton
state ta decson.
cquescence reates to Issue 1 of decson.
Nonacquescence pubshed n Cumuatve uetn 1 2. page 72, revoked
cquescence reates to Issue whether dvdends decared n 1928
In 1929 or 1930.
cquescence reates to market vaue of o and gas eases on March 1,1913.
oard of Ta ppeas.
oume.
30
30
31
30
2
2
31
31
32
23
30
24
23
31
31
27
29
18
213
28
28
28
28
28
28
28
28
30
30
31
2
27
25
24
29
30
29
29
25
consttuted ncome to the pettoner
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v
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
1

G
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T


/


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2
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2
7
/

n
u
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3
0
0
0
0
0
8
9
0
5
4
2
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cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
ack, e ander D .-
as Cty Ice everage Co.
ame Cannng Co
armers ducatona and Cooperatve State Unon
of Nebraska
armers Lfe Insurance Co.1
armers Loan Trust Co., trustee
armers Unon State change
awsett, Chares
edera Street Peasant aey Passenger Ry. Co.
dety Savngs Loan ssocaton.
dety Unon Trust Co., e ecutor
fth venue ank of New York, e ecutor .
rst Ctzens ank Trust Co
rst Natona ank of oston, admnstrator.
rst Natona ank of ey West
rst Natona ank n Mobe
sher, Chares D., estate of
tch, orence
20152
7 3
20774
1059
18105
27194
31748
43317
294 5
18105
4474
29758
148 2
31801
3940
45215
9193
91
71599
3 438
4 583
4518
3732
orence Manufacturng Co.
ok, .
ordyce et a., Wam C, trustees.
orest Products Chemca Co
orres, Lord
orrester, W.
oster, L. .
oster, N. C, estate of1
oster et a., Ward, e ecutor
o , ontane - _
rancke, Chares
rank, m
rankn Teegraph Co.
rankn Tte Trust Co. .
rschkorn Deveopment Co.
uhage, fred .
51 70
15383
2 079
2839
31018
58 47
4 21
40229
43973
73591
4308
32984
32984
71084
5 438
50224
29 95
51947
01 7
7805
3049
35170
42452
1754
2
27
24
30
27
2
30
31
24
23
33
32
32
25
2
30
32
29
25
25
30
27
25
32
2
25
25
30
32
27
2
32
30
32
cquescence reates to Issue In connecton wth opton payment receved for purchase of and.
1 state ta decson.
1 cquescence reates to ssue regardng fng of separate return for 1925.
4 cquescence reates to deducton for deprecaton on premses and Incuson n year 1930 n pettoner
o s ncome, 7,400 representng renta vaue of premses occuped by hm.
1 cquescence reates to ssue Invovng deducton of commssons pad on sae of mortgage notes.
cquescence reates to Issue whether ta payer s entted to the statutory persona e empton as the
head of a famy.
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9
cquescences Contnued.
Ta payer.
G.
Gamb, .
Gambe, Cec ., e ecutor 1
Gambe, ames N., estate of
Gambe, Mary ., estate of 1
Gambe Stockton Co.
Gardner, Chares .
Garron et a., Isabe . ., e ecutors 1
Gay, D.
Gay, . C
Genera Outdoor dvertsng Co., Inc.
George, erome R
George Machnery Co., R.
Gbbs, G. Wdy
Gette Rubber Co -
Gnsberg, bert
Gnsberg, Nathan
Gven, T. ., estate of
Gancy, Inc., . R
Gobe Constructon Co
God Stock Teegraph Co
Goden, dward
Godman, Ma we
Godsmth, Ma
Gordon, fred W
Gordon, zze 8
Gordon, Ma L.1
Gore ros., Inc
Gotteb Reaty Co
Graeper, W.
Grand Rver Grave Co
Grant, arry ohnston
Green, Robert D.
Green, W. S
Grev u Corporaton
Grffs, Stanton
Grffths, va Lavno
Grffths, George W
Grffths, ohn
Guaranty udng Loan Co
Gudeon, Water T -
Guf Coast Irrgaton Co.
state ta decson.
cquescence reates to Incuson In consodated Invested capta of capta stock ssued for a te and
brck manufacturng pant, etc , . . .
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
1 cquescence reates to ssue whether pettoner reazed gan on transfer of certan of ts assets to Centra
Outdoor dvertsng Co. for stock of that company.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a transferee
and to nt.t on Issue.
cquescence reates to transactons 1, 2, 3, and 4.
cquescence reates to a Issues e cept affaton ssue.
oard of Ta ppeas.
No.
oume.
Page.
47902
2
995
0840
33
94
55595
32
892
0840
33
94
42707
2
794
38575
25
1351
47705
2
292
58787
31
580
8788
31
580
511
32
1011
45240
27
7 5
1218
2
594
31329
28
18
43052
50073

483
27 28
24
18
27 29
24
18
5455
29
11 1
20 2
31
23
43438
1
51 94
25
14
53310

29470
2
914
27 25
24
18
30302
24
915
59722
29
804
57483
29
275
22332
27
377
22333
27
377
39538
30
1290
42528
28
418
4 19
27
32
23085
22
1124
51794
30
1028
53 47
24
719
4378
1
4 373
2
1017
3487

4737
27
853
38577
25
1351
3354
30
852
42498
25
1292
43074
25
1292
55352
27
754
54739
0229
32
100
33 94
1
40081
24
958
41343

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10
cquescences Contnued.
Ta payer.
oard of Ta I
oume.
Guett, C. .
Guett, W.
Gummey, rank .1
Gurnee, ugustus Coe, estate of
aberand, Pau.
afner, fred,..
II.
aey-OIa Coa Co.
aaday, Sarah P..
amburg, r., Sam..
andy, rankn Mer.
anna, R. ., estate of
anna, rgna W., e ecutr
anscom, dward ., estate of
anscom et a., Meve, e ecutors
arbeson Lumber Co., W.
arkness, dward S
arkness, Mary S
arnschfeger, enry, estate of --
arnschfeger et a., Mare ., e ecutors .
arper, . T -
arrah, Mare
arrah, Wam . -
arrson, Inc., . M
artford- mpre Co
astngs, Cve, estate of
astngs, .
astngs, rederck
atfed, . T
avard, Chares
awk, enry C, estate of
awk, Ida W., e ecutr
ay, W.
ayman Co.,
azewood, N.
eck, dwn
emph, Cfford
enke Trust, Mrs. Catherne.
enke, enry, estate of
ennngsen, Water
erff Dttmar Land Co.
ervey, W. R
ess, Nathane
ettman, Water .
52517
52518
105
42 19
292S9
48389
57132
309 2
2 754
30304
810
7 71
7440
2718
2718
44992
44992
3307
51012
51 9
71310
71311
9 3
9 3
2784
252 9
21 43
50594
29958
4173
53 00
3789
3790
388 4
72788
32841
0 90
0 90
37499
1 552
1334
5 1 1
38573
3321
3321
5 8
2845
0729
8821
4 80
33279
22341
31
31
2
24
25
31
24
25
24
31
31
24
24
24
31
31
31
31
31
27
27
30
29
29
27
32
25
29
29
25
25
29
32
25
33
33
30
32
25
24
27
Nonacquescence pubshed In Cumuatve uetn II-1, page 17, wthdrawn.
state ta decson nonacquescence pubshed In Cumuatve uetn -2. page 88, revoked.
1 state ta decson.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred
purchased.
cquescence reates to that part of decson hodng that Water . ettman Is not abe as a
and to mtaton ssue.
G
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a
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11
cqt|escences Contnued.
Ta payer.
ewtt, rskne
ckman, anne Snyder
man, . D., estate of
man et a., udson McCntock, admnstrators.
mehoch ros. Co
res Co., Chares
obbs, enry
obbs, Teck
offer, nta Owens
offer, T.
oday, ohn
ongsworth, .
oster, George ue
omby Corporaton
omes, George W
oughton, anson
oughton, r., mory, estate of
oughton, rthur
oughton, Chares ., estate of
ouston ros.1
ouston, George T.1
ouston, orace .1
ouston Land Trust Co., trustee
ouston, Php D. ._
ubbard, dward, estate of
ubbard, Mdred M
ubbard, Mdred M., formery e ecutr .
ubbard, Mdred M., transferee
ughes, .
unter, C. W., e ecutor
unter, George ., estate of
untngton, enry ., estate of2
unttng, enry ft
urt et a., Mrs. . ., e ecutors
urt, oe, estate of
uyer s, Inc
Independent Ice Coa Co
Indana Lamp Corporaton
Ingas, Chares C, estate of
Insu, Margaret
Inst, Samue ....
Insu, r., Samue
Docket
No.
57032
3141
1 253
2 7
2 7
41728
427 9
45 3
47781
27352
27351
33374
33375
4127
542S2
294 1
51303
53797
29445
29444
2944
294 5
12052
13104
22008
22009
3321
22007
3878
75 9
3837
3878
75 9
7335
4.-)417
45417
45429
75304
28099
28099
283 9
29154
39841
7 39
527 1
57835
8002
8504
8003
8503
8001
8505
oard of Ta ppeas.
oume.
30
24
31
31
2
2
2
2
24
24
29
27
2
28
29
2
2
2(
22
22
22
33
22
30
30
30
30
32
2
2
28
32
30
30
24
27
28
25
32
32
32
Page.
9 2
438
112
112
541
1351
241
241
22
22
1272
21
1359
1091
05
1359
1359
1359
1359
51
51
51
73
51
19
19
19
19
1248
417
417
289
495
53
53
425
134
491
773
47
47
47
cquescence reates ony to deducton for busness e penses In 1920 and to number of feet of tmbor
cut durng 1919.
cquescence reates to ssue regardng oss from operaton of a farm In 1925 and 192 and Issue regardng
ncreasng defcency for 1025 by amount of nterest accrued on bonds e changed for art ob|ects.
state ta decson.
G
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1
3
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2

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12
cquescences Contnued.
W
Ta payer.
Docket
No.
oard of Ta
oume.
Page.
2
914
25
728
25
880
29
8 3
29
8 3
30
491
31
55
29
928
25
495
17
213
25
11
22
929
25
284
25
284
31
212
31
212
31
212
31
212
2
212
2
482
31
849
27
377
31
95
31
112
2
1091
27
1305
31
95
28
18S
25
8
24
21
Internatona Ocean Teegraph Co.
Interstate Reaty Co
Iten scut Co
Iverson, I. C
Iverson, Ruphane .
ames, Wam L
ones, Chester ddson
ones, R. D
.
ammerdner, . .
ansas Cty Leasehod Improvement Co.s_
ansas Cty Memphs arms Co
ansas Cty Southern Raway Co. and affated
companes 1
asch, d
asch, Theodora.
e, rank
e, Mrs. rank.
e, oe
e, We May.
eey, ohn P...
ent, verett .
esser, . M
bee, O. .
ng, enretta M., estate of
ngsbury, . R
nney Co., Inc., G. R
rchner, uus C
eberg ct a., Robert ., e ecutors.
nght, . D
raemer, Samue
um, Ida L
unau et a., Oscar . C, trustees.
29585
4 272
50981
1G429
20S99
48838
48837
70278
5020
9858
41 43
4 555
35718
510 0
22 8
35527
35528
35529
35530
35531
48293
48293
9 77
9 78
9 81
9 85
38233
3957
42589
4 0 4
52 40
24882
52 32
5 382
31397
32980
25428
52 32
8 5
37822
32 09

cquescence as to ssue whether pettoner shoud be aowed to De hs return on communty property

bass.
1 cquescence reates to March 1, 1013, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be Increased for 1918
and the March 1,1913, vaue for amortraton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
1 cquescence reates to the foowng Issues: Deducton of contrbutons to Y.M. C. ., Prests of Paace,
and ssocaton of Raway ecutves and amortzaton of commssons and e penses Incurred In sa
of bonds.
cquescence reates to that part of decson hodng that Water . nettman Is not abe as a transferee
and to mtaton
G
e
n
e
r
a
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e
d

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2
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1
3
-
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1
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2
2

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4
:
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1

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8
9
0
5
4
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4
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13
cquescences Contnued.
Ta payer.
Docket
No.
oard o( Ta ppeas.
oume.
Lake Chares Nav
Landers, Dougas .,
ag et a., orence
Lang
Lang, enry, estate of --
Langworthy, Mar|ore C.2
Lawson, ohn
Leamngton ote Co
Ledesdorf, Samue D
Leonard odng Corporaton, George ., estate of.
Letts, r., rthur
Lews, Sr., . S
Ley, George .
Ley, Mary C.
Lberty arms Co
Lberty osery Ms
Ldo udng Co., Inc
Lncon, Robert Todd, estate of 1
Lppncott et a., . ertram, e ecutors
Lppncott, Water, estate of1
Lttauer, ugene, estate of4
Lttauer et a., Lucus N., e ecutors 4
Ltte, C.
Loyd, S. Rose
Loyd, Water 5
Loeb, r., et a., Wam, trustees
Loge, oseph
Longyear, r., ohn M_
Longyear, Mary ., estate of
Loughborough Deveopment Corporaton.
Loure, Davd
Luhrg Coeres Co
M.
MacCaum Gauge Co
Mata Tempe ssocaton
Manhattan Lfe Insurance Co
Manstque Lake Superor R. R. Co
Markham Irrgaton Co.7
Mars ton, dgar L
Martn ote Co. and affated corporatons.
Martn et a., . are, trustees
Martn, T. S., estate of
34 30
3 940
35443
71117
71117
719 1
40232
48413
48305
48871
210
5 1 3
2233
22337
2 717
29899
54
53385
391 7
49233
49233
51858
51858
1821
757 5
44089
341 1
377 2
40071
47117
5 027
2410
3 438
4 583
510 4
27 30
40048
70437
2947
32940
35337
41344
19 1
1 275
44583
44583
25
173
21
1347
32
527
32
527
30
121
25
154
2
1004
2
881
2
4
30
800
32
13
27
377
27
377
22
1298
31
4
31
4 1
24
334
27
735
27
735
25
21
25
21
27
1022
32
887
30
331
2
35
24
798
1 28
1085

25
252
29
95
24
18
2
194
32
1
32
29
24
29
24
24
24
1 state ta decson.
1 cquescence reates to reorganzaton ssue.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
state ta decson acquescence reates to ssues 4, 5, and 7 of decson.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttutes
ncome.
Nonacquescence pubshed In Cumuatve uetn I1I-2, page 7, wthdrawn.
cquescence reates to a Issues e cept affaton ssue.
G
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1
3
-
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1
-
2
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5
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4
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14
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta
Martns, ndy 1
Marvn, Water S.
Matagarda Cana Co.
Matchette, rankn
Matthews, . P
Maudn, I. M...
Mc uffe, gnes
McCa, orence
McCarter, Uza _.
McConne, Stea -
McCoo, ess
McDonad, L. G
Mc wan, nna
Mc wan et a., nna ., e ecutors
Mc wan, .
Mc wan, Lan G -
Mc wan, W. ., estate of --
McGrew, zabeth W_.
McLaughn, Thomas
McLennan, . R
McMan, Wam Northrup, estate of5.
McRae, Louse C, e ecutr
McRae, Php, estate of4-.- --
Mead Coa Co., C. .
Memphs Memora Park
Mcnte Co., Inc
Mente, ugene W
Mente, . G - t
Mercante-Commerce Natona ank n St. Lous
et a., e ecutors and trustees 4
Mercante Trust Co. of atmore et a.
Merr, Isaac L
Messer, Rchard ., estate of4
Metropotan Ice Co
Metropotan Propertes Corporaton..
Mchgan Centra R. R. Co.8
Mchgan Trust Co. et a., e ecutors4_
Mby Dow Coa Mnng Co
22334
38578
40082
41345
40710
2 250
2 239
49071
47702
9193
43478
4 059
25427
2599
25997
25995
25994
25997
2 753
59788
2 730
459
32303
32303
42718
42719
54 0
49259
53458
51305
54701
54708
35443
8338
1722
42513
5393
9525
45032
19930
42513
22021
22022
2 259
42184
33177
31330
20772
27
25
24
2
22
22
29
2
33
29
24
27
2
2
2
2
2
25
29
25
27
30
30
28
28
29
29
29
21
32
31
27
32
24
28
27
24
24
28
24
Mgrm ros., Inc., .
Mken, Sae Gbbs
Msssspp Packng Co., Inc.
cquescence reates to that part of decson hodng that Water . ettman Is not abe as a trans-
force and to mtaton ssue.
cquescence reates to ssues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to a ssues e cept affaton Issue.
4 state ta decson.
state ta decson acquescence, e cept n so far as concerns the queston of stus.
cquescence reates to the foowng ssues: Whether amount pad by New York Centra . R. Co. to
State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton on property retred n 1918.
7 cquescence reates to ssue 1
G
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1
3
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8
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5
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15
cquescbnceb Contnued.
Ta payer.
Mssour State Lfe Insurance Co.1.
Mtche, L. C
Mtche, Oscar 1
Docket
No.
Mobe Lght Raroad Co.
Moore, dward W., estate of 4--_
Moore, Louse C, e ecutr
Moorehead, Wam
Moorshead, O
Moseman, . Pau8
Mossman, Wam ., estate of
Muchnc, . ., admnstrator
Munroe, Grace ohnson
Murchson, Mrs. .
Murphy, Mae . eey
Murray, dward
Murray, Rebecca
Murtha Schmoh Co
MusgTove, oyd L
Mutua ssurance Socety of rgna
N.
Na et a.,R. ., e ecutors
Natona Capta Insurance Co. of the Dstrct of
Coumba
Natona Casket Co., Inc.
Natona Contractng Co.
Natona M Suppy Co
58241
C238
41 10
41 80
41874
54 73
4102
420 2
58720
58720
25853
57045
59747
59747
3789
7 942
2838
38222
4017
58858
40174
58857
17911
42591
43911
53044
5 748
50320
24520
37001
/ 31 8
33971
4013
74411
38053
38053
38052
38050
3 319
28045
38049
38052
oard of Ta ppeas.
oume.
20
28
27
23
33
33
22
28
32
32
29
32
28
2
28
28
17
27
24
27
28
29
25
23
24
30
32
2
2
2
2
27
2
2
2
Page.
401
7 7
101
543
108
108
858
253
59
59
1 3
995
257
212
24
24
442
554
1102
1078
139
407
13 2
952
32
23
101
101
101
101
1097
9
101
101
Natona Packng Corporaton
Natona Te Co
Neracher, George ,
Netcher, Chares, estate of
Netcher, Gadys Over, e ecutr
Netcher, Irvng ...
Netcher, Townscnd
Newaygo Portand Cement Co
Newbock O Co. of Te as
Newbury, Moe Netcher
Newbury, Moe Netcher, trustee
1 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 homo of ce budng and depre-
caton upon such budng.
cquescence reates to ssues regardng assgnment of earnngs of Iron mnes In payment of ega serv-
ces and deducton of amount pad to son for aeged servces rendered.
1 cquescence reates to foowng Issues: 1. Whether payments receved by a trustee on behaf of pet-
toner n the ta abe years n accordance wth a wrtten agreement entered nto by and between pettoner
and another n 190 consttute ta abe payments of rent or nonta abe payments on the seng prce of
assets. 2. Whether pettoner sustaned statutory net osses for 1024 and 192 whch can be deducted from
Its ncome for 1925 and 192 , respectvey.
state ta decson acquescence n hodng that the commuted vaues of the nstament poces n the
frst two groups shoud be ncuded n the gross estate.
state ta decson.
cquescence reates to deducton of corporaton e cse ta es.
r cquescence n oard s decson that pettoner had the rght to aocate overhead e penses to each
contract on competed bass and that formua used by pettoner was permssbe and Issue reatve to
neggence.
Nonacquescence pubshed n Cumuatve uetn - 1-2, page IS, revoked.
G
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1
-
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2

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8
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2
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1
cquescences Contnued.
Ta payer.
Docket
No.
oard of Ta I
oume.
Newe et a., Sterng, e ecutors
New ngand Power Co
Newman et a., Rose, e ecutors 1_.
Newman, Samue, estate of 1
New Market Investment Co.
Newton, zabeth .1
Newton, oseph R., estate of 1
New York Centra R. R. Co.
New York, Chcago St. Lous R. R. Co..
Nagara Share Corporaton of Maryand
Nbey-Mmnaugh Lumber Co
Ncodemus, r., . C.4
Nppert et a., fred ., e ecutors and trustees
Noonan state Trust, . R
North Sde Lumber Tmber Co
Northern Coa Co. -
Noyes, ansen 8
Oakey, Rchard
O Donohoe, ohn
O Donohoe, Mrs. ohn .
Omsted, George W. .
Omsted, Iva C.1.
Oympa arbor Lumber Co.
Ontaro Reaty Co.2
O Rear, . C.
Osborne, Owen, estate o
57835
18593
29105
59598
59598
35719
47703
47705
19932
34437
2040
21047
70813
17527
5232
25 9
55595
2 4
34924
34945
38574
45778
9 8
9 80
44090
45745
48121
54714
074
44089
4574
48143
54713
0745
4272
35721
32335
59957
Pacfc tantc Teegraph Co. of the Unted
States
Pacfc Coast scut Co. et a.10
2958
71588
25
25
31
31
17
2
2
28
23
31
32
2
32
29
27
24
25
24
31
31
30
30
30
17
28
29
2
32
1 state ta decson.
cquescence reates to March I, 1913, vaue for purposes of cacuatng gan or oss upon sae of and
at ersaes, Mo. whether the nvested capta of the Smcoe Reaty Co. shoud be ncreased for 1918 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to the foowng Issues: Whether amount pad by New York Centra R. R. Co. to
State of Inos n connecton wth ssuance of bonds was a ta or fee savage recovered from ore docks
credt representng deprecaton onproperty retred n 1918.
Nonacqueseence pubshed In Cumuatve uetn I-2, page 15, wthdrawn.
cquescence reates to Inventory ssue.
cquescence reates to Issues regardng aocaton of tota cost between common and preferred stocks
purchased.
cquescence reates to queston whether the vaue of rghts to subscrbe to certan bonds consttute
1 cquescence reates to ssue as to aowabe deducton of cost of operatng automobe party used n
ta payer s busness In 1924.
Nonacqueseence pubshed In Cumuatve uetn III-1, page 27, wthdrawn.
cquescence wth respect to deducton of e pense ncdent to amendment of pettoner s charter.
G
e
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d

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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

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:
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9
0
5
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2
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4
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17
cqotescences Contnued.
Ta payer.
Package Machnery Co
Pane et a., rancs Ward, e ecutors.
Pane, Wam ., estate of -
Pam each Mather Co
Pamer, radey W.1.
Parke, Davs Co
Parker, Cara ., e ecutr .. -
Parker, George D., estate of
Parkand Ice Coa Storage Co
Parrott, . . .
Patterson, zabeth P --
Peavy- yrnes Lumber Co.
Peavy-Moore Lumber Co.
Peavy-Wson
Co.
Peck, Cara 8., estate of.. ...
Peck et a., remont C, e ecutors.
Pegg, bert CM..
Penn Mutua Lfe Insurance Co...
Pennsyvana Indemnty Co
Pennsyvana Investors Co
Peopes Lfe Insurance Co.
rkns et a., acob
y, oward
y, Raymond ., estate of
.,chouse, ce .
Pershouse, Mabe
Peters, ndrew .
Phps, C.
Phoen Insurance Co
Pctora Revew Co
Pggy Wggy Corporaton
Ptkn, George P.-.
Pttsburgh thetc Co.
Pttsburgh Metng Co
Pttsburgh West rgna Ry.
Pztz Dry Goods Co., Lous ..
Co.
Docket
No.
54334
34113
34113
43850
2 52
2717
58 04
58 04
7 40
30989
7 058
15824
1 354
25984
15823
1 355
2598
15822
1 35
25985
1520
1521
1520
1521
22338
52577
59 70
71992
207
9 9
71744
28701
9855
3 45
2 749
2 748
54050
47901
488 7
43995
2512
438 0
5173
05 9
9 4
7422
44858
72157
72158
4 585
oard of Ta ppeas.
oume.
28
25
25
24
32
31
31
31
27
28
33
25
25
25
31
31
27
32
30
24
31
25
33
32
25
25
28
2
29
2
28
31
27
30
32
Page.
980
7 4
7 4
53
550
427
44
44
134
917
57
223
223
223
87
87
377
839
87
413
37
70
1123
394
442
513
513
97
995
291
472
412
1074
3

cquescence reates to Issue whether stock rghts were capta assets where the stock n respect of
whch they were ssued had been hed for more than two years pror to sae of the rghts.
1 cquescence reates to a questons wheren decson was not whoy n favor of Commssoner e cept
decson regardng e stence of partnershp of eorge D. Parker Co.
cquescence reates to rght of overrdng royaty owners to beneft of secton 211(b), Revenue ct of
1918.
cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
cquescence reates ony to treatment of renta vaue.
Nonacquescence pubshed In Cumuatve uetn II-2, page 24, revoked.
G
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U
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t
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)

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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

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8
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4
2
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4
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18
cquescences Contnued.
Ta payer.
P-M- Petroeum Co.1.
Poar Ice Coa Co
Pope, Ove R
Powe, en|amn I
Powe, T. I. are 2
Prare O Gas Co...
Prce, Laura M
Prce, W.
Prophyactc rush Co.
Prosperty Co., Inc.5
Prosser, Constance
Provdent Trust Co. of Phadepha, e ecutor
Putnam Trust Co.
Putty, Mrs. Macom
unn, van
unn, Martn M.
unn, Pau
Ramsh, doph
Ramsh, Inc., doph
Randa, Mar|ore G.s
Rapp, ohn W., estate of...
Rauh Reaty Co
Ray O Co.
Reardon Sons Co., ohn.
Record Petroeum Co
Reese, ugusta ss
Remco Steamshp Co
Reynard Corporaton 7
Reynods Catte Co
Rhea, Isaac T.
Rhea, Mrs. Isaac T
Rato Mnng Corporaton
Rchards rschfed, Inc
Rchardson, my S., e ecutr
Rchardson, Chares W., estate of 8.
Rggs Natona ank
Docket
No.
/ 5057
1 54779
7 38
29274
50380
44 4
57117
40 59
41072
3299
47845
4784
45S9
594 8
2 752
59957
34743
9 83
8544
8598
8574
395 8
395 9
38971
28 18
34332
20773
509 2
2424
57728
738
70795
8445
714 3
549 0
54959
48 92
5 877
21715
4023
4023
30903
oard of Ta ppeas.
oume.

24
27
134
25
11 1
2
509
27
55
29
113
24
21
24
21
25
7
27
28
25
513
29
374
2
55
31
212
2
970
2
970
2
970
30
1290
30
1290
27
475
24
10 1
2
48
28
1204
24
37
32
1270
29
5 5
30
579
30
451
31
20
29
801
29
804
25
980
24
1280
31
245
31
245
17
15
cquescence reates to thrd Issue of decson.
Nonacquescence pubshed n Cumuatve uetn II-1, page 21, wthdrawn.
cquescence reates to deducton of oss resutng from qudaton of one of ts subsdares.
Nonacquescence pubshed n Cumuatve uetn 111-. page 28, wthdrawn.
cquescence n that part of decson reatng to deductbty of oss sustaned In 1024 from sae of
resdence.
cquescence reates to ssue whether pettoner was ta abe n 1923 as a trust or as an assocaton.
cquescence reates to deducton for deprecaton on premses and Incuson n year 1930 n pettoner
o s Income, 7.400, representng renta vaue of premses occuped by hm.
state ta decson.
Nonacquescence pubshed n Cumuatve uetn -2, page 99, wthdrawn.
G
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a
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)

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2
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1
3
-
0
1
-
2
2

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4
:
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2

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0
8
9
0
5
4
2
9
4
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19
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
Rttcr Lumber Co. et a., W. M.
Roach Studos, Inc., a
Robertson, Cae
Robertson, R. R
Robson, Cara P., estate of
Rodeo- ae|o erry Co.1
Rogers, rown Crocker ros., Inc..
Rosenberg, Lous
Rosenboom nance Corporaton 1
Rosshem, Irvng D.
Roth, Gorton
Roy Ttcomb, Inc
Ruz, M
Russe, C. C
Russe, Mrs. C. C
S.
St. ohns Investment Co
St. Lous Unon Trust Co. et a., cotrustees.
St. Lous Unon Trust Co., e ecutor
Sanders, W. C.
San Marcos Compress Co
San Martnez O Co
Sappngton, G. Rdgey -
Savngs eature of the Reef Department of the
atmore Oho R. R. Co
Scatena, vra
Schepp Co., L
Schermerhorn, arret Puman
Scov Manufacturng Co
Scruggs, Gross R
Scruggs Investment Co --
Scruggs, Maran P
42S33
42834
42835
4283
43 04
43 05
43 0
48749
57319
57320
57321
57322
1750
4249
42497
2 45
3 411
48528
7581
27 2
35778
40903
57503
225 8
29138
7097
4 0 0
4 0 1
0 13
5 75
459
2 51
49304
37447
43121
51944
5948
115
3920
42908
43145
29854
30238
33 10
4 270
38711
30
33
31
28
28
25
24
32
24
24
81
2
24
30
24
24
30
30
27
25
31
25
2
82
32
25
2
2
24
21
21
231
117
828
35
35
949
938
207
18
7 3
8 7
31
9 9
74
50
50
973
370
318
949
273
218
1385
20
7
419
1031
2
1174
1174
1174
1 cquescence reates to deducton of contrbuton to ctory ghway ssocaton.
1 cquescence reates to hodng of oard that dstrbutons receved from oseph . nch 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 1928.
state ta decson acquescence, e cept In so far as concerns the queston of stus.
cquescence reates to Issue Invovng ncuson of far market vaue of rghts to buy bonds In pet-
toner s Income.
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20
cqoescences Contnued.
Ta payer.
Docket
No.
oard of Ta
oume.
Page.
Seaconnet Coa Co.1
Seares Rea state Trust
Securtes Co
Securty rst Natona ank of Los ngees et a.,
e ecutors 1
Sebert, Ltd
Ses Sportng Goods Co.
Shaffer, C. . _. - --
Shand, Gadsden
Shapro, Samue
Shaw, Davd, estate of
Shea, R. P
Shepherd, Cette G., estate of 4
Smcoe 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 O Co.
Smms Petroeum Co.
Sncare et a,. een ., e ecutors
Sncare, enry P., estate of
Sncare, r., enry P., estate of
Sncare et a., Murray, e ecutors.
Sncare, Regnad
Sncare, Wam, estate of
Sou as Meta Cuvert Co
Spes, asper
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
Sneed, r., . T.
South Memphs Land Co
Southard, enne
Southern tantc Teegraph Co...

1S089
24489
40553
45429
57059
20771
29259
2 238
5158
34499
37835
40034
91
35720
47210
47211
47212
47212
47210
01
1
37703
29252
37520
37520
378 4
37703
41070
72 05
292 0
439 8
39291
49 8
39291
49 8
1887
22313
1887
32578
45 94
44500
42592
29 94
24
25
25
28
29
24
29
22
29
24
24
32
17
32
32
32
32
32
28
28
2
2
2
2
2
2
2
31
29
28
25
25
24
24
24
35
30
27
27
307
1115
44
289
319
37
1350
858
1012
1235
798
208
213
320
320
320
320
320
110
110
1359
1359
1359
1359
1359
1359
1324
709
1350
327
291
291
807
807
807
1038
1121
897
1 cquescence reates to Inventory Issue.
1 cquescence reates to Issue regardng oss from operaton of a farm n 1924 and 102 and ssue regardng
Increasng defcency for 1925 by amount of Interest accrued on bonds e changed for art ob|ects.
cquescence reates to market vaue of o and gas eases on March 1, 1913.
4 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 Smcoe Reaty Co. shoud be Increased for 1918 and
the March 1, 1913, vaue for amortzaton purposes of a easehod beongng to ansas Cty Leasehod
Improvement Co.
cquescence reates to bass for computng deprecaton on assets acqured by Smms O Co. In 1925
from Cayton O t Refnng Co.
I cquescence reates to oard s hodng that bonuses shoud be ta ed as separate or communty property
In accordance wth the cassfcaton of the propertes under the ease and ssue n connecton wth assess-
ment of defcency for 1925.
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1
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-
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2

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21
cquescences Contnued.
Ta payer.
Southern Raway Co. et a. _
Spang, Chafant Co.
Spanger, Georga M__
Spanger, . W
Sprague-Ses Corporaton
Sprague Son Co., C. .
runt Son, Inc., e ander,
ndard eef Co
Standard Conveyor Co
Standfer Constructon Corporaton, G. M
Starr, rank C
Stauffen, Theodora
Stearns, Robert L
Steege, W.
tegeman, .
Stegeman, r., bert
Stegeman, anne L
Stegeman, . M
Stegeman, . R
Stegeman, Mabe
Stegeman, Wam L
8tephenson, Ida
Sternberg, erman
Stevens, ohn
Stevenson Consodated O Co.
Stewart, Maco, e ecutor
Stewart, Theodore
Stock Yards ank of Cncnnat
Stockham, |ah
Stone et a., Irvng ., e ecutors and trustees 4
Stone, Irvng Lee, estate of 4
Stoneman, Davd
Storey, . M ---
Straube, . L. G... --
Stromeyer, Irene
8tromeyer, Wam
Strong, arod C.
Stuart, Chares . _
Stuart, r., Woughby
Sugar Creek Coa Mnng Co.
Suvan, ugene C
Summerfed Co
Sunburst O Refnng Co
Swenhart, ames
Docket
No.
oard of Ta ppeas.
oume.

f 21481
I 29951
137887-
37898
58790
5 320
5 321
4200
42434
3494
38408
20770
33159
40873
51 3
9259
2 75
37573
7098
2 43
2 C50
2 44
2 47
2 4
2 49
2 48
2825
55758
29 85
4341
3 45
70297
41085
225 9
43830
43830
27 27
2813
5 8 7
55341
55342
3857
5379
738 9
73758
29389
58711
45979
54784
27
31
29
29
30
24
24
24
25
30
31
25
24
30
25
25
25
25
25
25
25
33
32
24
23
32
32
25
2
2
2
24
31
29
28
28
25
29
32
31
2
29
23
29
cquescence reates to foowng ssues: I. Dd pettoner reaze ta abe ncome from unrefunded por-
tons or amounts deposted by shppers for constructon of factes for use of such shppers 2 Where
bonds were sod at a premum pror to March 1, 1913, s the amortzed porton of such premum ta abe
Income 3 Dd C ommssoner erroneousy e cude from ad|ustment for matera and suppes an amount
equ vaent to Infaton contaned n book vaue of such materas and suppes as were not used durng 1920
cquescence reates to nventory ssue.
cquescence reates to ssues regardng reducton of ncc.n-.e for fsca yea endng November 30 1924 bv
oss sustaned for 11 months endng November 30, 1922, and ncuson n ncome for a years of 1 m
vaue of capta stock of Sunburst O 4 Gas Co.. receved by pettoner as a premum.
state ta decson acquescence reates to ssue nvovng deductons frcm cross estate
cquescence reates to ssues regardng aocaton of tota cost between common and d
purchased.
I preferred stock
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22
cquescences Contnued.
Ta payer.
oard of Ta ppeas.
oume.
T.
Tabot, . .1
Teague, .
Te as Irrgaton Co.1
Thee, Water
Thompson, dward W
Thompson, W. L
Three Rvers Securty Corporaton.
Thrft Reaty Co
Tfft, Chares..
Tfft, Lews .
Tmes-Pcayune Pubshng Co.
Tobey, Maurce
Tocrton Warfed Co.1
Torrens, ames .4
Tracy, Davd ., estate of
Tracy et a., Gertrude emer, trustee.
Tracy, Wam R
Trcou, Sae 8...
Trnty Drng Co. .
Trout, . W
True, dward C
Turbeve, e M.
Turner, atheen M.
Turrsh, enry
Twn e O Syndcate-
Twnng, dmund S
U.
3 191
73034
40083
4134
750
51103
51104
44857
44880
50 53
31029
334 4
42340
45957
31030
334 5
42341
45958
48892
49539
27 24
45320
53778
54828
2982
54828
2982
45513
28093
40258
1498
39020
8501
43733
47900
55553
4334
45 0
22340
44742
29518
7029
Uster Deaware R. R. Co 28927
Unon Lard Corporaton 207 9
23
32
24
32
28
28
30
29
25
25
27
24
23
31
30
30
25
25
28
27
31
31
27
24
2
32
1 cquescence reates to oss Incurred n sae or a boat.
cquescence reates to a Issues ecept affaton Issue.
cquescence reates to ssue regardng deducton of oss sustaned by pettoner durng nonaffated
perod.
cquescence n oard s decson n so far as t hods that pettoner was not ta abe on any part of the
proceeds of the 100 shares preferred stock gven by hm to hs four sons In 1928.
cquescence reates to bass for computng deprecaton on assets acqured by Smros O Co. n 1929
from Cayton O Refnng Co.
1 cquescence reates to that part of decson hodng that Water . ettman s not abe as a trans-
feree and to mtaton ssue.
G
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2
0
1
3
-
0
1
-
2
2

0
4
:
3
2

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0
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23
cqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
Unon Pacfc R. R. Co. .
Unon Pacfc R. R. Co. et a. .
Unon Peopes Natona ank of ack on et a.,
admnstrators -
Unon Trust Co. of Pttsburgh, trustee
Unted utographc Regster Co
Unted States Trust Co. of New York, trustee
aant, the Netcher
ermont ydro- ectrc Corporaton.
rgna Iron, Coa Coke Co
W.
Waker, George ., estate of
Waker Products Corporaton..
Ward ros. Co
Warner Co. 4.
Warner, Raph C
Washngton Market Co
Watson, r., ohn
Wayne County ome Savngs ank -
Weddng, G. G.
Weeks, anson
Wes, Samue W
Wheeock, R. L
Whecock, Mrs. R. L-. -
Whte Oak Transportaton Co.
Whtman, Ward Lee Co.
Whtney, Ward M
Whtson, Thomas -
Wco , C.
Wams, r., ford
Wams, a .
Wams, L.
Wams, W. W
51530
70183
70219
35 39-
35 49
35 84
35 85
400 0
400 1
400 2
7045
1009
30384
1/2 747-
2 757
38051
59 38
5157
318 9
4485
30992
53039
53040
59190
2510
43912
53414
49144
5 442
391
212
3780
37805
1S08S
1552
37927
40233
4 371
915
29273
58789
4 0 2

32
2
30
29
27
25
2
29
29
30
24
2d
31
25
27
2
32
31
30
28
28
24
29
2
25
27
29
25
31
24
1 cquescence reates to ssues wth respect to oss sustaned by O, 4 I . R. R. Co. on e change of and
n Seatte n 1925 amount of oss sustaned by O. . Raroad and Nataton Co. n 192 on sae of and
n Mutnomah County, Oreg.: contrbutons to hospta departments n 1924, 1925, and 192 amortzaton
of dscount on bonds ssued pror to March 1,1913, and commssons tnrefundabe porton of depost made
wth pettoner n connecton wth constructon of branch ne.
1 cquescence reates to donatons ssue amortzaton of dscount on bonds ssued pror to 1913 compu-
taton of ta for 1920.
1 state ta decson.
Nonacquescence pubshed n Cumuatve uetn II-1, pace 24, wthdrawn.
1 Nonacquescence pubshed n Cumuatve uetn I-2, page 18, revoked.
cquescence reates to nventory ssue.
G
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1
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-
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1
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2

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24
cquescences Contnued.
oard of Ta ppeas.
Tapnyer.
Docket
No.
oume.
Page.
/ 40231
43972
f 40229
43973
207 8
3382
207 7
57058
50828
34337
0900
7 059
5 439
38808
f 23 05
2415
719 2
/ 54741
0227
25881
25854
45508
25
154
Wamson, rchbad (Lord orres) -
25
24
25
24
29
30
25
27
33
32
27
154
Wson Co., Inc., of Caforna
37
840
37
319
113
182
3 9
57
13
1 2
Wson urs, Inc --
Wson, George S., estate of 1
Wson Shpbudng Co.3
Wnne, Water G-
Wof, . C
Wood, red T
Wood Lumber Co., . .
25
30
1013
Woodard, ohn S.
121
Woodward, rthur P.
32
100
Wray, za
24
22
2
94
858
21
Wrght, George M
Y.
Young, the P-
388 8
341 1
24
2
815
35
Yukon aska Trust - _
Z.
5242
21
152
state ta decson.
cquescence does not reate to Issue 5 of decson.
cquescence reates to reorganzaton Issue.
The Commssoner has wthdrawn hs acquescence n the foowng
decsons of the Unted States oard of Ta ppeas:
oard of Ta ppeas.
Ta payer.
Docket
No.
oume.
Page.
Mchenny et a., rances Pumer, e ecutors 1
45008
22
1093
Mchenny. ohn D., estate of1.
45008
22
1093
Wade, eptha ., estate of .
431 4
21
339
Wade, r., et a., eptha ., e ecutors 2 .
431 4
21
339
state ta decson acquescence pubshed In Cumuatve uetn -2, page 4 .
state ta decson acquescence pubshed n Cumuatve uetn -2, page73.
G
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25
The Commssoner does NOT acquesce n the foowng decsons
of the Unted States oard of Ta ppeas:
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
beson Reaty Co., Inc.
beson s, Inc
ckerman, Irvng C.
ameda Park Co
cht et a., atherne ., c ecutrces
mercan Centra Lfe Insurance Co.3.
mercan Gas ectrc Securtes Corporaton-
mercan Idea Ceanng Co
mercan Raways Co
mercan Refrgerator Transt Co
mercan Seatng Co.3
mes, Mure Oakes
mes, r., Ward
partment Corporaton
ppeby, rancs S
rabo Manufacturng Co
rchbad, dward
rchbad, oseph
rchbad, r., oseph
rmstrong, Wam M
shton, Ward
tas Lfe Insurance Co
uto Strop Safety Razor Co., Inc.
.
abson, red
abson, Gustavus
abson, enry
anger, esse M., e ecutr .
Water ., estate of .
: Oho R. R. Co. . . .
53792
53793
30311
31 34
40948
40949
8355
41295
3 11
50059
29994
30133
31998
5 024
343
2 04
49205
7 2
4782
7 02
728 1
14 7
71811
49817
42024
73089
50489
1 0
50 4
1 1
50 2
1 73
50 3
40419
39148
40544
40751
7199
57374
52224
52223
52222
32177
32177
37239
24
24
24
25
27
25
24
22
30
33
30
30
31
14
30
27
2
31
2
27
27
27
25
28
29
28
27
27
27
23
23
30
512
850
1091
243
457
1121
1182
245
529
939
4 5
328
51
24
849
533
10 8
837
837
837
928
582
750
21
859
859
859
1311
1311
194
state ta decson nonacquescence reates to State Inhertance ta Issue.
Nonacquescence reates to Issue whether certan funds denomnated Insured s persona beneft fund
wore reserve funds remred by aw and Issue whether the pettoner s abty on outstandng unsur-
rendered unpad coupons consttutes a reserve fund requred by aw.
cquescence pubshed n Cumuatve uetn I -2, page 2, wthdrawn.
state ta decson.
1 Nonacquescence reates to deductbty as e pense for year 1920 of amount for mantenance of ways
and structures.
47318
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2
Nonacqt|escences Contnued.
Ta payer.
ank of Caforna, Natona ssocaton.
ankers Trust Co., trustee
artett, . emp. -
aahford, Raymond I ---
ass, rancs M
ay, Robert P...
ebb, Rchard ., estate of1..
eebe, unus, trustee
eebe, Marcus, estate of
ehan, Thomas W
efast Investment Co. .
e, rederc D., estate of.
e Sons, Samue
eresford, ven een de a Poer, estate of3.
erkeey a Schoo, Inc
ndey, Mary M., estate of L.._.
ar, Cec Chares
ar, dward T
ss, Sydney R
ss, aentne
um, esse
um, Davd
oard of re Underwrters of the Cty of Duuth..
oca Cega Deveopment Co
oehrnger, Rudoph 1
oston Safe Depost Trust Co. et a., e ecutors _.
owman- tmore otes Corporaton
owman ote Corporaton.
rackman, . W
radbury, I. C
rskey Co - - - -
rtsh- mercan Tobacco Co., Ltd
rookyn Cty R. R. Co
rookyn 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
oard of Ta
No.
oume.
Page.
55537
0 99
30
55
32459
24
10
3 32
28
285
715 5
33
10
73 2
30
4
014
28
11 8
41295
27
1091
52707
2
190
52707
2
190
75428
32
1088
19128
17
213
9534
f 31
32
945
701
3805
41 47
) 22
793
45 1

7259
31
329
47415
31
111
58871
28
113
9803
29
109
42313
3741

1192
55902
2
9 2
53422
2
732
52221
29
580
52220
29
580
43150
2
8 0
4044
25
941
49891
29
8
49272
30
79
41472
43 29
-
1193
10 51

24912
1 24
1193
28971

3800
45714
24
259
45780
23
1351
0899
29
987
41224
27
22
20353
27
77
20353
27
77
1229
31
2 9
85 0
31
70
47 77
2
901
33343
25
31
4813
2
901
47 77
2
901
72713
31
927
72714
31
927
state ta decson nonacquescence reates to State nhertance ta ssue.
Nonacquescence n ssue as to whether pettoner s entted to deducton for amortzaton of the Lee
tract warehouse for 1918.
state ta decson.
1 Nonacquescence reates to Issue nvovng reorganzaton.
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27
Nonacquescences Contnued.
Ta pay|r.
Docket
No.
oard of Ta ppeas.
oume.
uck, ohn ., estate of .
uck et a., Mary M., e ecutors
uckhardt, ugust
uffao Unon Iron urnace Co. -.
uock, George 1
unge North mercan Gran Corporaton.
urdette, Cara
y, anche ., e ecutr
dward L
. C
usness Rea state Trust of oston.
uter- etch Co.
C.
Cadwaader, Mary een
Cadwaader, r., Rchard M.
Carey, Robert
Carev bre Products Co., merson.
Carey Sat Co
Carro, .
Carro, Lena Carter
Carson state Co
Carson, ohn
Carson, Rose L
Carter, . L
Carter, . L., admnstrator
Carter, Mrs. . L
Carter, .
CartcT, Le N -
Carter, Maude ., estate of
CarteT, r., W. T.
Casses, Robert
Centra Market Street Co.
Centra Unon Trust Co. of New York, e ecutor
Champon, Davd .
Champon, T. Perre .
32584
44153
44 84
32584
44153
44 84
7 255
1 075
1 07
31209
47800
37321
44909
58795
9447
10202
10755
334 9
42 84
50305
451 9
45170
4 327
71800
54033
0432
7415
3 381
3 382
51880
51881
47444
53489
45393
45392
51882
47 9
51883
51884
51885
47 9
5188
58793
24837
3173
555 9
3818
555 8
25
25
32
23
23
27
25
2
2
10
25
23
27
32
31
2
2
27
27
31
28
2
27
27
27
27
27
27
27
2
25
25
27
27
state ta|c decson nonacquescence reates to deducton of amount of a cam fed aganst the estate
and aowed by probate court.
1 Nonacquescence reates to ssue regardng deducton from gross Income of fsca year ended pr 30,
1919, of reserve for renng bast furnaces.
a Nonacquescence reates to Issue 1 of decson.
4 cquescence pubshed n Cumuatve uetn -, page 10, wthdrawn.
Nonacquescence reates to Issue regardng oard s ursdcton of subsdares.
Nonacquescenca eates to Issue whether redempton of stock was equvaent to ta abe dvdend.
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28
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta
oume.
Chander, Constance
Chander, arrson Gray
Chander, een
Chander, Maran Ots
Chander, Norman
Chander, Php
Chapman, C.
Charavay, Marus
Chemca Natona ank of New York.
Chcnowth, . C
Chcago Dock 4 Cana Co
Chcago North Western Ry. Co.1
Chdaw, arry
Chrstensen, Nes
Cark, Percy
Cark Thread Co.
Ceand state Co., Inc., enry . .
Covs, C.
Coastwse Transportaton Corporaton
Cobegh, Margaret dwards, estate of 4
Cochrane, Davd .5
Coumba Pacfc Shppng Co
Coumbus rck Te Co. .
Commerca Garage Co
Commerca Investment Trust Corporaton 7.
Communty ond Mortgage Corporaton..
Communty Teephone Co
Communty Water Servce Co
Cone, dward
Conney, ames .s.
Conney, L. .8
Conney, Mary . ..
Cook, zabeth . .
Cook, Sam
Cooper, . T.
7471
7470
7475
74 8
7473
747
5249
70005
71592
4.5 04
38349
482 8
3 343
9782
72424
5177
3S903
47974
33585
40890
51197
8433
3991
407 5
0428
509 8
42707
41 4
43495
50051
43784
775 8
775 0
58777
44081
45833
4 2 7
519 7
05
948
44083
45834
44082
38579
35014
3144
32
32
32
32
32
32
28
29
30
2
32
22
29
33
31
28
29
32
28
24
2
29
2
22
28
27
32
32
2
30
30
30
25
25
7
1 Nonacquescence reates to foowng Issues: Undermantenance proft and oss on bonds retred
amortzaton of bond dscount.
Nonacquescence reates to Issue respectng deprecaton.
Nonacquescence reates to bass for determnaton of gan or oss on tbe sae of property devsed sub|ect
to a fe estate.
state ta decson.
cquescence pubshed n Cumuatve uetn II-1, page 3, revoked.
Nonacquescence reates to Incuson In consodated Invested capta of capta stock Issued for prom-
ssory notes.
I Nonacquescence reates to deducton n 1920 of e cess of market vaue over sae prce of stock sod to
empoyees.
Nonacquescence reates to ssue nvovng the amounts pad to stockhoders by . O. Curts Leather
Co. upon canceaton of certan stock.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
cquescence pubshed n Cumuatve uetn II-1, page 7, wthdrawn.
G
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1
3
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1
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2
2

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29
NoN cgu sc NC s Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Cosmopotan ond Mortgage Co.1-.
Coughn, R. Lawrence and veyn W-
Cre, Grace Mc rde
Crspn, Mrs. gerton
Crosby, Oscar T
Cross, Maurce
Cunard Coa Co. .
Cuppa, erome C
Curee, Sheby ., trustee.
Davdson, Watson P_
Davs, C. R.s
D.
Davs, rederck
Davs, Thomas L
Degener, ohn ., estate of
Degener, r., et a., ohn ., e ecutors
De Lsser, orace, estate of 5
de Me, Cec . _
de Me Productons, Inc., Cec .5.
de Me Productons, Inc., Wam C
Dennett, Mare G.7
Depew, Ganson
Des Mones Improvement Co.8
Dohrmann, ndrew . C
omte, Inc
ner, Carro
ner et a., Carro ., e ecutors
Dormer et a., Carro ., guardans
Donner, oseph W
Donner, r., oseph W
Dort, . Daas, estate of
Dougass, oward W., estate of4
Drawoh, Inc
Drumheer, George
Duff, Robert C.
Dunham et a., Lucy ee, e ecutors .
Dunham, Mary rgna, estate of 4
44 17
7 10
4313
452 7
51317
32735
2 874
2 875
28792
58545
48833
4 48
10299
32950
37324
37395
38500
38500
2459
52995
1291
5122
71951
5299
1290
5123
53108
1321
72023
508 0
8573
20 58
239 9
0 1
0237
023
0235
023
0235
44735
40031
45014
41515
45752
37552
4 03
4 03
30
32
2
28
27
24
2
2
28
27
10
20
24
24
2
2
2
31
31
30
30
27
7
10
19
28
32
32
32
32
32
2
30
28
27
23
2
2
1 Nonacquescence reates to Issue nvovng commssons charged on rea estate oans.
1 Nonaoquescence reates to e pendtures (or mne equpment.
cquescence pubshed n Cumuatve uetn -, page 17, wthdrawn.
state ta decson.
state ta decson acquescence pubshed n Cumuatve uetn -2. page 18, recaed.
Nonacquescence does not reate to the case of Constance . de Me, Docket 719S2, whch was dsposed
of by stpuaton.
7 Nonacquescence reates to deductbty of 10,000 because of the fact that a bond n whch pettoner
bad nvested became worthess n 1930, athough that fact was not ascertaned unt 1931.
cquescence pubshed n Cumuatve uetn II-1, page 9, wthdrawn.
Nonacquescence reates to ssue 2 of decson.
G
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1
3
-
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1
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2
2

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4
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2

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30
Nonacqcescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ast Coast O Co., S.
dson Securtes Corporaton -
dward Securtes Corporaton
fert, ar C ---
drdge, ce 1 -- ---
drdge, . S.
kns, ae D.
kns, Wam L., estate of
mery, Mary M., estate of
qutabe Trust Co. of New York, ancary admn-
strator 4
rb et a., Ray L., e ecutors 4
the D. Co -
usts, ugustus .
venng Star Newspaper Co.
verhart, ames Wam
.
armount Cemetery ssocaton
armers Cotton O Co
armers Lfe Insurance Co.7
awsett, Chares
edman, enry O
erree, C. -- -
dety Coumba Trust Co., trustee
dety Unon Trust Co. et a., e ecutors .
ed, Marsha. -
fth venue ank of New York, e ecutor.
fth Street udng.
rst Natona ank n St. Lous 1
rst Natona ank of oston, admnstrator 4.
rst Peopes Trust
sher sher, Inc
sher, Irvng
tzgerad, Thomas
etmann, Wam M., estate of
etmann, r., et a., Wam M., e ecutors s...
emng, Wam
58180
52 2
71208
45781
4779
4778
39255
5 449
40899
7259
29200
32032
71 37
1870
855
2 75
30925
42811
42 79
43317
72057
45359
1542
5041
5042
7223
3 908
9534
1 27
292 4
45537
44278
48078
4474
45403
0929
1 22
2075
28449
28449
1042
5 7
31
29
30
23
30
30
24
28
25
31
29
27
30
28
25
27
27
30
28
32
30
31
2
31
32
24
23
25
2
32
30
29
22
22
31
Nonacquescence reates to deducton of oss n transfer of securtes to a corporaton n whch pettoner
owned a the stock e cept quafyng shares.
cquescence pubshed n Cumuatve uetn I-2, page 3, revoked.
cquescence pubshed n Cumuatve uetn I-2, page 3, revoked.
state ta decson.
Nonacqueecence reates to the foowng ssues: Reducton of cost bass (March 1,1913, v ue) of assets
od by a partnershp n 1819 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.
cquescence pubshed n Cumuatve uetn III-2, page 7, wthdrawn.
Nonacquescence does not reate to ssue n connecton wth opton payment receved for purchase
of and.
cquescenos notce pubshed n Cumuatve uetn -2, page 24, recaed.
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31
Non acquescences Con tn ued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Page.
emng, Mrs. Wam
etcher, Saathe R
ntermann, Car . L., estate of L
oger Co., .
oger state Co. --
oster, Carone ., estate of 1
oster et a., Chares . W., e ecutors -
oster, L. . -
ounders ssocates
o , ontane
o Rver Paper Co.- -
rankn Tte Trust Co.
ranks, ack M
uhage, fred .
uer, van T.
urnture Corporaton of merca, Ltd.
G.
Gae, mv
Gambe Stockton Co.s
Garcn, dward -
Gardner, Chares .
Garro, Dane T., estate of...
Garvan, ohn oseph, estate of 1
Gary, rgna ., e ecutr 1
Gassner, Lous 1
Genera Outdoor dvertsng Co., Inc. .
Genera Uttes Operatng Co
Gerard, re -
Gerach, Theodore R -
Gessner, erman
Grard Trust Co. et a., admnstrators..
Gaddng, Mary D., estate of 1
G. M. 8. Co. -
Goet|cn Metson Co
Goforth, Mary -
Goforth, R. S
Godberg, arry S.9
1043
5 77
33041
7551
22212
30721
31200
35147
4 72
4 72
4308
2 84
71084
20S78
51947
01 7
7805
53 85
1754
73759
72800
72801
1 72
42707
21 57
38575
3173
4474
40031
4017
511
52770
45221
38042
41 41
7750
75 24
31435
1 383
17875
5231
5231
5389
31
24
32
27
27
2
2
2
29
30
32
32
33
31
30
27
2
22
25
25
2
30
4
32
29
28
27
32
32
27
2
2
32
32
4
23
75
99
1
708
708
1328
32
451
1183
2
2 0
222
154
878
837
794
1027
1351
757
12
1143
1071
1011
934
23
5 5
1258
92
385
223
223
120
120
1073
state ta decson.
Nonacquescence reates to deductons n 1924 and 1925 on account of osses resutng from aeged saes
of securtes.
1 Nonacquescence reates to ncuson In Income of corporaton for years ended March 31,1930, and March
31,1931, amounts representng renta of premses occuped by ts presdent.
Nonacquescence reates to the queston whether rankn ond Mortgage Co. was entted to de-
duct commssons pad on the sae of ts bonds nstead of proratng cost over the 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.
Nonacquescence reates to ncuson n consodated Invested capta of capta stock Issued for proms-
sory notes.
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.
1 cquescence pubshed In Cumuatve uetn -, page 24, wthdrawn.
1 Nonacquescence n ssue nvovng counse fees pad n connecton wth tgaton.
G
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32
Nonacqt|escences Contnued.
Docket
No.
oard o Ta
Godschmdt et a., Georgette, e ecutors 1
Godschmdt, enry P., estate of1-.
Goodan, May Chander
Graham, M.
Grant, een -
Great Western Power Co. of Caforna
Green, Robert D.1.. -- -
Greeneaf Te te Corporaton
Gregory, veyn
Grfns, Stanton
Grosvenor, Theodore P
Gutar Trust state --
Guf Coast Irrgaton Co.4
Guf, Mobe Northern R. R. Co.
.
ae, rnest
ae, R. W_ --
ae, W. T_
a, arry . R., estate of
a, Martha M_. -
ancock, G. an
anson, Chares C
arbson, Raph W.7 -
arbson, Wam bert
aran, George
arrs , en s
arrs, Smon
arrson, ames M
arrson, .
art, ohn ---
artey, Cavour, e ecutor
artey, G. G., estate of
auser, W.
awey Investment Co
azetne Corporaton

1 138
1 138
7472
38335
2029
5577
8324
48 17
53 47
4 74
55299
38577
0381
35102
33 94
40081
41343
24887
42150
7105
7750
7751
70004
71598
4501
3 8 7
15398
5434
4347
0500
10980
31 32
193
453 1
52795
0115
42343
42343
43301
43302
451 9
45170
42277
47011
51931
0313
14
14
32
2
29
30
24
2
27
25
31
25
24
22
33
32
32
29
31
25
23
2
2
30
10
24
30
28
27
27
27
23
32
state ta decson acquescence pubshed In Cumuatve uetn -2, page 27, recaed.
Nonacquescence reates to transacton s.
Nonacquescence reates to vaue of common stock of mercan Chan Co., Inc., and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
Nonacquescence reates to affaton ssue.
Nonacquescence reates to Issues nvovng award of Interstate Commerce Commsson n 1920 for
transportaton of Unted States mas n 191 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 Is adverse to the Commssoner.
Parta acquescence pubshed n uetn I-2S, page 1, revoked.
cquescence pubshed n Cumuatve uetn II I. page C, wthdrawn.
cquescence pubshed n Cumuatve uetn -, page 27, wthdrawn.
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33
Nonacqt|escences Contnued.
Ta payer.
k, . T.
effefnger, rank T.
eer, . G
emph, Cfford 1
endrckson, oseph G., estate of
enn, . W -- --
enrtze, .
enrtze, Ne
enrtze, T. R
enrtze, T. W
ermann, ohn C
ertensten, reda M
ertensten, rederck
ckman, oward C
eronymus, Car Rchard, estate of
ghands, vanston-Lnconwood Subdvson,
rst ddton, Trust No. 154 , et a
ghands, vanston-Lnconwood Subdvson,
Trust No. 1521, et a --
ghway Traer Co
gey Co., .
, D. ., estate of
et a., Pau ., e ecutors 2
nds, Water DeWtt, estate of 1
tteU, ohn --
odges, gnes Wey, e ecutr
odges, W. L., estate of
odges, W. L., trustee
oge, rthur ., estate of
anche C, e ecutr
- Corporaton, O. P. P
akery Confectonery
omes, Car
omes, . ., trustee.
omes, Margaret
ome Tte Insurance Co.
onnod, W. L
ousehod Products, Inc_.
ousman, Carence
ousman, rederck
ouston aseba ssocaton.
Docket
No.
33533
41145
44852
53 81
3407
9 94
73479
40 34
38573
73029
37102
0 09
0 07
0 08
080
51959
55938
5593
373 9
48930
744 4
744 5
445 8
51003
29399
29399
498 0
70820
3833
3S33
38337
8435
8435
0 74
44943
528 1
51473
53395
44943
528 1
48 31
51570
53394
3737
55211
44809
58798
58774
43985
45430
12052
13104
22008
oard of Ta ppoas.
oume.
24
S3
25
25
32
20
28
28
28
28
27
29
29
27
24
32
32
28
25
24
24
32
33
2
2
2
32
32
30
27
27
27
27
33
30
24
2
2
24
22
22
1 Nonaoquescence 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 to March 1, 1913, vaue, and to the bass for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
G
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1
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2

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8
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5
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4
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34
Nonacqeescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
ouston, orace .
ouston, Php D.
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
untngton, enry ., estate of 1
utchson Coa Co
yde, ames
I.
Inos Lfe Insurance Co
Impera evator Co
Impera Investment Co
Indanapos, Crawfordsve Danve ectrc
Ry. Co --
Indanapos Northwestern Tracton Co
Ingram, Thomas
Irvngton Investments Co
Iten scut Co
Ives, Chares
Ives Dary, Inc
ackson astern Ry. Co
ackson, Wermch Trust
amson Coa Coke Co
anotta, Stea S.s
efferson Standard Lfe Insurance Co
ohnson, . M
ohnston, ugh Mc rney, ndvduay and as e -
ecutor and trustee
ones, esse R
ones, Chester ddson
.
ansas Cty Southern Ry. Co. and affated com-
panes
22009
22007
22028
22028
598 5
437
335 4
45429
34939
5495
9952
7201
35 88
29291
33859
338 1
5 943
77557
43 7
451 4
51527
39873
/ 38295
42149
32307
31 90
34088
51172
43149
1345
22028
58285
5020
22 8
35527
35528
35529
35530
35531
22
22
27
27
31
32
25
28
24
31
30
25
23
24
24
32
32
25
29
23
22
24
24
28
25
32
27
22
Nonacquescence reates to March 1,1913, vaue, and to the bass for the deducton for depeton and
for the computaton of gan or oss upon subsequent sae of the tmber.
state ta decson.
Nonacquescence reates to Issue whether ta payer sustaned a net oss In any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe ncome n 1925.
Nonacquescence reates to ssue nvovng deducton for deprecaton on ways and structures.
Gft ta decson.
Nonacquescence as to ssue regardng deducton for depeton.
Nonacquescence reates to the foowng Issues: Deducton of amounts e pended to restore pettoner s
property notwthstandng the fact that the Drector Genera of Raroads made payment to pettoner for
hs faure to mantan the property e cuson from gross ncome of ntercompany freght charges on matera
and suppes used In makng addtons and betterments to pettoner s property.
G
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U
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v
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t
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)

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2
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1
3
-
0
1
-
2
2

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4
:
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2

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35
Nonacqt|escences Contnued.
Dockot
No.
oard of Ta ppeas.
oume.
Page.
eener O Gass Co ---
eeys, dward L
ey, rancs ., e ecutor 1
ey, Rose ., estate of1
erbaugh, enry 8 --
errgan, rthur L
ng, ohn M
rkpatrck, ohn L
napp, tte .1
och, arry
ountze, Chares T
ountze et a., Chares T., e ecutors.
ountze, Luther L., estate of
rause et a., rances ., e ecutors
rug, George
ru, rancs 1
Lafayette Lfe Insurance Co
Langford Investment Co., trustee.
Langford, r., et a., Perce P
Langworthy, Mar|ore C
Laube, ustus
Laun, fred
Laun, .
Lazarus Co., . R -
Leeper, rank ., estate of
Leeper, Pear
Leetona urnace Co
Leon Son, Inc., bert
Levne, yman
Lberty Marne Insurance Co
Lebes Co.,
Lnderman, Wam S., e ecutor
Lttauer, ugene, estate of
Lttauer et a., Lucus N., e ecutors
Lvngood, Chares ., e ecutor 7
Loyd , Water 8
Loffand, . M. .
Loffand, T. S. ---
Lous, Cora
Lousve Trust Co. et a., trustees..-

0789
453 0
70899
70899
897
58794
41549
7474
2775
553 IS
37323
37535
37535
498 0
4 713
1 985
41721
42 3
57203
57203
719 1
70007
71595
45347
45348
9481
9750
452
452 5
32272
53440
7435
72 3
28544
35038
58871
51858
51858
40899
48120
13425
1342
49179
5040

32
28
31
31
29
2
2
32
7
2
24
24
24
32
30
10
2
28
28
30
20
2
2
32
2S
28
23
29
8
32
23
28
25
25
25
30
10
10
29
30
18
23
941
941
1014
1401
1158
720
790
1025
405
405
405
254
1375
109
94
222
222
121
1255
7 4
7 4
33
23
23
979
251
298
73
787
113
21
21
585
331
14
14
1200
2
1 state ta decson.
cquescence pubshed In Cumuatve uetn II-1, page 17, wthdrawn.
cquescence pubshed n Cumuatve uetn -, page 38, wthdrawn.
Nonacquescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
cquescence pubshed In Cumuatve uetn I-. page 38, wthdrawn.
state ta decson nonacquescence n respect to that part of decson whch hods that accrued nterest
pad on edera ncome ta es for 1027 and 1028 from date of decedent s death to November 5,1030, s a proper
aowabe admnstratve e pense.
cquescence pubshed In Cumuatve uetn I-2, page , 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 1013 acquescence pub-
shed In Cumuatve uetn , page 27, wthdrawn n so far as It appes to ths ssue.
G
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1
3
-
0
1
-
2
2

0
4
:
3
2

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0
0
0
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8
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0
5
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9
4
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3
Nonacquescences Contnued.
Ta payer.
oard of Ta
No.
oume.
Page.
3553
31
2
33231
27
750
33392
24
577
0827
2S
129
9778
30
1015
44891
2
199
41344
24
958
38578
25
1351
40082
41345

958
71353
31
493
9783
29
109
9779
29
109
9778
29
109
9781
29
109
9777
29
109
9780
29
109
9784
29
109
44139
2
1172
32444
25
994
7 81
31
379
5040
30
5 2
5042
30
5 2
5039
30
5 2
52931
5722
29
304
485 2
27
155
459
27
318
7340
32
58
44032
27
44
19930
28
437
30379
25
243
51394
31
443
453 8
28
23
58797
2
1401
58241
238
29
401
74720
32
1093
41 80
41874
27
101
54 73

58799
2
1401
42494
1
53990
) 29
57
18 1

49517
28
1051
M.
Maernee, D.
Maory, L. W., estate of
Manchester Coa Co
Manhattan Lfe Insurance Co.
Manus-Muer Co., Inc
Margay O Corporaton
Markham Irrgaton Co.
Marvn, Water S.
Matagarda Cana Co.1
Matheson, ugh M --
McCabe, en C.
McCabe, George ., estate of
McCabe, ames
McCabe, ames Roscoe
McCabe, Mton Mathew
McCabe, Wam ohn
McCabe, r., Wam ohn
McCormck et ah, 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
McLster, rank
McMan, Wam Northrup, estate of 4.
Merner, Deght Ward
Mever, Robert R
Mchgan Centra R. R. Co
Mgetta, Oga
Mes Reaty Co
Mer, bert
Ms, . . Goadby
Mssour State Lfe Insurance Co.
Mtche, Chares .
Mtche, Oscar 7
Mtche, Wam
Mtten Management, Inc.
Mod|csk, Raph
Nonacquescenoe reates to affaton ssue.
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 docson.
state ta decson: nonacquescence as to queston of stus.
Nonacquescence reates to foowng ssues: Whether ma pay receved n 1021 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 In home offce budng and deprecaton upon such budng.
Nonacquescence reates to Issue regardng deducton from ncome of sprnkng ta .
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37
Nonacqt|escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume.
Moore, ma
Moore read Co
Moore, dward W., estate of .
Moore, G.
Moore, ohn R
Moore, Louse C, e ecutr
Morgante rush Co., Inc
Moro Reaty odng Corporaton.
Morrss et a., ua L_
Morrss Reaty Co. Trust No. 1
Morrss Reaty Co. Trust No. 2 ---
Morse, mma R., estate of 3
Moser, Caroyn L
Mosser, Chares
Mott, Chares Stewart
Mueer, ar W
Murphy et a., red T., trustees
Murphy Persona Property Trust
Mutua Lfe Insurance Co. of New York.
Myrck, uan S
Nashve, Chattanooga St. Lous Ry
Natona Casket Co., Inc. --
Natona Contractng Co.4
Natona Grange Mutua Labty Co
Natona Land Constructon Co
Natona Outdoor dvertsng ureau, Inc.
Natona Ppe oundry Co.5
Nea et a., . enry, trustees
Ne, ames 1
Nems, rank aywood... - --
Nems, Mrs. rank aywood
Netcher, Chares, estate of
Newberry Lumber Chemca Co
Newbury, Moe Netcher, trustee
4790
08219
41 45
58720
38351
4791
8218
58720
203 9
37400
44759
50490
41C23
41024
458 3
45804
41023
458 3
41024
458 4
44052
55937
55399
51585
5750
453 2
43795
43795
97 4
5152
337
33799
50320
24520
73099
4012
5252
70999
32997
45403
9290
51887
51888
42435
8511
42435
30
S2
33
2
30
33
24
25
23
23
23
27
29
27
30
28
25
25
23
29
24
29
25
31
25
32
19
2
s
27
27
31
33
31
1 state ta decson nonacqutescence In the concusons on the thrd group of poces that the proceeds
t hero of shoud be e cuded from the gross estate.
1 state ta decson.
Nonacqurscence reates to the appcaton of a net amount of operatng osses after appyng the profts
of a subsdary durng the perod of affaton to reduce the oss sustaned by a parent company on the
qudaton of a subsdary company.
Nonacqutescence reates to ssue 1 of decson and ssue regardng deductbty of overhead costs In 1928.
cauescence pubshed In Cumuatve uetn I -2, page 43, revoked. Revocaton of pror acqu-
nonacquescence ere due to the faure of the oard s decson to mt the word du-
dstrbutons t
to the cash dstrbutons made to the stockhoders.
cquescence pubshed In Cumuatve uetn -, page 40, wthdrawn.
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38
Nonacquescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
Newport Co
York Centra R. R. Co.1.
New York Lfe Insurance Co
New York, Ontaro Western Ry. Co..
Nbcy-Mmnaugh Lumber Co
Nchos Co Lumber Co..
Nchoson, ames
Nesen Co., . _- ------
North mercan Investment Co
Northern Coa Co.1
Northport Shores, Inc
Noyes, ansen
O.
Oakman et a., Mame R -
O Donne, Thomas
Ogden, ugh W
Od Msson Portand Cement Co
Od Natona ank n vansve, e ecutor
Onger Mortuary ssocaton
Over, Ove ume
Omsted, George W. .
Omsted, Iva C. .
Ostad, Oscar
Omaha Coca-Coa ottng Co.
O Rear, . C.
Oregon Termnas Co
Oswego as Corporaton.
35431
19932
34437
2040
38880
52 93
17527
23 01
9
8899
30183
34945
4500
38574
42917
52987
2979
23943
38853
7 81
3 502
5 40
44090
45745
48121
54714
074
44089
4574
48143
54713
0745
7 83
52 41
32335
8893
28301
32 73
34352
3149
3150
3198
24
28
24
30
2
24
32
2
24
24
31
25
24
32
24
25
31
23
30
30
32
2
28
29
2
124
437
1217
403
978
54
977
223
419
307
1013
1351
84
1277
1239
305
379
1281
1380
331
331
70
1123
98
1332
0
Owens, . T 3149 27 4 9
Owens, Mrs. . T 3150 27 4 9
Owens, O. O 3198 2 1147
Nonacquescence reates to foowng Issues: Whether ma pay receved n 1921 consttuted Income Id
1920 renta Interest receved on competed addton and betterments In fna settement wth the Drector
Genera.
Nonacquesoence reates to statute of mtatons Issue.
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.
state ta decson.
Nonacquescence reates to ssue Invovng the amounts pad to stockhoders by . . Curts Leather
Co. upon canceaton of certan stock.
s Nonacquescence reates to Issue regardng amount of oss sustaned by pettoner by reason of destruc-
ton by nre of hs resdence and furnture.
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1
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-
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39
Nonacq |escences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page.
ct a..
Pacfc Coast scut I
Pacfc Nash Motor Co
Pacfc Rock Grave Co...
Pamer, radev W.
Parker, CaTa ., e ecutr
Parker, GeoTge D., estate of 3 .
Parker, erbert L., estate of4
Parker et a., my ng, trustees --
Parrott, . .s
Peabody, Cornea aven, estate of4
Peabody et a., Stephen, e ecutors . ...
Pennsyvana Co. for Insurances on Lves
Grantng nnutes, e ecutor and trustee...
Petauma Santa Rosa R. R. Co.
Pheps et a., Lus ames, e ecutors 7
Phps, Wam S -
Perce, dward
Pttsburgh Lake re R. R. Co.8 .-
ans Reaty Co..
and
Pant, enry radey
Pettner, Maude rown..
P-M- Petroeum Co. . .
Portand urnture Manufacturng Co.
Post Shedon Corporaton
Prce, arry
Prester, . C__
Proctor Shop, Inc.10.
Prosperty Co., Inc.11
Prouty, Ove
71588
451 9
45170
2877
2 52
58 04
58 04
53320
53320
309S9
39 47
39 47
73029
13830
5033
2444
317 9
5879
427 4
48977
5492
7197
43889
48984
52094
55 59
0923
33345
5057
54779
1809
703 7
5 95
70008
7159
55195
58909
2 8
4589
594 8
57829
32
23
2
32
31
31
30
30
28
24
24
32
11
27
24
2
28
31
30
25
21
30
28
29
33
30
27
30
Nonacquescence wth respect to deducton of amounts e pended n connecton wth dssouton and
qudaton of a corporaton.
Nonacquescence n oard s decson hodng that the Superpower rghts were not dvdends.
Nonacquescence reates to Issue regardng e stence of George I . Parker Co. partnershp.
state ta decson.
Nonacquescence reates to Interpretaton of artce 15 7, Reguatons 43, as apped to e change of stock
of Pttsburgh Te as O Gas Co.
Nonacquescence 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 ssue pubshed n Cumuatve
uetn I1-2, page 31, revoked.
T state ta decson nonacquescence wth respect to the trusts for the son and daughter.
Nonacquescence reates to renta nterest queston and oard s decson wth respect to porton of
ma pay receved In 1921.
Nonacquescence reates to frst Issue of decson.
cquescence pubshed In uetn II1-33, page 1, revoked.
u Nonacquescence reates to overstatement of oss sustaned as a resut of qudaton of subsdary.
G
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1
3
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2

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40
Nonacqt|escences Contnued.
Ta payer.
Prudenta Insurance Co. of merca.
Pryor Lockhart Deveopment Co.
Purse, ames N
-
unn, Porte
Ranbow Gasone Corporaton.
Randoph, ranke Carter
udoph, R. D
adoph, rg P., trust
Ray O Co.
Raymond, oward W
Reaty ssocates, as syndcate manager
Reed, Latham R
Reese, ugusta ss
Rehtam, Inc
Reybne, pheus, estate of
Reybne, Martha ., e ecutr
Reynard Corporaton 4
Rchardson et a., orrest, e ecutors
Rchfed O Co.
Rff e, enry . ---
Rey, nna
Rey Stoker Corporaton
Ro Grande Land Cana Co
Ro Grande Reservor Dtch Co
Roberts, G. P. --
Roberts, Water
Robertson, . G
Rockwood, George 0
Rockwood, Wam M
Rodeo- ae|o erry Co.
Rormer, Lous
Rosenboom nance Corporaton
Docket
No.
5 41
0884
7238
38872
45 8
5132
54124
715
5152
723 5
51890
51889
48833
43123
45219
48015
1554
58544
27921
58800
70410
4501
0 0
0 0
738
70795
44 52
42921
357
10
3 584
71350
71351
8434
37534
49552
52370
72711
72712
3 411
48528
58850
35778
40903
1171
73282
oard of Ta |
oume.
33
2
27
31
31
27
27
28
28
2
17
2
30
28
31
31
30
27
25
3
29
2
31
31
32
24
28
31
31
24
27
24
28
30
Ross, anche S.
Ross, Water L
Nonacquescence reates to Issue whother pettoner was ta abe for years 192 to 1929, Incusve, as
trust or as an assocaton.
cquescence pubshed n Cumuatve uetn -2, page 59, wthdrawn.
state ta decson.
Nonacquescence reates to ncuson In Income of corporaton for years ended March 31, 1930, and
March 31, 1931, amounts representng renta of premses occuped by ts presdent.
state ta decson acquescence pubshed n Cumuatve uetn 2, page 0, recaed.
1 Nonacquescence reates to frst ssue of decson.
7 Nonacquescence does not reate to the oard s hodng that dstrbutons receved from oseph .
nch Co. were not parta qudatng dvdends.
Gft ta decson.
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2
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1
3
-
0
1
-
2
2

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4
:
3
2

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2
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0
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0
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8
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0
5
4
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41
Nonacquescences Contnued.
Ta- payer.
Docket
No.
oard of Ta |
oume.
er, . M., e ecutor .
hem, Irvng D.
W. .
S.
I
Sabatn, Rafae
St. Lous Southwestern Ry. Co
St. Lous Unon Trust Co., e ecutor 4...
Saomon, Leon
San Caros Mng Co., Ltd. ...
Sand Sprngs Ry. Co
ather Lease Thomas Sather Co
Scatena, vra
Schoen, Lous
Schwartz- asser Improvement Co
Scott, Thomas ., estate of 7
Scove, Cnton ., estate of 1 ...
Seaconnet Coa Co.8
Seatree, Wam rnest
Securty rst Natona ank of Los ngees et a.,
e ecutors
Securty Savngs Commerca ank.
Sewyn ddy Co..
Shaffer, C. .
Shaffer, ohn 0 -
Sheaffer Penn Co., W.
Shepherd Syndcate
Shenker, Smon
Sberbatt, Soomon
Skewes-Co , dth Page
Skff, rank .
Sma s, Inc
8mathere, . ., estate of
Smey, bert
Smey, rancs G

407 5
57503
450 5
50134
13310
277 8
33938
459
3725
12231
39525
32438
32439
31979
3920
5 77
3 87
5033
49272
18089
22094
33 40
45429
9523
21 12
29259
008
9511
3 04
48332
1327
8801
4 335
1 9
8335
51173
3791
292 0
74424
74425

24
31
22
32
24
27
4
8
24
21
2
32
30
2
27
30
24
25
28
29
25
29
28
27
2
2
28
29
28
24
29
33
33
17
8 7
587
705
917
318
1109
979
1132
1291
8
75
1075
322
1224
79
307
39
289
17
1341
1315
1293
105
10 2
1401
73
1 7
39
8
1315
198
198
1 state ta decson.
Nonacquescence reates to Issue whether Commssoner Is entted to Increased defcency as rased
by hs amended answer fed wth the oard.
1 cquescence pubshed In Cumuatve uetn -, page 5 , wthdrawn.
state ta decson nonacquescence as to queston of stus.
cquescence as to Issue 2 pubshed n Cumuatve uetn I-1, page , and nonacquescence
as to Issue 1 pubshed n Cumuatve uetn I-1, page 11, wthdrawn.
Nonacquescence reates to dvdend Issue.
state ta decson nonacquescence wth respect to the trusts for the son and daughter.
1 Nonacquescence reates to statute of mtatons Issue.
Nonacquescence reates to Issue whether ta payer sustaned a net oss In any busness reguary carred
on n 1924 whch coud be carred forward and deducted from ta abe Income n 1025.
Nonacquescence reates to the foowng ssues: Seducton of cost bass (March 1,1913 vaue) of assets
od by a partnershp n 1919 by depredaton 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 sas
mce ta es of the partners pad n 1920 by the vendee.
Gft ta decson.
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42
Nonacquescences Contnued.
Ta payer.
oard of Ta ppeas.
oume.
Smth, Mrs. Grant-
Smth, Mton, estate of
Smth, r., Mton, e ecutor
Sneed, r., . T.
Snyder, Inc., . S. M. W
Southern Caforna Rock Grave Co.
Southern Raway Co. et a.
Spencer, George rnck, estate of
Speyer, ames
Sprague Son Co., C. .
Sprng Cty oundry Co
Sredes, Inc
Staney Co. of merca.
Stayton, r., Wam
Stearns, Marsha, admnstrator
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
Stfe, rthur C
Stfe, dward W - - -
Stfe, enry G -
Stne, Doe M -
Stne, M. osephne
Stockhoms nskda ank
Stone, . C, estate of
Stone, Mrs. . C, e ecutr
Stone et a., Irvng ., e ecutors and trustees 8
Stone, Irvng Lee, estate of
Straub, Teca M -
Straus, aron
43300
43305
4330
52132
52132
45 94
3 8
30898
f 21481
I 29951
137887-
37898
7223
5 435
3494
211 9
45015
3151
33142
40023
718 7
48930
2459
41743
7000
71593
70009
71594
4341
57531
777
0777
0738
0739
0740
2 94
2 95
55755
3833
3833
43830
43830
55935
5091
2
28
30
2
2
27
31
30
24
25
28
2
32
24
2
2
27
29
29
23
29
31
31
29
29
29
32
32
25
2
2
2
2
29
27
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 separata
property of ether spouse.
Nonacquescence reates to ssues Invovng addtona compensaton, renta Interest on addtons and
betterments, and back ma pay for use of propertes durng edera contro.
state ta decson.
Nonacquescence reates to statute of mtatons Issue.
state ta decson acquescence pubshed In Cumuatve uetn -2, page 7, recaed.
Nonacquescence reates to ssue regardng ncuson n ncome for 192 of 180,823.35 receved upon
e change by pettoner of 250,000 shares of Sunhurst O as Co. stock wth that corporaton.
T state ta decson nonacquescence reates to far market vaue of an undvded or fractona Interest
In certan rea property.
1 state ta decson nonacquescence reates to far market vaue of 3, 39 shares of stock of Rhneander
Rea state Co. as of September 4, 1929. cquescence as to ths Issue pubshed n uetn I -7, page
1, wthdrawn.
state ta decson nonacquescence reates to Issue nvovng property transferred by trust agreement.
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43
Nonacqttescences Contnued.
Ta payer.
Docket
No.
oard of Ta ppeas.
oume. Page,
27
155
28
23
25
1351
25
3 8
25
3 8
25
375
25
10 5
2
15
25
259
27
829
23
792
27
829
27
829
27
220
27
220
27
5
27
5
29
1113
24
3 9
32
23
24
197
24
197
2
1418
24
958
32
125
30
510
2
1201
30
5 2
27
7 2
29
1208
27
n
33
24
3
24
405
23
892
31
787
25
922
32
940
32
940
31
938
31
507
31
507
Straver, Water
Strecfkerk, Mrs. S
Strong, arod C.1
Sturgeon- ubbard Trust
Sturgeon et a., Ron S., trustees.
Suncrest Lumber Co
Swartz, Inc., dward G
Swft, Mary Dodson, estate of
Swsky, Toby W
T.
Tabot, rederck C, estate of...
Tabot, . .1
Tabot et a., Susan D., e ecutors
Tabot, Wam ., estate of
Tayor, . Sedon, estate of
Tayor, r., et a., . Sedon, e ecutors
Tayor, esse Carter
Tayor, udson L_
485 4
453 3
3857
37095
37095
33244
3 50
44909
42032
Ten yck, Peter G.
Tennessee Consodated Coa Co.
Termna Reaty Corporaton
Terre aute, Indanapos astern Tracton Co..
Terre aute Tracton Lght Co
Terry, nna Davs
Te as Irrgaton Co.4
Te as Ppe Lne Co
Thatcher Son, ohn
The ub, Inc
Theman, Mrs. Leo
353 Le ngton venue Corporaton...
Tde Water O Co
Totson Manufacturng Co
Tte Trust Co
Ttus, C. Dckson.. - -
Todd, Ws
Toerton Warfed Co.
Torrens, ames II. ---
Towers Suvan Manufacturng Co.
Townsend, .
Townsend, W. S
Transatantc Shppng Co., Inc
Traveers ank Trust Co
20411
3 191
20409
20409
4444
4444
51891
51892
8197
33383
437
507 2
059
71157
33858
338 0
4544
40083
4134
59457
5 888
5545
4 298
5041
5089
3993
441 7
73785
20705
3753
45320
53778
40508
7318
74541
1932
2834
71349
2S33
. 71348
1 Nonacquescence reates to vaue of common stock of mercan Cban Co., Inc.. and the bass of ao-
caton of cost between sad common stock and preferred stock of sad company acqured at the same tme
and under the same agreement.
1 Nonacquescence reates to deprecaton aowance n computng oss n sae of a boat.
1 state ta decson.
Nonacquescence reates to affaton ssue.
1 Nonacquescence reates to Issue regardng deducton of oss sustaned by two affated companes
darng fsca year ended anuary 31,1 24, and the ta abe perod ebruary 1 to pr 25,1924, n computng
the consodated net ncome for ta abe perod pr 20 to December 31,1 24, and the year 1823.
1 Nonacquescence reates to the trust and dvdend ssues.
Traveers re Insurance Co.
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44
Nonacquescenceb Contnued.
Traveers Indemnty Co.
Tro|an O Co.
Turney, W. W.
Turney, Mrs. W.
Tutte, Car
Twn e O Syndcate
Tyer et a., Sdney ., trustees.

W.
u.
Uhen, oseph _.
ULmann, manue Soomon
Umann, r., oseph
Umann, Samue, estate of
Umann et a., Theresa, e ecutors
Unon Guardan Trust Co., admnstrator .
Unon Guardan Trust Co., e ecutor 1
Unon Pacfc R. R. Co. .
Unon Pacfc R. R. Co. et a. .
Unon Trust Co., trustee-
Unted O Co
an Camp Packng Co., Inc
an Schack, George S., Superntendent of Insur-
ance of New York, qudator
an orst Co., C. . --
aughan .Wam W
ocbe, acob, estate of -
oebe, Water W., e ecutor4
ounteer State Lfe Insurance Co
on Guntcn, Chrstan W
onneg t ardware Co
Waggoner, a
Waggoner, W. T__
Waker, Tabot C.
Wa, rank . ...
Waters, ohn W..
W.
5791
2832
71347
33757
5258
5257
70558
45052
5 449
51234
5 470
5 471
5 472
5 472
7551
44735
51530
70183
70219
35 39-
35 49
35 84
35 85
400 0
40001
400 2
42917
38082
42922
51 22
4 131
72 3
703
7843
009
009
5417
1278
44940
33517
3351
20407
7359
70010
71597
31
2
31
31
31
2
28
30
30
30
30
30
32
2
32
2
24
25
2
32
30
31
7
7
27
28
28
24
24
27
4
29
state ta decson.
N onacquescence reates to the Issues regardng cost of Intercompany transportaton of matera used
In constructon of capta assets sae In 1920 of bock 394, Seatte Tde Lands rae of and to ansas Cty
Termna Raway Co. ad|ustment for deprecaton sustaned pror to anuary 1,1909, of equpment retred
In 1924.
Nonacquescence reates to Issue regardng renta Interest and Issue concernng net oss of Los ngees
Sat Lake . R. Co. for perod anuary 1 to pr 30, 1921.
state ta decson acquescence pubshed In Cumuatve uetn -2, page 73, recaed.
cquescence pubshed In Cumuatve uetn -, page 8, wthdrawn.
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45
Nonacqt|escences Contnued.
Ta payer.
Ward et a., Dasy M
Wardman, arry
Warner Coeres Co. of Deaware
Watab Paper Co
Watson-Moore Co
Wayburn, Ned
Wes argo ank Unon Trust Co., admnstrator
Wes, ames
West rgna-Pttsburgh Coa Co
Wheeer, Dwght C. -- -
Wheeer, P. L -
Wheeng Mod oundry Co. (De.)
Whppe, rank --
Whte, uet C
Whte Oak Transportaton Co.
Whte, Rta M. oher
Whte, Sdney
Wco Sons, .
We, dwn1,. -
Wams et a., rank G., e ecutors
Wamson, Ruth Chander
Wson, ohn P
Wson, Luke ., estate of -
Wson Shpbudng Co.
Wnston ros. Co
Wobber ros
Wobbers, Inc
Wopert, Urban -
Wood, en yer
Wood urnture Co., .
Wood, eremah
Wood, Stuart, estate of
Woodard, ohn S.4
Woodward, George
Y.
Youngstown Sheet Tube Co
Z.
Zeger, bert W. -
Zeger, Cfford .
Zmmerman and wfe, Cavn
Zobeen, George
Zobeen, Mrs. dward
/ 2 44-
Docket
No.
2 49
22348
34 79
24773
28082
38 85
41733
4 07
51387
2179
74348
20411
2948
/ 20337
I 25030 /
71338
9028
23410
57532
58775
18088
3 112
5877
40 19
54451
335 4
74 8
52931
5722
32444
34337
59270
3 875
3 874
485 3
5211
405 5
74090
74 88
75 24
719 2
42279
/ 2,8149
I 35511
4 291
4 292
71145
45352
45353
oard of Ta ppeas.
oume.
29
24
2
27
30
32
27
29
24
32
32
27
29
2
24
25
2
28
31
25
32
29
25
25
29
2
2
27
29
21
31
32
30
23
24
23
23
31
28
28
Pa|e.
1251
102
1047
4SS
1197
813
829
222
234
909
917
929
809
1401
307
243
1401
878
787
1078
720
304
994
182
905
322
322
155
1050
5 4
1141
92
121
1258
124
1091
1091
754
23
23
1 Nonacquescence reates to statute of mtatons ssue.
1 Nonacquescence reates to the trust and dvdend ssues.
Nonacquescence reates to ssue 5 of decson.
1 Nonacquescence reates to queston whether dstrbuton of stock had the effect of dstrbuton of a
ta abe dvdend.
1 cquescence pubshed n Cumuatve uetn -2, page 78, wthdrawn.
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INCOM T RULINGS. P RT I.
R NU CTS O 1935 ND 1934.
. R NU CT O 19 5.
TITL L INCOM ND C SS-PRO ITS T S.
S CTION 102. INCOM T S ON CORPOR TIONS.
I -4 -7815
Mm. 439T
Deducton of chartabe and other contrbutons by corporatons
under secton 23 of the Revenue ct of 1034, as amended by secton
102(c) of the Revenue ct of 1935.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, November 12,1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
Secton 102 (c) of the Revenue ct of 1935 provdes as foows:
(c) Secton 23 of the Revenue ct of 1934 (reatng to deductons from gross
Income) s amended by addng at the end thereof a new subsecton as foows:
(r) Chartabe and other contrbutons by corporatons. In the case of a
corporaton, contrbutons or gfts made wthn the ta abe year to or for the
use of a domestc corporaton, or domestc trust, or domestc communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, chartabe,
scentfc, terary, or educatona purposes or the preventon of cruety to
chdren (but In the case of contrbutons or gfts to a trust, chest, fund, or
foundaton, ony f such contrbutons or gfts are to be used wthn the Unted
States e cusvey for such purposes), no part of the net earnngs of whch
Inures to the beneft of any prvate sharehoder or ndvdua, and no sub-
stanta part of the actvtes of whch s carryng on propaganda, or otherwse
attemptng, to nfuence egsaton to an amount whch does not e ceed 5
per centum of the ta payer s net Income as computed wthout the beneft of ths
subsecton. Such contrbutons or gfts sha be aowabe as deductons ony
f verfed under rues and reguatons prescrbed by the Commssoner, wth
the approva of the Secretary.
Secton 102 (d) and (e) of the Revenue ct of 1935 provdes:
(d) Secton 204(c) of the Revenue ct of 1934 (reatng to deductons from
gross ncome by Insurance companes other than fe or mutua) s amended by
addng at the end thereof a new paragraph as foows:
(10) Chartabe, and so forth, contrbutons, as provded In secton 23(r).
(e) Secton 232 of the Revenue ct of 1934 (reatng to deductons aowed
foregn corporatons) s amended by Insertng (a) In genera. before the
begnnng of the secton and by nsertng at the end thereof the foowng new
subsecton:
(b) Chartabe, and so forth, contrbutons. The so-caed chartabe con-
trbuton deducton aowed by secton 23(r) sha be aowed whether or not
connected wth Income from sources wthn the Unted States.
(4 )
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2

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47
108.
Secton 107 of the Revenue ct of 1935 provdes:
The amendments made by sectons 101, 102 (e cept subsectons (f), (g), and
() thereof), 103, and 104 sha appy ony n the case of ta abe years begnnng
after December 31, 1935.
Wth respect to the queston of the ta abe year for whch char-
tabe, etc., contrbutons or gfts may be deducted for edera ncome
ta purposes n the case of corporatons makng pedges for such
contrbutons or gfts payabe at some future date, the foowng n-
structons are ssued for the gudance of coectors of nterna rev-
enue, nterna revenue agents m charge, and others concerned:
Corporatons keepng ther records on the bass of cash recepts
and dsbursements may deduct, n a ta abe year begnnng after
December 31, 1935, to the e tent provded by aw, chartabe, etc.,
contrbutons or gfts ony for the ta abe year n whch the same
are actuay pad, regardess of when pedged.
In the case of corporatons keepng ther records on the accrua
bass and makng pedges for chartabe, etc., contrbutons or gfts
payabe at some future date, the makng of such pedges mght create
a ega abty under the aws prevang n some States. owever,
the tme as of whch a deducton s to be accounted for must be de-
termned n the ght of the fundamenta rue that the computaton
sha be made n such manner as ceary refects the ta payer s ncome.
Such contrbutons or gfts, n order to ceary refect the ta payer s
ncome, shoud be charged aganst the ncome of the ta abe year n
whch pad. Corporatons keepng ther records on the accrua
bass and makng such pedges n 1935, payabe n a ta abe year
begnnng after December 31,1935, may, therefore, deduct the amount
of such contrbutons or gfts, to the e tent provded by aw, n the
year of payment.
Inqures regardng ths mmeograph shoud refer to the number
thereof and to the symbos IT: : RR-CTR.
Wrght Matthews,
ctng Commssoner.
pproved November 12, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
S CTION 10 . C SS-PRO ITS T .
I -52-7881
T.D.4 18
C SS-r O ITS T .
Reguatons reatng to the e cess-profts ta mposed by secton
10 of the Revenue ct of 1935.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. O.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 10 (Tte I) of the Revenue ct of 1935
provdes:
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100.
48
Sec. 100. cess-Profts Ta .
(a) There Is hereby Imposed upon the net Income of every corporaton for
each Income-ta ta abe year endng after the cose of the frst year In respect
of whch t s ta abe under secton 105, an e cess-profts ta equa to the sum
of the foowng:
per centum of such porton of Its net Income for such ncome-ta ta abe
year as s n e cess of 10 per centum and not n e cess of 15 per centum of the
ad|usted decared vaue
12 per centum of such porton of ts net Income for such Income-ta ta abe
year as Is n e cess of 15 per centum of the ad|usted decared vaue.
(b) The ad|usted decared vaue sha be determned as provded In secton
105 as of the cose of the precedng ncome-ta ta abe year (or as of the date
of organzaton If It had no precedng Income-ta ta abe year). If the n-
come-ta ta abe year In respect of whch the ta under ths secton s Imposed
s a perod of ess than 12 months, such ad|usted decared vaue sha be
reduced to an amount whch bears the same rato thereto as the number of
months n the perod bears to 12 months. or the purposes of ths secton
the net ncome sha be the same as the net Income for ncome ta purposes for
the year n respect of whch the ta under ths secton s Imposed, e cept that
there sha be deducted the amount of ncome ta mposed for such year by
secton 13 of the Revenue ct of 1934, as amended.
(c) provsons of aw (ncudng penates) appcabe n respect of the
ta es Imposed by Tte I of the Revenue ct of 1034, as amended, sha, n so
far as not nconsstent wth ths secton, be appcabe In respect of the ta
mposed by ths secton, e cept that the provsons of secton 131 of that tte
sha not be appcabe.
(d) The e cess-profts ta Imposed by secton 702 of the Revenue ct of 1934
sha not appy to any ta payer wth respect to any ncome-ta ta abe year
endng after une 30, 193 .
Par. . Secton 105 (Tte I) of the Revenue ct of 1935 provdes:
Sbo. 105. Capta stock ta .
(a) or each year endng une 30, begnnng wth the year endng une 30,
193 , there s hereby mposed upon every domestc corporaton wth respect to
carryng on or dong busness for any part of such year an e cse ta of 1.40
for each 1,000 of the ad|usted decared vaue of ts capta stock.
(b) or each year endng une 30, begnnng wth the year endng une 30,
193 , there s hereby mposed upon every foregn corporaton wth respect to
carryng on or dong busness n the Unted States for any part of such year
an e cse ta equvaent to 1.40 for each 1,000 of the ad|usted decared vaue
of capta empoyed n the transacton of Its busness n the Unted States.
(c) The ta es mposed by ths secton sha not appy
(1) to any corporaton enumerated In secton 101 of the Revenue ct of 1934,
as amended
(2) to any nsurance company sub|ect to the ta Imposed by secton 201,
204, or 207 of such ct, as amended.
(d) very corporaton abe for ta under ths secton sha make a return
under oath wthn one month after the cose of the year wth respect to whch
such ta Is mposed to the coector for the dstrct In whch Is ocated Its prn-
cpa pace of busness or, f It has no prncpa pace of busness In the Unted
States, then to the coector at atmore, Md. Such return sha contan such
nformaton and be made n such manner as the Commssoner wth the approva
of the Secretary may by reguatons prescrbe. The ta sha, wthout assess-
ment by the Commssoner or notce from the coector, be due and payabe to
the coector before the e praton of the perod for fng the return. If the ta
s not pad when due, there sha be added as part of the ta nterest at the
rate of per centum per annum from the tme when the ta became due unt
pad. provsons of aw (Incudng penates) appcabe In respect of the
ta es mposed by secton 00 of the Revenue ct of 192 sha, In so far as not
nconsstent wth ths secton, be appcabe In respect of the ta es mposed by
ths secton. The Commssoner may e tend the tme for makng the returns
and payng the ta es Imposed by ths secton, under such rues and reguatons
us he may prescrbe wth the approva of the Secretary, but no such e tenson
sha be for more than 0 days.
(e) Returns requred to be fed for the purpose of the ta Imposed by ths
secton sha be open to nspecton In the same manner, to the same e tent, and
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49
10 .
sub|ect to the same provsons of aw, ncudng penates, as returns made under
Tte II of the Revenue ct of 192 .
(f) or the frst year endng une 30 n respect of whch a ta s mposed by
ths secton upon any corporaton, the ad|usted decared vaue sha be the vaue,
as decared by the corporaton In ts frst return under ths secton (whch deca-
raton of vaue can not be amended), as of the cose of ts ast ncome-ta ta -
abe year endng at or pror to the cose of the year for whch the ta s mposed
by ths secton (or as of the date of organzaton In the case of a corporaton
havng no ncome-ta ta abe year endng at or pror to the cose of the year
for whch the ta s mposed by ths secton). or any subsequent year endng
une 30, the ad|usted decared vaue n the case of a domestc corporaton sha
be the orgna decared vaue pus (1) the cash and far market vaue of prop-
erty pad n for stock or shares, (2) pad n surpus and contrbutons to cap-
ta, (3) ts net ncome, (4) the e cess of ts ncome whoy e empt from the
ta es Imposed by Tte I of the Revenue ct of 1934, as amended, over the amount
dsaowed as a deducton by secton 24(a)5 of such tte, and (5) the amount
of the dvdend deducton aowabe for Income ta purposes, and mnus ( ) the
vaue of property dstrbuted In qudaton to sharehoders, ( ) dstrbutons
of earnngs or profts, and (O) the e cess of the deductons aowabe for ncome
ta purposes over ts gross Income ad|ustment beng made for each ncome-ta
ta abe year ncuded In the perod from the date as of whch the orgna de-
cared vaue was decared to the cose of ts ast ncome-ta ta abe year endng
at or pror to the cose of the year for whch the ta s mposed by ths secton.
The amount of such ad|ustment for each such year sha be computed (on the
bass of a separate return) accordng to the ncome ta aw appcabe to such
Sear. or any subsequent year endng une 30, the ad|usted decared vaue n
te case of a foregn corporaton sha be the orgna decared vaue ad|usted
(for the same Income-ta ta abe years as n the case of a domestc corporaton),
In accordance wth reguatons prescrbed by the Commssoner wth the approva
of the Secretary, to refect ncreases or decreases n the capta empoyed n the
transacton of Its busness n the Unted States.
(g) or the purpose of the ta mposed by ths secton there sha be aowed
In the case of a corporaton organzed under the Chna Trade ct. 1922, as a
credt aganst the ad|usted decared vaue of ts capta stock, an amount equa
to the proporton of such ad|usted decared vaue whch the par vaue of the
shares of stock of the corporaton, owned on the ast day of the ta abe year by
(1) persons resdent n Chna, the Unted States, or possessons of the Unted
States, and (2) ndvdua ctzens of the Unted States or Chna wherever res-
dent, bears to the par vaue of the whoe number of shares of stock of the cor-
poraton outstandng on such date. or the purposes of ths subsecton shares of
stock of a corporaton sha be consdered to be owned by the person n whom
the equtabe rght to the Income from such shares s n good fath vested and
as used n ths subsecton the term Chna sha have the same meanng as
when used n the Chna Trade ct, 1922.
(h) The capta stock ta Imposed by secton 701 of the Revenue ct of 1934
sha not appy to any ta payer wth respect to any year after the year endng
une 30,1935.
Pah. C. Secton 52 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Sec. 52. Corporaton returns.
very corporaton sub|ect to ta aton under ths tte sha make a return,
statng specfcay the tems of Its gross ncome and the deductons and credts
aowed by ths tte. The return sha be sworn to by the presdent, vce pres-
dent, or other prncpa offcer and by the treasurer, assstant treasurer, or chef
accountng offcer. In cases where recevers, trustees n bankruptcy, or assgnees
are operatng the property or busness of corporatons, such recevers, trustees,
or assgnees sha make returns for such corporatons In the same manner and
form as corporatons are requred to make returns. ny ta due on the bass of
such returns made by recevers, trustees, or assgnees sha be coected In the
same manner as If coected from the corporatons of whose busness or property
they have custody and contro.
Par. D. Secton 53 (Tte I Income Ta ) of the Revenue ct of
1934 provdes, n part, as foows:
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10 .
50
Sf.o. 53. Tme and pace fob ftno betttrns.
(a) Tme for fng.
(1) Genera rue. Returns made on the bass of the caendar year sha be
made on or before the 15th day of March foowng the cose of the caendar
year. Returns made on the bass of a fsca year sha be made on or before
the 15th day of the thrd month foowng the cose of the fsca year.
(2) tenson of tme. The Commssoner may grant a reasonabe e tenson
of tme for fng returns, under such rues and reguatons as he sha pre-
scrbe wth the approva of the Secretary. cept n the case of ta payers
who are abroad, no such e tenson sha be for more than s months.
(b) To whom return made.

(2) Corporatons. Returns of corporatons sha be made to the coector
of the dstrct In whch s ocated the prncpa pace of busness or prncpa
offce or agency of the corporaton, or, f t has no prncpa pace of busness
or prncpa offce or agency n the Unted States, then to the coector at
atmore, Md.
Par. . Secton 5 (Tte I Income Ta ) of the Revenue ct of
1934 provdes, n part, as foows:
Sec. 5 . Payment of ta .
(a) Tme of payment. The tota amount of ta mposed by ths tte sha
be pad on the 15th day of March foowng the cose of the caendar year,
or, f the return shoud be made on the bass of a fsca year, then on the 15th
day of the thrd month foowng the cose of the fsca year.

(c) tenson of tme for payment. t the request of the ta payer, the
Commssoner may e tend the tme for payment of the amount determned as
the ta by the ta payer, or any Instament thereof, for a perod not to e ceed
s months from the date prescrbed for the payment of the ta or an In-
stament thereof. In such case the amount n respect of whch the e tenson
s granted sha be pad on or before the date of the e praton of the perod
of the e tenson.

Par. . Secton 145 (Tte I Income Ta ) of the Revenue ct
of 1934 provdes:
Sec 145. Penates.
(a) ny person requred under ths tte to pay any ta , or requred by
aw or reguatons made under authorty thereof to make a return, keep any
records, or suppy any nformaton, for the purposes of the computaton, assess-
ment, or coUecton of any ta mposed by ths tte, who wfuy fas to
pay such ta , make such return, keep such records, or suppy such nformaton,
at the tme or tmes requred by aw or reguatons, sha. In addton to other
penates provded by aw, be guty of a msdemeanor and, upon convcton
thereof, be fned not more than 10,000, or Imprsoned for not more than one
year, or both, together wth the costs of prosecuton.
(b) ny person requred under ths tte to coect, account for, and pay
over any ta mposed by ths tte, who wfuUy fas to coect or tnthfuy
account for and pay over such ta , and any person who wfuy attempts n
any manner to evade or defeat any ta mposed by ths tte or the payment
thereof, sha, In addton to other penates provded by aw, be guty of a
feony and, upon convcton thereof, be fned not more than 10,000, or m-
prsoned for not more than fve years, or both, together wth the costs of
prosecuton.
(c) The term person as used n ths secton ncudes an offcer or empoyee
of a corporaton or a member or empoyee of a partnershp, who ns such offcer,
empoyee, or member s under a duty to perform the act n respect of whch
the voaton occurs.
Par. G. Secton 1 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:

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10 .
Sec. 1. Laws made appcabe.
admnstratve, speca, or stamp provsons of ave, ncudng the aw
reatng to the assessment of ta es, so far as appcabe, are hereby e tended
to and made a part of ths tte.
Pae. . Secton 2 (Tte I Income Ta ) of the Revenue ct of
1934 provdes:
Sua 2. Rues and reguatons.
The Commssoner, -wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths tte.
Pursuant to the above-quoted provsons and other provsons of
the nterna revenue aws, the foowng reguatons are hereby pre-
scrbed wth respect to the e cess-profts ta mposed by the Revenue
ct of 1935:
rtce 1. Defntons. s used n these reguatons, the term
(a) d|usted decared vaue means n the case of a domestc corporaton
the ad|usted decared vaue of ts capta stock as determned under secton
105 of the Revenue ct of 1935 and the reguatons ssued respectng the capta
stock ta mposed by that secton and In the case of a foregn corporaton the
ad|usted decared vaue of capta empoyed n the transacton of ts busness
n the Unted States as determned under such secton and the reguatons ssued
In reference thereto.
(b) Ta , e cept as otherwse ndcated, means the e cess-profts ta m-
posed by secton 10 of the Revenue ct of 1935.
(c) Income-ta ta abe year means the caendar year, the fsca year end-
ng durng such caendar year, or the fractona part of a year, upon the bass
of whch the corporaton s net Income Is computed and for whch Its Income
ta returns are made for edera ncome ta purposes.
( ) Net ncome means (1) net ncome wthn the contempaton of
secton 21 of the Revenue ct of 1984, or (2) In the case of an ncome-ta
ta abe year governed by the Revenue ct of 1934, as amended by the Revenue
ct of 1935, net Income wthn the contempaton of secton 21 of the Revenue
ct of 1934, as so amended. The credts aowed corporatons aganst net n-
come for Income ta purposes (for e ampe, the credt aowed by secton 28
of the Revenue ct of 1934) are not appcabe In respect of the e cess-profts
ta . owever, the amount of ncome ta Imposed for the same ta abe year
sha be deducted from net ncome In computng the e cess-profts ta .
rt. 2. Scope of ta . The e cess-profts ta , Imposed by secton IOC of the
Revenue ct of 1935, s mposed upon a certan porton of the net ncome of
every corporaton for each ncome-ta ta abe year endng after the cose of the
frst year n respect of whch the corporaton Is sub|ect to the capta stock ta
mposed by secton 105 of that ct.
rt. 3. Measure and rate of ta . (o) Domestc and foregn corporatons.
The ta s Imposed In an amount equa to the sum of (1) per cent of such
porton of the corporaton s net Income for the Income-ta ta abe year as Is
n e cess of 10 per cent and not In e cess of 15 per cent of the ad|usted decared
vaue pus (2) 12 per cent of such porton of ts net ncome for the ncome-ta
ta abe year as s In e cess of 15 per cent of the ad|usted decared vaue, as of
the cose of the ast precedng ncome-ta ta abe year (or as of the date of
organzaton f the corporaton had no precedng ncome-ta ta abe year).
( ) d|usted decared vaue. No varaton s permtted between the ad|usted
decared vaue set forth n the corporaton s capta stock ta return and the
ad|usted decared vaue set forth In Its e cess-profts ta return, e cept that n
the case of an e cess-profts ta return for an ncome-ta ta abe year whch
s a perod of ess than 12 months the ad|usted decared vaue set forth In
ts capta stock ta return sha be reduced to an amount whch bears the same
rato thereto as the number of months n the perod bears to 12 months.
rt. 4. Method of computaton, e ampes. The appcaton of the provsons
of artce 3 of these reguatons may be ustrated generay by tte foowng
e ampes:
ampe (1): The M Corporaton, the ncome-ta ta abe year of whch Is
the caendar year, s sub|ect to the capta stock ta mposed by secton 105
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52
of the Revew ct of 1935 for the year endng une 30, 1938. The vaue de-
cared n ts capta stock ta return for the year endng une 30, 193 , of ts
capta stock as of the cose of ts precedng Income-ta ta abe year (the caen-
dar year 1935) s 100,000. The net Income of the corporaton for the caendar
year 193 , determned under the Revenue ct of 1934 as amended by the Reve-
nue ct of 1935, s 25,000. (The net Income for Income-ta ta abe years
begnnng after December 31, 1935, sha be determned under the Revenue ct
of 1934 as amended by the Revenue ct of 1935.) The e cess-profts ta for
the caendar year 193 s 1,099.20, computed as foows:
Net Income for caendar year 1938 25,000.00
Less:
Income ta for caendar year 193 3,340.00
aance of net Income .. 21, 0.00
Less:
10 per cent of the vaue decared n the capta stock ta return
for the year endng une 30, 193 , of the capta stock as of
December 31, 1935 (10 per cent of 100,000) 10, 000.00
Net ncome sub|ect to e cess-profts ta 11, 00. 00
Less:
mount ta abe at per cent, porton of net ncome In e cess
of 10 per cent and not In e cess of 15 per cent of the ad|usted
decared vaue of the capta stock as of December 31, 1935
( 15,000 mnus 10,000) 5,000.00
mount ta abe at 12 per cent , 0.00
cess-profts ta at per cent ( per cent of 5,000) 300.00
cess-profts ta at 12 per cent (12 per cent of , 0) 799. 20
Tota e cess-profts ta ( 300 pus 799.20) 1,099.20
ampe (2) : The O Corporaton, the Income-ta ta abe year of whch Is
the fsca year endng uy 31, Is sub|ect to the capta stock ta mposed by
secton 105 of the Revenue ct of 1935 for the year endng une 30, 193 . The
vaue decared n ts capta stock ta return for the year endng une 30, 193 ,
of Its capta stock as of the cose of Its precedng Income-ta ta abe year
(the fsca year ended uy 31, 1935) Is 108,000. The net Income of the corpo-
raton for the fsca year endng uy 31, 193 , determned under Tte I of the
Revenue ct of 1934, Is 25,000. (The net Income for Income-ta ta abe years
begnnng after uy 31, 1935, and before anuary 1, 193 , sha be determned
under Tte I of the Revenue ct of 1934.) The e cess-profts ta for the
fsca year endng uy 31, 193 , Is 9 7.50, computed as foows:
Net Income fc fsca year endng uy 31, 193 25,000. 00
Less:
Income ta for fsca year endng uy 31, 193 3, 437. 50
aance ot net Income 21,5 2. 50
Less:
10 pe cent of the vaue decared In the capta stock ta return
for the year endng une 30, 193 , of the capta stock as of
uy 31, 1935 (10 per cent of 108,000) 10,800. 00
Tet ncome sub|ect to e cess-profts ta 10, 7 2. 50
Less:
mount ta abe at per cent, porton of net ncome n e cess
of 10 per cent and not In e cess of 15 per cent of the ad|usted
decared vaue of the capta stock as of uy 31,1935 ( 1 ,200
mnus 10,800) 5,400.00
mount ta abe at 12 per cent , 5,3 2.50
cess-profts ta at per cent ( per cent of 5,400) 324.00
cess-profts ta at 12 per cent (12 per cent of 5,3 2.50) 043. 50
Tota e cess-profts ta ( 324 pus 13.50) 9 7.50
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53
404.
bt. 5. Return. very corporaton whch s sub|ect to the capta stock ta
Imposed by secton 10 of the Revenue ct of 1935 sha make an e cess-profts
ta return for each Income-ta ta abe year whch ends after the cose of the
frst year In respect of whch It s sub|ect to such capta stock ta . There
Is no provson n the Revenue ct of 1935 whch authorzes the makng of a
consodated return by any affated group of corporatons for the purpose of
the e cess-profts ta mposed by secton 10 of that ct. ccordngy, every
corporaton whch s abe for the makng of an e cess-profts ta return under
secton 10 of the Revenue ct of 1935 (for any ncome-ta ta abe year endng
after une 30, 193 ), whether or not such corporaton Is a member of on
affated group of corporatons, must make ts e cess-profts ta return and
compute ts net ncome separatey, wthout regard to the provsons of secton
141 of the Revenue ct of 1934.
The e cess-profts ta return sha be made wthn the tme prescrbed for
makng the corporaton s edera Income ta return for the ncome-ta ta abe
year, and sha be made to the coector of nterna revenue to whom such
Income ta return s requred to be made.
bt. . Payment of ta . The e cess-profts ta for any ncome-ta ta abe
year sha be pad wthn the tme prescrbed for payng the edera ncome
ta for such ta abe year. (See paragraph , above.)
bt. 7. Credts aganst taw prohbted. oregn ncome and profts ta es may
not be credted aganst the e cess-profts ta Imposed by secton 10 of the
Revenue ct of 1935.
rt. 8. Determnaton of taw, assessment, coecton. The determnaton,
assessment, and coecton of the ta , and the e amnaton of returns and
cams n connecton therewth, w be made under such procedure as may be
prescrbed from tme to tme by the Commssoner.
Guy T. everng,
Commssoner of Interna Revenue.
pproved December 20, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
TITL I . MISC LL N OUS PRO ISIONS.
S CTION 404. INT R ST ON D LIN U NT T S.
Secton 404. I -43-7755
Mm. 4383
Instructons reatve to correspondence n regard to e tensons
of tme to pay defcences n, or nstaments of, ncome, gft, and
estate ta as affected by secton 404 of the Revenue ct of 1935.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 4, 1985.
Coectors of Interna Revenue:
Secton 404 of the Revenue ct of 1935, deang wth nterest on
denquent ta es, provdes as foows:
Notwthstandng any provson of aw to the contrary, nterest accrung dur-
ng any perod of tme after the date of the enactment of ths ct upon any
nterna-revenue ta (ncudng amounts assessed or coected as a part thereof)
or customs duty, not pad when due, sha be at the rate of per centum per
annum.
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13, rt. 13-1.
s the Revenue ct was enacted on ugust 30, 1935, at p. m-,
nterest due on unpad nterna-revenue ta es for perods startng
wth ugust 31, 1935, sha be at the rate of per cent per annum.
ny outstandng ureau etters wheren e tensons of tme have
been granted or are to be consdered, whch are affected by the above-
mentoned secton of the Revenue ct of 1935, are hereby modfed
accordngy so far as the payment of nterest s concerned for any
perod startng wth ugust 31, 1935.
Gut T. eveeno,
Commssoner.
pproved October 4, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
. R NU CT O 19 4.
SU TITL . G N R L PRO ISIONS.
P RT I. R T S O T .
S CTION 13. T ON CORPOR TIONS.
rtce 13-1: Income ta on corporatons. I -37-7 95
T. D. 4585
INCOM T .
The foowng artces of Reguatons 88 amended: rtce 13-1
the artce under secton 23(d) the eghth and nnth artces
under secton 23(1) artce 23(m)-1 artce 23(o)- artce
1-1 artce 112(g)-2 artce 115-5 artce 142-1 artce 143-4
artce 147-2 artce 181-1 artce 204(a)- artce 213-1
artce 214-1 and artce 322-3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The ast sentence of artce 13-1 of Reguatons 8 s amended by
strkng out see secton 801 (a) (2) and substtutng n eu thereof
see secton 801.
The number of artce 23(d) of Reguatons 8 , under secton
23(d), s changed to 23(d)-.
The number of the eghth artce of Reguatons 8 , under secton
23(1), s changed to 23()-8.
The number of the nnth artce of Reguatons 8 , under secton
23(1), s changed to 23()-9.
Paragraph (a)(3) of artce 23(m)-1 of Reguatons 8 s
amended by strkng out the word where and nsertng n eu
thereof the word f.
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55
13, rt. 13-1.
The ne t to the ast sentence of the frst paragraph of artce
23(o)- of Reguatons 8 s amended by strkng out see sectons
213(c) and substtutng n eu thereof see sectons 212(c).
The ne t to the ast sentence of artce 51-1 of Reguatons 8 s
amended by strkng out see secton 189 and nsertng n eu
thereof see secton 187.
The second paragraph of artce 112(g)-2 of Reguatons 8 s
amended to read:
The words statutory merger or consodaton refer to a merger or a conso-
daton effected In pursuance of the corporaton aws of the Unted States or a
State or Terrtory or the Dstrct of Coumba.
The second sentence of the second paragraph of artce 115-5 of
Reguatons 8 s amended by strkng out sectons 24(a)( ) and
117 and substtutng n eu thereof the words that secton, so
that such sentence w read:
The entre amount of the gan so recognzed sha be taken nto account
In computng net ncome despte the provsons of secton 117, but the osses
are sub|ect to the mtatons n that secton.
The ffth sentence from the end of artce 142-1 of Reguatons
8 s amended by strkng out the words Sortng Secton and
substtutng n eu thereof the words Records Dvson.
The frst paragraph of artce 143-4 of Reguatons 8 s amended
by changng the frst word thereof from If to When.
The fourth sentence of artce 147-2 of Reguatons 8 s amended
to read:
mounts dstrbuted or made avaabe under an empoyees trust governed
by the provsons of secton 1 5 to any benefcary n any ta abe year, In
e cess of the sum of hs persona e empton and the amounts pad nto the
fund by hm, must be reported by the trustee.
The ast sentence of artce 181-1 of Reguatons 8 s amended by
strkng out see secton 801(3) and substtutng n eu thereof
see secton 801(a)(3).
The ast sentence of artce 204(a)-1 of Reguatons 8 s amended
by strkng out orm 1030 and substtutng n eu thereof orm
1120.
The ast sentence of artce 213-1 of Reguatons 8 s amended
by strkng out as provded n artce 25-5 and substtutng n
eu thereof as provded n artce 25-7.
The ast sentence of artce 214-1 of Reguatons 8 s amended by
strkng out the phrase for the purpose of the norma ta .
The ast sentence of the second paragraph of artce 322-3 of
Reguatons 8 s amended by strkng out see artce 322- and
substtutng n eu thereof see artce 322-7.
Guy T. evekno,
Commssoner.
pproved September 9, 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
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22(a), rt. 22(a)-. 5
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 22(a)-: What ncuded n gross ncome. I -44-77 8
I. T. 2931
R NU CT O 1934.
dvances receved by cotton producers under cotton oan agree-
ments (Cotton orm , Commodty Credt Corporaton, 1934-35)
shoud be treated as oans and not as proceeds from the sae of
cotton.
rung s requested whether advances made to cotton producers
under cotton oan agreements and guaranteed by the Commodty
Credt Corporaton, a governmenta agency, are to be treated by the
producers as oans or as proceeds from the sae of cotton.
It appears that the advances n queston are obtaned by a cotton
producer by e ecutng a note and a oan agreement on Cotton orm
, Commodty Credt Corporaton, 1931-35. The cotton producers
note s made payabe on or before uy 31 of the foowng year
at the offce of the Commodty Credt Corporaton, wth nterest
from the date of the note at the rate of 4 per cent per annum, payabe
at maturty. The note states that t s secured by a pedge of ware-
house recepts representng a specfed number of baes of cotton
aggregatng a certan number of pounds. The oan agreement
provdes:
(1) That the producer-borrower ses, assgns, pedges, and/or
hypothecates to the payee and any subsequent hoder certan ware-
house recepts for cotton as coatera securty for payment of the
ndebtedness evdenced by the note
(2) That the producer-borrower s the owner of the cotton, has
the ega rght to pedge the same, and that the benefca tte
thereto s and aways has been n hm
(3) That any hoder may decare the note mmedatey due and
payabe upon the occurrence of certan events, namey, (a) when
and so ong as the prce of mddng -nch spot cotton on the New
Oreans market sha be at or above 15 cents per pound, (Z ) the
dscovery that the borrower has made any msrepresentaton n con-
necton wth the oan, (c) the faure on the part of the producer to
compy wth agreements wth respect to hs 1934-35 cotton acre-
age producton contract wth the Secretary of grcuture whch
he warrants and represents he has sgned, and (d) the fng by the
borrower of a petton n bankruptcy or for a composton or e ten-
son of debts under the ankruptcy ct
(4) That fter uy 31, 1935, or on the happenng and contnu-
ance of any of the foregong events, any hoder s authorzed to pace
a or any part of sad cotton n any poo or poos wth any other
cotton hed by the hoder under generay smar oan agreements,
and, ether by poo or separate contract, to se, assgn, transfer, and
dever the cotton or cotton documents, evdencng tte thereto, at
such tme, n such manner, for cash or upon such terms and cond-
tons, as such hoder may determne, at any cotton e change, or ese-
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57
22(a). rt. 22(a)-.
where, or through any agency, at pubc or prvate sae, for mmedate
or future devery, and wthout demand, advertsement, or notce of
the tme and pace of sae or ad|ournment thereof or otherwse and
upon such sae, the hoder may become the purchaser of the whoe
or any part of such coatera securty
(5) That fter deductng a fees, costs, and e penses ncdent
to nsurng, carryng, handng, and marketng the coatera and ac-
countng to the undersgned producer, ncudng reasonabe attorney
fees, the hoder sha appy the resdue of any saes proceeds or n-
surance proceeds toward the payment of the above-mentoned note,
returnng the overpus, f any, ony to the undersgned, or hs per-
sona representatves, wthout rght of assgnment or substtuton of
any other party. The undersgned producer sha be and reman
abe to the hoder for any defcency ony n the event that he does
not reduce cotton acreage or producton n accordance wth the cotton
acreage reducton agreement wth the Secretary of grcuture, as
herenafter referred to heren, or has made any msrepresentaton
heren or n connecton wth the oan represented by the above-
mentoned note.
Other provsons of the agreement are not essenta to a dscusson
of the ssue here nvoved.
The transacton s stated to be a oan and a the ncdents of a oan
are present. secured note s gven for a f ed sum of money whch
the maker promses to repay at a certan tme, and tte to the
securty s n the borrower, whch woud not be the case f the trans-
acton were a sae. In fact, there s nothng n the transacton whch
suggests the possbty of treatng t as a sae e cept that part of the
agreement (paragraph 5) whch provdes that the producer may not
be caed upon to pay any defcency whch may e st after sae of
the coatera, provded the producer reduces cotton acreage n ac-
cordance wth the cotton acreage reducton agreement wth the Secre-
tary of grcuture and provded he makes no msrepresentaton n
connecton wth the oan. Ths s an unusua provson n a oan
agreement but t does not make the transacton any the ess a oan.
There s no reease from repayment of the oan as such. It s merey
understood that f there s a defcency after the sae of the pedged
cotton and provded other condtons are met, such defcency need not
be repad by the producer-borrower. Repayment of the fu amount
s contngent but as was sad by the court n Isand Petroeum Co.
v. Commssoner (57 ed. (2d), 992), oan s no ess a oan because
ts repayment s made contngent. The Commodty Credt Cor-
poraton evdenced no ntenton to purchase and there appears to be
no authorty to purchase e cept upon sae of the coatera.
It s, therefore, hed that the advances receved by cotton producers
under oan agreements n anguage and form such as emboded n
Cotton orm , Commodty Credt Corporaton, 1934-35 (the same
form appyng for pror and subsequent years), shoud not at the
tme of enterng nto the agreement and recevng the money be
treated as proceeds from the sae of cotton but shoud be treated as
oans.
47318 3 3
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22(a), rt. 22(a)-18.
58
rtce 22(a)-18: Sae and purchase by corpo- I -4 -7803
raton of ts bonds. T. D. 4 03
Treatment for come ta purposes of unamortzed dscount on
bonds retred, premums pad upon retrement, and ssuance e -
penses connected therewth.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
Coectors of Interna Revenue and Others Concerned:
In determnng the deductons for ncome ta purposes of tems
n respect of the refundng of bonds, the foowng rues sha appy
n the nstances specfed:
(a) In the case of a retrement of an ssue of od bonds from the
proceeds of the sae of new bonds any amount pad n e cess of the
face vaue of the od bonds, ess any amount of premum receved
when ssued and not aready returned as ncome, and any unamor-
tzed dscount and unamortzed e pense attrbutabe to such bonds,
s deductbe n the ta abe year of ther retrement. owever, pur-
suant to the dscreton vested n the Commssoner, wth the approva
of the Secretary, by secton 1108(a) of the Revenue ct of 192 , as
fnay amended by secton 50 of the Revenue ct of 1934, n the
case of such retrement of an od ssue of bonds pror to the date
of the approva of ths Treasury decson, the ta for the year of
retrement and subsequent ta abe years w be determned on the
bass of the rung of the ureau of Interna Revenue heretofore n
e stence to the effect that the tems mentoned n the frst sentence
hereof shoud be prorated and amortzed over the fe of the new
bonds, (1) f the ta abe year n whch the retrement occurred has
been cosed on that bass and the ta for such year can not be redeter-
mned, or (2) f, where the ta abe year n whch such retrement
occurred remans open, the ta payer by a wrtten communcaton
addressed to and fed wth the Commssoner of Interna Revenue,
Washngton, D. C, on or before anuary 1, 193 , gves notce of ts
eecton to have ts ta es determned n accordance wth such od
rung, and e pressy waves n such wrtten communcaton ts
rght to cam a refund or credt on the ground that such tems are
deductbe n the ta abe year n whch the retrement occurred.
(b) In the case of a retrement of an ssue of od bonds n part
by e change for new bonds and n part by payment n cash: (1) In
respect of the porton of the od bonds retred wth cash any amount
pad n e cess of the face vaue of the od bonds, ess any amount
of premum receved when ssued and not aready returned as n-
come, and any unamortzed dscount and unamortzed e pense attrb-
utabe to such bonds, s deductbe n the ta abe year of ther retre-
ment, sub|ect to the e cepton stated n paragraph (c) above (2)
n respect of the porton of the od bonds e changed for new bonds
such tems sha be amortzed over the fe of the new bonds.
(c) In the case of a retrement of od bonds n e change for new
bonds of the same or a greater face vaue, or by the e change for
new bonds pus a bonus n cash, such tems sha be amortzed over
the fe of the new bonds.
(d) In the case of a retrement of od bonds from the proceeds of
the sae or ssue of capta stock such tems are deductbe n the
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59
23(a), rt. 23(a)-1.
year n whch the od bonds are retred. In the case of a retrement
of od bonds through converson or e change for shares of capta
stock of the obgor no deducton sha be aowed on account of the
unamortzed baances of such tems n the year the bonds are retred
nor sha any amortzaton aowances be made n respect of such
tems for subsequent ta abe |rears.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 9, 1935.
Stephen . Gbbons,
ctng Secretary of the Treasury.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23 (a)-: usness e penses. I -38-7C98
G. C. M. 15430
R NU CT O 1934.
uyng commssons are a part of the cost of securtes and
are not deductbe as ordnary and necessary busness e penses.
Seng commssons are an offset aganst the sae prce and are
not deductbe as ordnary and necessary busness e penses, e -
cept In the. case of a deaer n securtes.
n opnon s requested whether commssons pad n connecton
wth saes of securtes are deductbe as ordnary and necessary
busness e penses under secton 23(a) of the Revenue ct of 1934,
or whether they shoud be used as an offset aganst the seng prce
of the securtes n computng gan or oss.
The queston as to the deductbty of such commssons nvoves
three casses of ta payers (1) a deaer n securtes, (2) a trader
n securtes, and (3) a ta payer who purchases and ses securtes
occasonay but not n such quanttes or under such crcumstances
as to consttute hm ether a deaer or a trader. (Cf. G. C. M. 9 5 ,
C. . -2, 127, G. C. M. 9958, C. . -2, 158, and artce 22(c)-5
of Reguatons 8 for the dstncton between a deaer and a trader.)
undamentay, commssons pad n connecton wth both pur-
chases and saes of securtes, beng drect e penses of acqurng and
dsposng of the property, are drect charges aganst the proft, or
ncrease the oss, arsng from the transacton. The e penses n-
curred n consummatng the purchase and sae necessary affect the
amount of the proft or oss. The poston of the Treasury Depart-
ment, whch has been n effect for many years, s e pressed by para-
graph 108 of Reguatons 33, revsed, construng the Revenue ct of
191 , whch provdes that:
pense Commssons pad. Commssons pad n purchasng and seng
securtes are a part of the cost or seng prce of the securtes and not other-
wse deductbe. They do not consttute e pense deductons In a return of
Income.
rtce 293 of Reguatons 45 reads n part as foows:
Commssons pad In purchasng securtes are a part of the cost
prce of such securtes. Commssons pad n seng securtes are an offset
aganst the seng prce.
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23(a), rt. 23(a)- .
0
The same anguage appears n artce 293 of Reguatons 2, ar-
tce 292 of Reguatons 5, artce 292 of Reguatons 9, and artce
282 of Reguatons 74. rtce 282 of Reguatons 77 and artce
24-2 of Reguatons 8 read n part as foows:
Commssons pad n purchasng securtes are a part of the cost
prce of such securtes. Commssons pad In seng securtes, tc/en such
commssons are not an ordnary and necessary ousness e pense, are an offset
aganst the seng prce. Itacs supped.
The anguage of a the Revenue cts from the Revenue ct of
1913 to and ncudng the Revenue ct of 1934 s substantay den-
tca n so far as the provsons affectng the present ssue are con-
cerned. It s we setted that where a statute has been construed for
a ong perod of tme as havng a certan meanng, a reenactment of
that statute wthout change ndcates egsatve sancton of the con-
structon prevousy gven t. (Natona Lead Co. v. Unted States,
252 U. S., 140 New aven R. R. v. Interstate Com. Com., 200 U. S.,
3 1 Copper ueen Mnng Co. v. rzona oard, 20 U. S., 474.)
It s equay we setted that the constructon of a doubtfu statute
adopted and ong enforced by the offcers charged wth ts admn-
straton w be gven great weght by the courts. (Natona Lead
Co. v. Unted States, supra.)
The Treasury Department s poston s supported by decsons of
the oard of Ta ppeas and the courts. In Mar|ore Post utton
v. Commssoner (12 . T. ., 2 5), the oard e pressy hed that
commssons pad n the purchase of securtes are a part of the cost
thereof and are not deductbe as an ordnary and necessary busness
e pense. Its decson was affrmed upon appea (39 ed. (2d), 459,
Ct. D. 249, C. . I -2, 353). In /. N. urman v. Commssoner (23
. T. ., 39), the oard reached the same concuson. In orence
G. adwn v. Commssoner (23 . T. ., 512, acquescence, C. .
III-2, 2), rank Cavanaugh v. Commssoner (19 . T. ., 1251),
Mrs. . . Gffn v. Commssoner (19 . T. ., 1243), and . M. N.
Muhe v. Commssoner (19 . T. ., 1247), the oard hed that se-
ng commssons are not deductbe as ordnary and necessary bus-
ness e penses but are an offset aganst the sae prce.
Snce, fundamentay, commssons on both purchases and saes are
drect charges to the proft or oss arsng from the partcuar saes
n connecton wth whch they are pad, there can be no |ustfca-
ton for a departure from that method of treatment e cept n those
cases where the deta of accountng on that bass s so burdensome
as to make ts use mpractcabe. No such accountng dffcutes
e st n the case of any of the three casses of ta payers enumerated
above e cept the deaer. oth the occasona seer and the trader
are requred to account n ther ncome ta returns for the proft
or oss on each ndvdua sae. The rght to nventory securtes s
dened to the trader and to the occasona seer. (See artce 22(c)-5,
Reguatons 8 .) In so accountng, no dffcuty whatever s e pe-
renced n addng the purchase commsson to the cost of the securty
and deductng the sae commsson from the seng prce thereof.
In the case of the deaer, no accountng dffcuty s e perenced n
addng the purchase commsson to the cost and he s requred to do
so n a cases nstead of treatng such commssons as current e -
penses even where he s permtted to nventory hs securtes. ow-
ever, n the deaer s accountng there are dffcutes whch make t
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1
23(a), rt. 23(a)-.
mpractcabe for hm to match hs seng commssons aganst each
ndvdua sae. The deaer usuay buys n arge (quanttes, hs
saes are numerous and n reatvey sma amounts, hs commssons
are often computed and pad on a voume of saes nstead of on
ndvdua transactons, and where he uses nventores he necessary
departs wdey from the prncpe of accountng for the proft on
each ndvdua purchase and sae. The Commcsoner has rec-
ognzed these dffcutes and. n actua practce has permtted the
deaer n securtes to treat hs seng commssons as ordnary and
necessary busness e penses, not because they are techncay such
but because of practca consderatons. owever, no forma recogn-
ton was gven ths practce unt the promugaton of Reguatons
77, when, n artce 282, there was nserted the quafyng phrase
when such commssons are not an ordnary and necessary bus-
ness e pense. Ths anguage shoud not be construed as hodng
that seng commssons are to a trader ordnary and necessary
e penses n carryng on any trade or busness wthn
the meanng of secton 23(a) of the Revenue ct of 1934 and cor-
respondng provsons of pror Revenue cts.
In reachng ths concuson there has not been overooked that
part of artce 23(a)- of Reguatons 8 , whch provdes that
usness e penses deductbe from gross ncome ncude the ordnary and
necessary e pendtures drecty connected wth or pertanng to the ta payer s
trade or busness, e cept the casses of tems whch are deductbe under the
provsons of artces 23(b)- to 23(q)-. mong the tems ncuded
n busness e penses are management e penses, commssons,
or smar artces of earer reguatons. Commssons are pad for
many other servces besde negotatng purchases and saes of secur-
tes. urthermore, these reguatons recognze that the rue stated
theren s sub|ect to e cepton n the cass of cases deat wth n ths
memorandum. rtce 23(a) 1 concudes wth ths sentence: s
to tems not deductbe under any provson of secton 23, see secton
24. The earer reguatons contan smar e ceptons.
It s concuded, therefore, that buyng commssons are a part
of the cost of securtes and are not deductbe as ordnary and neces-
sary busness e penses. Seng commssons are an onset aganst
the sae prce and are not deductbe as ordnary and necessary bus-
ness e penses, e cept n the case of a deaer n securtes.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 23(a)-. usness e penses. I -45-7780
( so Secton 23(1), rtce 23()-3.) I. T. 2932
R NU CT OP 1034.
The cost of a baseba-payer contract whch at the tme of Its
acquston has a perod of one year or ess to run shoud be de-
ducted as a busness e pense n the year In whch such cost s pad
or accrued, regardess of whether the contract contans a renewa
opton.
The cost of a baseba-payer contract whch at the tme of ts
acquston has a perod of more than one year to run shoud be
amortzed over the fe of the contract and an annua aowance
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23(a), rt. 23(a)- .
2
for such amortzaton shoud be deducted each year durng whch
the orgna contract contnues.
If an opton to renew a baseba-payer contract s e ercsed, the
arrangement shoud be treated as a new contract for the perod of
the renewa.
dvce s requested wth respect to the treatment for ncome ta pur-
poses of contracts for the servces of professona baseba payers.
The M aseba Cub, the ta payer, states that as a resut of the
decson of the oard of Ta ppeas n Daas thetc ssocaton
v. Commssoner (8 . T. ., 103 ) t has been ts custom to capta-
ze at actua cost a contracts for servces of professona baseba
payers and to carry the contracts as assets not sub|ect to depreca-
ton. Where a contract was sod the ta payer has ncuded the
amount receved n gross ncome and deducted the orgna cost of
the contract as an e pense for the year n whch the sae occurred.
s a resut of the decson of the Unted States Crcut Court of
ppeas for the Thrd Crcut n Commssoner v. Pttsburgh th-
etc Co. (72 ed. (2d), 883), the ta payer submts the foowng
questons:
1. What s the atttude of the ureau wth reference to the prac-
tce of carryng baseba-payer contracts as outned above
2. If the ureau requres a change n practce, what shoud be
done to cear the contracts whch are now carred as assets and whch
were acqured n pror years
3. Does the ureau propose to abde by the decson n the Ptts-
burgh thetc Co. case
The frst and thrd questons w be answered together. Subse-
quent to the decson n the Pttsburgh thetc Co. case, n whch
t was hed that the cost of a baseba-payer contract for one year
wth opton to renew s deductbe n the year when pad and shoud
not be spread over the perod of the contract pus renewas, two
other decsons were rendered consstent wth that vew. (See Cam-
mssoner v. Chcago Natona League a Cub, 74 ed. (2d), 1010,
and Commssoner v. ansas Cty mercan ss n aseba Co., 75
ed. (2d), 00.) The ureau w foow the prncpe ad down
n those decsons. Consequenty, the foowng rues are estabshed:
1. The cost of a baseba-payer contract whch at the tme of ts
acquston has a perod of one year or ess to run shoud be deducted
as a busness e pense n the year n whch such cost s pad or ac-
crued, regardess of whether the contract contans a renewa opton.
2. The cost of a baseba-payer contract whch at the tme of ts
acquston has a perod of more than one year to run shoud be
amortzed over the fe of the contract and an annua aowance for
such amortzaton shoud be deducted each year durng whch the
orgna contract contnues.
3. If an opton to renew a baseba-payer contract s e ercsed,
the arrangement shoud be treated as a new contract for the perod
of the renewa.
In connecton wth the second queston, f the ta payer has faed
n pror years to take proper deductons for the cost of contracts
under the rues prescrbed above, t shoud fe wth the coector of
nterna revenue for ts dstrct a cam for refund on orm 843, set-
tng forth under oath n the facts and fgures n support of the
deductons camed. separate cam shoud be fed for each year
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3
23(a), rt. 23(a)-12.
wth reference to whch a refund s asked. The cam must be fed
wthn the perod of mtaton prescrbed by the appcabe statute.
Under secton 322(b) of the Revenue ct of 1932 cams for refund
of ta aeged to have been overpad for the ta abe years 1932 and
1933 must be fed wth the coector of nterna revenue for the ta -
payer s dstrct wthn two years from the tme the ta was pad and
under secton 322(b) of the Revenue ct of 1934, such cams for the
ta abe year 1934 and subsequent ta abe years must be fed wthn
three years from the tme the return was fed or wthn two years
from the tme the ta was pad for such year or years, whchever of
such perods e pres the ater.
If the ta payer has taken deductons n years for whch they are
not aowabe under the above rues, amended returns shoud be fed
contanng approprate ad|ustments.
rtce 23(a)-: usness e penses. I -4 -7795
I. T. 2934
R NU CT O 1934.
Where a carrer accrued and camed as a deducton n ts
ncome ta return for 1934 the amount of ts contrbuton to the
retrement fund under the aroad Retrement ct (Pubc, No.
485, Seventy-thrd Congress, 48 Stat, 1283), an amended return
shoud be fed, n vew of the decson of the Unted States
Supreme Court n Raroad Retrement oard et a. v. ton Ra-
road Co. et a. (295 U. S., 330) hodng that ct unconsttutona.
dvce s requested reatve to the treatment, for edera ncome
ta purposes, of the amount of a carrer s contrbuton to the retre-
ment fund under the provsons of the Raroad Retrement ct
(Pubc, No. 485, Seventy-thrd Congress, 48 Stat., 1283) whch was
accrued and camed as a deducton by the M Raroad Co. n ts
ncome ta return for the ta abe year 1934.
The ct referred to was decared unconsttutona by the Unted
States Supreme Court on May ,1935. (Raroad Retrement oard
et a. v. ton Raroad Co. et a., 295 U. S., 330.) When a statute
s hed to be unconsttutona, t s the genera rue that, though
havng the form and name of aw, t s n reaty no aw, but s
whoy vod and n ega contempaton s as noperatve as f t had
never been passed. (I. T. 2578, C. . -, 119.) Consequenty, for
edera ncome ta purposes, a deducton by the carrer of the
amount of the accrued contrbuton under the ct n queston s not
aowabe. n amended return shoud be fed by the M Raroad
Co. at the earest practcabe date, accompaned by the amount of
any addtona ta due for 1934 as the resut of the unaowabe
deducton camed.
rtce 23 (a)-12: Depostors guaranty fund. I -48-7828
I. T. 2940
R NU CT O 1934.
Treatment for Income ta purposes of amounts p d by banks
nto the temporary edera depost nsurance fund and amounts
pad by them as assessments under the ankng ct of 1035 to
the edera Depost Insurance Corporaton for the nsurance of
deposts.
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23(a). rt. 23(a)-12.
4
dvce s requested reatve to the treatment of amounts pad by
banks nto the temporary edera depost nsurance fund and assess-
ments pad under the ankng ct of 1935 for nsurance of deposts.
The edera Depost Insurance Corporaton (herenafter some-
tmes referred to as the corporaton) was created under the ankng
ct of 1933, havng for one of ts purposes the protecton of deposts
of a banks entted to the benefts of the nsurance provded by the
ct. In carryng out the purposes of the corporaton there was set
up a temporary edera depost nsurance fund to cover a perod of
s months from anuary 1, 1934, to une 30, 1934. Payments nto
the fund were made by banks n 1933 and 1934. Upon the dscon-
tnuance of the temporary fund, the banks were to obtan the same
benefts through the purchase of shares of stock n the corporaton
and any unused porton of the temporary fund was to be rataby
dstrbuted to the members of the fund. y subsequent amend-
ments to the aw, Congress e tended the perod of the temporary
fund to une 30, 1935, and ater to ugust 31, 1935. In accordance
wth the provsons of the ankng ct of 1935, approved ugust
23, 1935, whch provdes for permanent nsurance of bank deposts
wthout any requrements for the purchase of stock, members of
the temporary edera depost nsurance fund were advsed by the
corporaton that n eu of a cash dstrbuton of the amount of the
reversonary nterest n the temporary fund, as orgnay provded,
a credt to the nsured bank woud be estabshed on the books of the
edera Depost Insurance Corporaton, whch credt w be apped
toward pa| ment of the assessments ne t due from the bank. It s
stated that the corporaton aso advsed the banks that t s optona
whether or not they reestabsh such credts on ther books. Due to
the dscontnuance of the temporary pan upon enactment of the
ankng ct of 1935, nqury s made reatve to the proper treat-
ment of the amount pad nto the temporary edera depost n-
surance fund and deducted as a busness e pense, whch amount w
not be refunded but w be apped by the edera Depost Insur-
ance Corporaton as a credt aganst future assessments. The n-
qury ncudes the queston of the proper method of handng assess-
ments and payments n cases where banks captazed the amount of
the assessments pad n 1933 and 1934 nstead of deductng such
assessments as busness e penses. The queston s aso presented
reatve to the deductbty of payments under the ankng ct
of 1935.
In I. T. 27G4 (C. . III-1, 45) the ureau hed that the amount
actuay pad by a bank nto the temporary edera depost nsurance
fund upon admsson to the fund, as dstngushed from the amount
sub|ect to ca, was deductbe as a busness e pense n ts edera
ncome ta return for the ta abe year n whch the payment was
made. It was aso hed, n vew of the bank s reversonary nterest
n the temporary fund, the amount of whch coud not be determned
unt after the e praton of the ta year, that f a part of the amount
pad nto the temporary fund and deducted as a busness e pense was
returned to the ta payer, the amount so returned consttuted ncome
for the year n whch t was receved. s ndcated above, under the
provsons of the ankng ct of 1935, the amount of the reversonary
nterest of a bank n the temporary fund w not be returned as a
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23(c), rt. 23(c)- .
cash dstrbuton, but w be apped toward the payment of future
assessments. The amount pad nto the temporary edera depost
nsurance fund and prevousy deducted as a busness e pense whch
s credted to the nsured bank on the books of the edera Depost
Insurance Corporaton w consttute ta abe ncome for edera
ncome ta purposes to the nsured bank n the ta abe year or years
n whch such credt s actuay apped by the edera Depost Insur-
ance Corporaton toward the payment of assessments due from such
bank. The bank s, of course, entted to a correspondng deducton
n that year on account of the assessment aganst whch such credt s
apped.
In the case of banks whch captazed the amount of the assess-
ments pad n 1933 and 1934 to the temporary edera depost nsur-
ance fund, I. T. 27 4, supra, does not precude those banks from takng
as a deducton n 1935 or any subsequent year the amount whch the
edera Depost Insurance Corporaton apped n such year as a
pro rata assessment on account of osses sustaned. Under such cr-
cumstances, there w be no correspondng amount to be returned as
ncome.
Unke the assessments formery pad nto the edera depost
nsurance fund, no reversonary nterest s retaned by banks n the
assessments whch they are requred to pay under the ankng ct
of 1935 to the edera Depost Insurance Corporaton for nsurance
of ther deposts. Such an assessment, pad n accordance wth the
provsons of the ankng ct of 1935, s an aowabe deducton as
an ordnary and necessary busness e pense n the edera ncome ta
return of the nsured bank for the ta abe year n whch the assess-
ment s actuay pad.
S CTION 23(c). D DUCTIONS OM GROSS
INCOM : T S G N R LLY.
rtce 23 (c)-: Ta es. I -2 -75 5
G. C. M. 15101
R NU CT O 1934.
The ta Imposed on gasone by the State of Msssspp under
the provsons of chapter 119, Laws of Msssspp, 1920, as
amended by chapter 93, Laws of Msssspp, 1932, s deductbe
by the dstrbutor or deaer as a ta n hs edera ncome ta
return. If, however, the ta s added to or made a part of the
busness e pense of the dstrbutor or deaer, or s otherwse
used to reduce hs net ncome, t s not deductbe separatey as a
ta . Inasmuch as the ta s coected by the dstrbutor or deaer
from the consumer, the dstrbutor or deaer must ncude the
amount so coected In hs gross Income for edera ncome ta
purposes.
Recommended that I. T. 2835 (C. . III-2, 53), hodng the
ta deductbe by the consumer, be revoked, and that ths rung
be apped wthout retroactve effect and ony to Income ta re-
turns for years subsequent to 1934.
Reconsderaton has been requested of I. T. 2835 (C. . III-2,
53), hodng that the gasone ta mposed by the State of Msss-
spp s deductbe by the consumer.
The gasone ta statute of Msssspp, as amended by chapter
119, Laws of Msssspp, 192 , provded that ny person
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23(c), rt. 23(c)- .

engaged n the busness of dstrbutor of gasone, or reta deaer
of gasone, sha pay for the prvege of engagng n such busness
an e cse ta of four cents (4c) per gaon upon the sae of gasone
by such deaer n ths State.
The statute n that form was consdered by the Supreme Court
of Msssspp n State v. Pan ande O Co. (147 Mss., GG3, 112
So., 5S4) and the court stated n part as foows:
Ths s not a ta upon the persons to whom the deaer ses the gasone,
but t s upon the deaer, whch he ncudes n hs seng prce, and s meas-
ured by the amount of gasone sod.
The court hed that the deaer was requred to pay the ta upon
saes of gasone to the Unted States Government.
The Supreme Court of the Unted States, n Panhande O Co. v.
State (277 U. S., 218), reversed that decson and hed that to mpose
a ta upon a sae of gasone to an agency of the Unted States woud
resut n a burden upon the Unted States n voaton of the mped
consttutona mtaton where the ta was measured by the amount
of the sae, but t dd not n e press terms dsagree wth the concu-
son that the ta was mposed upon the seer rather than upon the
consumer. In other words, the burden of the ta beng upon the
Unted States, the Court concuded that such an mposton was un-
consttutona but dd not concude that n the case of other saes the
ta was a ta on the consumer.
The statute was amended and reenacted by chapter 93, Laws of
Msssspp, 1932, n whch the provsons requrng the payment of
the ta by the dstrbutors or reta deaers were retaned wthout
substanta change, but a provson was added by secton 23 to the
effect that those who purchased gasone for use other than n operat-
ng motor vehces upon the pubc hghways shoud be entted to a
refund at the rate per gaon of 1 cent ess than the ta actuay pad.
It was aso provded n secton 30 that :
It s decared to be the purpose and ntenton of the egsature to mpose an
e cse ta on n persons engaged n the busness of buyng, seng, storng
and/or dstrbutng gasone or other motor fue, n the State of Msssspp,
drecty or ndrecty, computed at the rates named n ths act .
Under date of ebruary 12, 1935, the attorney genera of Msss-
spp rendered an opnon n whch he stated wth respect to the
gasone ta as foows:
The statute ceary eves the ta aganst the deaer or dstrbutor of gasone
and not aganst the purchaser or consumer thereof.
The provsons of the statute n reference to refund where gasone s used
for certan commerca purposes may be a tte confusng. owever, f we
construe the whoe statute together, I thnk t cear that the egsature ntended
to ta the sae of gasone when used n motor vehces on the pubc roads at
the rate of C cents per gaon, and when used for other commerca purposes at
1 cent per gaon.
of the ta , however, s ad on the deaer or dstrbutor and not on the
consumer. The consumer, therefore, woud not be entted to deduct sad
amount as ta es from hs ncome.
In I. T. 2534 (C. . I -1, 107) t was hed that the motor fue ta
mposed by the State of Coorado s deductbe by the deaer, snce the
supreme court of that State, n construng the Coorado statute, whch
contans a refund provson substantay ke the one n the Msss-
spp statute, hed that the ta was mposed upon the deaer. (See
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7
t 23(c), rt. 23(c)-.
aso G. C. M. 7 30, C. . I -2, 107, hodng the motor vehce fue
ta of Caforna deductbe by the dstrbutor, foowng the decson
of the supreme court of that State.)
In vew of the foregong, t s the opnon of ths offce that deduc-
ton for the ta n queston shoud be aowed to the dstrbutor or
deaer and not to the consumer. If, however, the ta s added to or
made a part of the busness e pense of the dstrbutor or deaer, or
s otherwse used to reduce hs net ncome, t s not deductbe sepa-
ratey as a ta . Inasmuch as the ta s coected by the dstrbutor
or deaer from the consumer, the dstrbutor or deaer must ncude
the amount so coected n hs gross ncome for edera ncome ta
purposes.
It s recommended that I. T. 2835, supra, be revoked. It s further
recommended, however, that, under the authorty granted by secton
50 of the evenue ct of 1934, ths rung be apped wthout
retroactve effect and ony to ncome ta returns for years subsequent
to 1934.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
pproved.
Gut T. zverno,
C ommsson er.
pproved May 29, 1935.
T. . Coodge,
ctng Secretary.
rtce 23(c)-: Ta es. I -2 -75
I. T. 2900
R NU CT O 1034.
I. T. 2835 (C. . III-2, 53), hodng that the ta mposed on
fasone by the State of Msssspp s deductbe as a ta n the
edera ncome ta return of the consumer, s revoked. In vew of
G. C. M. 15101 (page 5, ths uetn), approved by the Secretary,
the rung hodng the ta deductbe by the dstrbutor or deaer
w be apped ony to ncome ta returns for years subsequent to
1934.
rtce 23(c)-: Ta es. I -27-7579
I. T. 2902
R NU CT O 1934.
The New York Cty saes ta (chapter 873, Laws of New York,
1034) Is deductbe by the purchaser or vendee for edera Income
purposes. If the ta Is added to or made a part of the ta payer s
busness e pense, or Is otherwse used to reduce hs net ncome,
It can not be deducted by hm separatey as a ta .
dvce s requested reatve to the deductbty for edera ncome
ta purposes of the New York Cty saes ta .
uthorty for the mposton of the ta by the cty s granted
under chapter 873, Laws of New York, 1934. The ta s mposed
under oca aw No. 24 of the cty of New York for 1934 and amends
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23(c), rt. 23(c)- .
8
oca aw No. 20 for the same year. The purpose of the enactment
s to enabe the cty to defray the cost of grantng unempoyment
work and home reef. Pertnent provsons of the aw are as
foows:
Sec. 2. Imposton of ta . Durng the perod commencng on
December 10, 1034, and endng on December 31, 1935, there sha be pad a
ta of 2 per centum upon the amount of the recepts from every sae n the
cty of New York of:
(a) Tangbe persona property sod at reta, e cept those artces descrbed
n schedue beow
( ) Gas, eectrcty, refrgeraton and steam, and gas, eectrc, refrgeraton,
steam, teephone and teegraph servce, for domestc or commerca use
(c) ood, drnk and entertanment n restaurants, cafes and other estab-
shments .
(rf) Wnes and quors and other acohoc beverages, and drnks com-
pounded thereof or therewth, e cept beer or other smar mat beverages, n-
cudng saes thereof In restaurants, cafes, bars and other paces for consump-
ton on the premses: .
The e ceptons stated n schedue ncude food products, certan
drnks and condments, drugs and medcnes sod upon a physcan s
prescrpton, water, when devered to the consumer through mans
and ppes, and newspapers and perodcas. The ta does not appy
to recepts from saes to the cty or State of New York, senpubc
nsttutons, or recepts upon whch the cty and State are wthout
power under the Unted States Consttuton to mpose a ta .
It s further provded n paragrap (d) of secton 2 as foows:
Upon each ta abe sae or servce the ta to be coected sha be stated and
charged separatey from the sae prce or charge for servce and shown sepa-
ratey on any record thereof, at the tme when the sae s made or evdence
of sae ssued or empoyed by the vendor and sha be pad by the purchaser
to the vendor, for and on account of the cty of New York, and the vendor sha
be abe for the coecton or the servce rendered and the vendor sha have
the same rght n respect to coectng the ta from the purchaser, or n re-
spect to nonpayment of the ta by the purchaser, as f the ta were a part of
the purchase prce of the property or servce and payabe at the tme of the
sae.
Where a purchaser has faed to pay and a vendor has faed to coect a
ta upon a sae or servce, such ta sha be payabe by the pur-
chaser drecty to the comptroer and t sha be the duty of the purchaser
to fe a return thereof wth the comptroer and to pay the ta mposed thereon
to the comptroer wthn 15 days after such sae was made or servce rendered.
The comptroer may, wherever he deems t necessary for the proper enforce-
ment of ths oca aw, provde by reguaton that the purchaser sha fe
returns and pay drecty to the comptroer the ta heren mposed, at such
tmes as returns are requred to be fed and payment over made by vendors.

or the purpose of the proper admnstraton and to prevent
evason of the ta hereby mposed, t sha be presumed that a recepts
are sub|ect to the ta unt the contrary s estabshed, and the
burden of provng that a recept s not ta abe hereunder sha be upon the
vendor or the purchaser, uness the vendor sha have taken from the pur-
chaser a certfcate to the effect that the property or servce was
purchased for resae.
No person engaged n the busness of seng property or servces the
recepts from whch are sub|ect to ta sha advertse or hod out
to the pubc n any manner drecty or ndrecty that the ta mposed
s not consdered as an eement n the prce to the purchaser.

Sec. 10. Refunds. The comptroer sha refund any ta errone-
ousy or egay coected and pad to hm If appcaton therefor sha be
made wthn one year from the payment thereof. Such appcaton may be
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23(c), rt. 23(c)-.
made by the person upon whom such ta was Imposed, or by the vendor who
coected and pad such ta to the comptroer If such vendor estabshes
to the satsfacton of the comptroer, under such reguatons as he may pre-
scrbe, that he has repad to the purchaser the amount for whch appcaton
for refund Is made.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8 , reatng to the Revenue
ct of 1934, states that n genera ta es are deductbe ony by the
person upon whom they are mposed. The aw under whch the
New York Cty saes ta s mposed requres that t sha be pad by
the purchaser and coected by the vendor, and n the event of non-
payment by the former and faure to coect by the atter, the pur-
chaser must fe a return and pay the ta to the comptroer. Re-
funds may be made to the purchaser, or to the vendor n the event
he has repad the amount of the ta to the purchaser. It foows
that the burden whch the New York Cty saes ta aw creates s
borne by the purchaser or vendee and not by the vendor.
In vew of the foregong, t s hed that the purchaser or vendee
who keeps hs books on the cash recepts and dsbursements bass
s entted to deduct n hs edera ncome ta return the amount of
the ta whch he pad durng hs ta abe year and whch has not
been refunded to hm. If the ta payer s books are kept on the ac-
crua bass, the amount of the ta actuay accrued durng the perod
covered by hs edera ncome ta return s deductbe. If the ta
s added to or made a part of the vendee s busness e pense, or s
otherwse used to reduce hs net ncome, t can not be deducted by
hm separatey as a ta .
btce 23(c)-: Ta es. I -29-7598
G. C. M. 14970
R NU CTS O 1028, 1932, ND 1034.
The amended consttuton and aws of Lousana contan no
change whch necesstates modfcaton or revocaton of G. C. M,
893G (C. . -, 110), hodng that the gasone and motor fue
ta mposed by the State of Lousana under the provsons of
act No. of the e tra sesson of 1928 s deductbe by the con-
sumer for edera ncome ta purposes. That rung s appcabe
under the ater Revenue cts wth respect to the gasone and
motor fue ta of 4 cents per gaon and the addtona ta of 1 cent
per gaon mposed by that State.
n opnon s requested whether certan changes n the consttu-
ton and aws of Lousana reatng to the gasone and motor fue
ta mposed by that State have any effect on the concuson reached
n G. C. M. 893 (C. . -, 110) that the gasone and motor fue
ta mposed by the State of Lousana under the provsons of act
No. of the e tra sesson of 1928 s deductbe by the consumer.
In G. C. M. 893 , act No. of the e tra sesson of 1928, enacted
under authorty of paragraph , secton 22, of rtce I of the
consttuton of 1921, as amended, was nvoved. The pertnent pro-
vsons of that statute are set forth n G. C. M. 893 , supra. In
short, the statute mposed a ta of 4 cents per gaon upon a gaso-
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23(c), rt. 23(c)- .
70
ne and motor fue sod, used or consumed n the State of Lous-
ana for domestc consumpton and, for the purpose of centrazng
the coecton of the ta , provded that such ta sha be coectbe
from a persons engaged as deaers n the handng, sae or ds-
trbuton of such products wthn the State of Lousana. Ths
offce, n hodng that the ta was mposed upon, and therefore de-
ductbe by, the consumer, foowed the decson of the hghest court
of Lousana, whch hed that t was the purpose of the consttu-
tona provson to pace the burden of ths specfc ta aton upon
the utmate consumer, and that such consttutona mandate oper-
ates as a restrcton upon the egsatve power to mpose any other
ta . (State v. Lberty O Co., Ltd., 154 La., 2 7, 97 So., 438.) The
prncpe that a State may mpose upon the deaer the duty of co-
ectng a ta eved upon the consumer has been affrmed by the Su-
preme Court of the Unted States. (Perce O Corporaton v. op-
kns, 2 4 U. S., 137.)
Paragraph , secton 22, of rtce I of the consttuton of
1921, as amended by act No. 2, 1934 (Lousana Consttutons -
Dart, Cumuatve Suppement, 1934, page 9), authorzes the egs-
ature to evy and to provde for the coecton of a ta not to e ceed
4 cents per gaon on gasone, benzne, naphtha, and other motor
fues when sod, used or consumed wthn the State of Lousana.
ct No. of the e tra sesson of 1928, as amended by act No. 8 of
1930, as amended by act No. 1 of 1932, as amended by act No. 34
of 1934 (Lousana Genera Statutes Dart, Cumuatve Suppe-
ment, 1934, secton 880 and secton 8811), enacted under authorty
of the above consttutona provsons, mposes a ta of 4 cents per
gaon upon a gasone and motor fue sod, used or consumed
n the State of Lousana and, for the purpose of centrazng the
coecton of the ta , provdes that such ta be coected from the
deaer. The pertnent sectons of the act,.as amended, are sub-
stantay smar n purpose to the sectons quoted n G. C. M. 893 ,
supra.
In accordance wth rtce I- of the consttuton of Lousana,
as added by act No. 1 of the e tra sesson of 1930, adopted November
4, 1930 (Lousana Consttutons Dart, page 129), there s mposed
an addtona ta of 1 cent per gaon on a gasone, benzne,
naphtha or other motor fue when sod, used or con-
sumed n the State of Lousana, and the pertnent sectons thereof
are substantay smar to the consttutona provsons and stat-
utes dscussed above whch dea wth the ta of 4 cents per gaon.
rom a comparson and anayss of the consttutona provsons
(secton 22 of rtce I, as amended, and rtce I- ) and act
No. of the e tra sesson of 1928, as amended, t s concuded that
no change was made n the consttutona provsons or statutes of
Lousana whch necesstates modfcaton or revocaton of G. C. M.
893 , supra. That rung s appcabe under the ater Revenue cts
wth respect to the gasone ana motor fue ta of 4 cents per gaon
and the addtona ta of 1 cent per gaon mposed by that State.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
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71
23(c), rt. 23(c)-.
rtce 23(c)-: Ta es. I -30-7 07
I. T. 2905
R NU CT O 1934.
or edera ncome ta purposes, the ta es Imposed under chap-
ter 18 of the Deaware quor contro act are deductbe as ta es
by the purchaser of acohoc quors from the commsson, or
from any manufacturer or Importer. The ta of 3 cents per
gaon on mat and vnous quors mposed under chapter 19, Laws
of Deaware, 1933, s deductbe by the manufacturer or dstrb-
utor. The ta may not be deducted separatey as a ta f t s
added to or made a part of the busness e pense, or s otherwse
used to reduce net ncome.
dvce s requested whether Deaware quor ta es are deductbe
n edera ncome ta returns.
The quor contro act, under whch the ta es on acohoc quors
are mposed by the State of Deaware, was approved May 15, 1933.
(Chapter 18, Laws of Deaware, 1933, voume 38.) The act pro-
vdes for the creaton of the Deaware Lquor Commsson, whch
s gven broad powers for the purpose of contro of the busness of
manufacture, sae, dspensaton, dstrbuton, and mportaton of
acohoc quors wthn and nto the State of Deaware. Secton 1
of ths act reads n part as foows:
. No person may purchase and receve from the commsson, or from any
manufacturer or mporter, any acohoc quor wthout payng to the com-
msson a ta on such acohoc quor purchased and at the foowng rates:
or each barre of beer One doar ( 1.).
or each gaon of wne e ceptng sacramenta wnes orty cents
( 0.40).
or each gaon of sprts contanng 25 per cent or ess of ethy
acoho by voume Seventy-fve cents ( 0.75).
or each gaon of sprts contanng more than 25 per cent ethy acoho
by voume One doar ( 1).
or each gaon of acoho per gaon of ethy acoho contaned
Two doars ( 2), e cept that the ta of two doars ( 2) sha not appy
to the purchase of acoho from sad commsson or esewhere by the foow-
ng : Pharmacsts, physcans, dentsts, veternarans, whoesae druggsts,
manufacturng pants where sad acoho Is used n scentfc work, or for
the manufacture of pharmaceutca products.
Chapter 19, Laws of Deaware, 1933, voume 38, s an act to reg-
uate the manufacture, dstrbuton, retang, and dspensng of mat
and vnous quors and to provde for the censng and ta ng thereof.
Under that act, a ta of 3 cents a gaon s mposed upon the
manufacturer of such quor manufactured and sod by hm and
upon the dstrbutor for each gaon sod or dstrbuted by hm, pro-
vded the manufacturer has not aready pad the ta of 3 cents a
gaon. No retaer or dspenser sha purchase any beverage for
resae from the manufacturer or dstrbutor uness the manufacturer
or dstrbutor has obtaned the cense provded for and pad the
aforesad ta of 3 cents a gaon.
Secton 23(c) of the evenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8 , reatng to the Reve-
nue ct of 1934, states that n genera ta es are deductbe ony by
the person upon whom they are mposed.
Under chapter 18 of the Deaware quor contro act, the ta es
are mposed upon the purchaser of acohoc quors from the com-
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23(c), rt. 23(c)- .
72
msson, or from the manufacturer, or mporter, and are, therefore,
deductbe by the purchaser for edera ncome ta purposes. Under
chapter 19 of the Laws of Deaware, 1933, the ta of 3 cents a gaon
upon mat or vnous quors s mposed upon the manufacturer or
dstrbutor and s deductbe by hm. The ta may not be deducted
separatey as a ta f t s added to or made a part of the busness
e pense, or s otherwse used to reduce net ncome. If the ta s
passed on to another by the payor, t must be ncuded n the payor s
gross ncome.
In the case of a ta payer whose books are kept on the accrua
bass, the amount of the ta accrued durng the perod covered by
hs edera ncome ta return may be deducted n determnng hs
net ncome. If hs books are kept on the cash recepts and ds-
bursements bass, ony the amount of the ta actuay pad durng
the ta abe year may be deducted n determnng hs net ncome.
rtce 23 (c) -1: Ta es. I -32-7 3
I. T. 2908
R NU CT O 1934.
or edera ncome ta purposes, rea property ta es In the cty
of Phadepha, Pa., accrue on anuary 1 of the ta (caendar)
year for whch the ta es are assessed.
rung s requested reatve to the date on whch rea property
ta es accrue n Phadepha, Pa.
Tte 53 of Purdon s Pennsyvana Statutes, nnotated, coverng
the perod pror to ebruary 1,1935 provdes n part as foows rea-
tve to the assessment of property n ctes of the frst cass, whch
ncudes Phadepha:
Se . 4 93. ssessment dutes of assessors
The board of revson sha ssue ther precept to the assessors of
the respectve wards, requrng them to make out and return wthn such tme
as the sad commssoners sha desgnate, not ater than the 1st day of Sep-
tember, foowng, a |ust and perfect st of a property ta abe and
e empt wth a ust vauaton of the same .

Sec. 4721. Tme for competon of assessment ndcaton of rura property
st of ta abes
The books for assessments sha be furnshed to the assessors by the 15th day
of May n each year and any assessor who sha not have competed
and returned hs assessments by the 15th day of ugust foowng, sha forfet
hs compensaton .
Sec. 4722. Return of new budngs assessors to admnster oaths
The sad assessors sha make a second return of the vaues of a new bud-
ngs, whch sha have been erected, and not ncuded n ther prevous return,
on or before the 1st day of November, n each year .
rom the above-quoted provsons reatve to assessment, t s
apparent that the actua makng of assessments n Phadepha
may be e tended over the greater part of the year. There s no
statutory provson specfyng the date on whch Phadepha rea
property ta es accrue nor s there any statutory provson whch
makes the owner of the property personay abe. The courts of
the State, however, have hed that the owner of the property s
personay abe for such ta es and have determned the date on
whch abty for the ta attaches.
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73
23(c), rt. 23(c)-.
In Pennsyvana Co. for Insurances on Lves and Grantng n-
nutes v. ergson (159 t., 32), the Superor Court of Pennsyvana
sad:
It Is cear from the prncpes n these cases and the egsatve
decaratons that the owner of and s and shoud be personay abe for
ta es assessed whe he s the owner of the property.
The case of Wood v. U. S. Nat. udng Loan ssocaton (1 0
t., 244), decded by the Superor Court of Pennsyvana on May 4,
1932, f es the date on whch abty for rea property ta es at-
taches. The defendant budng and oan assocaton was the regs-
tered owner of rea estate n Phadepha on anuary 1, 1930. and
as such became abe for the ta es thereon n the amount of 999.
On pr 14, 1930, the pantff, Mrs. Wood, acqured the property,
and on une 12, 1930, pad the ta es n fu to the cty. On une
18, 1930, she and her husband entered nto an agreement for sae of
the property, one of the provsons of the agreement beng that the
ta es were to be apportoned for the current term. The purchaser
pad to her, n addton to the consderaton, 449.55, the amount of
the ta es for the une pred porton of the year. The court hed
the budng and oan assocaton abe to the pantff for the fu
amount of the ta . The court stated n part that:
Nor s t a defense pro tanto that the one prmary abe wns not
n possesson for the entre year, snce the obgaton s that of the regstered
owner of the date of assessment.
No matter what pantff may have done n the way of seng the
premses, upon advantageous terms, defendant faed to pay the ta es for whch
t was abe on anuary 1, 1030, 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. (171 t., 287), decded by the Superor
Court of Pennsyvana, on March 3,1934, the court sad:
Ta es n Phadepha are assessed pror to the begnnng of the
ta year, and the whoe ta s due at the begnnng of the ta year. ( ng v.
Iff. ernon dg. ss n, 10 Pa., 1 5 Cty of Pha. v. Pcnna. Insttuton, 28
Pa. Super. Ct., 421, 424 Theobad v. Syvester, 27 Pa. Super. Ct., 3 2, 3 5.) s
the defendant was the rea and regstered owner of the and from May 13,
1929, to March 9, 1931, t was personay abe for the ta es for 1930 and 1931.
(To the same effect s Shaw v. unn, 12 S. R., 299, and Cty of
Phadepha v. Pennsyvana Insttuton for the Instmcton of the
nd, 3 t., 420, affrmng 28 Pa. Superor Court, 421.)
In vew of the foregong, the accrua date, for edera ncome ta
purposes, of rea property ta es n the cty of Phadepha, Pa., s
anuary 1 of the ta (caendar) year for whch the ta es are
assessed.
rtce 23(c)-1: Ta es. I -33-7 48
I. T. 2911
R NU CT O 1934.
The motor vehce fue ta mposed by the State of Nevada
Is deductbe as a ta n the edera ncome ta return of the
consumer who pays t and to whom t s not refunded. If, how-
ever, such ta Is added to or made a part of the busness e pense
of te consumer, or s otherwse used to reduce hs net ncome,
t can not be deducted separatey as a ta .
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523(c), rt. 23(c)- .
74
dvce s requested whether the motor vehce fue ta mposed
by the State of Nevada s deductbe by the consumer for edera
ncome ta purposes.
The aw under whch the motor vehce fue ta s mposed s
contaned n voume 3, Nevada Comped Laws, 1929. The pro-
vsons of the State statute appcabe to the queston submtted are
as foows:
Sec. 5 2.
(b) Motor vehce fues sha ncude a such fue os as gasone, ds-
tate, benzne, naphtha, and other voate and nfammabe quds pro-
duced or compounded for the purpose of operatng or propeng motor veh-
ces, e cept the product commony known as kerosene o.

Sec. 5 3. That each and every deaer who
Is now engaged or who may hereafter engage n the sae or ds-
trbuton of motor vehce fue as heren defned, sha, not ater
than the 15th day of each caendar mouth, render a statement to the
Nevada Ta Commsson of a motor vehce fue sod or used dur-
ng the precedng caendar month, and sha pay an e cse ta of 4 cents per
gaon on a motor vehce fue so sod or used, as shown by such state-
ment .

Sec. 5 5. ny person, frm, or corporaton, who sha buy and
use any motor vehce fue for the purpose of operatng or pro-
peng statonary gas engnes, tractors, farm tractors, harvestng machnes,
aeropanes or motor boats, or who sha purchase or use any of such fue
for ceanng or dyeng or other commerca use of the same, e cept n a motor
vehce operated or ntended to be operated upon any of the pubc hghways
of the State of Nevada, and who sha have pad any ta on motor vehce
fue eved or drected to be pad as provded by ths net, ether drecty by
the coecton of such ta by the vendor from such consumer or ndrecty by
addng such amount of such ta to the prce of such fue and pad by the
consumer, sha be rembursed and repad the amount of such ta pad by
hm upon presentng to the Nevada Ta Commsson an affdavt
and sad Nevada Ta Commsson sha cause to be .repad
to such consumer the sad ta es so pad by such consumer on fues
purchased and used, other than for motor vehces as aforesad provded,
that the Nevada Ta Commsson sha provde for the sae
of motor vehce fue, free of the e cse ta to the Government of
the Unted States or any department thereof for offca use ony.
Under other sectons of the State aw, the deaers are requred
to keep records and to pay the ta prompty. Penates are pro-
vded for voatons of the provsons of the statute.
Secton 23(c) of the evenue ct of 1934 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8 , reatng to the Reve-
nue ct of 1934, provdes that n genera ta es are deductbe ony
by the person upon whom they are mposed. The ta mposed
by the State of Nevada on the sae or dstrbuton of motor vehce
fue s prmary an e cse ta on the use of such fue on the State
hghways. In vew of the pany stated purpose of the aw to pro-
vde for refundng to the consumer a ta pad on motor vehce
fue not used n propeng motor vehces on the State hghways,
the ta s ceary mposed upon the consumer.
In accordance wth secton 23(c) of the Revenue ct of 1934 and
artce 23(c)- of Reguatons 8G, t s hed that the ta mposed
by the State of Nevada on motor vehce fue s deductbe as a
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75
23(c), rt. 23(c)-.
ta n the edera ncome ta return of the consumer who pays t
and to whom t s not refunded. If, however, such ta s added to
or made a part of the busness e pense of such consumer, or s other-
wse used to reduce hs net ncome, t can not be deducted separatey
as a ta .
rtce 23(c)-1: Ta es. I -33-7 49
I. T. 2912
R NU CT O 1934.
The saes ta mposed by the North Dakota saes ta act of 1935
Is deductbe as a ta n the edera ncome ta return of the con-
sumer who pays the ta and to whom t s not refunded. If the
ta s added to or made a part of the busness e pense of the
consumer, or Is otherwse used to reduce hs net ncome, t can not
be deducted by hm separatey as a ta .
dvce s requested whether the reta saes ta mposed by North
Dakota s deductbe by the retaer or consumer.
The North Dakota saes ta act of 1935, whch was approved on
March 11, 1935, eves a reta saes ta for the perod from May 1,
1935, to May 1,1937. Provsons of the aw pertnent to the queston
submtted are as foows:
Secton 1. Defntons.
(e) Retaer ncudes every person engaged n the busness of seng tan-
gbe goods, wares, or merchandse at reta, or the furnshng of gas, eectrcty,
water and communcaton servce, and tckets or admssons to paces of amuse-
ment and athetc events as provded n ths dvson.

Sec. 2. Taa mposed. There s hereby mposed, begnnng the 1st day of
May, 1935, and endng May 1, 1937, a ta of 2 per cent (2 ) upon the gross
recepts from a saes of tangbe persona property, consstng of goods, wares,
or merchandse, e cept as otherwse provded n ths dvson, sod at reta n
the State of North Dakota to consumers or users a ke rate of ta upon the
gross recepts from the saes, furnshng or servce of gas, eectrcty, water
and communcaton servce, ncudng the gross recepts from such saes by any
muncpa corporaton furnshng gas, eectrcty, water and communcaton
servce to the pubc n ts propretary capacty, e cept as otherwse provded
n ths dvson when sod at reta n the State of North Dakota to consumers
or users and a ke rate of ta upon the gross recepts from a saes of tckets
or admssons to paces of amusement and athetc events, e cept as otherwse
provded n ths dvson.

Sec 4. Ta es pad on gross recepts represented by accounts found
to be worthess and actuay charged off. for Income ta purposes may be cred-
ted upon a subsequent payment of the ta heren provded .
Skc 5. Credt to reef ageney. . reef agency may appy to the comms-
soner for refund of the amount of ta mposed hereunder and pad upon saes
to t of any goods, wares, or merchandse used for free dstrbuton to the poor
and needy.

2. (c) The reef agency must prove to the satsfacton of the commssoner
that the person makng the saes has ncuded the amount thereof n the com-
putaton of the gross recepts of such person and that such person has pad the
ta eved by ths dvson, ba. ed upon such computaton of gross recepts.
3. If the commssoner s satsfed that the foregong condtons and requre-
ments have been comped wth, he sha refund the amount camed by the
reef agency.
Sec. . Retaers sha, as far as practcabe, add the ta mposed
under ths act, or the average equvaent thereof, to the sae prce or charge
and when added such ta sha consttute a part of such prce or charge, sha
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523(c), rt. 23(c)- .
7
be a debt from consumer or user to retaer unt pad, and sha be recoverabe
at aw n the same manner as other debts.

Sec. 7. Unawfu acts. It sha be unawfu for any retaer to advertse
or hod out or state to the pubc or to any consumer, drecty or ndrecty, that
the ta or any part thereof mposed by ths dvson w be assumed or ab-
sorbed by the retaer or that t w not be consdered as an eement n the
prce to the consumer, or f added, that t or any part thereof w be refunded.

Sec. 9. Return of gross recepts. 1. The retaer sha, make out
a return showng the gross recepts of the retaer, the amount of
the ta for the perod covered by such return, .

Sec. 11. Permts ppcaton for. 1. Thrty days after the effectve date of
ths act, t sha be unawfu for any person to engage n or transact busness
as a retaer wthn ths State, uness a permt or permts sha have been
ssued to hm as herenafter prescrbed.

Sec. 19. 4. The commssoner may utze the offce of treasurer
of the varous countes n order to admnster ths act and effectuate ts pur-
poses, and may appont the treasurer of the varous countes ts agents to
coect any or a of the ta es mposed by ths act, .

Sec. 21. Correcton of errors. If t sha appear that, as a resut of mstake,
an amount of ta , penaty, or nterest has been pad whch was not due under
the provsons of ths act, then such amount sha be credted aganst any ta
due, or to become due, under ths act from the person who made the erroneous
payment, or such amount sha be refunded to such person by the commssoner.
arous e emptons from the operaton of the aw are made n
order that State and Natona consttutona prohbtons aganst
ta es may be observed and the ta burden fted from dfferent agen-
ces and saes of varous commodtes. Penates are provded for
noncompance wth the requrements of the act, ncudng revocaton
of the retaer s cense, fnes, and mprsonment.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8G, reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by the
person upon whom they are mposed.
The ta n queston s an e cse ta ad upon the gross recepts
from saes of tangbe persona property to the fna purchaser or
utmate consumer and upon the gross recepts from the sae, fur-
nshng or servce of gas, eectrcty, etc., or tckets of admsson.
The statute requres the retaer to add the ta to the saes prce or
charge, whereupon the amount of the ta becomes a debt from the
consumer to the retaer unt pad, thus makng the retaer the
coector of the ta from the consumer. It aso provdes for refund
to certan casses of consumers from whom the ta was coected
by the retaer. These provsons of the statute ceary ndcate
a egsatve ntent to mpose the ta upon the consumer. The con-
sumer, therefore, by whom the ta s pad and to whom t s not
refunded, may deduct the amount as a ta n hs edera ncome ta
return. If the ta s added to or made a part of the busness e -
pense of the consumer, or s otherwse used to reduce hs net ncome,
t can not be deducted by hm separatey as a ta .
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23(c), rt. 23(c)-.
kttc|s 23(c)-1: Ta es. I -34-7 59
I. T. 2913
R NU CT O 1934.
The saes ta mposed by the Coorado emergency reta saes ta
act of 1935 s deductbe as a ta n the edera Income ta return
of the consumer who pays the ta .
If the amount of the ta s added to or rmde a part of the ta -
payer s busness e pense, or s otherwse used to reduce hs net
ncome, t s not deductbe separatey as a ta . The 5 per cent of
the ta retaned by the vendor to cover the e pense of coecton
and remttance to the State shoud be ncuded as ncome by the
vendor for edera ncome ta purposes.
dvce s requested whether the Coorado saes ta s deductbe
by the consumer for edera ncome ta purposes.
The ta n queston s mposed under the terms of the Coorado
emergency reta saes ta act of 1935, effectve from March 1, 1935,
to une 30, 1937. Provsons of the act pertnent to the queston are
as foows:
Sec. 2. In ths act:

(1) The term ta payer sha mean any person obgated to account to the
State treasurer for ta es coected or to be coected under the terms of ths act.
(|) The term ta means ether the ta payabe by the purchaser of a
commodty or servce sub|ect to ta , or the aggregate amount of ta es due
from the vendor of such commodtes or servces durng the perod for whch
he s requred to report hs coectons, as the conte t may requre.

Sec. 3. It sha be unawfu for any person to engage n the busness
of seng at reta as the same s defned n ths act wthout frst
havng obtaned a cense therefor .

Sec. 4. rom and after the effectve date of ths act there Is hereby
eved and there sha be coected and pad:
(a) ta upon saes and purchases of tangbe persona property at reta
n ths State equvaent to two (2) per cent of the purchase prce pad or
charged, or n the case of reta saes nvovng the e change of property, equv-
aent to two (2) per cent of the consderaton pad or charged ncudng the
far market vaue of the property e changed at the tme and pace of the
e change.
(b) ta equvaent to two (2) per cent of the amount pad: (1) for tee-
phone and teegraph servce, whether furnshed by pubc or prvate corpora-
tons or enterprses, for a ntrastate teephone and teegraph servce (2)
for gas and eectrc servce, whether furnshed by muncpa, pubc or prvate
corporatons or enterprses, for gas or eectrcty furnshed and sod for
domestc and commerca consumpton and not for resae.
(c) ta equvaent to two (2) per cent of the amount pad for a meas
and cover charges, f any, furnshed at any restaurant, eatng house, hote,
drug store, cub, resort, or other pace at whch meas or food are reguary
served to the pubc.
Sec. 5. (a) very retaer (aso heren caed vendor ) sha be
abe and responsbe for the payment of the entre amount of the sad two
(2) per cent ta mposed and payabe upon hs tota ta abe saes, and sha,
before the 15th day of each month make a return to the State treasurer for
the precedng caendar month, and remt a ta es coected and due the State
from hm, to the State treasurer, ess fve (5) per cent thereof to cover the
vendor s e pense n the coecton and remttance of sad ta . The
burden of provdng provng that saes and purchases are e empt from ta a-
ton under ths act, or not at reta, sha be on the vendor, under such reason-
abe requrements of proof as the State treasurer may prescrbe.
(b) Retaers sha, as far as practcabe, add the ta Imposed under ths
act, or the average equvaent thereof, to the saes prce or charge showng
such ta as a separate and dstnct Item and when added such ta sha eon-
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23(c), rt. 23(c)- .
78
sttute a part of such prce or charge, sha be a debt from consumer or user
to retaer unt pad, and sha be recoverabe at aw n the same manner as
other debts.

(d) It sha be unawfu for any retaer to advertse or hod out or state
to the pubc or to any customer, drecty or Indrecty, that the ta or any
part thereof mposed by ths act w be assumed or absorbed by the retaer
or that t w not be added to the seng prce of the property sod, or f added
that t or any part thereof w be refunded.

Sec. 0. saes and purchases of commodtes and servces, the
sae or use of whch s now sub|ect to a sae or e cse tn under the aws of
ths State, or under the aws of the Unted States, where such edera sae or
e cse ta amounts to more than tweve and a haf (12 ) per cent of the sae
prce under sad aws, a saes to the Unted States Government, to the State
of Coorado, ts departments and nsttutons, and the .potca subdvsons
thereof n ther governmenta capactes ony, and a saes made to regous,
chartabe and eeemosynary corporatons, n the conduct of the reguar
regous, chartabe and/or eeemosynary functons nnd actvtes and a saes
whch the State of Coorado s prohbted from ta ng under the Consttuton or
aws of the Unted States, or the State of Coorado, sha be e empt from
ta aton under ths act.

Sec. . ta due and unpad under ths act sha consttute a debt
due the State from the vendor.
Rue 3 of the rues and reguatons wth respect to the admnstra-
ton of the Coorado reta saes ta act (revsed March 11, 1935)
states that every retaer (who s defned to mean a person dong
a reta busness known to the trade and pubc as such, and seng
to the user or consumer and not for resae ) and any persons
furnshng teephone, teegraph, eectrc or gas servce, or servng
meas to the pubc are abe and responsbe for the coecton and
remttance of the ta to the State treasurer.
Rue 9 s entted Ta - . Consumer s ta and reads as foows:
The retaer or vendor, however, s requred, as far as practcabe,
to add the ta mposed under ths act, or the average equvaent thereof, to the
saes prce or charge, showng such ta as a separate and dstnct tem.
The aw further provdes that t sha be a msdemeanor, sub|ect
to fne or mprsonment, for any retaer to advertse or hod out,
or state to the pubc or to any customer, drecty or ndrecty, that
the ta , or any part thereof, w be assumed or absorbed by the
retaer, or that t w not be added to the seng prce of the property
sod, or, f added, that t w be refunded.
Rue 15 reates to the e pense of coecton and provdes as foows:
very retaer, n makng remttance by hm of ta es coected and
due the State, s authorzed by the act to retan 5 per cent of the ta so
coected by hm to cover hs e pense n the coecton and remttance of the
ta .
Wth respect to refunds n case of overpayment of ta , rue 39
states:
If any person makes overpayment of the ta , or s entted to a
credt on hs ta payments, on account of dscounts, rebates, refunds, or can-
ceed saes, credt for the amount of repayment due from the State sha be
taken on subsequent returns, uness such person s no onger engaged n
busness, n whch event he sha be pad n cash the amount to whch he s
entted.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad

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79
23(c), rt. 23(c)-.
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8 , reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed.
The Coorado statute and the reguatons thereunder show that t
s the ntent of the State to mpose an e cse ta on the sae at re-
ta of tangbe persona property and the furnshng of specfed
servces to the utmate consumer to mpose the ta on the purchaser
or utmate consumer to make the retaer or vendor the coector
of the ta for and on behaf of the State and to remburse the
vendor for the e pense ncurred by hm as such coector. Inasmuch
as the ta s mposed upon the consume he may deduct the amount
pad by hm as a ta n hs edera ncome ta return. If the
amount of the ta s added to or made a part of the ta payer s
busness e pense, or s otherwse used to reduce hs net ncome, t
s not deductbe separatey as a ta .
The 5 per cent of the ta retaned by the vendor to cover the
e pense of coecton and remttance to the State shoud be ncuded
as ncome to the vendor for edera ncome ta purposes.
rtce 23 (c)-: Ta es. I -34-7 0
I. T. 2914
R NU CTS O 1932 ND 1934.
or edera ncome ta purposes, the gasone ta mposed by
the State of entucky s deductbe by the purchaser or consumer
who pays t. If, however, the ta s added to or made a part of the
busness e pense of such purchaser or consumer, t can not be
deducted by hm separatey as a ta .
dvce s requested whether the purchaser or consumer s entted
to deduct the gasone ta mposed by the State of entucky n hs
edera ncome ta returns for 1933 and 1934.
It was hed n I. T. 2482 (C. . III-2, 89) wth respect to the
gasone ta mposed by the State of entucky under the aw ap-
proved March 19, 1928, that t was deductbe by the consumer.
Pror State aws have snce been repeaed by chapter 150, entucky
cts, 1932, reported n Carro s entucky Statutes, Suppement to
1933, as sectons 4224 b-1 to 4224 b-12.
It appears that the entucky gasone ta aws n effect pror to
the year 1932 were repeaed and a new statute enacted n order to
strengthen the admnstratve features of the aw and to prevent
evason of the ta due to the fact that no penates were provded
for faure to e ecute bond. The present aw s substantay the same
as the former one under whch t was hed n I. T. 2482, supra, that
the entucky gasone ta s a ta upon consumpton or upon the
prvege of usng gasone and s deductbe by the consumer who
pays t.
The purchaser or consumer, therefore, s entted to deduct as a
ta n hs edera ncome ta returns for 1933 and 1934 the amount
of the entucky gasone ta pad by hm n those years. If, how-
ever, the ta n queston s added to or made a part of the busness
e pense of such purchaser or consumer, t can not be deducted by hm
separatey as a ta .
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23(c), rt. 23(c)- .
80
htce 23 (c)-: Ta es. I -35-7 9
G. C. M. 15305
R NU CT OP 1934.
In the State of New ersey abty for both persona property and
rea property ta es s ncurred on October 1 of each year. ccord-
ngy, for edera Income ta purposes, such ta es accrue on that
date.
n opnon s requested reatve to the proper accrua date of
property ta es n the State of New ersey.
Secton 208-G d (202) of the cumuatve suppement to the com-
ped statutes of New ersey (1911-1924), page 3183, reads as fo-
ows :
Property sub|ect to ta aton date of assessment. 202. property,
rea and persona, wthn the |ursdcton of ths State, not e pressy e empted
by ths act or e cuded from ts operaton, sha be sub|ect to ta aton annuay
under ths act at ts true vaue, and sha be vaued by the assessors of the
respectve ta ng dstrcts. Property omtted by the assessors may be assessed
as herenafter provded. property sha be assessed to the owners thereof
wth reference to the amount owned on the 1st day of October n each year,
and the persons so assessed for persona property sha be personay abe
for the ta es thereon.
Under the provsons of the statute there appears to be no doubt
that n so far as persona property ta es are concerned they shoud
be accrued as of October 1 of each year by the ndvdua who s
personay abe therefor. It was hed by the Supreme Court of
New ersey n ann v. State oard of Ta es and ssessment (147
t., 724) that the person aganst whom persona property ta es were
assessed as of October 1, 1927, was abe for such ta es even though
the property was dsposed of pror to 1928, the year for whch the
ta es were assessed.
Wth respect to rea property, the statute provdes as n the case
of persona property that the ta es sha be assessed to the owners
wth reference to the amount owned on the 1st day of October of each
year, but the aw of that State does not make the owners personay
abe for rea estate ta es. orough of Wrghtstown v. Savaton
rmy, 123 t., 07.) owever, the ureau has never taken the
poston that n so far as the accrua of rea property ta es s con-
cerned the owner must be personay abe for such ta es. The
theory of the accrua of property ta es, snce the ssuance of G. C. M.
273 (C. . III-1, 1 8), reatng to Inos, has been that owner-
shp of property on the date as of whch the assessment s made
(frequenty referred to as the assessment date) s the event whch
determnes the ta payer s abty to ta es, and, consequenty, f
the ta payer s books of account are kept on the accrua bass, he may
accrue the rea property ta es as of that date. (See G. C. M. 272.
C. . III-1, 170, reatng to Te as G. C. M. 7, C. . III-2,
94, reatng to Washngton G. C. M. 7190, C. . III-2, 113, reat-
ng to Indana I. T. 2495, C. . III-2, 98, reatng to ansas
G. C. M. 7235, C. . III-2, 197, reatng to Mnnesota G. C. M.
8218, C. . I -2, 10 , reatng to Oho and G. C. M. 9793, C. .
-2, 142, reatng to Iowa.) Those rungs foowed the prncpe
ad down by the Supreme Court n Unted States v. nderson (2 9
U. S., 422, T. D. 3839, C. . -, 179), wheren t was stated that n
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81
23 (c), rt. 23(c)-.
advance of the assessment of a ta a the events may occur whch
f the amount of the ta and determne the abty of the ta payer
to pay t. The queston nvoved n that case was whether the ta es
shoud be accrued when they became due and payabe, or whether
they shoud be accrued when the ta payer knew, or coud determne
to a reasonabe degree of certanty, the amount of ta es whch woud
eventuay have to be pad.
In 37 Cyc, page 788, t s stated as foows:
Ordnary and n the absence of statute to the contrary, property
Is ta abe ony to the person who s the owner thereof at the date for Its
stng or assessment, or the date f ed by statute as of whch ts ownershp for
purposes of ta aton s to be determned and ta es are not a awfu charge
on property uness assessed n the name of ts owner, and any attempt to
enforce the payment of ta es assessed and charged to the wrong person w be
neffectve.
The ony statute to the contrary n the nstant case whch coud
affect the accrua of rea property ta es on October 1 s secton 208-
d(514) of the cumuatve suppement to the comped statutes of
New ersey (1911-1924), whch reads as foows:
Payng ta es on property sod oass of amount due ens not
affected. 514. Upon the sae and transfer, for a vauabe consderaton, of
any rea estate n ths State, uness otherwse provded n a wrtten agree-
ment between the seer and purchaser, or uness otherwse e pressy stpu-
ated n the deed of conveyance, the seer sha be abe for the payment of
such proporton of the ta es for the current year upon the property to be con-
veyed as the tme between the 1st day of anuary prevous and the date of the
devery of the deed by the seer to the purchaser bears to a fu caendar year.
If the amount of the ta es for the current year sha not have been determned
at the tme of the devery of the deed of conveyance, then the amount of the
ta es ast prevousy assessed aganst such rea estate sha be used as the
bass for computng the apportonment heren provded. The abty of the
seer heren provded sha e st ony between hm, hs hers, e ecutors,
admnstrators and assgns, and the purchaser and hs hers, e ecutors, admn-
strators and assgns, and sha In no way affect the en of the muncpaty or
ta ng dstrct for unpad ta es upon the rea estate.
The fact that the ta es may be apportoned between the buyer and
the seer by wrtten agreement, or n the absence of a wrtten agree-
ment on the bass of the ength of tme hed by the seer and the pur-
chaser, does not, n the opnon of ths offce, warrant a dfferent rue
as to the accrua date of rea property ta es. It s generay true n
the State of New ersey that the owner of the rea property on
October 1 s the person who s abe for the ta uness such owner
s e pressy e empted from ta aton by statute, or the property on
that date s owned by the State or the Unted States Government.
In ths connecton t has been hed n Unted States v. Mayor and
Counc of Cty of oboken, N. . (29 ed. (2d), 932), that the test
of whether property owned by the Unted States s e empt from
ta es depends upon the ownershp of property on October 1 of the
precedng year. In that case the court stated n part as foows:
It s agreed that rea property of the Unted States, hed ether n
ts propretary (as the cases say) or governmenta capacty, s e empt from
ta aton.

In ersey Cty v. Montve Townshp (1913) (S4 N. . Law, 43,
85 . 838, affrmed wthout opnon 85 N. . Law, 372, 01 . 1009), the Supreme
Court of New ersey hed, Sr. ustce Swayze wrtng the opnon: The fact
that the property s e empt at some tme before the ta s payabe s not 1m-
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823(c), rt. 23(c)- .
82
portant Under our statutory scheme, ta es are Imposed not for a parteuak
year, caendar or fsca, but on a partcuar day. That day, n the
case of the genera property ta , s May 20. The correspondng day, under
the ta aws as revsed In 1918, Is October 1. (P. L., 1918, page 859.)
On ths case beng caed by the court to the attenton of the cty soctor,
Mr. en, he, by etter of May 7, 1928, reped that he was unabe to cte any
case hodng contrary thereto. s a matter of fact, a smar concesson seems
to have been made by the counse for the cty of New runswck, and to have
receved the approva of the Unted States Supreme Court Cty of Neo runs-
wck v. Unted States, 48 S. Ct., 371, 27 U. S., 547 , for we fnd n the opnon
above cted: The cty concedes here that the assessments made to the pur-
chasers for the year 1920 were nvad under the New ersey aw and, by
way of footnote to the above: Ths requred the assessments for 1920 to be
based on the ownershp of the property on October 1 of the precedng year,
at whch tme no sae contract had been made by the corporaton the ousng
Corporaton .

In concuson, the court fnds that the Unted States Shppng oard s
entted to e empton from ta aton for the year 1920.
In Young Men s Chrstan ss n of the Oranges v. Cty of Orange
(128 t., 580), assessment of rea property ta es was made as of
October 1, 1923. In that case t was hed that nasmuch as a certan
budng of the Young Men s Chrstan ssocaton was not fnshed
on October 1 and not used n the work of the assocaton on that date
t was not e empt from ta aton. (Cf. orough of Longport v.
Ma and Sarah amberger Seashore ome, 102 t., 33 Insttute
of oy nges v. orough of ort Lee, 77 t., 1035.)
It appears from mpress Mfg. Co. v. Cty of Newark (1 0 t.,
388) that the method prescrbed for the apportonment of rea prop-
erty ta es between the vendor and vendee s purey an arrangement
between the successve owners, nter scse, and does not n any way
affect the en of the State on the property for the ta . It s the
opnon of ths offce, as prevousy ndcated, that the provson of
the New ersey aw reatng to the apportonment of the ta es on
rea property n the case of a sae docs not necessary dsturb the
genera rue prevousy estabshed by the ureau that ownershp of
property on the date as of whch the assessment s made s the event
whch estabshes the abty and that the ta es may be accrued as
of that date. The basc dea under the accrua system of accountng
s that the books sha mmedatey refect obgatons and e penses
defntey ncurred and ncome defntey earned wthout regard to
whether payment has been made or whether payment s due. -
penses ncurred n the operatons for a partcuar year are propery
accrued n the accounts for that year, athough payment may not he
due unt the foowng year. ( . . rown Co. v. Commssoner,
8 . T. ., 112, ctng rnest M. u, ., v. Commssoner, 1
. T. ., 993.)
or the purpose of ascertanng true ncome on the accrua bass
for a gven accountng perod ta es do not stand on any dfferent
footng than other accrued e penses. (Unted States v. nderson,
supra.) Sound accountng requres that they be treated the same as
accounts payabe and accounts recevabe. The courts have recognzed
that when the accrua method of accountng s adopted abtes
ncurred n the usua course of busness must be accrued n order
propery to refect the ta payer s net ncome. ( mercan Natona
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83
23(c), rt. 23(c)-.
Co. v. Unted States,274 U. S., 99, T. D. 4099, C. . I-2, 193 Lucas
. North Te as Lumber Co., 281 U. S., 11, Ct. D. 1 9, C. . I -1, 294
Lucas v. mercan Code Co., Inc., 280 U. S., 445, Ct. D. 1 8, C. .
I -1. 314 umnum Castngs Co. v. Routzahn, 282 U. S., 92, Ct. D.
270 C. . -, 352 Rouss v. owers, 30 ed. (2d), 28 Mer
dor Lumber Co. v. Commssoner, 39 ed. (2d), 890, Ct. D. 235, C. .
I -2, 314 Uncasve Mfg. Co. v. Commssoner, 55 ed. (2d), 893.)
In the norma course of events the owner of rea property n New
ersey on October 1 of any gven year w pay the ta es eved as of
that date. Ths s suffcent for the purpose of accrua. The ureau s
poston that abty for rea property ta es s ncurred by reason of
ownershp of the property on the day as of whch the assessment s
made has been sustaned b|r the oard of Ta ppeas n ts recent
decsons on the sub|ect. (fc ee Te as Coca-Coa ottng Co. v. Com-
mssoner, 30 . T. ., 73 , and Caforna Santary Co., Ltd., v.
Commssoner, 32 . T. ., 122.)
In vew of the foregong, t s concuded that ta payers n New
ersey who keep ther books of account on the accrua bass shoud
accrue both persona property and rea property ta es as of October
1 for edera ncome ta purposes.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 23 (c)-: Ta es. I -3 -7 79
I. T. 2917
R NU CTS O 19:52 ND 1034.
or edera Income ta purposes, the saes ta mposed by the
State of Utah under Its emergency revenue act of 1933 Is deduct-
be by the vendee or consumer. If the ta Is added to or made
a part of the ta payer s busness e pense, or s otherwse used to
reduce hs net ncome, t s not deductbe separatey as a ta .
rung s requested whether, for edera ncome ta purposes,
the vendor or vendee s entted to deduct the saes ta mposed by
the State of Utah under the emergency revenue act of 1933, chapter
3, Laws of Utah, 1933, as amended by chapter 20, Laws of Utah,
1933, second speca sesson.
The aw under whch the ta s mposed s commony referred to
as the saes ta act and went nto effect on ugust 4, 1933. The
sectons of the act drecty bearng on the queston read as foows:
Sec. 2. Defntons.
When used n ths act:

(h) The noun ta means ether the ta payabe by (he purchaser of a
commodty or servce sub|ect to ta , or the aggregate amount of ta es due
from the vendor of such commodtes or servces durng the perod for whch
he s requred to report hs coectons, as the conte t may requre.

Sec. 3. Lcense to do busness Revocaton ee.
It sha be unawfu for any whoesaer or retaer, or propretor of any pace of
amusement or entertanment to engage n the busness of seng tangbe persona
property or n the busness of furnshng amusement or entertanment
wthout frst havng obtaned a cense therefor .
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523(c), rt. 23(c)- .
84
Sec. 4. cse ta Rate.
rom am nftor the effectve date of ths act there Is hereby eved and there
sha be coected and pad:
(a) ta upon every reta sae of tangbe persona property made wthn
the State of Utah equvaent to two (2) per cent of the purchase prce pad or
charged, or n the case of reta saes nvovng the e change of property,
equvaent to two (2) per cent of the consderaton pad or charged ncudng
the far market vaue of the property e changed at the tme and pace of the
e change, e cept that n the case of saes of qud mat, mat srup or mat
e tract, fud, sod, or condensed, made from mated cerea grans n whoe or
n part, ths ta sha be equvaent to 10 per cent of the purchase prce
(b) ta equvaent to two (2) per cent of the amount pad: (1) To com-
mon carrers, or teephone or teegraph corporatons for a trans-
portaton, teephone servce, or teegraph servce provded, that sad ta sha
not appy to ntrastate movements of freght and e press or to street raway
fares (2) to sas, eectrc, and heat corporatons for gas, eectrcty,
or heat, furnshed for domestc or commerca consumpton.
(c) ta equvaent to two (2) per cent of the amount pad for a meas
furnshed at any restaurant, eatng house, hote, drug store or other pace at
whch meas are reguary served to the pubc
(d) ta equvaent to two (2) per cent of the amount pad for admsson
to any pace of amusement, entertanment or recreaton.
Sec. 5. Coectons Returns Payment Stamps Condtona saes.
very person recevng any payment or consderaton upon a sae of property
or servce sub|ect to the ta under the provsons of ths act, or to whom such
payment or consderaton s payabe (herenafter caed the vendor) sha be
responsbe for the coecton of the amount of the ta mposed on sad saes
and sha, on or before the 15th day of each month, make a return to the State
ta commsson for the precedng month and sha remt the ta es so coected
to the State ta commsson. The vendor may, f he sees ft, coect the ta from
the vendee, but n no case sha he coect as ta an amount n e cess
of the ta computed at the rates prescrbed by ths act.

If any vendor sha, durng any reportng perod, coect as a ta
an amount n e cess of 2 per cent of hs tota ta abe saes, he sha remt
to the commsson the fu amount of the ta heren mposed and aso such,
e cess and If any vendor under the pretense or representaton of coectng
the ta mposed by ths act sha coect durng any reportng perod an amount
n e cess of 2 per cent of hs tota ta abe saes, the retenton of such e cess
or any part thereof, or the ntentona faure to remt punctuay to the ta
commsson the fu amount requred to be remtted by the provsons of ths
act, Is decared to be unawfu and sha be punshabe by a fne of not e ceedng
1,000 or by mprsonment for not to e ceed s months, or by both such fne
and mprsonment.
Sec. . empt saes- eer.
saes of commodtes, the sae or use of whch Is now sub|ect to a sae
or e cse ta under the aws of the State of Utah, a saes to the Unted
States Government, to the State of Utah, ts departments and nsttutons and
the potca subdvsons thereof and a saes made by regous, chartabe
nnd eeemosynary nsttutons, n the conduct of the reguar regous, chartabe
and/or eeemosynary functons and actvtes wth a saes whch the State
of Utah s prohbted from ta ng under the Consttuton or aws of the
Unted States, or of the State of Utah sha be e empt from ta aton under ths
act: Provded, however, That saes of beer sha be sub|ect to the ta heren
Imposed.

Sec. 0. Lcensee to keep record aure to make return Penaty.
It sha be the duty of every person engagng or contnung, n ths State,
n any busness for the transacton of whch a cense s requred under ths
act, to keep and preserve sutabe records of a saes made by hm and such
other books or accounts as may be necessary to determne the amount of ta
for the coecton of whch he s abe under the provsons of ths act.

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85
23(c), rt. 23(c)-.
Sec. 11. Ta a debt due State Coecton.
ta due and unpad under ths act sha consttute a debt due the State
from the vendor and may be coected, together wth Interest .

Sec. 20. dmnstraton vested n ta commsson.
The admnstraton of ths act s vested n and sha be e ercsed by the
State ta commsson .
Saes ta reguatons were ssued by the State ta commsson n
September, 1933. rtce 2 of the Utah saes ta reguatons deas
wth the nature of the ta and reads as foows :
rt. 2. Nature of ta .
Ths s an emergency ta mposed upon every reta sae of tangbe persona
property made wthn the State of Utah, certan servces rendered by uttes,
meas served to the pubc, and admssons to any pnce of amusement, entertan-
ment or recreaton. One does not have to be engaged n reta trade n order to
be abe for the remttng of ths ta . The manufacturer, |obber or whoesaer,
or even one not actuay engaged n busness or trade, s abe for the remttng
of ths ta , f he ses tangbe persona property to a fna buyer or utmate
consumer.
rtce 23 of the Utah saes ta reguatons, reatng to the bass of
ta on admssons, states that the ta appes to the payment for
admsson, not to the admsson tsef and no refund or credt can be
aowed by reason of nonuse of the tcket uness the admsson charge
s aso refunded. Wth respect to refunds, artce 28 provdes that f
artces sod are returned and the sae entrey rescnded by refund-
ng the entre amount pad, ncudng ta , no ta s payabe on the
transacton and, f pad, the ta may be taken as a credt on a subse-
quent return. rtce 30 of such reguatons provdes for e empton
certfcates, nasmuch as the ta s mposed upon saes to utmate
consumers, n order to determne whch of severa saes of a gven
artce s n fact the reta sae. The burden of provng that a sae
of tangbe persona property was not a sae at reta sha be upon
the person who made t, uness such person sha have taken from the
purchaser a certfcate to the effect that the property was
purchased for resae .
Under the provsons of the State aw and the reguatons promu-
gated thereunder, t s apparent that the ta s an e cse ta mposed
upon the purchase prce n the case of reta saes of tangbe persona
property and on the amount pad for servces, meas, and admssons.
The ta s defned n secton 2(h) of the aw as ether the ta pay-
abe by the purchaser or the amount of ta es due from the vendor
durng the perod for whch he s requred to report hs co-
ectons, whch, n the absence of any provson to the contrary, f es
the purchaser or vendee as the payor of the ta and the vendor as
the coector. esponsbty for the coecton of the ta s ad
upon the vendor who may coect the ta from the vendee hence, a-
bty for actua payment of the ta s mposed upon the vendee or
purchaser whe the vendor acts as coector for the State.
Secton 23(c) of the Revenue ct of 1934 provdes that n comput-
ng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here ma-
tera. rtce 23(c)- of Reguatons 8 , reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by the
person upon whom they are mposed.
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23(c), rt. 23(c)- .
8
Snce under the Utah emergency revenue act the ta s mposed
upon the vendee or utmate consumer and not upon the vendor, the
vendee or consumer may deduct the amount pad by hm as a ta n
hs edera ncome ta return. If the ta s added to or made a part
of the ta payer s busness e pense, or s otherwse used to reduce hs
net ncome, t s not deductbe separatey as a ta .
rtce 23 (c)-1: Ta es. I -37-7 87
I. T. 2919
R NU CT O 1034.
Deductbty of Okahoma cgarette stamp ta .
rung s requested as to the deductbty, for edera ncome
ta purposes, of the Okahoma cgarette stamp ta .
The ta s mposed under the provsons of the Okahoma cgarette
stamp ta act, approved ebruary 5, 1935. The ta appes from
30 days after approva of the act to and ncudng une 30, 193 ,
at whch tme the act sha e pre and thereafter be of no effect.
Pertnent provsons of the aw read as foows:
Sec. 2. The sae, barter, or e change of cgarettes s hereby decared to be
sub|ect to ta aton .
Sec. 3. Wherever used In ths act

(c) The term whoesaer and/or |obber s defned to mean a person who
comes nto possesson of cgarettes whether as a manufacturer, warehouseman or
dstrbutor, for the purpose of seng them to retaers or to other whoesaers or
to persons outsde or wthn the State who mght rese or reta such cgarettes
to consumers.
(d) The term retaer Is defned to be: ( rst) person who comes nto the
possesson of cgarettes for the purpose of seng, or who ses them at reta
or (second) a person, not comng wthn the cassfcaton of whoesaer and/or
|obber as heren defned, havng possesson of more than 200 cgarettes.
(e) The term consumer s defned to be a person who receves, or who n
any way comes nto possesson of cgarettes for the purpose of consumng them,
gvng them away, or dsposng of them n a way other than by sae, barter
or e change.
(f) The term commsson Is defned to mean the Okahoma Ta Commsson.
(g) The term sae and/or saes Is hereby defned to be and decared
to Incude saes, barters, e changes and every other manner, method and form
of transferrng the ownershp of persona property from one person to another.
(h) The term stamp, as. heren used, sha mean the stamp or stamps by
the use of whch the ta eved hereunder Is pad.
Sec. 4. There s hereby eved the foowng e cse ta upon the sae of a
cgarettes wthn the State of Okahoma, whch ta sha be eved, coected and
pad at the foowng rates, to wt:
One and one-haf (1 ) cents on each package of ten (10) cgarettes or ess
three (3) cents on each package of twenty (20) cgarettes, and seven and one-
haf (7 ) cents on each package of ffty (50) cgarettes sod, or at the rate
of one doar and ffty ( 1.50) cents per one thousand (1,000) cgarettes sod.
Seo. 5. The ta hereby eved sha be pad and coected ony once on account
of any cgarettes sod and sha be pad by the person makng the frst sae
thereof wthn ths State and payment of sad ta sha be evdenced by stamps
purchased from the commsson and securey aff ed to the package, parce or
other contaner In whch such cgarettes are sod when the stamp
sha have been aff ed t sha be canceed n nk by the ntas
or name of the person aff ng such stamp and the date of canceaton thereof.

Sec. 7. The ta hereby eved sha be pad to the commsson by a persons
abe for a ta hereunder and for convenence stamps sha be pro-
vded by sad commsson for sae to, and use by, persons payng ta es under
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87
23(c), rt. 23(c)-.
ths act No person sub|ect to the provsons of ths act sha dspay or e pose
for sae n ths State, any cgaettes wthout compyng
wth the provsons of ths act wth respect to stampng the same, .
Sew. 8. (a) very whoesaer, obber and/or warehouseman before makng
any sae of cgarettes to a retaer or consumer, sha aft thereto the stamp
or stamps requred by ths act.
(b) retaer of cgarettes sha not, offer same for sae unt there
has been aff ed thereto by the whoesaer, |obber or warehouseman from whom
purchased the stamp or stamps requred by ths act provded, however, f sad
cgarettes have been shpped to sad retaer by a manufacturer, |obber or ware-
houseman not censed by the State hereunder, then sad retaer before offerng
for sae or seng sad cgarettes, must procure from sad commsson a suff-
cent number of stamps of the proper denomnaton and aff sad stamps to sad
cgarettes.
(c) ny consumer who buys drect from any whoesaer, |obber or warehouse-
man wthn or wthout the State any cgarettes to whch s not aff ed the stamp
or stamps requred by ths act, sha cause to be aff ed thereto the stamps re-
qured by ths act.

Sec. 9. The commsson s hereby authorzed and drected to purchase stamps
and to se the same ony to a censed manufacturers, whoesaers,
warehousemen and/or |obbers and retaers who have purchased cgarettes from
whoesaers and/or |obbers outsde of the State .
manufacturer, whoesaer, warehouseman and/or |obber dong busness wthn
the State, sha aff sad stamps when such cgarettes come nto ther
possesson.
Under secton 18 of the Okahoma cgarette stamp ta act every
whoesaer, |obber, or retaer n the State s requred to secure from
the commsson a permt or cense for the sae of cgarettes. Under
secton 20 of the act a consumer who procures cgarettes from wthout
the State, havng them brought n by common carrer or otherwse,
sha be hed to be a retaer. Such a person purchasng cgarettes
n a arger quantty than forty (40) sha be sub|ect to the same rues
and reguatons wth respect to cgarettes as are by ths act mposed
on retaers. Under other sectons, varous penates are provded
for noncompance wth, or evason of, the provsons of the aw.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23 (c)- of Reguatons 8 , reatng to the Revenue
ct of 1934, states that n genera ta es are deductbe ony by the
person upon whom they are mposed.
rom an e amnaton of the State aw, t s evdent that the person
who pays the ta by aff ng the stamps requred by the act s the
ta payer and s the ony one who s entted to a deducton for such
payment for edera ncome ta purposes. The ta s pad but once
and, prmary, by the person makng the frst sae of cgarettes
wthn the State. Under secton 8(a) of the State aw, the whoe-
saer, |obber, or warehouseman s requred to aff the stamps before
makng a sae to a retaer or consumer. Upon the sae of the
cgarettes to whch he has aff ed the stamps, he becomes the ta -
payer. In the event the stamps are not aff ed by the whoesaer,
|obber, or warehouseman, the retaer may not offer the cgarettes for
sae unt the seer has aff ed the stamps, and the consumer s ke-
wse requred to cause the stamps to be aff ed f he purchases drect
from any whoesaer, |obber, or warehouseman. The retaer re-
cevng cgarettes from outsde the State s requred to buy from the
commsson the necessary stamps and aff them and, as the con-
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523(c), rt. 23(c)- .
88
suraer purchasng from wthout the State s hed to be a retaer, he
s kewse requred to buy stamps and aff them to such purchases.
or edera ncome ta purposes, therefore, the cost of the stamps
s an aowabe deducton as a ta n the return of the frst seer
wthn the State of cgarettes to whch he has aff ed the stamps, or
of the consumer of cgarettes who has bought and aff ed the stamps
as requred by the act. Wth respect to the purchaser or consumer
of cgarettes who has not bought the stamps and aff ed them to the
cgarettes purchased by hm, the addtona amount pad for the
cgarettes because of the stamp ta pad by the seer s merey
addtona cost of the artce purchased.
The amount pad for the stamps may not be deducted separatey
as a ta f t has been ncuded as a part of the busness e penses of
the ta payer or otherwse used to reduce hs net ncome.
The ta mposed under the rkansas emergency reta saes ta
act of 1935 s deductbe, for edera ncome ta purposes, by the
consumer who pays the ta and to whom t s not refunded.
dvce s requested reatve to the deductbty, for edera n-
come ta purposes, of the ta mposed under the rkansas emer-
gency reta saes ta act of 1935.
The aw n queston, act 233 of 1935, whch was approved March
28, 1935, was to become effectve as to saes made on and after May
1, 1935, to and ncudng une 30, 1937. s the resut of an n|unc-
ton ssued aganst ts enforcement and an appea to the Supreme
Court of rkansas Wseman, Commssoner of Revenues, v. Phps
et a., 84 S. W. (2d), 91), the aw dd not become effectve unt uy
1, 1935. Provsons of the aw pertnent to a dscusson of the ques-
ton are as foows:
Sec. 4. The ta . egnnng May 1, 1935, there s hereby eved upon and
sha be coected from a reta saes, as heren defned, a ta of two (2 )
per centum of the gross proceeds derved from sad saes.
The ta mposed by ths secton sha appy to:
(a) saes at reta of tangbe persona property.
( ) reta saes at or by restaurants, cafes, cafeteras, hotes, dnng
cars, auctoneers, photostat and bue-prnt saes, funera drectors, and a
other estabshments of whatever nature or character seng for a consdera-
ton any property, thng, commodty, and/or substance.
(c) saes of admsson or admttance to athetc contests, theaters, both
moton pcture and stage performances, crcuses, carnvas, dance has and
other paces of amusement.
(d) reta saes of eectrc power and ght, natura gas, water, teephone
use and messages and teegrams.

Sec. 9. Duty of retaer to coect and account for reta saes ta . The ta
hereby mposed sha be coected by the retaer from the consumer and
on or before the 15tb day of each caendar month the retaer sha
make a return or returns to the commssoner of revenues .
The person makng the monthy return heren provded for sha pay to the
commssoner the amount of ta heren eved at the tme of makng such
return.
rtce 23(c)-1: Ta es.
r -39-7710
I. T. 2922
NC CT O 1034.

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89
23(c), rt. 23(c)- .
Seo. 10. Retaer responsbe for ta . ny retaer who sha negect, fa, or
refuse to coect the ta heren provded upon any, every and a reta saes
made by hm or hs agents or empoyees sha pay the same hmsef, .

Seo. 17. dvertsng.- It sha be unawfu for any retaer to assume or
absorb the ta or to advertse or hod out to the pubc or to any customer
drecty or ndrecty that the ta , or any part thereof mposed by ths act
w be assumed or absorbed by the retaer.
arous e emptons from the operaton of the aw are made n
order that State and Natona consttutona prohbtons aganst
ta es may not be voated that the ta burden be partay fted
from saes of artces or commodtes upon whch a State prvege
ta or cense s aready coected and that the burden be whoy
fted from medcnes and certan basc artces of food. Wth
respect to refunds, governmenta agences may appy for refund
of the ta upon saes of foodstuffs used by them for free dstrbu-
ton to the poor and needy, or to pubc, pena, or eeemosynary nst-
tutons. rtce 7 of the reguatons ssued under the act reads n
part as foows:
Genera. The gross proceeds receved from reta saes of teephone use and
messages are ta abe at an amount equvaent to 2 per cent of the amount pad
for such ntrastate servces. The ta s eved on the consumer, and users of
ta abe teephone servce sha pay the ta Imposed under the act.
The Supreme Court of rkansas n Wseman, Commssoner of
Revenues, v. Phps et a., supra, made the foowng comment
regardng the nature of the ta :
It s certan that t s not a ta eved upon anyone s occupaton
therefore, not an occupaton ta . The merchant s not ta ed. e s a ta
coector. The ta s requred of the purchaser and the merchant must
coect and account for t.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not
here matera. rtce 23(e)- of Reguatons 8 , reatng to the
Revenue ct of 1934, provdes that n genera ta es are deductbe
ony by the person upon whom they are mposed.
The ta n queston s an e cse ta eved upon reta saes of
tangbe persona property, saes or furnshng of certan servces,
and tckets of admsson. The statute requres the retaer to co-
ect the ta from the consumer and makes t unawfu for any
retaer to assume or absorb the ta . It aso provdes for refund to
certan e empt consumers from whom the ta may have been coected
by the retaer. These provsons of the statute ndcate a egsatve
ntent to mpose the ta upon the consumer. Language of the
Supreme Court of rkansas and reguatons of the agency admnster-
ng the ta support ths vew. ccordngy, the consumer, by whom
the ta s pad and to whom t s not refunded, may deduct the
amount as a ta n hs edera ncome ta return. If, however,
the ta s added to or made a part of the busness e pense of the
consumer, or s otherwse used to reduce net ncome, t can not be
deducted by hm separatey as a ta .
47318 30
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23(c), rt. 23(c)- .
90
rtce 23 (c)-: Ta es. I -7732
L T. 292
R NU CT OP 1934.
The 10 per cent addtona mposed upon the amount of any
ta payabe under the provsons of the nhertance ta aws of
Coorado to provde revenue for the od age penson funds n that
State s an nhertance ta and s not an aowabe deducton for
edera Income ta purposes.
dvce s requested whether the 10 per cent addtona mposed
upon the amount of any ta payabe under the Coorado State
nhertance ta aw to provde revenue for od age penson funds s
deductbe as a ta under secton 23(c) of the Revenue ct of 1934,
or whether the 10 per cent addtona amount s a part of the State
nhertance ta and as such not deductbe for edera ncome ta
purposes.
Chapter 144 of the Sesson Laws of Coorado, 1933, provdes, n
secton 1, for the creaton n each county of an od age penson
fund and, n secton 2, specfes the property, fund, moneys, and
sums whch sha be approprated to, and sha be a part of, the
od age penson funds. The funds specfed n subsecton (d) of
secton 2 ncude ny other funds whch may be aocated or aot-
ted by aw to sad od age penson funds. Under chapter 145
of the Sesson Laws of Coorado, 1933, funds are provded for the
payment of od age pensons and for the assstance of aged, ndgent
persons. Secton 1 provdes for the assessment and coecton by
the governmenta department under whose |ursdcton the present
coecton s now requred by aw of certan fees, charges, sums, and
mpostons whch are n addton to a other fees, charges, and
mpostons now f ed by aw, and whch are to be used soey for the
purposes of the act. Subsecton (c) of secton 1 provdes for:
Ten per cent (10 ) addtona upon the amount of any ta payabe
- under the provsons of the Inhertance ta aws of ths State.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year wth the e cepton, among others, of
nhertance ta es. rtce 23(c)- of Reguatons 8 provdes that
nhertance ta es are not deductbe from gross ncome. If the 10
per cent addtona mposed upon the amount of any ta payabe
under the provsons of the Coorado nhertance ta aws s an n-
hertance ta , t s not deductbe from gross ncome for edera
ncome ta purposes, but f t s a genera ta t s deductbe under
the provsons of secton 23(c) of the Revenue ct of 1934 and
artce 23(c) of Reguatons 8 .
It s apparent from the provsons of chapters 144 and 145 of the
Sesson Laws of Coorado, 1933, that t was the ntenton of the
egsature of that State to create and provde money for od age
penson funds by dvertng nto those funds a of the revenue de-
rved from certan e stng aws and by ncreasng the rate of ta
wth respect to other e stng aws and aocatng the revenue
derved from such ncreases to those funds. In enactng the prov-
sons n queston, the Coorado Legsature ncreased by 10 per cent
the nhertance ta rates and aocated the revenue derved therefrom
to the od age penson funds. In payng a ta 10 per cent greater
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91
23(c), rt. 23(c)-.
than he woud have pad pror to the enactment of the aw under
consderaton, the ta payer pays an nhertance ta , not an nhert-
ance ta pus a genera ta amountng to 10 per cent thereof. c-
cordngy, t s hed that the 10 per cent addtona mposed upon
the amount of any ta payabe under the provsons of the Coorado
nhertance ta aws s an nhertance ta , and s, therefore, not an
aowabe deducton from gross ncome for edera ncome ta
purposes.
rtce 23(c)-1: Ta es. I -4 -779
I. T. 2935
R NU CT O 1934.
The amount of the e cse ta due to the State of Connectcut
under the Connectcut corporaton busness ta act of 1935 may
be accrued, for edera ncome ta purposes, for the ta abe year
n whch the ncome of the ta payer s earned.
dvce s requested reatve to the year n whch a Connectcut
corporaton whch keeps ts books on the accrua bass may deduct
the ta payabe under the corporaton busness ta act of 1935.
The aw under whch the ta s mposed s contaned n chapter
b, Cumuatve Suppement to Connectcut Genera Statutes, anu-
ary sessons, 1931, 1933, 1935. It was approved une 21, 1935, and
appes to ncome years endng on or after uy 1, 1935. Sectons
of the aw pertnent to a dscusson of the queston are as foows:
Sec. 417c. Defntons. Whenever used n ths chapter, uness the conte t
sha otherwse requre, the words ta payer and company sha mean any
corporaton or assocaton sub|ect to the tu Imposed by ths chapter, Incudng
|ont stock companes or assocatons the words ta year sha
mean the caendar year In whch the ta s payabe the words ncome year
sha mean the caendar year upon the bass of whch net ncome Is computed
under ths chapter, uness a fsca year other than the caendar year has been
estabshed for the purpose of the edera corporaton net ncome ta , n whch
case t sha mean the fsca year so estabshed .
Sec. 418c. Imposton of ta . very mutua savngs bank, savngs and oan
assocaton and budng and oan assocaton dong busness n ths State, and
every other corporaton or assocaton carryng on busness n ths State whch
Is requred to report to the coector of nterna revenue for the dstrct In
whch such corporaton or assocaton as ts prncpa pace of busness for
the purpose of assessment, coecton and payment of an ncome ta ,
e cept , sha pay, annuay, a ta or e cse upon ts franchse
for the prvege of carryng on or dong busness wthn the State, such ta
to be measured by the entre net ncome as heren defned receved by such
corporaton or assocaton from busness transacted wthn the State durng
the Income year and to be assessed at the rate of 2 per cent provded n no
case sha the ta be ess than the mnmum ta as computed under secton
421c and provded .
Seo. 419c. Deductons from gross nwme. In arrvng at net ncome
there sha be deducted from gross Income a tems deductbe under the edera
corporaton net Income ta aw effectve and n force on the ast day of the
Income year, e cept .

Sec. 424c. nnua return. ach company sub|ect to the ta mposed under
ths chapter sha render to the ta commssoner, under oath or affrmaton
of ts presdent, vce presdent or other prncpa offcer and of ts treasurer or
assstant treasurer, an annua return, on forms prescrbed and furnshed by
the commssoner, statng specfcay the Items of gross Income
receved durng such year, te deductons permtted by aw, the nterest or
renta payments durng such year, the dvdend payments and changes n
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123(c), rt. 23(c)- .
92
capta, surpus and undvded profts durng such year and such other facts
as the ta commssoner may requre for the purpose of makng any computa-
ton requred by ths chapter such return to be accompaned by a true copy
of the ast ncome ta return, f any, made to the coector of nterna revenue.
Such return sha be due on or before the 1st day of pr of each year, e cept
when the ncome year sha dffer from the caendar year, when t sha be due
wthn 90 days after the end of the fsca year.
The basc dea under the accrua system of accountng s that the
books sha mmedatey refect obgatons and e penses defntey
ncurred and ncome defntey earned wthout regard to whether
payment has been made or whether payment s due. penses n-
curred n the operatons of a partcuar year are propery accrued
and aowed for that year athough payment may not be due unt
the foowng year. (II. . rown Go. v. Commssoner, 8 . T. .,
112, acquescence, C. . II 1, 5.) or the purpose of ascertanng
true ncome on the accrua bass for a gven accountng perod, ta es
do not stand on any dfferent footng than other accrued e penses.
In advance of the assessment of a ta a the events may occur whch
f the amount of the ta and determne the abty of the ta paver
to pay t. (Unted States v. nderson, 2 9 U. S., 422, T. D. 3839,
C. . 1, 179.) It foows that where a corporate ta payer uses
the accrua method of accountng t may at the end of ts ncome
year determne to a reasonabe degree of certanty the amount of
e cse ta es due to the State of Connectcut under the corporaton
busness ta act of 1935, because a the events whch f the amount
of the ta and determne the abty of the ta payer to pay t have
occurred. Inasmuch as t s requred to fe ts State return for the
purpose of computng the e cse ta on substantay the same bass
(both as to ncome and perod covered) on whch ts edera ncome
ta return s fed, the amount of e cse ta due to the State of Con-
nectcut under the aw n queston may be accrued, for edera ncome
ta purposes, for the ta abe year n whch the ncome s earned.
To the same effect s G. C. M. 9774 (C. . -2, 137), wheren prac-
tcay the same queston was consdered wth respect to the corporate
e cse ta mposed by the State of Connectcut before the present aw
(corporaton busness ta act of 1935) was enacted.
rtce 23(c)-1: Ta es. I -47-7817
I. T. 293
R NU CT OP 1934.
Deductbty of New Me co saes ta Imposed under the emer-
gency schoo ta act, approved ebruary 25, 1935, and effectve
une 30,1935.
dvce s requested reatve to the deductbty, for edera n-
come ta purposes, of the New Me co saes ta .
The ta n queston s mposed under the emergency schoo ta
act, approved ebruary 25,1935, and effectve une 30, 1935 (chapter
73, Laws of New Me co, 1935). The act repeas a acts and parts
of acts nconsstent therewth. Provsons of the emergency schoo
ta act pertnent to the queston are as foows:
Seo. 103. When used n ths act:
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93
23(c), rt. 23(c)-.
(d) The term gross recepts means the tota recepts of a ta payer re-
ceved as compensaton for persona or professona servces for the e ercse
of whch a prvege ta s mposed by ths act, the tota recepts of a ta payer
derved from trades, busness, commerce, and the gross proceeds of saes as
herenafter defned, and wthout any deducton on account of osses or e penses
of any knd.

(f) The term busness when used n ths act sha ncude a actvtes
or acts engaged n (persona, professona, and corporate) or caused to be en-
gaged n wth the ob|ect of gan, beneft or advantage ether drect or ndrect.

(h) The term reta, e cept as heren otherwse provded, means the sae
of tangbe persona property for consumpton and not for resae n the form of
tangbe persona property, and retaer means every person engaged n the
basness of makng saes at reta.

Sec. 201. There s hereby eved, and sha be coected by the ta
commsson, prvege ta es, measured by the amount or voume of busness
done, aganst the persons, on account of ther busness actvtes, engagng or
contnung, wthn the State of New Me co, In any busness as heren de-
fned .

Sec. 315. very ta Imposed by ths act, and a ncreases, nterest
and penates theroon, sha become, from the tme the same s due and payabe,
a persona debt due from the ta payer to the State of New Me co, .
arous actvtes fang wthn the scope of the act ncude mn-
ng, e tractng o and gas, manufacturng, whoesae and reta mer-
chandsng, furnshng eectrcty and gas, transmsson and trans-
portaton servce, engagng n professons, etc., and ta es at rates
varyng from one-eghth of 1 per cent to 2 per cent are eved aganst
the gross recepts for the prvege of engagng n busness. Prov-
sons are made for varous e emptons from the ta , for censng
those who engage n any busness sub|ect to ta aton, for the requre-
ment of returns and coecton of ta from those engaged n busness,
and for credt or refunds thereto.
Secton 23(c) of the Revenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad
or accrued wthn the ta abe year, wth certan e ceptons not here
matera. rtce 23(c)- of Reguatons 8 , reatng to the Revenue
ct of 1934, provdes that n genera ta es are deductbe ony by
the person upon whom they are mposed.
The ta mposed under the emergency schoo ta act s an e cse
(a mposed for the prvege of engagng n busness. though
the amount of the ta may be passed on to the consumer of the
goods purchased or used or the servces furnshed, t s apparent
that the person prveged to engage n busness s the ta payer
under the act. ccordngy, he may deduct the amount pad or
accrued as a ta under secton 23(c) of the Revenue ct of 1934
n determnng hs net ncome sub|ect to edera ncome ta . The
ta may not, however, be deducted for edera ncome ta purposes
(1) f t has been credted or refunded to hm by the ta comms-
fon, or (2) f he coects an amount equa to the ta from the con-
sumer and fas to ncude such amount n gross ncome. urther-
more, the ta may not be deducted separatey as a ta f t s added
to or made a part of the ta payer s busness e pense or s otherwse
used to reduce hs net ncome.
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523(c), rt. 23(c)- .
94
The consumer may not deduct the amount of the ta notwthstand-
ng t s passed on to hm by the person n busness. To hm t s
merey addtona cost of the servce or artce purchased but where
an amount equa to the ta s pad by the consumer wth respect
to goods or servces purchased tor consumpton or use n hs trade
or busness, such amount may be deducted as a busness e pense or
t may be treated as a capta tem where such costs are propery
captazed rather than deducted as e penses.
rtce 23(c)-1: Ta es. I -49-7841
I. T. 2942
R NU CT O 1934.
The ta eved under the Okahoma consumers ta aw of
1935 Is deductbe by the consumer for edera Income ta pur-
poses. If the ta Is added to or made a part of hs busness
e penses, or s otherwse used to reduce net Income, It may not
be deducted separatey as a ta .
dvce s requested reatve to the deductbty, for edera
ncome ta purposes, of the ta mposed by the Okahoma consumers
ta aw of 1935.
The aw n queston, effectve pr 23, 1935, and e prng uy
1, 1937, repeaed the Okahoma saes ta aw whch had been n
effect snce uy 10, 1933. Provsons of the aw and reguatons
pertnent to the nqury read n part as foows:
S CTION 3.

The term sae or saes sha mean any transacton by whch Is trans-
ferred for consderaton the ownershp of tangbe persona property and/or
servces when such transfer s made n the ordnary course of the transferor s
busness and s made to the transferee for consumpton and/or use or for
any other purpose than for resae.

S CTION 4.
There s hereby eved a ta of one (1 ) per centum upon the
gross proceeds of a saes and/or purchases of a tangbe persona property,
consstng of goods, wares or merchandse, sod to or purchased by consumers
and/or users wthn the State of Okahoma and a ke ta upon the gross
proceeds of a saes to or purchases by consumers and/or users, wthn ths
State, derved from the foowng: ere foows a st of the tems sub|ect
to the ta n queston.
S CTION .
The ta es eved hereunder sha be due and payabe monthy
and for the purpose of ascertanng the amount of ta payabe under ths
act, t sha be the duty of a vendors, on or before the 20th day of the
month to transmt to the commsson, upon forms showng
the gross proceeds arsng from a saes and/or purchases durng
the precedng caendar month . very vendor, at the tme of makng
the return requred hereunder, sha compute and remt to the commsson
the requred ta due for the precedng caendar month.
(d) nd for the purpose of coectng and remttng to the State
the ta mposed by ths act, the vendor coectng such ta shn be. and
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95
23(c), rt. 23(c)-.
Is hereby decared to be, the agent of the State for such purposes, and the
faure of any such vendor to remt or pay such ta to the State sha con-
sttute embezzement and be punshabe as provded by aw for the embezze-
ment of pubc funds.

S CTION 8.
The ta eved hereunder sha be pad by the consumer and/or
user to the vendor, and t sha be the duty of each and every vendor n
ths State to coect from the consumer or user, the fu amount of the ta
mposed by ths act, or an amount equa as neary as possbe and/or prac-
tcabe to the average equvaent thereof.
endors sha add the ta mposed to the saes prce or charge,
and when added such ta sha consttute a part of such prce or charge,
sha be a debt from consumer or user to vendor unt pad, and sha be
recoverabe at aw n the same manner as other debts.
vendor, as defned n ths act, who wfuy or ntentonay fas, neg-
ects or refuses to coect the fu amount of the ta Imposed by ths act,
or wfuy or ntentonay fas, negects or refuses to compy wth the
provsons of ths act, or remts or rebates to a consumer or user, ether drecty
or Indrecty, and by whatsoever means, a or any part of the ta eved by
ths act, or makes In any form of advertsng, verbay or otherwse, any
statement whch nfers that he s absorbng the ta , or payng the ta for
the consumer or user by an ad|ustment of prces or at a prce ncudng the
ta , or n any manner whatsoever, sha be deemed guty of a msdemeanor,
and upon convcton thereof sha be fned or Imprsoned ,

S CTION 10.
It s hereby decared to be the Intent of ths act to provde that
consumers and/or users payng the ta mposed under ths act sha not be
requred to pay more than the rate of ta eved hereunder or the average
equvaent thereof .
The Okahoma Ta Commsson, n an order ssued une 1, 1935,
rescnded pror rues and reguatons reatng to the Okahoma saes
ta aw of 1933, and adopted rues and reguatons under the Oka-
homa consumers ta aw of 1935. rtce 4, entted Who s the
ta payer, provdes as foows:
The act eves a ta upon the gross proceeds of saes or purchases of tangbe
persona property and certan servces to consumers or users, and t Is provded
that te ta sha be pad by consumers or users. The consumer or user s the
ta payer rather than the vendor, but the act provdes that the vendor sha
remt the ta pad by the consumer or user to the Okahoma Ta Commsson.
rtce 32 reates to the vendor as the agent of the State under
secton (d) and provdes n part as foows:
Ths subsecton provdes that the vendor sha be the agent of the State, and
as such s requred to coect the ta es eved under ths act on consumers or
users and remt the same to the Okahoma Ta Commsson.
Secton 23(c) of the evenue ct of 1934 provdes that n com-
putng net ncome there sha be aowed as deductons ta es pad or
accrued wthn the ta abe year, wth e ceptons not here matera.
rtce 23(c)- of Reguatons 8 , reatng to the Revenue ct of
1934, provdes that n genera ta es are deductbe ony by the person
upon whom they are mposed. The Okahoma consumers ta aw
of 1935 and the reguatons ssued thereunder show that t was the
egsatve ntent to mpose the ta upon the consumer or user and
to make the vendor the coector of the ta for and on behaf of the
State.
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23(c), rt. 23(c)- .
9
Inasmuch as the ta s mposed upon the consumer, he may deduct
the amount pad by hm as a ta n hs edera ncome ta return.
If the ta s added to or made a part of hs busness e penses, or s
otherwse used to reduce hs net ncome, t may not be deducted
separatey as a ta .
The foregong rung s appcabe ony to the ta mposed under
the Okahoma consumers ta aw of 1935. (See I. T. 2731, C. .
II-2, 43, reatve to the ta mposed under the Okahoma saes ta
aw of 1933.)
rtce 23 (c)-: Ta es. I -49-7842
I. T. 2943
R NU CT O 1034.
The motor fue ta mposed by the State of rgna s deductbe
by the purchaser who pays t and to whom t s not refunded. If
the ta s added to or made a part of the busness e pense of the
purchaser, It may not be deducted separatey as a tu .
dvce s requested reatve to the deductbty, for edera
ncome ta purposes, of the ta on gasone purchased n 1934 and
1935 n the State of rgna.
In I. T. 2475 (C. . I-. 81) t was hed wth respect to the
motor vehce fue ta mposed by the State of rgna under the
aw approved March 2 , 1923, as amended by ater acts up to and
ncudng the act approved March 2 , 1928, that the ta was deduct-
be by the purchaser but pror State aws were repeaed by chapter
212 of the cts of ssemby of rgna, 1932, effectve uy 1,
1932, and reported n the 1932 Suppement to the rgna Code o
1930 as chapter 90 , sectons 2154 (211) to 2154 (230), ncusve.
The motor fue ta aw of 1932 has aso been amended as shown by
sectons 2154 (211), (215), (21 a), (217), and (230a) of the 1934
Suppement to the rgna Code of 1930.
The aws n effect pror to uy 1, 1932, were repeaed and a new
statute enacted n order to effect a number of changes n penates,
admnstratve features, and procedure. The present aw s, however,
substantay the same as the earer acts wth respect to those pro-
vsons under whch t was hed, that the motor vehce fue ta
mposed by the State of rgna s deductbe n the ncome ta
return of the purchaser who pays t and to whom t s not refunded.
ccordngy, the purchaser of gasone n the State of rgna s
entted to deduct the amount of the rgna motor fue ta pad
by hm n 1934 and 1935 as a ta n hs edera ncome ta returns.
If, however, the ta n queston s added to or made a part of the
busness e pense of such purchaser, t may not be deducted sep-
aratey as a ta .
rtce 23(c)-: Ta es. I -51-78 1
I. T. 2945
R NU CT O 1934.
The gasone ta mposed under act No. 150, Pubc cts of 1927,
as amended, of the State of Mchgan s deductbe as a ta
n the edera Income ta returns of the owner or drver of the
motor vehce by whom the ta s pad and to whom t s not re-
funded. If the ta s added to or made a part of the busness
e penses of the ta payer, t can not be deducted by hm separatey
as a ta .
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97
23(d), rt. 23(d)-.
dvce s requested whether the gasone ta mposed by the State
of Mchgan n 1934 and 1935 s deductbe by the consumer.
It was hed n I. T. 24C5 (C. . III-1, 72) that the gasone
ta mposed by the State of Mchgan under act No. 2, Pubc
cts of 1925, was deductbe as a ta n the ncome ta returns of
the owners of motor vehces and not by the dstrbutors. ffec-
tve September 5, 1927, the former act was repeaed and a gasone
ta was mposed under act No. 150, Pubc cts of 1927. ( oume
1, Comped Laws, Mchgan, 1929, sectons 357 to 3597.) Ths
act was amended n 1929 by act No. 219 n 1931 by act No. 192 n
1932 by act No. 41 n 1933 by act No. 81 n 1934 by act No. 29
and n 1935 by act No. 1 . Pertnent provsons of act No. 150,
as amended, are as foows:
Ssc. 3577. Gasone ta . Sec, 2. ta of three (3) cents per gaon a
hereby mposed on a gasone sod or used n producng or generatng power
for propeng motor vehces used upon the pubc roads and hghways n ths
State, whch ta sha be pad at the tmes, n the manner and by the persons
herenafter specfed. It s the ntent of ths act to mpose a ta upon the
owners and drvers of motor vehces usng a combustbe type of engne upon
the pubc roads and hghways of ths State by requrng them to pay for the
prvege thereof, n addton to the motor vehce cense ta , at the rate of
three (3) cents per gaon for a motor vehce fue so used.

Sec. 3587. Refunds assgnment. Sec. 12. The purchaser of gasone used
for any purpose other than the operaton of motor vehces on the pubc roads,
streets and hghways n ths State, and muncpates and the edera Govern-
ment usng gasone n muncpay and ederay owner owned motor veh-
ces, respectvey, sha be entted to a refund of the ta pad thereon, upon
fng a sworn cam wth the secretary of state upon forms prescrbed and to
be furnshed by hm, wthn nnety (90) days from the date of purchase, as
shown by the nvoce.
Secton 23(c) of the Revenue cts of 1932 and 1934 provdes that
n computng net ncome there sha be aowed as deductons ta es
pad or accrued wthn the ta abe year, wth certan e ceptons not
here matera. rtce 23(c)- of Reguatons 8 , and correspondng
artces n pror reguatons, provde that n genera ta es are deduct-
be ony by the person upon whom they are mposed.
Snce t s the stated purpose of the ct to mpose the ta on the
owners and drvers of motor vehces on the pubc roads and hgh-
ways of the State, and snce a refund of the ta may be made to pur-
chasers of gasone who use t for purposes other than the operaton
of motor vehces on the pubc roads, streets, and hghways, the ta
s deductbe as a ta n the edera ncome ta returns of the owner
or drver of the motor vehce by whom t s pad and to whom t s
not refunded. If the ta s added to or made a part of the busness
e penses of the ta payer, t can not be deducted by hm separatey
as a ta .
S CTION 23(d). D DUCTIONS ROM GROSS
INCOM : T S O S R OLD R
P ID Y CORPOR TION.
rtce 23(d)-: Ta on bank or other stock.
R NU CT O 1034.
mendment of artce under secton 23(d). (See T. D. 4585,
page 54.)
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23(e), rt. 23(e)- .
98
S CTION 23(e). D DUCTIONS ROM GROSS
INCOM : LOSS S Y INDI IDU LS.
htce 23(e)-: Losses by ndvduas, I -34-7 1
I. T. 2915
It NU CT O 1934.
Whore the cost of an annuty contract s pad when the con-
tract s entered nto and under the terms thereof the annutant
Is to be pad a monthy sum for fe, no deductbe oss s sus-
taned when the annutant des before recevng a return of hs
nvestment n the contract.
The queston s presented whether the admnstrator of the
estate of may deduct as a oss n the return fed n behaf of the
decedent who ded n the year 1934 the e cess of the cost of an
annuty contract over the amount of the payments receved by the
annutant durng hs fetme.
The annuty contract was purchased by n the year 1932 at a
cost of 171 doars, whch amount was pad n fu n that year.
Under the provsons of the contract, payments n the amount of
doars per month were receved by the annutant to the date of
hs death. Such payments aggregated 2 doars. The admns-
trator of the estate has camed a oss of the dfference between the
cost of the annuty contract and the amount receved by the annutant.
In evervng v. Lous (77 ed. (2d), 38 , reversng a decson of
the oard of Ta ppeas, 29 . T. ., 1200), nvovng a queston
as to the deductbty of a oss camed on an annuty contract based
upon the perod of the fe of the mother of the annutant, the court
determned that the annutant had suffered no oss because she re-
ceved the thng for whch she had barganed. The court ponted
out that the annutant necessary knew that whatever she was en-
tted to receve under the terms of the annuty contract was de-
pendent upon the perod of her mother s fe and necessary recog-
nzed that she mght get more or ess, dependng on how ong the
mother ved. When the mother ded before the e praton of her
norma perod of fe e pectancy, there was no oss but merey a
termnaton of the contract by force of ts own mtatons. The
Lous case s dentca wth the nstant case, e cept that n the
former case the annuty contract was measured by the fe of a thrd
person rather than by the fe of the annutant. In each case the
contract termnated upon the death of the measurng fe and the
annutant receved everythng agreed upon under the contract. In
the Lous case the court ponted out that ts concuson, arrved at
by the reasonng referred to above, was aso supported by evdence
that the annutant had actuay receved more money under the an-
nuty contract than the stpuated vaue thereof computed as of pr
19, 1913, the date upon whch the annuty contract became effectve.
Upon the partcuar facts n that case ths addtona argument seems
concusve, but t w be observed the court had prevousy deter-
mned that the annutant sustaned no oss for the reason urged by
the ureau, that s, that the annutant receved everythng for whch
she had barganed.
In the nstant case, whe the annutant actuay receved far ess
by way of payments made pursuant to the annuty contract than the
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99
23(e), rt. 23(e)-3.
tota cost thereof, he nevertheess dd receve precsey what he bar-
ganed for, vz, specfc annuty payments for the remander of hs
fe. Thus, whe the annutant may have made a poor bargan,
he actuay suffered no oss. ccordngy, t s hed that the e cess
of the cost of the annuty contract to the decedent over the amount
of the payments receved by hm durng hs fetme, or the e cess
of the cost over the amount of the payments or porton thereof
apped n the reducton of the cost under secton 22(b) 2 of the
Revenue ct of 1934, does not consttute an aowabe deducton
from the gross ncome of the decedent.
rtce 23(e)-3: Loss of usefu vaue. I -51-78 2
T. D.4 12
INCOM T .
Retrement of assets rtce 23(e)-3 of Reguatons 8 , amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The foowng s substtuted for the ast paragraph of artce
23(e)-3 of Reguatons 8 :
If the deprecabe assets of a ta payer consst of more than one tem and
deprecaton, whether n respect of tems or groups of tems, s based upon
the average ves of such assets, osses camed on the norma retrement of
such assets are not aowabe nasmuch as the use of an average rate con-
tempates a norma retrement of assets both before and after the average
fe has been reached and there s, therefore, no possbty of ascertanng
any actua oss under such crcumstances unt a assets contaned n the
group have been retred. In order to account propery for such retrement the
entre cost or other bass of assets retred, ad|usted for savage, w be
charged to the deprecaton reserve account, whch w enabe the fu cost or
other bass of the property to be recovered.
In cases n whch deprecabe property s dsposed of due to causes other
than e hauston, wear and tear, and norma obsoescence, such as casuaty,
obsoescence other than norma, or sae, a deducton for the dfference between
the bass of the property (ad|usted as provded n secton 113(b) and artces
113(a) (14)-1, 113(b)-, and 113(b)-2) and ts savage vaue and/or amount
reazed upon ts dsposton may be aowed sub|ect to the mtatons pro-
vded n the ct upon deductons for osses, but ony f t s ceary evdent
that such dsposton was not contempated n the rate of deprecaton.
In the case of cassfed accounts, f t s the consstent practce of the ta -
payer to base the rate of deprecaton on the e pected fe of the ongest ved
asset contaned n the account, or n the case of snge tem accounts f the rate
of deprecaton Is based on the ma mum e pected fe of the asset, a deducton
for the bass of the asset (ad|usted as provded In secton 113(b) and artces
113(a) (14)-1, 113(b)-, and 113(b)-2, ess ts savage vaue s aowabe upon
ts retrement (See artces 23(1)-1 to 23(1)-10.)
Gut T. everno,
C ommssoner.
pproved December 11, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
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41, rt. 41-L 100
S CTION 23(1). D DUCTIONS ROM GROSS
INCOM : D PR CI TION.
rtce 23()-3: Deprecaton of ntangbe property.
R NU CT O 1 34.
mortzaton of baseba-payer contracts havng more than one
year to run. (See I. T. 2932, 1.)
rtce 23()-8: Deprecaton of drawngs and modes.
R NU CT O 1934.
mendment of eghth artce under secton 23(1). (See T. D.
4585, page 54.)
rtce 23()-9: Records of deprecabe property.
R NU CT O 1934.
mendment of nnth artce under secton 23(1). (See T. D.
4585, page 54.)
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
rtce 23(o)-1: Contrbutons or gfts by ndvduas.
R NU CT O 1934.
mendment of artce 23(o)-. (See T. D. 4585, page 54.)
P RT I . CCOUNTING P RIODS ND M T ODS O
CCOUNTING.
S CTION 41. G N R L RUL .
rtce 41-1: Computaton of net ncome. I -50-7852
G. C. M. 15875
R NU CT O 1934.
Ta payers who reguary empoy the accrua method of account-
ng shoud return the ncrement In vaue of Unted States savngs
bonds as ncome for each ta abe year when and to the e tent that
It s earned durng the year, accordng to the terms of the bonds
and n the amounts set forth n the tabe of redempton vaues
shown thereon. though for edera ncome ta purposes such
ncome s e empt from norma ta , t s sub|ect to surta es and
e cess-profts and war-profts ta es.
n opnon s requested whether ta payers ownng Unted States
savngs bonds and makng ncome ta returns on the accrua bass
shoud ncude n ther annua returns the ncrement n vaue of ther
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101
41, rt. 41-1.
ravngs bonds or shoud defer (he reportng of such ncrement for
edera ncome ta purposes unt the bonds are pad at maturty,
or redeemed pror to maturty, n accordance wth ther terms.
Issuance of the bonds s authorzed under secton 22 of the Second
Lberty ond ct, as amended, whch secton was added by the ct
approved ebruary 4, 1935 ( . . 4304, Pubc, No. 3, Seventy-
fourth Congress, C. . I -1, 551). Secton 22 provdes n part
as foows:
(b) ach savngs bond sha be ssued, on a dscount bass to mature not
ess than 10 nor more than 20 years from the date as of whch the bond Is
Issued, and provson may be made for redempton before maturty upon such
terms and condtons as the Secretary of the Treasury may prescrbe: Pro-
vded, That the ssue prce of savngs bonds and the terms upon whch they
may be redeemed pror to maturty sha be such as to afford an nvestment
yed not In e cess of 3 per centum per annum, compounded semannuay.
The denomnatons of savngs bonds sha be n terms of ther maturty vaue
and sha not be ess than 25.
(c) The provsons of secton 7 of ths ct, as amended (reatng to the
e emptons from ta aton both as to prncpa and as to nterest of bonds
ssued under authorty of secton 1 of ths ct, as amended), sha appy as
we to the savngs bonds and, for the purposes of determnng ta es and
ta e emptons, the ncrement n vaue represented by the dfference between
the prce pad and the redempton vaue receved (whether at or before ma-
turty) sha be consdered as nterest. Itacs supped.
Under the above-quoted provsons, the bonds are ssued on a
dscount bass and have a defnte ncrement n vaue accordng to
ther terms or condtons dependent upon the ength of tme the
bonds are hed, whch ncrement (whether at or before maturty)
sha be consdered as nterest for ta purposes. The stuaton
nvoved s anaogous to that where a nonnterest-bearng oan s
made at a dscount whch s ncuded n the face amount of the note.
In S. M. 3820 (C. . I -2, 32) t was hed that Under the accma
system the ncome to be reported for each ta abe year from such
dscount s the amount earned durng that year on a such oans
hed, whereas that rung, as modfed by G. C. M. 14839 (C. .
I -1, 73), hods that dscounts and commssons are ncome to
banks, oan companes, etc., empoyng the cash recepts and ds-
Incrsements method of accountng, when and to the e tent that the
dscounts and commssons are actuay receved or reazed upon
the payment, sae, or other dsposton of the notes n the face
amounts of whch the dscounts and commssons are ncuded.
Whe the Second Lberty Loan ct, as amended, provdes that,
for the purposes of determnng ta es and ta e emptons, the
ncrement n vaue represented by the dfference between the prce
pad and the redempton vaue receved (whether at or before
maturty) sha be consdered as nterest, such provson merey
specfes the measure of the porton of the amount receved (whether
at or before maturty) whch sha be consdered as nterest and
does not specfy the tme when the nterest sha be treated as n-
come. The statute can not be construed, therefore, as requrng
that no dstncton sha be made, n the determnaton of such tme,
between the accrua and the cash recepts and dsbursements methods
of accountng. The dstncton between the two methods of account-
ng s we estabshed and has been ong recognzed by the courts.
eepng accounts and makng returns on the accrua bass, as
dstngushed from the cash bass, mport that t s the rght to
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42, rt. 42-1.
102
receve and not the actua recept that determnes the ncuson of the
amount n gross ncome. Itacs n the orgna. (Sprng Cty
oundry Co. v. Commssoner, 292 U. S., 182, Ct. D. 829, C. . III-
1, 281.) Upon the accrua bass, ncome s returnabe for the year
n whch the rght to receve t arses (Contnenta Te c Lumber
Co. v. Unted States, 28 U. S., 290, Ct. D. 494, C. . I-1, 2 0
Patrck McGur, Inc., v. Commssoner, 74c ed. (2d), 729, Ct. D.
979, C. . r -1, 185, certorar dened, 55 S. Ct., 827), where,
n the opnon of the Commssoner, such method of accountng
reguary empoyed ceary refects ncome. It s not the provnce
of the court to wegh and determne the reatve merts of systems
of accountng. ( rthur M. rown v. evcrng, 291 U. S., 193,
Ct. D. 78 , C. . I -| 223.)
In vew of the foregong, t s the opnon of ths offce that ta -
payers who reguary empoy the accrua method of accountng
shoud return the ncrement n vaue of Unted States savngs bonds
as ncome for each ta abe year when and to the e tent that t s
earned durng the year, accordng to the terms of the bonds and
n the amounts set forth n the tabe of redempton vaues shown
thereon. though for edera ncome ta purposes such ncome
s e empt from norma ta , t s sub|ect to surta es and e cess-
profts and war-profts ta es.
rthuh . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
rtce 42-1: When ncuded n gross ncome. I -43-775
( so Secton 143.) I. T. 2928
R NU CT O 1934.
Treatment n the return fed for a decedent of nterest accrued
at the date of hs death and of ta requred to he wthhed at the
source wth respect to such nterest.
dvce s requested reatve to the proper method of reportng
n the 1934 ncome ta return of , who ded on ebruary , 1934,
nterest accrued at the date of death and ta requred to be wthhed
at the source.
mong securtes receved by the e ecutor of s estate were bonds
of the M Corporaton. Interest on these bonds s payabe May 1
and November 1. The coupons due May 1, 1934, were st attached
when the bonds were receved by the e ecutor. It s understood that
the nterest accrued from anuary 1,1934, to the date of death shoud
be ncuded n the return fed for the perod ended on that date, but
advce s desred whether nterest accrued from November 1, 1933,
the ast date on whch nterest was pad, to December 31, 1933,
shoud aso be ncuded. The bonds contan a ta -free covenant
cause and advce s requested whether the e ecutor s entted to
deduct on the return the credt for ncome ta pad at the source,
namey, 2 per cent of the amount of nterest on the bonds whch s
ncuded n gross ncome.
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103
542, rt. 42-2
Secton 42 of the Revenue ct of 1934 provdes:
The amount of a tems of gross ncome sha be ncuded n the gross
ncome for the ta abe year n whch receved by the ta payer, uness, under
methods of accountng permtted under secton 41, any such amounts are to be
propery accounted for as of a dfferent perod. In the case of the death of a
ta payer there sha be ncuded n computng net ncome for the ta abe
perod n whch fas the date of hs death, amounts accrued up to the date of
hs death f not otherwse propery ncudbe n respect of such perod or a
pror perod. Itacs supped.
If the decedent fed a return for the caendar year 1933 on the
cash bass, the nterest accrued on the bonds from the ast date of
nterest payment (November 1, 1933) to ebruary , 1934, the
date of death of the decedent, shoud be ncuded n the decedent s
return for the year 1934 n whch s reported ncome for the perod
anuary 1, 1934, to ebruary , 1934, n accordance wth the prov-
sons of secton 42 of the Revenue ct of 1934. If, however, the
decedent fed a return for the caendar year 1933 on the accrua
bass and ncuded n such return nterest accrued to and ncud-
ng December 31, 1933, the decedent s return for the year 1934 n
whch s reported ncome for the perod anuary 1, 1934, to ebru-
ary , 1934, shoud ncude ony nterest accrued durng that perod.
In ether case, the decedent s ncome ta for the year 1934 may be
credted wth the amount of ta requred to be wthhed at the
source n respect of that part of the bond nterest whch s ncuded
n hs return for that year.
rtce 42-2: Income not reduced to possesson. I -28-7590
G. C. M. 15151
R NU CT O 1934.
Under the provsons of the charter of a edera savngs and
oan assocaton, the dvdends credted to an nstament share-
hoder may not be wthdrawn n ther entrety unt three years
have eapsed, but a porton of such dvdends may be wthdrawn
wthout restrcton at any tme, n whch case there s a forfe-
ture of a part of the dvdends.
ed, the porton of the dvdends credted to such a sharehoder
wthout restrcton as to wthdrawa s ncome to hm for the year
n whch so credted or set apart. ny baance consttutes ncome
at the end of the 3-year perod, provded the shares have not
been wthdrawn.
n opnon s requested whether dvdends credted by edera
savngs and oan assocatons to the accounts of nstament share-
hoders shoud be treated as constructvey receved by the share-
hoders for edera ncome ta purposes.
Secton 5(a) of the ome Owners Loan ct of 1933 (48 Stat.,
128), as amended, provdes as foows:
In order to provde oca mutua thrft Insttutons n whch peope
may nvest ther funds and n order to provde for the fnancng of homes,
the board s authorzed, under such rues and reguatons as t may prescrbe,
to provde for the organzaton, ncorporaton, e amnaton, operaton, and
reguaton of assocatons to be known as edera savngs and oan assoca-
tons, and to ssue charters therefor, gvng prmary consderaton to the
best practces of oca mutua thrft and home-fnancng nsttutons n the
Unted States.
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542, rt. 42-2.1
edera savngs and oan assocatons are requred to adopt
the mode by-aws or an appro maton thereof and the charter of
a such assocatons s the bass of ther operaton. Under the
charters of the assocatons nstament thrft shares may be ssued,
payabe n monthy nstaments by the subscrber or hs successors
or assgnees at the rate of one-haf of 1 per cent of the amount sub-
scrbed unt the payments and the dvdends credted thereon are
equvaent to the par vaue of the shares. fter provson for a
e penses and a reserve account, the remander of the profts s
decared, credted, or pad on share accounts as dvdends. In add-
ton to such dvdends, a nstament thrft sharehoders who pay
reguary ther nstament thrft share accounts wthout more than
a 0-day defaut at any tme and wthout the repurchase by the asso-
caton of any part thereof are pad, from the undvded profts
account, a bonus n cash upon ther shares becomng pad up equv-
aent to 1 per cent per annum on the funds pad n by them. There
are no mtatons on the wthdrawa of shares or dvdends e cept
the provsons of secton 10 of the charter whch reads n part as
foows:
The assocaton sha have the rght to repurchase Its shares and pay to the
hoders thereof the vaue of the same and sharehoders sha have the rhrnt to
fe wth the assocaton ther wrtten appcaton to repurchase ther shares,
n part or In fu, at any tme and upon the fng of such wrtten appcaton
to repurchase, the assocaton sha number and fe the same In the order
receved and sha, after 30 days from the recept of such appcaton to repur-
chase, ether pay the hoder the vaue thereof, n part or n fu as requested, or
appy at east one-thrd of the recepts of the assocaton from ts sharehoders
and borrowers to the repurchase of such shares n numerca order.
Sharehoders fng wrtten appcaton for the repurchase of ther shares shn
n man sharehoders unt pad and sha not become credtors. Dvdends upon
the shares of any sharehoders to the e tent of the amount of the appcaton
to repurchase sha be dscontnued whe such sharehoders reman upon a
st to repurchase shares.
In the event of the repurchase of any shares upon the appcaton of a
sharehoder wthn one year of the date of nvestment, the assocaton sha
retan a sum equa to one-haf of the dvdends decared on the accounts so
repurchased, and n the event of the repurchase of any shares upon the app-
caton of a sharehoder after one year but wthn three years of the date of
the nvestment the assocaton sha retan a sum equa to one-fourth of the
dvdends decared on the account so repurchased. On shares repurchased
after three years from the date of nvestment, the assocaton sha pay the
fu amount pad n thereon, together wth a dvdends decared thereon up
to and ncudng the ast dvdend date but not e ceedng the reasonabe vaue
thereof as determned by the board of drectors. .
are constructvey receved by the subscrbers to nstament thrft
shares (nstament sharehoders) pror to the date of the maturty
of the stock . e., whether the dvdends, profts, or accumuatons
credted to accounts of nstament sharehoders pass wthout re-
strcton to such sharehoders pror to the maturty of the stock.
queston smar to that here presented arose n O. D. 1081
(C. . 5, 99). In that case, where under the by-aws of a cooperatve
bank the profts credted to a sharehoder coud not be wthdrawn
n ther entrety unt fve years had eapsed, but three-fourths of
such profts coud be wthdrawn at any tme upon 30 days notce,
n whch case the other one-fourth was forfeted, t was hed that
three-fourths of the profts credted to the sharehoder were credted
s prevousy stated, advce
uested whether the dvdends
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105
42, rt. 42-3.
to or set apart for hm wthout restrcton and shoud be ncuded n
gross ncome for the year n whch so credted or set apart. It was
further hed that the remanng one-fourth consttuted ncome con-
structvey receved at the end of the 5-year perod, provded the
sharehoder had not prevousy wthdrawn hs shares.
It s evdent from the provsons of the charter n the nstant case
that the dvdends credted to an nstament sharehoder of a edera
savngs and oan assocaton may not be wthdrawn n ther entrety
unt three years have eapsed, but a porton of such dvdends s
credted to hm wthout restrcton, and, therefore, consttutes ncome
constructvey receved for the year of the credt. In other words,
the provson that a certan porton of the dvdends sha be forfeted
f the sharehoder wthdraws hs shares wthn three years s not a re-
strcton upon the sharehoder s rght to wthdraw the baance of such
dvdends at any tme. Moreover, the provson for forfeture n the
case of wthdrawa does not requre the sharehoder to part wth any
property whch he has receved but ony mts the amount whch he
ma receve. Such forfeture s purey vountary snce the share-
hoder has the opton to eave hs shares n the assocaton for the
perod specfed and receve the fu amount credted to hm. The
provson for forfeture, therefore, does not restrct the sharehoder
from wthdrawng at w a porton of the dvdends credted to hm,
or mpose any penaty upon such acton, but gves hm a choce of two
aternatves, one of whch w resut n the recept of a greater
amount but at a ater date than the other.
It s, therefore, the opnon of ths offce that the amount of dv-
dends whch s avaabe to the nstament sharehoder when credted
to hs account, and whch he w actuay receve n any event, s
ncome to hm at the tme the credt s made and that the baance
consttutes ncome at the end of the 3-year perod, provded hs shares
have not been wthdrawn.
obert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 42-3 : ampes of constructve I -52-7873
recept. G. C. M. 155 5
R NU CT O 1034 ND PRIOR R NU CTS.
The amount by whch the maturty vaue of stock In a budng
and oan assocaton e ceeds the amounts pad n by the ta payer
s ncome for the year In whch the stock matures, notwthstandng
the fact that the consttuton of the organzaton provdes that a
f ed rate of nterest sha be pad to members wthdrawng ther
shares before maturty.
. C. M. 15151 (page 103, ths uetn) revoked.
dvce s requested reatve to the treatment for edera ncome
ta purposes of dstrbutons made by the M udng and Loan
ssocaton.
In une, 1922, the ta payer subscrbed for y shares of nstament
tock n the M udng and Loan ssocaton. .Ths stock matured
n May, 1932, and the amount receved by the ta payer n that year
n e cess of the amounts pad n by hm has been treated as ncome
for 1932, aganst whch acton the ta payer has protested.
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42, rt. 42-3.
10
The provsons grantng e empton from ncome ta of amounts
receved by ndvduas as dvdends or nterest from domestc bud-
ng and oan assocatons contaned n secton 22(b) 7 of the Revenue
ct of 1928 and the correspondng sectons of pror Revenue cts
were omtted from the Revenue ct of 1932 and subsequent Revenue
cts. Snce the Revenue cts of 1932 and 1934 contan no provsons
wth respect to the e empton of any porton of the nterest or dv-
dends receved from domestc budng and oan assocatons, the en-
tre amount of nterest or dvdends receved from such assocatons
durng the year 1932 and subsequent years s sub|ect to ta . (I. T.
2727, C. . II-2, 55.)
Wth respect to the treatment for ncome ta purposes of earnngs
or credts on budng and oan assocaton stock, artce 42-3 of
Reguatons 8 , promugated under the Revenue ct of 1934 and
reatng to constructve recept of ncome, reads n part as foows:
n amount credted to sharehoders of a budng and oan asso-
caton, when such credt passes wthout restrcton to the sharehoder, has a
ta abe status as ncome for the year of the credt. If the amount of such
accumuatons does not become avaabe to the sharehoder unt the maturty
of a share, the amount of any share n e cess of the aggregate amount pad
In by the sharehoder s ncome for the year of the maturty of the share.
Substantay the same wordng appears n artce 333 of Regu-
atons 77 and 74, artce 52 of Reguatons 9 and 5, artce 53 of
Reguatons 2, and artce 54 of Reguatons 45.
The prospectus ssued by the M udng and Loan ssocaton
provdes n part as foows:
ach ssue of stock matures n 120 months from date of ssue. t that
tme, or at any tme thereafter, when shnres are wthdrawn, they are entted
to ther fu earnngs up to date of wthdrawa, under secton , artce ,
of the consttuton. Shares wthdrawn before 120 months are guaranteed and
receve 4 per cent nterest per annum, provded the account has been runnng
for s months under secton , artce .
Shnres may be wthdrawn before or after 120 months, by gvng 30 days
notce, and, at the e praton of that tme, are entted to the repayments of
a sums pad on stock, wth accrued Interest or fu earnngs thereon, as the
case may be, up to date of wthdrawa, as provded n sectons referred to
above, n the order In whch notces are fed, from the frst moneys thereafter
receved nto the assocaton. If unapproprated funds are on hand, shares
may be pad at the tme the notce Is gven.
perence has shown that assocatons have pad too arge a rate of
nterest to wthdrawng members, and thereby have done n|ustce to those
who reman unt ther shares mature. y f ng the rate at 4 per cent, those
vountary wthdrawng receve a far and sure rate of nterest on ther
sma monthy savngs, whe a who reman In the assocaton have ke pro-
tecton as we as the nducement, as they propery shoud have, of reazng a
arger proft
It s evdent from the foregong statement of the operatons of
the assocaton that earnngs on shares of stock may be wthdrawn
at any tme but ony on surrender of stock. urthermore, the wth-
drawa before maturty of the stock entas the forfeture of certan
accumuatons whch go ony to members who carry ther stock to
maturty. There can be no constructve recept of that whch can be
acqured or reduced to possesson ony by the surrender of vauabe
rghts. (S. M. 5 80, C. . -, 32.) It s the opnon of ths offce
that the earnngs on the ta payer s stock dd not become unquafedy
sub|ect to hs demand unt the year of maturty, whch, n the
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107
51, rt. 1-1.
nstant case, was the year 1932. Upon maturty the stock, together
wth earnngs thereon, became sub|ect to wthdrawa upon demand
of the stockhoder. It foows that the amount by whch the maturty
vaue of the stock e ceeds the amounts pad n by the ta payer s
ncome sub|ect to ta n 1932, the year n whch the stock matured.
arnngs credted upon the stock subsequent to ts maturty are
returnabe for ncome ta purposes for the year n whch the earn-
ngs are credted.
Upon reconsderaton of G. C. M. 15151 (page 103, ths uetn),
nvovng the ta abe status of dvdends credted to sharehoders by
a edera savngs and oan assocaton, ths offce s of the opnon
that the memorandum does not correcty refect the ntent of artce
42 3 of Reguatons 8 and the correspondng artces of pror regu-
atons. That memorandum s, therefore, revoked.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
rtce 51-1: Indvdua returns.
- R NU CT O 1034.
mendment of artce 51-1. (See T. D. 4585, page 54.)
rtce 51-1: Indvdua returns. I -39-7711
G. C. M. 15530
R NU CTS O 192S, 1932, ND 1934.
Where property Is hed by husband and wfe as tenants by
entretes, ether spouse may deduct n hs or her separate edera
ncome ta return the amount of ta es and Interest pad by hm or
her durng the ta abe year In connecton wth such property, f
no part of such ta es or nterest s deducted as an accrued tem
by ether n any ta abe year.
G. O. M. 9234 (C. . -, 117) and G. C. M. 14128 (C. . I -1,
142) are revoked.
dvce s requested reatve to the deductbty n the separate
ncome ta returns of husband and wfe hodng rea estate as tenants
by entretes of ta es and nterest pad n connecton therewth.
Interest on ndebtedness and ta es (wth e ceptons not matera
here) pad or accrued durng the ta abe year, dependent upon the
method of accountng reguary empoyed by the ta payer (sectons
41 and 43), are deductbe under secton 23 (b) and (c) of the
respectve cts.
It may be ponted out that the tenancy by entretes s essentay
a |ont tenancy, modfed by the common aw theory that husband
and wfe are one person. (Tffany, Rea Property, second edton,
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51, rt. 51-1.
108
secton 194.) The rght to deductons for nterest and ta es by
husband and wfe hodng property as tenants by entretes does
not necessary have a drect connecton wth the rght to rents and
profts from the property. There may be no enforceabe rght of
contrbuton between husband and wfe, partcuary f the property
produces no ncome, and ether spouse or both spouses may be re-
qured to pay nterest or ta es f the property s to be preserved
from forecosure or ta sae.
It s the opnon of ths offce that f separate returns are fed the
husband or wfe may deduct n hs or her separate return the amount
of ta es aganst the property pad by hm or her durng the ta abe
year, f no part of such amount s deducted as an accrued tem by
ether spouse n any ta abe year. ( rtce 23(c)- of Reguatons
8 . C. Ncodcmus, r., v. Commssoner, 2 . T. ., 125, non-
acquescence C. . I-2, 15, acquescence, page 1 , ths uetn
Wam R. Tracy v. Commssoner, 25 . T. ., 1055.) s to nter-
est, the mortgage obgaton on the property hed as tenants by en-
tretes may have been sgned or assumed by husband or wfe, or both,
or they may have taken the property sub|ect to the mortgage. In
ether event, f separate returns are fed, the husband or wfe may
deduct n hs or her separate return the amount of nterest pad by
hm or her durng the ta abe year, f no part of such amount s
deducted as an accrued tem by cther spouse n any ta abe year.
( rtce 23(b)- of Reguatons 8 George . Neracher v. Com-
mssoner, 32 . T. ., 23 , acquescence, page 15, ths uetn . C.
Ncodemus, r., v. Commssoner, supra.) Doube deductons are, of
course, not permtted. ( rtce 23(a)-, Reguatons 8 .)
In vew of the foregong, G. C. M. 9234 (C. . -, 117) and
G. C. M. 14128 (C. . I -1, 142), whch are contrary to the con-
cuson reached n ths memorandum, are revoked. It s recom-
mended that the nonacquescence n . C. Ncodemus, r., v. Com-
mssoner, supra, be wthdrawn.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 51-1: Indvdua returns. I -43-7757
I. T. 2929
R NU CT O 1034.
Where and , who were snge persons wthout dependents
pror to une 30, 1934, were marred on that date and the wfe
had no Income or deductons ether for the perod pror to or
after marrage, the return fed by the husband for the caendar
year 1934 Is not a |ont return (even though so stated thereon)
and he s entted to a persona e empton of 1,750 ( of 1,000
pus of 2,500).
dvce s requested reatve to the amount of persona e empton
whch s aowabe under the crcumstances stated heren.
and , who were snge persons wthout dependents pror to
une 30, 1934, were marred on that date and ved together durng
the remander of the year. , the wfe, had no ncome or deductons
for the year 1934 ether before or after marrage. It s agreed that
the husband s entted to the prorated porton of the snge e emp-
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109 53.
ton for the perod anuary 1, 1934, to une 30, 1934, that s, 5 0,
and to the prorated porton of the |ont persona e empton of
2,500 for the perod uy 1 to December 31, 1934, that s, 1,250, but
a rung s requested whether the prorated snge e empton of
(the wfe) for the perod anuary 1 to une 30, 1934 ( 500), s
aso aowabe.
ttenton s drected to I. T. 2875 (C. . I -1, 81), whch
provdes n part that a statement n an ncome ta return to the
effect that the return s a |ont return does not necessary consttute
t a |ont return. It provdes further that n order for a |ont
return, propery cassfed as such, to be fed by a husband and wfe,
both spouses must have had some ncome or deductons n the year
for whch the return s fed and the return must ncude the ncome
and deductons of both spouses. In the nstant case ony the husband
had ncome and deductons for the caendar year 1934. ccordngy,
the return fed by hm for that year can not be cassfed as a |ont
return, regardess of the fact that t s stated thereon that t s a
|ont return. It foows, therefore, that the return s the separate
return of the husband and he s entted to the persona e empton
aowabe under such crcumstances. In other words, he s entted to
a persona e empton of 1,750 for the caendar year 1934 ( /12 of
1,000, or 500, snge e empton for the -month perod ended une
30, 1934, pus /12 of 2,500, or 1,250, |ont e empton for the
-month perod ended December 31, 1934).
S CTION 53. TIM ND PL C OR
ILING. R TURNS.
Secton 53. I -51-78 3
( so Secton 11 Secton 131, rtce 131-1.) I. T. 294
R NU CT O 1934.
Status of ctzen of the Unted States n the rgn Isands wth
respect to ncome ta aton. I. T. 1454 (C. . 1-2, 180) revoked.
dvce s requested reatve to the ta abe status for the caendar
year 1934 of , a ctzen of the Unted States, whose ega resdence
s n Maryand.
The ta payer was a Government empoyee n the rgn Isands
from September , 1933, to September , 1934, hs saary beng
pad by the Unted States he returned to the sands on December
15, 1934, as a prvate ctzen, and snce that date has resded n St.
Thomas. e nas been requested to fe hs ncome ta return for
the caendar year 1934 n the rgn Isands n accordance wth the
rung pubshed as I. T. 1454 (C. . 1-2, 180), requrng returns to
be made there n the case of a ctzen of the Unted States who was
a resdent n the rgn Isands on the ast day of hs ta abe year.
It appears that the ta payer fed hs return wth the coector at
atmore, Md., n whose dstrct he retans hs ega resdence. n
opnon s requested from the ureau of Interna Revenue whether
the ta payer s ncome ta return for the caendar year 1934 shoud
be fed n the rgn Isands and hs ncome ta pad nto the
treasures of those sands n accordance wth the Nava ppropra-
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53.
110
tons ct (Pubc, No. 35), approved uy 12, 1921 (42 Stat, 122).
That ct provdes n part as foows:
Temporary Government fob West Indan Isands: Provdes
further, That the Income ta aws now n force In the Unted States of merca
md those whch may hereafter be enacted sha be hed to be kewse n force
n the rgn Isands of the Unted States, e cept that the proceeds of such
ta es sha be pad nto the treasures of sad sands.
s the above-quoted provson appears not to have been e pressy
repeaed or amended, t remans n fu force and effect to the e tent
that t s not n confct wth the provsons of the subsequenty en-
acted Revenue ct of 1934, whch s now n force. Secton 801 (a) 10
of the Revenue ct of 1934 provdes that the term Unted States
when used n a geographca sense ncudes ony the States, the
Terrtores of aska and awa, and the Dstrct of Coumba.
It thus seems cear that the Revenue ct of 1934 does not e tend the
tentora mts of the Unted States to ncude the rgn Is-
ands, and there s nothng n the above-quoted provsons of the
Nava ppropratons ct that can be nterpreted as ncudng the
rgn Isands wthn the terrtora mts of the Unted States for
ncome ta purposes. Therefore, the Unted States and the
rgn Isands are separate and dstnct ta ng |ursdctons a-
though ther ncome ta aws arse from an dentca statute app-
cabe to each.
In construng the Revenue ct of 1934, as n effect n the rgn
Isands, t w, of course, be necessary n some sectons of the aw to
substtute the words rgn Isands for the words Unted
States, n order to gve the aw proper effect n those sands.
rom the vewpont of the rgn Isands ctzens of the Unted
States resdng n the sands must be consdered as resdent aens,
and ctzens of the Unted States not resdng n the rgn Isands
must be treated as nonresdent aens. resdent aens perma-
nenty resdng n the rgn Isands (ncudng ctzens of the
Unted States permanenty resdng there) havng suffcent ncome
to requre a return under secton 51 of the Revenue ct of 1934, must
fe a return there of ncome from whatever source derved (ncudng
sources from wthn the Unted States), e cept earned ncome from
sources wthout the rgn Isands whch s e empt under secton
11 (a). Such resdent aens may cam a credt under secton
131(a)2 of the Revenue ct of 1934 for ncome ta es pad or accrued
to the Unted States on ncome from sources wthn the Unted States,
whch s requred to be returned n the rgn Isands.
Smary, a ctzen of the Unted States, wherever resdent, s re-
qured to he a return n ths country of a of hs ncome from what-
ever source derved (artce 11-2 of Reguatons 8 ), save for the
earned ncome e empted by the provsons of secton 11 (a). Sec-
ton 131 (a) 1 of the Revenue ct of 1934 aows such a Unted
States ctzen a credt for ncome ta es pad or accrued to the rgn
Isands, whch s a possesson of the Unted States, on ncome from
sources wthn the rgn Isands. It thus appears that ncome whch
must be reported n, and may be ta ed by, both |ursdctons s ord-
nary sub|ected to ta n the |ursdcton n whch t arses (deter-
mned by reference to the provsons of secton 119), and the ta
pad thereon s an aowabe credt aganst ta abty n the other
|ursdcton.
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I
arned ncome receved from sources wthout the Unted States
(or the rgn Isands, as the case may be) by a bona fde nonres-
dent for more than s months of the ta abe year s e empt under
secton 11 of the Revenue ct of 1934, whch reads n part as
foows:
In addton to the tems specfed In 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
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.
It shoud be noted that by ts terms the e empton granted n the
above-quoted secton (omttng the parenthetca e cepton) s gen-
eray appcabe to a such earned ncome.
The parenthetca e cepton contaned n secton 11 (a) s gen-
eray appcabe to a compensaton pad by the Unted States or
any agency thereof (or the rgn Isands or any agency thereof, as
the case may be). That the nserton of ths parenthetca e cepton,
whch frst appeared n the evenue ct of 1932, was motvated by
the desre to deny une pected and unmerted e emptons resutng
from the operaton of the correspondng e empton provsons of
earer cts s dscosed by ts egsatve hstory. The Senate
nance Commttee| as ndcated beow, ntated the change by sug-
festng that subsecton (a) of secton 11 be emnated n ts entrety
or reasons stated n ts report (Report No. 5, May 9, 1932, page
31):
Secton 11 . empton of earned ncome from sources wthout the Unted
States.
Ths secton has been amended by the emnaton of the subsecton e cudng
from gross Income amounts receved by bona fde nonresdents of the Unted
States from sources wthout the Unted States. Your commttee beeves
there Is no reason for the contnuance of ths e empton n the case of ctzens
of the Unted States resdng abroad for the reason that under other sectons
of the ct such ctzens are granted a credt for ncome ta es pad foregn
countres and shoud not be further reeved from edera ncome ta es.
urthermore, a consderabe proporton of the ndvduas prevousy bene-
fted by ths subsecton have been empoyees of the Unted States who, because
of ther status as such, were usuay e empt from any foregn ta upon
ther compensaton receved from the Unted States these ctzens are not
beeved by your commttee to be entted to a compete e empton from the
edera ncome ta upon such compensaton.
owever, the stated ob|ectons to the e empton granted by secton
11 (a) resuted n the fna adopton of the parenthetca e cepton
n queston as suggested n the course of debate on the foor of the
Senate rather than the emnaton of the entre subsecton. (See
Congressona Record, voume 75, page 10410, and conference com-
mttee report, pages 3 and 15.)
It seems cear from such egsatve hstory and the conte t of
secton 11 (a), as amended, that t was the ntenton of Congress
Generay to remove from the e empt status saares pad by the
Tnted States. pparenty, the credt aowed for ncome ta es,
f any, pad to foregn countres was consdered adequate reef
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53.
112
from possbe doube ta aton n the case of saares pad by the
Unted States to ts empoyees resdent n such countres.
owever, empoyees of the Unted States resdent n the rgn
Isands must be treated as occupyng an entrey dfferent status
for purposes of appyng the secton n queston. Ther compen-
saton was not abe to doube ta aton at any tme, as t s gen-
eray recognzed that a possesson of the Unted States may not
burden nstrumentates of the Unted States by evyng ncome
ta es on compensaton pad by the Unted States wthout ts consent.
Such consent has never been e pressy granted and nothng contaned
n ether secton 11 (a) or the reated credt provsons mpedy
grants such consent or mpose an ncome ta on such compensaton
for the beneft of the sands. On the contrary, the nserton of
the parenthetca matter nto secton 11 (a) and the Senate nance
Commttee report ndcate qute ceary the ntenton of Congress
to sub|ect to ta the saares of empoyees of the Unted States,
wherever resdng. Thus, n the case of an empoyee of the Unted
States resdent n the rgn Isands, the effect of the parenthetca
e cepton to the e empton provson was to restore hs compensa-
ton to gross ncome for purposes of computng hs ta abty
to the Unted States.
Summarzng, t appears from the above dscusson that a ctzen
of the Unted States who s an actua bona fde nonresdent for
s months of the ta abe year w not be requred to fe wth the
Unted States Government a return of earned ncome from
sources wthout the Unted States, uness such earned ncome s
pad by the Unted States. Income earned n the rgn Isands
(other than that pad by the Unted States) s propery returnabe
where earned. Conversey, a permanent resdent of the sands
woud not propery return n the sands earned ncome from
sources wthn the Unted States (e cept amounts pad by the rgn
Isands), f he coud quafy as a bona fde nonresdent as to the
sands for more than s months durng the ta abe year and
coud otherwse meet the provsons of secton 11 (a) of the Revenue
ct of 1934 as apped to the sands.
ppyng the above prncpes to the nstant case, t appears that
the ta payer as a ctzen of the Unted States s requred to return
n the Unted States a of hs ncome from whatever source derved
(ncudng ncome from sources wthn the rgn Isands and com-
pensaton pad by the Unted States) e cept earned ncome (other
than compensaton pad by the Unted States) from sources wthn
the rgn Isands whch s e empted by secton 11 (a). e s aso
requred to return n the rgn Isands ncome from a sources
(e cusve of compensaton pad hm by the Unted States whch s
not ta abe n the rgn Isands). Income ta es pad or accrued
to the rgn Isands on ncome derved from sources wthn the
rgn Isands, to the e tent such ncome s returnabe n the Unted
States (ncome earned n the rgn Isands other than compensaton
pad by the Unted States s e empt n the Unted States and not
returnabe theren), represent ncome ta es pad or accrued to a
possesson of the Unted States and may be credted under secton
131 of the Revenue ct of 1934 aganst hs ta abty n the Unted
States. Conversey, ncome ta es pad or accrued to the Unted
States on ncome derved from sources wthn the Unted States (not
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113
53, rt. 53-2.
ncudng compensaton pad by the Unted States for servces ren-
dered n the rgn Isands whch s not returnabe n the rgn
Isands) are an aowabe credt aganst hs ncome ta abty n
the rgn Isands.
In vew of the foregong, I. T. 1454, whch hods the test governng
the fng of returns to be the pace where the ta payer resded on
the ast day of hs ta abe year, s revoked.
rtce 53-2: tensons of tme for fng I -28-7588
returns. T. D. 45 2
( so Secton 5 , rtce 5 -2.)
Income ta Mutua nsurance companes other than fe. ur-
ther e tenson of tme for fng returns and payment of the ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In accordance wth the provsons of secton 53 and secton 5 (c)
of the Revenue ct of 1934, a further e tenson of tme for fng
ncome ta returns, orm 1030, Income return of a mutua nsur-
ance company other than fe, and for the payment of the ta
shown to be due thereon, for the caendar year 1934, s hereby
granted for such perod as may be necessary, but not ater than
ugust 15,1935.
In accordance wth the provsons of secton 295 of the Revenue
ct of 1934, nterest at the rate of per cent per annum w accrue
on the frst nstament, or one-fourth of the ta shown on any return,
and on the second nstament or another one-fourth of such ta ,
for the payment of whch an e tenson of tme s heren granted,
from March 15, 1935, and une 15, 1935, respectvey, to the date of
payment.
Guy T. everng,
Commssoner of Interna Revenue.
pproved uy 3, 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
rtce 53-2: tensons of tme for fng I -37-7 88
returns. T. D. 4584
( so Secton 5 , rtce 5 -2.)
ncome ta mutua nsurance companes other tuan fe.
urther e tenson of tme for ng returns and payment of
the ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
In accordance wth the provsons of secton 53 and secton 5 (c)
of the Revenue ct of 1934, a further e tenson of tme for fng
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114
ncome ta returns, orm 1030, Income return of a mutua nsur-
ance company other than fe, and for the payment of the ta shown
to be due thereon, for the caendar year 1934, s hereby granted for
such perod as may be necessary, but not ater than September 15,
1935.
In accordance wth the provsons of secton 295 of the Revenue
ct of 1934, nterest at the rate of per cent per annum w accrue
cn the frst nstament, or one-fourth of the ta shown on any re-
turn, and on the second nstament or another one-fourth of such
ta , for the payment of whch an e tenson of tme s heren granted,
from March 15, 1935, and une 15, 1935, respectvey, to the date of
payment.
Gut T. everng,
Commssoner of Interna Revenue.
pproved September , 1935.
T. . Coodge,
ctng Secretary of the Treasury.
S CTION 55. PU LICITY O R TURNS.
Secton 55(a).
NU CT O 1934.
Commttee on grcuture and orestry, Unted States Senate.
(See T. D. 45 4, page 313.)
Secton 55(a).
R NU CT O 1934.
Speca Commttee to Investgate Lobbyng ctvtes, Unted
States Senate. (See T. D. 4574, page 314.)
Secton 55(a).
R NU CT O 1934.
Commttee on Interstate Commerce, Unted States Senate. (See
T. D. 4582, page 31 .)
Secton 55(a).
R NU CT O 1934.
Reguatons governng preparaton and pubcty of wrtten dec-
sons n respect of overassessments of ncome and profts ta es
aowed n e cess of 20,000. (See T. D. 4583, page 318.)
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115
5 , rt. 5 -2.
Secton 55 (b) (as amended). I -51-78 9
L T. 2947
Dupcate Income ta returns.
To carry out the provsons of secton 55(b) of the Revenue ct
of 1934, as amended by an ct (Pubc, No. 40) approved pr 19,
1935, every person (e cept nonresdent aen ndvduas) requred
to fe an ncome return for a ta abe year or perod begnnng on or
after anuary 1, 1935, must fe wth the return a copy thereof on
the dupcate form (green paper), whch w be provded for that
purpose, or a photostatc or photographc copy of the orgna return.
Such copy must be a compete dupcate of the return e cept that
the affdavts on the dupcate form need not be fed n. The copy
on the dupcate form must aso ncude any schedues and statements
attached to the orgna return e cept (1) Schedue C- (nforma-
ton to be furnshed by corporatons as to compensaton of offcers
and empoyees n e cess of 15,000), (2) n the case of a fducary
return the copy of the w or trust nstrument, (3) n the case of a
return made by an agent the power of attorney on orm 935 or orm
93 , and (4) n the case of an nsurance company the copy of the
annua statement made to the State nsurance department.
In accordance wth the statute above mentoned, wthn a reason-
abe tme after they are fed the copes of the returns w be made
avaabe for nspecton n the offce of the coector of nterna revenue
n whch the returns are fed, 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 admnstraton or for the pur-
pose of obtanng nformaton to be furnshed to oca ta ng author-
tes. The aw provdes that the nspecton sha be permtted ony
upon wrtten request of the governor of such State, desgnatng the
representatve of such offca, body, or commsson to make the nspec-
ton on behaf of such offca, body, or commsson. The statute
does not authorze nspecton of the dupcate returns by the pubc.
S CTION 5 . P YM NT O T .
rtce 5 -2: tenson of tme for payment of the ta
or nstament thereof.
R NU CT O 1934.
urther e tenson of tme for payment of ta of mutua nsurance
companes other than fe shown to be due on orm 1030 for caendar
year 1934. (See T. D. 45 2, page 113.)
rtce 5 -2: tenson of tme for payment of the ta or
nstament thereof.
R NU CT O 1934.
urther e tenson of tme for payment of ta of mutua nsurance
companes other than fe shown to be due on orm 1030 for caen-
dar year 1934. (See T. D. 4584, page 113.)
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101, rt. 101-1. 11
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
rtce 101-1: Proof of e empton. I -30-7 03
I. T. 290
R NU CTS O 1928, 1932, ND 1934.
corporaton organzed for a busness actvty, the gans of
whch nure to an e empt corporaton, the hoder of ts stock, s
not entted to e empton under secton 101(14) of the Revenue ct
of 1934 and the correspondng provsons of the Revenue cts of
1928 and 1932.
dvce s requested whether the M Corporaton s entted to e -
empton from edera ncome ta under the provsons of secton
101(14) of the Revenue ct of 1934 and the correspondng prov-
sons of the Revenue cts of 1928 and 1932.
The organzaton was ncorporated n 1930 under the stock cor-
poraton aw of the State of R wth broad powers to engage n bus-
ness. It has an authorzed capta stock of shares wthout par
vaue, a of whch s owned by the N ssocaton, an e empt cor-
poraton. It s stated that the proceeds from the sae of the entre
capta stock to the N ssocaton were used n the purchase of cer-
tan and that thereafter a tea room was erected on the ste that
the prncpa source of revenue s derved from unches, teas, dn-
ners, etc. that a dsbursements made by the corporaton, ncudng
saares, are necessary busness e penses for the operaton of the tea
room or the mantenance of the property that the purpose n operat-
ng the tea room s for gan, and that when such operaton refects
a proft t w nure to the e cusve and soe beneft of the N sso-
caton, whch has been hed to be e empt from edera ncome
ta aton.
Secton 101(14) of the Revenue ct of 1934 and the correspondng
provsons of the Revenue cts of 1928 and 1932 state that there
sha be e empt from ncome ta aton
(14) 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 s e empt from the ta
Imposed by ths tte.
corporaton engaged n the operaton of a busness s not e -
empt merey because ts entre capta stock s owned by an e empt
organzaton. In order to be e empt under the provsons of aw
quoted above, a corporaton must not ony be operated for the e cu-
sve purposes mentoned theren, but t must aso be so organzed. In
the nstant case the M Corporaton was organzed under the stock
corporaton aw of the State of R to engage n a reguar busness
and not for the purpose of hodng tte to property, coectng n-
come therefrom, and turnng over the entre amount thereof, ess e -
penses, to an e empt organzaton.
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117
101, rt. 101( )-1.
In vew of the foregong, t s hed that the M Corporaton s not
entted to e empton under the provsons of secton 101(14) of the
evenue ct of 1934 and the correspondng provsons of the Reve-
nue cts of 1928 and 1932. (See Sun- erad Corporaton v. Dug-
ffan, 73 ed. (2d), 298 Ct. D. 953, C. . I -1,190 .)
rtce 101( )-1: Regous, chartabe, scen- I -45-7781
tfc, terary, and educatona organzatons I. T. 2933
and communty chests.
R NU CTS O 192S, 1932. ND 1934.
The M Schoo, whch Is controed by and hs daughter, , as
trustees, recevng a saary from the organzaton and havng the
power to reguate hs own saary as nstructor and dstrbute the
profts, s not e empt from ta aton under secton 101( ) of the
Revenue ct of 1934 and the correspondng provsons of the Reve-
nue cts of 19 2 and 1928.
dvce s requested wth respect to the status of the M Schoo for
edera ncome ta purposes.
The evdence dscoses that the organzaton was ncorporated under
the provsons of secton of the code of the State of . The
by-aws provde that the corporaton sha be under the contro of
the board of trustees composed of two members, the ncorporators,
and such successors n offce as they may seect under the powers
granted n the charter and that the empoyment of the facuty and
the compensaton to be pad are eft to the dscreton of the board of
trustees wth fu power to act n the premses. The corporaton dd
not ssue any capta stock. The ncorporators of the organzaton are
and hs daughter, , who are the trustees and the ony members.
Two professors, and C, are the teachers. The fnanca statement
for the year 1934 dscoses ncome receved from tuton fees amount-
ng to 59a doars, and e pendtures for the saary of two professors
n the amount of 58a doars and for msceaneous suppes amountng
to doars.
n organzaton entted to e empton from ta aton under the
provsons of secton 101( ) of the Revenue ct of 1934 must be or-
ganzed and operated e cusvey for one or more of the specfed
purposes, that s, regous, chartabe, scentfc, terary, or educa-
tona, and ts net ncome must not nure n whoe or n part to the
beneft of prvate sharehoders or ndvduas. though ths organ-
zaton s operated for educatona purposes, t can not propery be
sad that ts net ncome may not nure n whoe or n part to the bene-
ft of any prvate sharehoder or ndvdua nasmuch as the organza-
ton s cosey controed by and hs daughter, , and , one of the
two trustees, has the power to reguate hs own saary and dstrbute
the profts.
ased upon the foregong, t s hed that the organzaton s not
entted to e empton under the provsons of secton 101( ) of the
Revenue ct of 1934 and the correspondng provsons of the Revenue
cts of 1932 and 1928.
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101, rt. 101( )- .
118
rtce 101( )-1: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1934.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
rtce 101( )-1: Regous, chartabe, scen- I -48-7829
tfc, terary, and educatona organzatons G. C. M. 15778
and communty chests.
R NU CTS O 1921, 1924, 192 , 1928, 1932, ND 1934.
The e empton from edera Income ta aton granted to cor-
poratons, and any communty chest, fund, or foundaton, whch
meet the test ad down In secton 101( ) of the Revenue ct
of 1934 and correspondng provsons of pror Revenue cts s
appcabe to an ordnary trust.
S. M. 2 20 (C. . III-2, 221) modfed. Recommended that
. R. R. 21 (C. . II-, 155) be modfed.
dvce s requested whether the M Trust s entted to e empton
under the provsons of secton 103( ) of the Revenue ct of 1932.
If the trust s e empt, t w be reeved from havng the 5 per cent
e cse ta , mposed by secton 213 of the Natona Industra Re-
covery ct, wthhed from dvdends pad to t.
The trust was created by a deed of trust dated September ,
1930, under whch agreed to transfer on or before December 31,
1930, to certan trustees cash and nvestments of the vaue of as
doars. The trust s organzed and operated for regous, chartabe,
pubc wefare, and educatona purposes, and ts ncome, after pay-
ment of the necessary e penses of admnstraton, s devoted e cu-
svey to such purposes. No part of the net earnngs of the trust
nures to the beneft of any ndvdua or to any one of the trustees.
The actvtes of the trustees came wthn two man categores fo-
owng the twofod purpose of the founder to hep n tdng over
the present dstress and to promote the future we-beng of the
country. The trust has made grants n ad of settement for soca
servce, occupatona centers, and cubs, and has e tended assstance
to cubs for unempoyed boys and grs. . urthermore, t has done
wefare work for women and chdren and has gven funds for
needy peope. It has aso made grants for the restoraton of cathe-
dras, churches, and other budngs whch can propery be regarded
as natona monuments. None of ts actvtes has been such as
to deprve t of cassfcaton as a chartabe trust.
In fth-Thrd Unon Trust Co. v. Commssoner (5 ed. (2d),
7 7), reversng the oard of Ta ppeas (20 . T. ., 88), t was
hed that secton 231 ( ) of the Revenue ct of 1921, whch e empts
from ta aton Corporaton, and any communty chest, fund, or
foundaton, organzed and operated e cusvey for regous, char-
tabe, etc., purposes, ncudes wthn ts scope an ordnary trust. In
ts opnon the court stated n part as foows:
It Is cear that t was the benefcent purpose of Congress, n further-
ance of a recognzed pubc pocy, to e empt from ta aton trusts or funds or
foundatons devoted e cusvey to regous, chartabe, scentfc, terary, or
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119
101, rt. 101(7)-1.
educatona purposes. No reason s Indcated, and we can thnk of none, why
Congress shoud e empt funds for the desgnated purposes wthout regard to
ther source when ntrusted to a corporaton, and shoud kewse e empt funds
for the same purposes when ntrusted to ndvduas or assocatons when they
grow out of communty gfts, but refuse to e empt such funds when created
by an ndvdua gft to an assocaton or an ndvdua.
We are confronted n the begnnng wth the phrase communty
chest If the word communtyu s an ntegra part of the phrase com-
munty chest, rather than a quafyng word, then there s consderabe force
to the pettoner s contenton that t does not modfy the word fund or the
word foundaton. fary persuasve test, we tnk, woud be to determne
whether the word chest, standng aone, woud have any meanng wthn the
scope and purpose of the cause. It s dffcut to escape the concuson that
t woud be whoy meanngess, or at bes present such ambguty as woud
requre e terna ad to resove. In the unreported case reed upon by the
respondent, dward W. ok v. akcy T. McCaughn, Coector, decded by the
Dstrct Court for the astern Dstrct of Pennsyvana December, 1929, the
dstrct udge was of the opnon that the word chest woud be meanngess
wthout the addtona descrptve term. The term communty chest came
nto common use durng or mmedatey after the war. We thnk t s fary
accurate to say that t was the ogca deveopment of the so-caed war
chests, by whch varous funds rased by organzatons for reef work durng
the war were desgnated. The phrase as an ntegra term frst makes ts ap-
pearance n the addenda to Webster s New Internatona Dctonary, pubshed
n 1925, and appears agan n the edtons of 1928 and 1932. No such ntegra
term as communty fund or communty foundaton appears n any dcton-
ary.
It was recommended that a petton for certorar be not fed n
that case.
Snce the anguage of secton 101( ) of the Revenue ct of 1934
(wth e cepton not here matera) and the correspondng sectons
of the Revenue cts of 1932, 1928, 192 , and 1924 s dentca wth
that of secton 231( ) of the Revenue ct of 1921, t s hed that the
M Trust comes wthn the purvew of the e empton provsons
theren set forth and s not requred to fe an ncome ta return. It
foows that the dvdends receved by the trust are not requred to
be ncuded n gross ncome. ccordngy, the e cse ta mposed by
secton 213(a) of the Natona Industra Recovery ct s not ap-
pcabe to such dvdends.
It s recommended that . R. R. 21 (C. . II-, 155) be modfed
to agree wth the concuson reached heren. S. M. 2 20 (C. .
III-2, 221) s modfed accordngy.
rthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 101(7)-1: usness eagues, chambers I -33-7 50
of commerce, rea estate boards, and boards G. C. M. 15073
of trade.
R NU CT OP 1934.
The M Commodty change s not e empt from ta aton under
secton 101(7) of the Revenue ct of 1934.
dvce s requested whether the M Commodty change s e -
empt from ta aton as a busness eague under secton 101(7) of the
Revenue ct of 1934.
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5101. rt. 101(7)- .
120
The e change was organzed pursuant to the aws of the State
of R to mantan an e change to factate the purchase and sae of
materas, to estabsh unform rues and reguatons for the conduct
of busness, and to secure and furnsh for ts members rooms and ap-
purtenances as factes for transactng busness. In the further-
ance of these purposes, an e change s mantaned and operated, on
the foor of whch members dea n contracts for the future devery
of certan commodtes. The e change nether trades n securtes of
the knd permtted on the foor of the e change, nor deas n secur-
tes of any other cass. It does not purchase or se any commodtes
or contract for the future devery of commodtes. The e change
does, however, operate nspecton bureaus for the certfcaton of cer-
tan commodtes for devery upon contracts, for whch servce a
charge s made. The fnanca statements of the e change for the
perods ended November 30, 1933, and uy 31, 1934, dscose that
ts ncome s derved from membershp dues, nspecton servce fees,
commssons on tckers, nterest on nvestments, fnes, nterest on bank
deposts, cense fees, teephone booth rentas, and other msceaneous
tems. The e change has no capta stock and owns no rea estate
but t does have a substanta capta fund of whch a porton s n-
vested n ncome-producng securtes.
rtce 101(7)-1 of Reguatons 8 , deang wth secton 101(7)
of the Revenue ct of 1934, reads as foows:
usness eagues, chambers of commerce, rea estate boards, and
boards of trade. busness eague s an assocaton of persons havng some
common busness nterest, the purpose of whch s to promote such common
nterest and not to engage n a reguar busness of a knd ordnary carred
on for proft. It 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
Improvement of busness condtons of one or more nes of busness as ds-
tngushed from the performance of partcuar servces for ndvdua persons.
n organzaton whose purpose Is to engage n a reguar busness of a knd
ordnary carred on for proft, even though the busness s conducted on
a cooperatve bass or produces ony suffcent ncome to be sef-sustanng,
s not a busness eague. n assocaton engaged n furnshng nformaton
to prospectve Investors, to enabe them to make sound nvestments, s not a
busness eague, snce ts actvtes do not further any common busness nterest,
even though a of ts ncome s devoted to the purpose stated. stock e change
Is not a busness eague, a chamber of commerce, or a board of trade wthn the
meanng of the aw and Is not e empt from ta .
In the bref fed on behaf of the e change emphass s ad on
the fact that the pertnent provsons of the departmenta regua-
tons e cude stock e changes from e empton under secton 101(7)
of the Revenue ct of 1934 but make no menton of produce e -
changes. rom ths t s argued that t was not the ntenton of
the departmenta reguatons to e cude from e empton a com-
modty e change. It s the opnon of ths offce, however, that
such a constructon s not |ustfed by any substanta dfference
between the purposes of such organzatons. In Produce change
Stock Cearng ssort, Inc., v. etverng, Commssoner (71 . (2d),
142), the court had under consderaton the queston whether that
organzaton was e empt from ncome ta under secton 103(7) of
the Revenue ct of 1928, the provsons of whch are dentca wth
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121
101, rt. 101(7)-1.
the provsons of the statute here nvoved. In the course of ts
opnon the court sad:
Were the constructon of the statutory provson In queston a matter res
Integra, we shoud nd tte dffcuty n hodng that a corporaton formed for
the purpose of affordng cearng house factes to a mted group of traders n
securtes was not a busness eague entted to e empton from ta aton. The
numerous subdvsons of secton 103 of the Revenue ct of 1028 ( 2 L S. C. .,
secton 2103) and the correspondng provsons n the earer cts, specfy organ-
zatons whch, n the great ma|orty of nstances, are evdenty granted e empton
because of the beneft to be derved by the pubc from ther actvtes. (Cf.
Trndad v. Sagrada Orden, 2 3 T . S., 578, 581, 44 S. Ct, 204, G8 L. d., 458
T. D. 3548, C. . III-, 270 .) There s reason why these shoud be favored, but
none s apparent for e emptng an assocaton whch merey serves each member
as a convenence or economy n hs busness. Ths s the dstncton whch the
oard of Ta ppeas and the courts have taken n appyng the provson In
queston to somewhat anaogous stuatons.

Under the famar doctrne of nosctur a socs, a busness eague
to be e empt must possess the genera characterstcs of these other organza-
tons wth whch the statute groups t. The pettoner does not possess them
Its purpose s smpy to provde a busness economy or convenence for nd-
vdua traders. If the earer reguatons be deemed to ncude an organza-
ton such as the pettoner wthn the defnton of busness eague, that
defnton must be regarded as nvad because contrary to the statute.
Whe the court n that case was speakng of the actvtes of a
stock e change, a produce e change kewse merey serves each
member as a convenence or economy n hs busness. urther-
more, t s evdent from the fnanca statements furnshed by the
e change n the nstant case that the organzaton not ony renders
other partcuar servces for the ndvduas who compose ts mem-
bershp (. e., the nspecton of certan commodtes) for whch a
charge s made but has substanta ncome-producng nvestments.
n vew of the foregong, the M Commodty change s not
entted to e empton as a busness eague under secton 101(7)
of the Revenue ct of 1934.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 101(7)-1: usness eagues, chambers I -35-7 70
of commerce, rea estate boards, and boards I. T. 291
of trade.
R NU CT O 1934.
The M Chamber of Commerce was Incorporated wth purposes and
functons smar to those of organzatons ordnary e empted,
e cept that It operates a traffc bureau. Members of the organza-
ton use the factes of the traffc bureau wthout e tra charge and
that bureau represents ony a reatvey sma part of the ta payer s
actvtes, whch do not revea a purpose to engage In a busness of
a knd ordnary carred on for proft.
ed, the ta payer s e empt from edera Income ta under
secton 101(7) of the Revenue ct of 1934.
47318 3 5
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5101, rt. 101(7)- .
122
dvce s requested whether the M Chamber of Commerce s e empt
from edera ncome ta under the provsons of secton 101(7) of
the Revenue ct of 1934, whch e empts from ncome ta
(7) usness eagues, chambers of commerce, rea-estate boards, or boards of
trade, not organzed for proft and no part of the net earnngs of whch nures
to the beneft of any prvate sharehoder or ndvdua
The M Chamber of Commerce carres on functons smar to those
of organzatons ordnary e empted, but because of the addtona
actvty of operatng a traffc bureau queston has arsen whether
e empton shoud be dened on the ground that such actvty const-
tutes the performance of partcuar servces for ndvdua persons
and engagng n a busness of a knd ordnary carred on for proft
wthn the meanng of artce 101 (7)- of Reguatons 8 . The traffc
bureau quotes rates to shpperS| fes cams n ther behaf, presents
cases before the varous commssons, and ooks after the shppng
nterests of members and nonmembers. No fees are charged for ths
work, whch s fnanced out of a genera fund.
In S. M. 23 8 (C. . III-2, 225), e empton was dened to a bus-
ness eague, and n S. M. 3413 (C. . I -1, 50), e empton was dened
to a chamber of commerce operatng a traffc bureau. S. M. 23 8,
supra, nvoved a company composed of frms and corporatons whch
organzed that company soey for ther common beneft to perform
servces smar to those rendered by the traffc bureau n the nstant
case. ees were charged for such servces. It was hed that snce
the company was engaged n a busness ordnary carred on for
proft and performed partcuar servces for ndvdua persons,
t was not e empt from edera ncome ta . That was ceary a
case of an assocaton whose members had no common nterest and
whch was not dedcated to any pubc purpose but was created merey
to serve as a convenence or economy n the prvate busness of ts
components.
In S. M. 3413, supra, membershp n the traffc bureau entaed a
separate annua membershp fee based on the sze of the concern
takng the membershp. In other words, specfc charges were made
for the traffc bureau servce, whch was not consdered as merey
ncdenta to the other actvtes.
In the present case, membershp n the M Chamber of Commerce
carres wth t the use of the factes of the traffc bureau wthout
e tra charge. It s cear from the fnanca statement for the year
ended March 31, 1934, and other evdence that the traffc bureau of
the M Chamber of Commerce represents ony a reatvey sma part
of the actvtes of the organzaton, whch, vewed as a whoe, do
not revea a purpose to engage n a reguar busness of
a knd ordnary carred on for proft. The fact that an addtona
fee s not charged shows that ts actvtes are drected to the m-
provement of busness condtons and that ts other actvtes ad-
mtted to be pubc n character are not beng used merey as a shed
to cover up the operaton of a reguar busness.
It s, therefore, hed that the M Chamber of Commerce s an or-
ganzaton whch comes wthn the provsons of secton 101(7) of
the Revenue ct of 1934 and artce 101(7)-1 of Reguatons 8 and
s e empt from edera ncome ta .
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123
101, rt. 101(9)-1.
rtce 101(9)-1: Soca cubs.
( so Secton 101, rtce 101( )-1.)
I -47-7818
I. T. 2937
R NU CT OP 1034 ND PRIOR R NU CTS.
The ncome of the M Socety, organzed to gve muscaes,
concerts, and hod soca functons, s derved from membershp
dues, fees, and saes of tckets to muscaes, dances, etc., and s
used to defray the cost of uncheons, refreshments, orchestras,
moton pctures, and msceaneous e penses. The by-aws of the
socety provde that the drectors may decare dvdends from
the net profts when they deem t e pedent
ed, the socety s not entted to e empton under secton
101( ) or secton 101(9) of the Revenue ct of 1034 and the
correspondng provsons of pror Revenue cts.
dvce s requested reatve to the cam of the M Socety for
e empton from edera ncome ta aton under the provsons of
the varous Revenue cts.
The organzaton was ncorporated under the aws of the State of
R for the study of musc and the gvng of muscaes, concerts, and
soca functons. The authorzed capta stock of the corporaton s
doars, dvded nto y shares of the par vaue of z doars each,
a of whch s outstandng. The by-aws of the socety provde
that the drectors may decare dvdends from the surpus or net
profts arsng from the busness of the socety when they deem t
e pedent. The actvtes of the socety consst of muscaes, dances,
card partes, etc. The ncome of the socety s derved from mem-
bershp dues, fees, and the sae of tckets to muscaes, dances, etc.
Its ncome s used to defray the cost of uncheons and refreshments,
orchestras, moton pctures, servces of taent, advertsng and pub-
cty, and msceaneous e penses of the socety.
Secton 101( ) of the Revenue ct of 1934 and the correspondng
provsons of pror Revenue cts provde for the e empton of
Corporatons, organzed and operated e cusvey for regous,
chartabe, scentfc, terary, or educatona purposes .
ased upon the evdence presented, t s cear that the socety was
not organzed and s not operated e cusvey for one or more of the
purposes specfed, and t s not, therefore, entted to e empton
under the provsons of secton 101( ) of the Revenue ct of 1934
and the correspondng provsons of pror Revenue cts.
Secton 101(9) of the Revenue ct of 1934 and the correspondng
provsons of pror Revenue cts provde for the e empton of
Cubs organzed and operated e cusvey for peasure, recreaton, and other
nonproftabe purposes, no part of the net earnngs of whch nures to the
beneft of any prvate sharehoder.
In order to entte an organzaton to e empton under the prov-
sons of secton 101(9) of the Revenue ct of 1934 and the corre-
spondng provsons of pror Revenue cts, t must be organzed
for the purposes stated and no part of ts net earnngs may nure
to the beneft of any prvate sharehoder or ndvdua. In the
nstant case the by-aws of the socety provde that dvdends may
be decared. It may not, therefore, propery be sad that no part of
the net earnngs nures to the beneft of a prvate sharehoder or
ndvdua. ccordngy, t s hed that the M Socety s not entted
to e empton under the provsons of secton 101(9) of the Revenue
ct of 1934 and the correspondng provsons of pror Revenue cts.
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5101, rt. 101(11)- .
124
rtce 101(11)-1: armers or other mutua I --49-7843
ha, cycone, casuaty, or fre nsurance com- G. C. M. 1574
panes or assocatons.
R NU CT O 1034 ND TUIOR R NU CTS.
The M Company, otherwse e empt from edera ncome ta
under secton 101(11) o the Revenue ct of 1934 and the corre-
spondng provsons of pror Revenue cts, w not be dened
e empton merey because the contract ssm by the company wth
respect to abty for persona In|ury s one of Indemnty aganst
a money abty ncurred, or that may he ncurred, by the nsured
wth respect to n|ures to thrd persons resutng from the neg-
gent operaton of an automobe by the nsured or hs agent.
dvce s requested reatve to the e empton of the M Company
under secton 101(11) of the Revenue ct of 1934 and the corre-
spondng sectons of pror Revenue cts e emptng from ta aton
farmers or other mutua ha, cycone, casuaty, or fre nsurance
companes or assocatons, the ncome of whch s used or hed for
the purpose of payng osses and e penses.
The M Company was ncorporated under the provsons of act
No. 25 of the Pubc cts of 1917 of the State of Mchgan, and acts
amendatory thereof and suppementary thereto, for the purpose of
nsurng ts members aganst oss, e pense, damage, and abty
resutng from the ownershp, mantenance, operaton, or use of any
automobe or other vehce and partcuary aganst oss by or from
any one or a of the foowng causes or hazards: (1) fre, (2) theft,
(3) coson, (4) property damage, and (5) pubc abty. The
company s engaged n wrtng automobe nsurance as provded
n ts charter. Its ncome, e cept a sma amount from nterest and
msceaneous sources, s derved from premums on poces ssued
to members. cess premums after the payment of osses and e -
penses and provson for necessary reserves are returned pro rata to
ts pocyhoders.
rtce 101(11)-1 of Reguatons 8 . deang wth secton 101(11)
of the Revenue ct of 1934, reads as foows:
armers or other mutua ha, cycone, casuaty, or fre nsurance companes
or assocatons. farmers mutua Insurance company wthn the meanng
of secton 101(11) s a oca assessment mutua company operatng n a
restrcted terrtory. In order to be e empt under secton 101(11) the other
mutua nsurance companes or assocatons enumerated theren must be of
the same genera character as a farmers mutua nsurance company and ther
operatons must be kewse restrcted.
The term casuaty as used n secton 101(11) s mted to those forms
of ndemnty Insurance provdng for payment of oss or damage to property
resutng from accdent or some such unantcpated contngency other than
fre or the eements, and does not ncude ndemnty from oss through accdent
resutng n body In|ury or death.
In vew of the foregong provsons of Reguatons 8 , the
queston has arsen whether the M Company, whch wrtes pubc
abty nsurance provdng ndemnty for oss through accdents
resutng n body n|ury or death to thrd persons, s entted to
e empton under the provsons of secton 101(11) of the Revenue
ct of 1934 and the correspondng provsons of pror Revenue
cts.
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125
101, rt. 101(11)- .
It has been consstenty hed that an automobe ndemnty or
nsurance company ssung contracts of nsurance or ndemnty,
ncudng coverage for pubc abty, s an nsurance company
wthn the contempaton of the varous provsons of pror Rev-
enue cts whch correspond wth secton 101(11) of the Revenue
ct of 1934. In ths connecton reference s made to artce 521 of
Reguatons 45, as amended, and artce 521 of Reguatons 2, whch
read n part as foows:
oca e change or assocaton to nsure the owners of auto-
mobes aganst re, theft, coson, pubc abty, and property damage
s e empt, snce t performs functons of the same character as a mutua fre
Insurance company, and s a ke organzaton wthn the meanng of the
statute.
The quoted anguage does not appear n subsequent reguatons,
but there s nothng n secton 231 (10) of the Revenue ct of 1924
and the correspondng provsons of subsequent Revenue cts whch
|ustfes a contrary concuson.
The pubc abty cause of the poces ssued by the M
Company provdes as foows:
utomobe pubc abty coverage sha provde ndemnty aganst any
vad udgment rendered aganst the named assured on account of hs ega
abty to others (e cept the empoyees of the assured) for body n|ures,
accdentay sustaned, ncudng death, at any tme resutng therefrom on
account of any accdent due to the ownershp, mantenance, use, or defectve
constructon of any automobe descrbed In the pocy whe under the contro
of the assured or hs awfuy authorzed agents, provdng such accdent occurs
durng the pocy perod and wthn the mts of the Unted States of merca
and Canada, sub|ect to empoyers abty e cepton.
It s apparent that the contract of the M Company wth respect
to abty for persona n|ury s one of ndemnty aganst a money
abty ncurred, or that may be ncurred, by the nsured wth re-
spect to n|ures to thrd persons resutng from the neggent opera-
ton of an automobe by the nsured or hs agent and s not a con-
tract of nsurance payabe wth respect to the death or n|ury of
the nsured. The casuaty nsurance companes sought to be e -
cuded by the above-quoted provsons of artce 101(11)-1 of Regu-
atons 8 are those whch undertake to ndemnfy from oss due to
accdent resutng n body n|ury or death of the nsured, such as
was consdered n I. T. 2109 (C. . III-2, 224).
In vew of the fact that the ncome of the M Company s used
or hed for the purpose of payng osses and e penses, the e cess
premums are returned pro rata to ts pocyhoders, and the com-
pany confnes ts busness to wrtng nsurance e cusvey on ta -
cabs owned and operated n the cty of R, t s the opnon of ths
offce that the M Company s a farmers or other mutua
casuaty nsurance company wthn the meanng of sec-
ton 101(11) of the Revenue ct of 1934 and the correspondng pro-
vsons of pror Revenue cts.
rthuh . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.

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5113(b), rt. 113(b)-. 12
SUPPL M NT . COMPUT TION O N T INCOM .
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.
R NU CT O 1034.
mendment of artce 112(g)-2. (See T. D. 4585, page 54.)
S CTION 113(b). D UST D SIS OR D T RMINING
G IN OR LOSS: D UST D SIS.
rtce 113(b)-: d|usted bass: Genera rue. I -50-7853
( so Secton 114, rtce 114-1.) I. T. 2944
R NU CTS O 1032 ND 1934.
Depredaton aowed and aowabe.
dvce s requested whether the deducton for deprecaton camed
on an ncome ta return whch has been accepted by the ureau
consttutes deprecaton aowed for the purpose of ad|ustng the
bass to be used n computng gan or oss, deprecaton, e hauston,
or obsoescence n subsequent years controed by the Revenue cts 01
1932 and 1934.
Sectons 113(b) and 114(a) of the Revenue cts of 1932 and 1934
n effect provde that the bass for such purposes sha be ad|usted
for e hauston, wear and tear, and obsoescence to the e tent aowed
(but not ess than the amount aowabe) for any perod snce eb-
ruary 28, 1913. The word aowabe desgnates the amount per-
mtted or granted by the statutes, as dstngushed from the word
aowed whch refers to the deducton actuay permtted or
granted by the ureau. The amount aowabe s the mnmum
for ad|ustment purposes, the amount aowed servng to measure
the ad|ustment ony when the amount thereof e ceeds that aowabe.
It foows that the deprecaton camed as a deducton n a return
whch has been accepted by the ureau s the amount aowed for
that year. The amount thus aowed for any year may be ad-
|usted to the amount aowabe at any tme wthn the statutory
perod appcabe thereto for purposes of computng the proper
deducton for such year and of ad|ustng the bass. The statute,
however, requres ad|ustment of the bass to accord wth the amount
aowed or the amount aowabe, whchever s greater, rre-
spectve of any statute of mtatons appcabe to the year of
deducton.
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127
114, rt. 114-1.
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 114-1: ass for aowance of depreca- I -4 -7797
ton and depeton. G. C M. 15790
R NU CT O 1934.
ta payer who fas to state n hs frst Income ta return under
the Revenue ct of 1034 whether he eects to have the depeton a-
owance n respect of a god mnng property computed wth or
wthout regard to percentage depeton may not fe au amended
return makng an eecton as to the method of computng depeton
aowance n respect of such property. In such a case the depeton
aowance must be computed wthout reference to percentage de-
peton.
n opnon s requested whether the ta payer may make an eecton
as to the use of the percentage method of computng depeton
aowance n respect of god mnng property under crcumstances
stated heren.
The M Corporaton, whch was ncorporated on October , 1917,
acqured certan god mnng property from ndvduas who had
acqured t pror to March 1, 1913. The ta payer corporaton has
been nactve snce 1922. Durng the year 1934 the property was
eased to other partes and royaty ncome was derved therefrom.
n ncome ta return for 1934 was fed by the M Corporaton wheren
no deducton for depeton was camed and no statement was made
whether the corporaton eected to have depeton n respect of the
property computed wth or wthout regard to percentage depeton.
The ta payer now desres to fe an amended return n whch depe-
ton w be camed on the percentage bass.
Secton 114(b)4 of the Revenue ct of 1934 provdes:
Percentage depeton for coa and meta mnes and suphur. The a-
owance for depeton under secton 23(m) sha be, n the case of coa mnes, 5
per centum, n the case of meta mnes, 15 per centum, and, n the case of suphur
mnes or deposts, 23 per centum, of the gross ncome from the property durng
the ta abe year, e cudng from such gross ncome an amount equa to any
rents or royates pad or ncurred by the ta payer n respect of the property.
Such aowance sha not e ceed 50 per centum of the net ncome of the ta payer
(computed wthout aowance for depeton) from the property. ta payer
makng hs frst return under ths tte n respect of a property sha state whether
e eects to have the depeton aocance for such property for the ta abe year
for whch the return s made computed wth or wthout regard to percentage de-
peton, and the depeton aowance n respect of such property for such year
ha be computed accordng to the eecton thus made. If the ta payer fas to
make such statement n tha return, the depeton aocance for such property for
such year sha be computed wthout reference to percentage depcton. The
method, determned as above, of computng the depeton aowance sha be ap-
ped n the case of the property for a ta abe years n whch t s n the hands
of such ta payer, or of any other person f the bass of the property (for deter-
mnng pan) n hs hands s, under secton 113, determned by reference to the
bass n the hands of such ta payer, ether drecty or through one or moro
substtuted bases, as defned n that secton. Itacs supped.
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114, rt. 114-1.
128
s set forth n artce 23(m)-5 of Reguatons 8 , approved by the
Secretary on ebruary 11, 1935, the frst return under ths tte n
respect of a property wthn the meanng of secton 114(b)4 of the
Revenue ct of 1934 s the ta payer s frst return for a ta abe year
(begnnng after December 31, 1933) under Tte I of that ct n
whch the ta payer has any tem of ncome or deducton n respect of
the property. The artce aso states n part that:
n eecton once e orcsed under secton 114(b)4 and ths artce
c:m not thereafter be changed by the ta payer, and the depeton aowance n
respect of each such property w for a succeedng ta abe years be computed
n accordance wth the eecton so made. If the ta payer fas to make such
statement n the return In whch the eecton shoud he so Indcated, Ihe depe-
ton aowance for the year for whch an eecton must be frst e ercsed and for
a succeedng ta abe years w be computed wthout reference to percentage
depeton.
Secton 114(b)4 of the Revenue ct of 1934 pany and unambg-
uousy provdes that a ta payer makng hs frst return under that
ct n respect of a property (coa, meta, or suphur mne) sha
eect whether the depeton aowance therefor be computed wth
or wthout regard to percentage depeton and the depeton aow-
ance sha be computed accordngy that f the ta payer fas to
make such an eecton n the return, the depeton aowance sha be
computed wthout reference to percentage depeton and that the
method so determned sha be apped n computng the depeton
aowance n respect of the property not ony for the ta abe year
for whch such return was made but for a ta abe years n whch
the property s n the hands of the ta payer or of any other person
who takes, under secton 113 of the ct, the ta payer s bass there-
for. The statute nether grants nor eaves any authorty or dscre-
ton n the Commssoner to permt, by amended return or other-
wse a change n the method so determned. Where there s no
ambguty n the statute, there s no room for constructon ough-
ton v. Payne, 194 U. S., 88 Camnett v. Unted States, 242 U. S.,
470 Isehn y. Unted States, 270 U. S., 245), and the rue that
ambgutes n statutes mposng ta es are to be resoved n favor of
ta payers does not appy. Deductons are aowed ony when
pany authorzed. (Chares I If ed Co. v. ernandez, 292 U. S.,
2. Ct. D. 819, C. . III-1, 139 New Coona Ice Co., Inc., v.
everna 292 U. S., 435, Ct. D. 841, C. . III-1, 194 cvermg
v. Inter-Mountan Lfe Insurance Co., 294 U. S., 8 , Ct. D. 950,
C. . I -1, 339.) Nor can ack of knowedge on the part of the
ta payer be permtted to modfy the cear anguage of a statute.
(G. C. M. 13909, C. . III-2, 1 Ordway v. Unted States, 37
ed. (2d), 19.)
Whether the frst return s tmey or denquent obvousy s
mmatera to the determnaton of the depeton computaton
method. Of course, the return must not be merey a tentatve re-
turn or document whch does not meet the requrements of a
statutory ncome ta return but must be suffcenty compete to
start the runnng of the statute of mtatons on assessment. (See
Ccm Securtes Corporaton v. Commssoner, 72 ed. (2d), 295,
Ct. D. 927, C. . I -1, 221 S. eather Co. v. Commssoner, 28
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129
110.
. T. ., 432, and decsons theren cted.) The return n the nstant
case was a return wthn the meanng of the statute, even though
no statement was made theren reatve to the depeton deducton.
In G. C. M. 13G27 (C. . III-2, 4) t was hed that f the
ta payer fas to make a statement of eecton as requred under
secton 114(b)4 of the Revenue ct of 1934 n hs frst ncome ta
return under that ct n respect of the depeton aowance for
coa and meta mnes and suphur, he must be regarded as havng
eected to have the depeton aowance for such property or prop-
ertes computed wthout reference to percentage depeton for that
year and subsequent ta abe years, rrespectve of whether he made
an eecton n respect thereof under secton 114(b)4 of the Revenue
ct of 1932.
In vew of the foregong t s the opnon of ths offce that a
ta payer who fas to state n hs frst ncome ta return under the
Revenue ct of 1934 whether he eects to have the depeton aow-
ance n respect of a god mnng property computed wth or wthout
regard to percentage depeton may not fe an amended return
makng an eecton as to the method of computng the depeton
aowance n respect of such property. In such a case the depe-
ton aowance must be computed wthout reference to percentage
depeton.
rthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 114-1: ass for aowance of deprecaton and
depeton.
R NU CT OP 1034.
Deprecaton aowed and aowabe. (See I. T. 2944, page 12 .)
S CTION 115. DISTRI UTIONS Y
CORPOR TIONS.
rtce 115-5: Dstrbutons n qudaton.
R NU CT O 1934.
mendment of artce 115-5. (See T. D. 4585, page 54.)
S CTION 11 . CLUSIONS ROM GROSS INCOM .
Secton 11 .
revenue act of 1034.
Ctzen of the Unted States n the rgn Isands. (See I. T.
294 , page 109.)
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11 , rt, 11 -2.
130
rtce 11C-2: Compensaton of State offcers I -2 -75 7
and empoyees. G. C. M. 14957
R NU CT O 1934.
oes receved by notares pubc n the State of Lousana are not
e empt from edera ncome ta .
dvce s requested whether fees receved by notares pubc n
Lousana are sub|ect to edera ncome ta . It s contended that the
stuaton s such as to brng notara fees n that State outsde the
provsons of artce 11 -2 of Reguatons 8 , whch reads n part as
foows:
The commssons of recevers apponted by State courts and the fees receved
by notares pubc are ta abe. Itacs supped.
In Mer v. McOaughn (22 ed. (2d), 1 5), t was hed that the
compensaton of an audtor apponted by the orphan s court n Pha-
depha to e amne the fnanca standng of surety companes was
sub|ect to edera ncome ta . In that case the compensaton receved
by the ta payer was pad from a fund contrbuted by the surety
companes. The court n the course of ts opnon stated:
The compensaton must not merey come to a State offcer or em-
poyee, but t must come to hn from the State, to be e empt.
The Crcut Court of ppeas, Thrd Crcut, n affrmng the dec-
son of the ower court (27 ed. (2d), 128, T. D. 4241, C. . II-2,
2 ), stated n part as foows:
The e empton of State empoyees from edera ncome ta rests
on the ground that the agences the State empoys In government shoud not be
burdened by edera ta es, whch woud essen the State s power to empoy,
and compe t to pay more for the servces of ts empoyees. ut no such reason
e sts n the case of ths e amner. No power of the State s crpped or essened
by hs payng ta on hs ncome.
The State or county does not guarantee the fees receved by the
notary n the nstant case. The fees are receved not from any gov-
ernmenta agency but from varous ndvduas n the performance
of a prvate servce. though the amount of the fees s f ed by
btatute, the State or county s n no way responsbe for the payment
thereof. ccordngy, t s the opnon of ths offce that notara fees
n the State of Lousana are not e empt from edera ncome ta es.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 11 -2: Compensaton of State offcers I -31-7 20
and empoyees. G. C. M. 14952
R NU CT O 10.14 ND TRIOR R NU CTS.
The compensaton of offcers and empoyees of the State Com-
pensaton Insurance und of Caforna s not e empt from edera
Income ta .
n opnon s requested whether, the compensaton of offcers and
empoyees of the State Compensaton Insurance und of Caforna
s e empt from edera ncome ta .
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131
11 , rt. 11 -2.
The workmen s compensaton, nsurance, and safety act of 1917
(Ca. Stat., 1917, 831), whch repeas and supersedes most of the pro-
vsons of Stat., 1913, chapter 17C, as amended by Stat., 1915, chapter
07, purports to provde for the heath, safety, and genera wefare
of a empoyees and those dependent upon them for support. It
provdes for the payment of compensaton to a empoyees for n-
|ures receved n the course of empoyment. It aso requres that
the empoyers carry adequate nsurance coverage aganst the abty
to pay such compensaton.
Secton 32 of the act provdes:
Nothng contaned n ths act sha he taken or construed to mt, nterfere
wth, dsturb, or render neffectve n any degree, the creaton, e stence, organ-
zaton, contro, management, contracts, rghts, powers, dutes and abtes
of the State compensaton nsurance fund, but a such matters and thngs are
hereby e pressy confrmed, saved and contnued.
The pertnent provsons of the earer act so contnued are sec-
tons 3 to 39, ncusve. Secton 3 provdes:
There s hereby created and estabshed a fund to be known as
the State compensaton nsurance fund, to be admnstered by the ndustra
accdent commsson of the State, wthout abty on the part of the State
beyond the amount of sad fund, for the purpose of nsurng empoyers aganst
abty for compensaton under ths act, and aganst the e pense of defendng
any sut for damages under the optona provsons of secton 12 hereof (sub-
dvson b), and nsurng to empoyees and other persons the compensaton f ed
by ths act for empoyees and ther dependents.
Secton 37 provdes:
(a) The State compensaton nsurance fund sha be a revovng
fund and sha consst of such specfc appropratons as the egsature may
from tme to tme make or set asde for the use of such fund, a premums re-
ceved and pad nto the sad fund for compensaton nsurance Issued, a prop-
erty and securtes acqured by and through the use of moneys beongng to
sad fund and a nterest earned upon moneys beongng to sad fund and
deposted or nvested, as heren provded :
(b) Sad fund sha be appcabe to the payment of osses sus-
taned on account of nsurance and to the payment of the saares and other
e penses to be charged aganst sad fund n accordance wth the provsons
contaned n ths act.
(c) Sad fund sha, after a reasonabe tme durng whch t may
estabsh a busness, be fary compettve wth other nsurance carrers, and
t s the ntent of the egsature that sad fund sha utmatey become nether
more nor ess than sef-supportng. In order that the State compensaton n-
surance fund sha utmatey become nether more nor ess than sef-support-
ng, the actua oss e perence and e pense of the fund sha be ascertaned
on or about the 1st of anuary n each year for the year precedng, and shoud
It then be shown that there e sts an e cess of assets over abtes, such a-
btes to Incude the necessary reserves, and a reasonabe surpus for the
catastrophe hazard, then, n the dscreton of the commsson, a cash dvdend
sha be decared to, or a credt aowed on the renewa premum of each
empoyer who has been nsured wth the fund, such cash dvdend or credt
to be such an amount to whch, as n the dscreton of the commsson, such
empoyer may be entted as the empoyer s proporton of dvsbe sur-
pus.
Secton 38 provdes:
(a) The commsson s hereby vested wth fu power, authorty
and |ursdcton over the State compensaton nsurance fund and may do
and perform any and a thngs whether heren specfcay desgnated, or n
addton thereto, whch are necessary or convenent In the e ercse of any
power, authorty or |ursdcton over sad fund n the admnstraton thereof,
or n connecton wth the nsurance busness to be carred on by t under the
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fc, rt. 110-2.
132
provsons of ths act. as fuy and competey as the governng body of a
prvate Insurance carrer mght or coud do.
(b) The commsson sha have fu power and authorty, and It
sha be ts duty, to f and determne the rates to be charged by the State
compensaton nsurance fund for compensaton Insurance, and to manage and
conduct a busness and affars n reaton thereto, a of whch busness and
affars sha he conducted n the name of the State compensaton nsurance
fund, and that name, wthout any other name or tte, .
Secton 39 provdes:
In conductng the busness and affars of the State compensaton
nsurance fund, the manager of the sad fund or other offcer to whom such
power and authorty may be deegated by the commsson, as provded by
subsecton (c) of secton 38 hereof, sha have fu power and authorty:
(1) To enter nto contracts of nsurance, nsurng empoyers aganst abty
for compensaton and nsurng to empoyees and other persons the compensa-
ton f ed by ths act.
(2) To se annutes coverng compensaton benefts.
(3) To decne to nsure any rsk n whch the mnmum requrements of the
commsson wth regard to constructon, equpment and operaton are not
observed, or whch Is beyond the safe carryng of the State compensaton
nsurance fund, hut sha not have power or authorty, e cept as otherwse
provded n ths subdvson, to refuse to nsure any compensaton rsk tendered
wth the premum therefor.
(4) To rensure any rsk or any part thereof.
(5) To nspect and audt, or cause to be nspected and audted the pay ros
of empoyers appyng for nsurance aganst abty for compensaton.
( ) To make rues and reguatons for the settement of cams aganst sad
fund and to determne to whom and through whom the payments of compensa-
ton are to be made.
(7) To contract wth physcans, surgeons and hosptas for medca and
surgca treatment and the care and nursng of n|ured persons entted to
benefts from sad fund.
In Oho v. evenng (292 U. S., 3 0, Ct. D. 83 , C. . III-1,
31), the Unted States Supreme Court hed that the State n conduct-
ng operatons pursuant to a statute creatng a State monopoy n the
dstrbuton and sae of quor was not e ercsng a governmenta
functon and was not e empt from edera e cse ta . In the opnon
t s stated:
ut, by the very terms of the rue, the Immunty of the States from
edera ta aton s mted to those agences whch are of a governmenta
character. Whenever a State engages In a busness of a prvate nature t
e ercses nongovernmenta functons, and the busness, though conducted by
the State, s not mmune from the e ercse of the power of ta aton whch the
Consttuton vests n Congress.

The argument seems to be that the poce power s eastc and
capabe of deveopment and change to meet changng condtons. Neverthe-
ess, the poce power Is and remans a governmenta power, and apped to
busness actvtes s the power to reguate those actvtes, not to engage n
carryng them on.
In everng v. Powers (293 U. S., 214, Ct. D. 900, C. . III-2,
213), the Unted States Supreme Court hed that athough the statute
of Massachusetts provdng for the pubc operaton of the oston
evated Raway Co. s consttutona as one enacted for a pubc
purpose, and athough the members of the board of trustees created
by the statute are pubc offcers of the Commonweath, ther compen-
saton s not e empt from edera ncome ta . In ts opnon the
Court sad:
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133
11 , rt. 11 -2.
Whe the undertakng s for the pubc beneft, t s st a partcuar bus-
ness enterprse the operaton of a street raway and the functons of the
trustees are mted accordngy. Whe the Commonweath may be
caed upon to bear osses that may occur, f the fares as f ed prove to be
Insuffcent, the operaton by the trustees s ntended to be sef-sustanng.

The mmunty sought by the trustees from payment of the edera ncome ta
has not been granted by the Congress. The defntons of ncome n the edera
Income ta cts cover ncome derved from compensaton for persona servces,
of whatever knd and n whatever form pad. (Revenue cts of 1D2 , sec-
tons 121(a), 213(a) 1928, sectons 21, 22(a).) Ths anguage s certany
broad enough to embrace the compensaton of the trustees, and the mmunty,
If t e sts, must rest upon consttutona mtaton. The Treasury reguatons,
manfesty n an effort to nterpret and appy that mtaton, provde for e -
empton from ta aton of compensaton pad by a State or potca subdvson
to ts offcers and empoyees ony n case ther servces are rendered n con-
necton wth the e ercse of an essenta governmenta functon. (Treasury
Reguatons 9, artce 88 No. 74, artce G43 No. 77, artce 043.) ut the
Treasury Department coud not by ts reguatons ether mt the provfcsons of
the statute or defne the boundares of ther consttutona appcaton.
We come then to the queston whether the Congress has the consttutona
power to mpose an ncome ta upon the compensaton of pubc offcers of the
character here nvoved. We do not regard that queston as answered by mere
termnoogy. The roots of the consttutona restrcton strke deeper than
that. The term pubc offce undoubtedy mpes a defnte assgnment of
pubc actvty, f ed by appontment, tenure and dutes. ut whether that
fed of actvty, n reaton to a State, carres mmunty from edera ta aton
s a queston whch compes consderaton of the nature of the actvty, apart
from the mere creaton of offces for conductng t, and of the fundamenta rea-
son for denyng edera authorty to ta . That reason, as we have frequenty
sad, s found n the necessary protecton of the ndependence of the Natona
and State governments wthn ther respectve spheres under our consttutona
system. (Coector v. Day, 11 Wa., 113, 125, 127 mbrosn v. Unted States,
187 U. S., 1, 7 Indan Motocyce Co. v. Unted States, 283 U. S., 570, 575.)
The prncpe of mmunty thus has nherent mtatons. (Metcaf d ddy v.
Mtche, supra, 522-524 Wcuts v. unn, 282 . S. 21 , 225, 22 Indan
Motocyce Co. v. Unted States, supra, 57 o m Corporaton v. Doya, 28
U. S., 123, 128 oard of Trustees v. Unted States, 298 T . S., 48, 59.) nd
one of these mtatons s that the State can not wthdraw sources of revenue
from the edera ta ng power by engagng In busnesses whch consttute a
departure from usua governmenta functons and to whch, by reason of ther
nature, the edera ta ng power woud normay e tend. The fact that the
State has power to undertake such enterprses, and that they are undertaken
for what the State conceves to be the pubc beneft, does not estabsh m-
munty. (South Carona v. Unted States, 199 U. S., 437 nt v. Stone Tracy
Co., 220 U. S., 107, 172 Murray v. Wson Dstng Co., 213 U. S., 151, 173
Metcaf ddy v. Mtche, supra Indan Motoc/ce Co. v. Unted States, supra
Oho v. everng, 292 U. S., 3 0, 3 8, 3 9.) The necessary protecton of the
ndependence of the State government s not deemed to go so far.

We see no reason for puttng the operaton of a street raway n a dfferent
category from the sae of quors. In each case, the State, wth ts own concep-
ton of pubc advantage, s undertakng a busness enterprse of a sort that s
normay wthn the reach of the edera ta ng power and s dstnct from
the usua governmenta functons that are Immune from edera ta aton n
order to safeguard the necessary ndependence of the State. If, n the Instant
case, the Commonweath had acqured the property of the company and had
organzed management of t n perpetuty by the State government, nstead of
temporary, or had taken over a the street raways n a ts ctes for
drect operaton by the Commonweath, there woud appear to be no ground,
under the prncpes estabshed by the decsons we have cted, for hodng
that ths woud effect the wthdrawa of the enterprse from the edera ta ng
power. nd the fact that the State has here undertaken pubc management
and operaton for a mted tme, and under the partcuar restrctons of the
agreement wth the company, can not be sad to furnsh a ground for mmunty.
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11 , rt. 11 -2.
134
If the busness Itsef, by reason of ts character, s not mmune, athough
undertaken by the State, from a edera e cse ta upon ts operatons, upon
what ground can t be sad that the compensaton of those who conduct the
enterprse for the State s e empt from a edera ncome ta Ther com-
pensaton, whether pad out of the returns from the busness or otherwse,
can have no quaty, so far as the edera ta ng power s concerned, superor
to that of the enterprse n whch the compensated servce s rendered.
The above-quoted statements from Oho v. everng, supra, and
Ievcrng v. Powers, supra, are decsve of the present queston. s
appears from the provsons of the statute, the State compensaton
nsurance fund s mantaned and used for the purpose of nsurng
empoyers aganst abty for compensaton n connecton wth the
nsurance busness to be carred on by t under the provsons of ths
act, as fuy and competey as the governng body of a prvate nsur-
ance carrer mght or coud do. Ths s a busness whch s nor-
may wthn the reach of the edera ta ng power and s dstnct
from the usua governmenta functons whch are mmune from
edera ta aton. The fact that the actvty s carred on n the
aeged e ercse of poce power for the pubc wefare does not affect
ts status. The same motves actuated the assumpton by the State
of the actvty nvoved n the Powers case. The State s not mt-
ng ts actvty to reguatng the busness but s engaged n carryng
t on.
It s, therefore, the opnon of ths offce that the compensaton of
offcers and empoyees of the State Compensaton Insurance und
of Caforna s not e empt from edera ncome ta .
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 11G-2: Compensaton of State offcers I -41-7733
and empoyees. G. C. M. 15540
R NU CT O 1934.
The provsons of artce 11 -2, Reguatons 8 , shoud be apped
ony to ta abe years begnnng after December 31, 1933.
dvce s requested reatve to the appcaton of the ast para-
graph of artce 11 -2, Reguatons 8 , to compensaton of offcers
and empoyees of a State or potca subdvson thereof receved
n the year 1933. The pertnent porton of artce 11 -2, Regua-
tons 8 , reads as foows:
rt. 11G-2. Compensaton of State offcers and empoyers.
If a or part of the compensaton of an offcer or empoyee of a State or pot-
ca subdvson thereof s pad drecty or ndrecty by the Unted States,
such compensaton (or part) s ta abe, as, for e ampe, any compensaton
pad by the Unted States to offcers of the Natona Guard of a State, or
compensaton pad by a State to offcers or empoyees of an agrcutura schoo
or coege whoy or party out of grants from the Unted States.
The queston presented arses because of the dfference, between the
Srevsons of artce 11 -2 of Reguatons 8 and artce 43 of
eguatons 77, reatng to the year 1933, whch provdes n pat
that:
mpoyees of unverstes revvng saares pad n part or n
whoe from funds avaabe under the Smth-Lever ct of May 8, 1914, who are
offcers or empoyees of a State, are not requred to return as ta abe ncome
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135
117, rt. 117-1.
the saares so receved. Ths Is aso true wth respect to the ct of ugust
30, 1890, reatng to coeges for tbe beneft of agrcuture am the mechanc
arts, and to the ct of March 2, 18S7, reatng to agrcutura e perment sta-
tons n such coeges.
The ssue nvoved s whether, where the ncome ta aw s the
same for the years 1933 and 1934 but the reguatons coverng the
ater year are materay dfferent, the provsons of the ater regu-
atons shoud be apped retroactvey to the earer year.
In G. C. M. 7021 (C. . III-2. 77), t was hed that Reguatons
74 are to be regarded as nterpretatve of the provsons of the
Revenue ct of 1928 ony, and arc, therefore, appcabe ony to
years controed by that ct. ke resut was reached n I. T.
2907 page 150, ths uetn . In that case the queston nvoved was
whether, n vew of the fact that secton 208 of the Revenue ct of
1932 and secton 207 of the Revenue ct of 1934 are substantay
the same, but the provsons of Reguatons 8G nterpretng secton
207 of the Revenue ct of 1934 are materay dfferent from the
correspondng provsons of Reguatons 77, the ater reguatons
shoud be apped retroactvey to the year 1933. It was hed that
the appcaton of the provsons of artce 207-1, Reguatons 8 ,
shoud be confned to returns for ta abe years begnnng after
December 31, 1933. The same concuson s appcabe to the pro-
vsons of the reguatons nvoved n the nstant case. urthermore,
the provsons of Reguatons 8 (ncudng artce 11 -2) are
specfcay made appcabe to the Revenue ct of 1934 ony by
artce 1-1 of such reguatons.
In vew of the foregong, ths offce s of the opnon that the
provsons of artce 11 -2, Reguatons 8 , shoud be apped ony
to ta abe years begnnng after December 31, 1933.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-1: Meanng of capta assets. I 10-7723
I. T. 2924
n NU CT OP 1034.
Dstrbutons by budng and oan assocatons are not gan
derved from the sae or e change of a capta asset wthn the
meanng of secton 117 of the Revenue ct of 1 )34 but are dv-
dends whch are sub|ect to norma ta and surta when ds-
trbuted by a budng and oan assocaton whch s tsef e empt
from edera ncome ta .
dvce s requested reatve to the appcaton of secton 117 of the
Revenue ct of 1934 to dstrbutons receved by a sharehoder upon
the maturty n 1934 of nstament shares ssued by the M Savngs
and Loan ssocaton.
Under the method of operaton of the assocaton, an nstament
sharehoder makes weeky, monthy, quartery, or semannua pay-
ments on the stock subscrbed for and when the payments made,
pus the dvdends, profts, or earnngs credted thereto at the reguar
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131, rt. 131-2.
13
dvdend dates, equa the par vaue of the shares the stock matures
and the proceeds are then uncondtonay avaabe to the subscrber
for the stock.
Secton 117 of the Revenue ct of 1934 provdes that certan
percentages of the gan or oss recognzed upon the sae or e change
of a capta asset (dependent upon the number of years the asset
has been hed) sha be taken nto account n computng net ncome.
The ureau has hed that earnngs on a casses of stock of a
budng and oan assocaton, whether nstament, matured, un-
matured, fu-pad, or prepad, to the e tent that they are pad out
of earnngs accumuated after ebruary 28, 1913, are dvdends
wthn the meanng of secton 115(a) of the Revenue ct of 1934
and correspondng provsons of pror Revenue cts. (See I. T.
1 5, C. . II-, 5, and I. T. 2727, C. . II-2, 55.) The poston
of the ureau s supported by Commssoner of Interna Revenue v.
aron Ward d- Sons ( 5 ed. (2d), 758, Ct. D. 749, C. . II-2,
153), n whch the Crcut Court of ppeas for the Thrd Crcut
re|ected the contenton that dstrbutons of a budng and oan
assocaton consttute gan or a qudatng dvdend wthn
the meanng of the edera Revenue cts.
It s accordngy hed that dstrbutons by budng and oan
assocatons are not gan derved from the sae or e change of a
capta asset wthn the meanng of secton 117 of the Revenue ct
of 1934 but are dvdends whch are sub|ect to norma ta and sur-
ta when dstrbuted by a budng and oan assocaton whch s
tsef e empt from edera ncome ta .
SUPPL M NT Cr-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.
R NU CT O 1034.
Ctzen of the Unted States n the rgn Isands. (See I. T.
294 , page 109.)
rtce 131-2: Meanng of terms. I -32-7 37
I. T. 2909
R NU CT O 1934.
The duty Imposed upon the annua profts of mnng com-
panes by the uebec mnng act, R. S. (1900), 2098, part,
whch duty s due rcgRrdess of whether there s any ncome from
te property, s not an ncome ta and may not be camed as a
credt aganst Unted States ncome ta under secton 131 of the
Revenue ct of 1934.
dvce s requested whether the ta pad to the Provnce of uebec,
Canada, by a Canadan subsdary of the M Corporaton under a
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137
131, rt. 131-2.
aw known as the uebec mnng act, R. S. (1909), 2098, part, s
an ncome ta whch may be camed as a credt aganst the Unted
States ncome ta under secton 131 of the Revenue ct of 1934.
The pertnent provsons of the uebec mnng act read as foows:
Dvson III.
DUTI S UPON MIN S.
11. There sha be pad to the Crown, at the tme and In the manner heren-
after provded the dutes mposed by ths dvson.
Such dutes sha become due on the 1st of anuary for the precedng year,
and sha be payabe to the Mnster on the 1st of une. (R. S. (1909), 2105
15 Geo. , ch. 37, secton 2.)
12. 1. rom and after the 1st of anuary, 1925, every mne n
the Provnce of uebec sha be abe for, and the owner, manager, hoder,
essee, occupant or operator of the mne sha pay, the foowng dutes:
a. Upon annua profts n e cess of. 10,000 up to 1,000,000, 3 per cent.

13. The annua profts sha be ascertaned and f ed n the foowng manner:
rom the gross vaue of the year s output sod, utzed or shpped durng
the year, there sha be deducted the costs of operaton and e penses ncurred
durng the year In queston to wt:
1. The cost of transportaton of the output of the mne, f such cost s borne
by the operator, owner, occupant, or essee
2. The workng e penses of the mne, ncudng the saares and the wages
of the workmen and empoyees of the mne, ms and pant, but e cusve of
Other saares or wages.
8. The cost of the necessary power and ght for the operaton of the mne,
ms and pant
4. The cost of e posves, fue and any other suppes used n the mnng
operatons and n the treatment of the mneras by the operator
5. The cost of Insurance upon the equpment, the budngs at the mne and
the stock n storage
. n annua amount, based upon the probabe annua average cost of re-
pars and renewas necessary to mantan operatons n a condton of effcency,
to cover the deprecaton due to ordnary wear and tear of the budngs and
equpment, provded, however, that such amount sha not e ceed 15 per cent
of the vaue of same at the commencement of the year, as apprased by an
assessor apponted by the Mnster

14. No aowance or deducton sha be made for the cost of new nstaatons
or new budngs made or erected durng the year nor for deprecaton n the
vaue of the mne, by reason of e hauston or parta e hauston of mneras,
fue to the mnng thereof. (R. S. (1909), 2105c 15 Geo. , ch. 37, secton 2.)
Dvson I contans the foowng provsons:
D CL R TORY ND INT RPR T TI .
8. In ths act, as we as n a orders-In-counc or reguatons promugated
n vrtue thereof, uness the conte t or sub|ect-matter otherwse requres:

1 . The word output ncudes the mnera-bearng substances comng from
the mne such as those sod, removed or paced upon the market, ncudng
theren those treated or partay treated at any smeter or m formng part
of the works.
17. The words gross vaue of the year s output mean the rea vaue of the
ore and mneras at the rung market prces at the tme of ther sae or of
ther use, and, In case of doubt, the representatves of the Department of
Coonzaton, Mnes and sheres may themseves make an estmate of tn-
vaue of the ores or mneras sod, utzed or shpped by the operators, and
such estmate sha be fna to estabsh the gross vaue
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5142. rt. 142-1.
138
or the purpose of a credt for foregn ta es, t s necessary to
determne whether the ta s a ta on ncome wthn the concept of
that term as used and recognzed n the Unted States ncome ta
aw. The Supreme Court of the Unted States has hed that ncome
may be defned as the gan derved from capta, from abor, or from
both combned, provded t be understood to ncude proft derved
through a sae or converson of capta assets. ( sner v. Macomber,
252 U. S., 189, T. D. 3010, C. . 3, 25.) Congress n permttng for-
egn ncome ta es to be camed as a credt aganst Unted States
ncome ta dd not ntend that a ta es pad to a foregn country
of whatever descrpton shoud be aowed as an offset aganst n-
come ta es due ths country. oregn ta es other than ncome ta es
may not be camed as a credt. (See O. D. 372, C. . 2, 115, reatve
to the sugar ta mposed by Cuba on each bag of sugar produced
S. M. 3982, C. . I -2, 204, reatng to certan Itaan ta es I. T.
2499. C. . III-2, 325, n regard to Peruvan ta es on sugar e -
ported G. C. M. 8478, C. . I -2, 224, n regard to chffre d affares
ta es pad to rance I. T. 259 , C. . -2, 184, reatng to the ta
mposed by Cuba upon gross revenues of foregn navgaton com-
panes I. T. 2 20, C. . I-1, 44, reatng to certan ta es mposed by
Me co.)
rom an e amnaton of the provsons of the uebec mnng act
whch mposes a duty upon the annua profts of mnng com-
panes, t s evdent that the ta s a duty based on the gross vaue
of the ore sod, utzed or shpped mnus operatng costs such as
costs of transportaton, workng e penses of the mne, cost of power,
fue, etc. The duty s mposed regardess of whether there s any
ncome from the property. It foows that the duty s not an ncome
ta and may not be camed as a credt aganst Unted States ncome
ta under secton 131 of the Revenue ct of 1934.
rtce 131-5: Countres whch do or do not I -2 -75 8
satsfy the smar credt requrement. I. T. 2901
R NU CTS O 1032 ND 1934.
Span satsfes the smar credt requrement of secton 131 (a)3 of
the Revenue cts of 1932 and 1934.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 142. IDUCI RY R TURNS.
rtce 142-1: ducary returns.
R NU CT O 1934.
mendment of artce 142-1. (See T. D. 4585, page 54.)
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139
143, rt. 143-2.
rtce 142-1: ducary returns. I -51-78 4
T.D.4 13
INCOM T .
rtce 142-1 of Reguatons 8 , as amended by Treasury Decson
4585, further amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The eghth sentence of the ne t to the ast paragraph of artce
142 1 of Reguatons 8 , as amended by Treasury Decson 4585,
approved September 9, 1935 page 54, ths uetn , s amended to
read:
If, wth respect to the frst ta abe year begnnng after December 31, 1933,
te copy of the w or trust nstrument requred by these reguatons can not
be fed at the tme the fducary return s made wthout causng undue hard-
shp to the fducary, such copy may be fed as soon as practcabe thereafter
wth the coector wth whom the return was fed but not ater than s
months after the tme prescrbed by aw for the makng of the fducary re-
turn (wthout regard to any e tenson of tme granted for the fng of such
re torn).
The ne t to the ast paragraph of artce 142-1 of Reguatons
8 , as amended, s further amended by strkng therefrom the fourth
sentence from the end of the paragraph readng:
If the copy of the w or trust nstrument s not fed at the tme the return
Is fed, then such copy sha be forwarded drecty to the Commssoner of In-
terna Revenue, Records Dvson, Washngton, D. C.
Gut T. e.verng,
Commssoner.
pproved December 12, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
S CTION 143. WIT OLDING O T T SOURC .
rtce 143-2: ed or determnabe, annua I -47-7819
or perodca ncome. I. T. 2938
( so Secton 144, rtce 144-1.)
R NU CT O 1034.
Where stock n a foregn corporaton s actuay owned by any
person enumerated n sectons 143(b) and 144 of the Revenue ct
of 1034, and the stock s regstered n the name of another person,
the record owner s requred to compy wth the wthhodng prov-
sons of the statute.
Reference s made to I. T. 283 (C. . III-2. 81), concernng the
appcabty of sectons 143(b) and 144 of the Revenue ct of 1934
to dvdends on stock pad by foregn corporatons where such dv-
dends consttute ncome from sources wthn the Unted States.
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143, rt. 143-2.
140
The contenton s made that the wthhodng requrements mposed
by sectons 143(b) and 144 of the aw shoud not be hed to appy
to the record owners of stock n foregn corporatons. It s asserted
that the words f ed or determnabe annua or perodca gans,
profts, and ncome appearng n secton 143(b) ncude wthn
ther scope ony such ncome as to whch t can be known wth cer-
tanty that the fu amount thereof must be ncuded n the gross
ncome of the recpent. Upon such premse, t s argued that dv-
dends upon stock n a foregn corporaton owned by those casses
of persons specfed n sectons 143(b) and 144 of the Revenue ct
of 1934 can not be known wth certanty by the record owner of the
stock to consttute part of the gross ncome of the actua owner
thereof because such concuson s dependent upon whether such dv-
dends consttute ncome from sources wthn the Unted States wthn
the meanng of secton 119 of the Revenue ct of 1934. Whe t s
true that I. T. 283 ncuded ths eement of knowedge as one of the
factors to be consdered n determnng whether a partcuar tem
consttutes f ed or determnabe ncome, such statement
was made ony n connecton wth the dstncton theren sought to
be made between ncome and gross proceeds, and such state-
ment dd not n any way mpy that the nature of a partcuar tem
as consttutng f ed or determnabe ncome (or the contrary)
coud be affected n any way by the knowedge or ack of knowedge
of any person as to the precse ta abe status of ether the payor
or the utmate recpent of the ncome. urthermore, whatever
statement may have been made n I. T. 283 as to the meanng of
these words, the nstant case must be determned by the appcabe
sectons of the statute (sectons 143(b) and 144) and by the regua-
tons of the Commssoner approved by the Secretary. rtce 143-2
of Reguatons 8 , as amended by Treasury Decson 4535 (C. .
I -1, 118), provdes as foows:
bt. 143-2. ed or determnabe annua or perodca ncome. Ony f ed
or determnabe annua or perodca ncome Is sub|ect to wthhodng. The
ct specfcay ncudes n such ncome, nterest, rent, saares, wages, pre-
mums, annutes, com en.satons, remuneratons, nnd emouments. ut other
knds of ncome are ncuded, as, for nstance, royates and dvdends.
Income s f ed when t s to be pad n amounts defntey predetermned.
Income s determnabe whenever there s a bass of cacuaton by whch the
amount to be pad may be ascertaned. The ncome need not be pad annuay
f t s pad perodcay that s to say, from tme to tme, whether or not at
reguar ntervas. That the ength of tme durng whch the payments are
to be made may be ncreased or dmnshed n accordance wth some one s
w or wth the happenng of an event does not make the payments any the
ess determnabe or perodca. saesman workng by the month for a
commsson on saes whch s pad or credted monthy receves determnabe
perodca ncome. The Income derved from the sae n the Unted States of
property, whether rea or persona, Is not f ed or determnabe annua or
perodca ncome.
Sectons 143(b) and 144 of the Revenue ct of 1934 are manda-
tory n requrng that the ta be wthhed by persons havng the
contro, recept, custody, dsposa, or payment of f ed or
determnabe annua or perodca ncome of
any nonresdent aen ndvdua, partnershp, or foregn corpora-
ton comng wthn the scope of those sectons. It s hed that the
record owner of the stock of a foregn corporaton s a person hav-
ng recept and custody of the dvdends pad on such stock.
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141
144, rt. 144-1.
Snce these dvdends consttute f ed or determnabe annua or
perodca ncome wthn the meanng of secton 143(b)
of the Revenue ct of 1934 and artce 143-2 (as amended) of Regu-
atons 8 , t foows that the record owner of the stock must compy
wth the wthhodng provsons of the statute.
The ast paragraph of artce 119-3 of Reguatons 8 , pertanng
to the treatment of dvdends, provdes that dvdends w be treated
as ncome from sources wthn the Unted States (e cept for the pur-
poses of secton 131, whch has no bearng on the queston under con-
sderaton) uness the ta payer submts suffcent data to estabsh to
the satsfacton of the Commssoner that the dvdends shoud be
e cuded from gross ncome. ach year numerous foregn corpora-
tons submt to the ureau the data necessary to estabsh to the
satsfacton of the Commssoner that the dvdends pad by them
durng the ta abe year s houd be treated as ncome from sources
wthout the Unted States, such nformaton beng submtted for the
beneft of ther sharehoders who are nonresdent aen ndvduas
or foregn corporatons.
In vew of the foregong, t s hed that where stock n a foregn
corporaton s actuay owned by any person enumerated n sectons
143(b) and 144 of the Revenue ct of 1934, the record owner s re-
qured to wthhod ncome ta at the rates of 4 per cent and 13
per cent, respectvey, from the dvdends pad on such stock n cases
where the foregn corporaton dd not wthhod the ta due to ts
ack of knowedge as to the dentty of the actua owner of the stock,
uness the record owner has ascertaned from the foregn payor cor-
poraton that t has receved an offca rung from the Commssoner
that ts dvdends shoud be treated as ncome from sources wthout
the Unted States.
rtce 143-10: Return of ncome from whch ta was wthhed.
R NU CT O 1934.
Credt for ta wthhed from nterest on ta -free covenant bonds
accrung to decedent at tme of hs death. (See I. T. 2928, page 102.)
S CTION 144. P YM NT O CORPOR TION INCOM
T T SOURC .
rtce 144-1: Wthhodng n the case of nonresdent
foregn corporatons.
R NU CT O 1934.
Record owner of stock of a foregn corporaton. (See I. T. 2938,
page 139.)
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UG, rt. 140-1.
142
S CTION 14C CLOSING Y COMMISSION R
O T L Y R.
rtce I4G-1: Termnaton of the ta abe I -44 7775
perod by Commssoner. T. D. 4595
rtce 110-1, Reguatons S3, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Wash ngton, D. C.
Coectors of Interna Revenue and Others Concerned:
The ast sentence of paragraph (a) of artce 14 -1 of Reguatons
8 s amended by strkng out the word estmated and addng the
words not e ceedng before the word doube, so that such
sentence w read:
ta payer who s not n defaut n makng the returns or n payng other ta es
may procure the postponement unt the usua tme of the payment of ta es
whch are or may be due pursuant to ths artce by depostng wth the Com-
mssoner Unted States bonds of a prncpa amount not e ceedng doube the
amount of ta es due for the ta abe perod, or by furnshng such other securty
as may be approved by the Commssoner.
The fourth sentence of paragraph (b) of artce 14 -1 of Regua-
tons 8 s amended by addng after the word obgatons the
words or upon the furnshng of such securty as may be approved
by the Commssoner for the payment of such obgatons, so that
such sentence w read:
Upon payment of such obgatons, or upon the furnshng of such securty as
may be approved by the Commssoner for the payment of such obgatons, or
upon satsfactory evdence that no ta s due and payabe, the coector or
nterna revenue agent In charge w ssue a certfcate of compance to the
appcant.
The ffth sentence of paragraph (b) of artce 14 -1 of Reguatons
8 s amended by strkng out the word per and nsertng n eu
thereof pont of departure so that such sentence w read:
propery e ecuted certfcate of compance Issued by the coector or nterna
revenue agent must be presented at the pont of departure
Paragraph (c) of artce 14 -1 of Reguatons 8 s amended as
foows:
1. The frst sentence s amended by substtutng for attorney-
n-fact the words attorney n fact, and by addng after the num-
ber (3) the words ether payng the estmated ta as shown on
the nformaton return ( orm 1040D), whch w be credted on
account for the year covered by such return| or.
2. The thrd sentence s amended by strkng out the words com-
pany hodng a certfcate of authorty from the Secretary of the
Treasury as an acceptabe surety on edera bonds, and and addng
n eu thereof the words or suretes.
3. The fourth sentence s amended by strkng out the words
ether and the words or (b) a wrtten guaranty on the pre-
scrbed orm 1040D, wth guarantor, acceptabe to the Comms-
soner.
4. The ast sentence s deeted, and n eu thereof the foowng
sentence s added: form of a Certfcate of compance s made
a part of orm 1040D.
5. t the end of paragraph (c) the foowng matter s added:
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143
14 , rt. 14 -1.
onds compyng wth the provsons of ths artce, f propery e ecuted and
wth adequate surety, are approved, and may be accepted n the name of the
Commssoner, by the coector or nterna revenue agent n charge by sgnng
the orm 1133 as foows:
14
Commssoner of Interna Revenue.
y
Coector of Interna Revenue.
Interna Revenue gent n Charge.
corporaton w not be acceptabe as a surety on such bond uness the cor-
poraton hods a certfcate of authorty from the Secretary of the Treasury
a8 an acceptabe surety on edera bonds. If the surety on the bond s an
ndvdua or ndvduas such bond sha not be accepted unt an nvestga-
ton s made as to the fnanca and other respousbty of such surety or sure-
tes and such nvestgaton shows that the coecton of the ta s ampy
secured by the bond.
s amended, paragraph (o) of artce 14 -1 of Reguatons 8
reads as foows:
n aen who ntends to depart from the Unted States and whose ta abe
year has not been termnated by the Commssoner as provded n secton
14 (2), and who s not n defaut n makng any return, or payng ncome,
war-profts, or e cess-profts ta under any ct of Congress, may procure a
certfcate of compance as provded n secton 140(e) by (1) appontng n
wrtng on orm 934 an attorney n fact, resdent n the Unted States, to
make hs ncome ta return or returns for the ta abe year current at the
tme of hs Intended departure and for the ne t precedng ta abe year (f not
aready made), (2) makng on orm 1040D a return of Informaton for hs
ta abe year current at the tme of hs ntended departure and a return on
that form for the ne t precedng ta abe year where the perod for makng
the Income ta return for the ne t precedng ta abe year has not e pred, and
(3) ether payng the estmated ta as shown on the nformaton return
( orm 1040D), whch w be credted on account for the year covered by such
return, or furnshng securty approved by the Commssoner that he w make
the requred return or returns and pay the ta or ta es requred to e pad.
If such securty s approved and accepted and such further securty wth respect
to the ta or ta es covered thereby s gven as the Commssoner sha from
tme to tme fnd necessary and requre, payment of such ta es may be post-
poned unt the e praton of the tme otherwse aowed for ther payment.
The departng aen may furnsh as securty a surety bund on orm 1183 n an
amount not e ceedng doube the amount of ta for hs ta abe year current at
the tme of bs ntended departure, and for the ne t precedng ta abe year (f
not aready pad), condtoned upon the makng of hs return or returns for
such year or years (f not aready made), and the payment of any ta or ta es
that may become payabe for such year or years together wth any penaty and
Interest that may accrue thereon, such bond to be e ecuted by a surety or sure-
tes approved by the Commssoner. In eu of such a surety bond, the ta -
payer may furnsh as securty a pena bond ( orm 1133), approved by the
Commssoner, secured by depost of bonds or notes of the Unted States equa
In ther tota par vaue to an amount not e ceedng doube the amount of the
ta or ta es n respect of whch the bond s furnshed. form of a certfcate
of compance s made a part of orm OtOU. onds compyng wth the
provsons of ths artce, f propery e ecuted and wth adequate surety, are
approved, and may be accepted n the name of the Commssoner, by the co-
ector or nterna revenue agent n charge by sgnng the orm 1133 as foows:

Commssoner of Interna Revenue.

y
Coector of Interna Revenue.
Interna Revenue gent n Charge.
corporaton w not be acceptabe as a surety on such bond uness the cor-
poraton hods a certfcate of authorty from the Secretary of the Treasury
as an acceptabe surety on edera bonds. If the surety on the bond s an
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5148, rt, 148-1.
144
Indvdua or ndvduas such bond sha not be accepted unt an nvestgaton
.s made as to the fnanca and other responsbty of such surety or suretes
and such nvestgaton shows that the coecton of the ta s ampy secured
by the bond.
Gut T. everng,
Commssoner of Interna Revenue.
pproved October 29, 1935.
. MORG NT U, r..
Secretary of the Treasury.
S CTION 147. IN ORM TION T SOURC .
rtce 147-2: Return of nformaton as to payments to
empo ees.
R NU CT O 1034.
mendment of artce 147-2. (See T. D. 4585, page 54.)
S CTION 148. IN ORM TION Y CORPOR TIONS.
rtce 148-1: Return of nformaton as to I -40-7729
payments of dvdends. Mm. 4380
Requrng nformaton from corporatons, under secton 148 (b)
and (c), Revenue ct of 1934.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, September 2 ,1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
very coector of nterna revenue, every nterna revenue agent
n charge, and every speca agent n charge s hereby authorzed as
the representatve of the Commssoner of Interna Revenue to re-
qure from corporatons the nformaton specfed n secton 148 (b)
and (c) of the Revenue ct of 1934.
Inqures reatve to the contents of ths mmeograph shoud be
addressed to the Commssoner of Interna Revenue and shoud refer
to the symbos C:Co f from coectors and to ITr
f from revenue agents or speca agents.
Gut T. eveknq,
C ommssoner.
rtce 148-1: Return of nformaton as to pay- I -47-7820
ments of dvdends. I. T. 2939
R NU CT O 1934.
Under the provsons of secton 148 (b) and (c) of the Revenue
ct of 1934 and Mmeograph 4380 (above), an e empt budng and
oan assocaton s requred upon request to furnsh the nformaton
specfed n the foregong secton of the aw regardess of the amount
nvoved.
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145
148, rt. 148-2.
rtce 148-2: Informaton respectng compen- I -42-7742
saton of offcers and empoyees n e cess of I. T. 2927
15,000.
R NU CT O 1934.
Shares of stock of a corporaton hed n brokerage accounts by
ts offcers and empoyees recevng compensaton n e cess of
15,000 durng the ta abe year shoud be reported n Schedue
C- of the corporaton s return ( orm 1320).
dvce s requested by the M Company reatve to Schedue C-, the
return of nformaton wth respect to the compensaton of offcers and
empoyees n e cess of 15,000, requred to be fed wth ts ncome ta
return for the fsca year ended anuary 31,1935. (Secton 148(d) of
the Revenue ct of 1934 T. D. 44 7 C. . III-2, 9 .)
Under the provsons of Treasury Decson 44 7, t s necessary to
report under Schedue C 1 of the corporaton s return the percentage
of the corporaton s stock owned by ts offcers and empoyees whose
compensaton s n e cess of 15,000. It s stated that n addton to
the stock regstered n ther names, some of the offcers and empoyees
have stock n brokerage accounts ( n street name wth brokers ),
and nqury s made reatve to the reportng of such stock.
Wth respect to the shares of stock n the brokers accounts, t s
hed that tte to stock bought by a broker for a customer on margn
Thomas v. Taggart, 209 U. S., 385) or otherwse (Gorman v. Ltte-
fed, 229 U. S., 19) vests n the customer, sub|ect to a en for the pay-
ment of advances or commssons due the broker, he beng regarded
as the pedgee of the stock (Thomas v. Taggart, supra). In The Law
of Stock rokers and Stock changes, by Meyers, secton 42(4), t s
stated:
The customer Is the owner of the securtes whch are purchased by the
broker on hs behaf. Ths s true even though the purchase s made on margn.
It Is the |udgment of the customer whch determnes when the securtes are
to be purchased and when they are to be sod. of the ncdents of owner-
shp are n the customer. The rsk of the purchase s hs, and the broker, asde
from hs remuneraton, has no nterest theren. The profts of the transacton
are the customer s, and the osses must be sustaned by hm. Dvdends and
stock rghts beong soey to hm.
In the nstant case t s stated that the stock s not regstered n
the names of the offcers or empoyees but s n street name wth
broker. Ths does not, however, dsturb the customer s rea and
benefca ownershp of the stock. The certfcates of stock are usu-
ay hed n the name of the broker n order to enabe hm more
effectvey to enforce hs en, but may be hed n a street name to
factate devery of the certfcates. Ony one thng s ackng to
the customer s compete and absoute ownershp, namey, the ega
tte, and the customer may obtan ths at any tme by tne payment
of any ndebtedness due the broker on such stock. It s, therefore,
hed that the offcers or empoyees are the rea benefca owners ot
the shares of stock of the corporaton whch they hod n brokerage
accounts. ccordngy, the stock so hed shoud be reported n
Schedue C- of the corporaton s return ( orm 1120) for the fsca
year ended anuary 31, 1935. for the purpose of showng the per-
centage of stock owned by offcers and empoyees recevng compen-
saton n e cess of 15,000 for that year.
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149, rt. 149-1.
14
S CTION 149. R TURNS O RO RS.
rtce 149-1: Return of nformaton by brokers. I -27-7580
Mm.434
Returns of nformaton requred to be fed by brokers and other
agents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, une 2 , 1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Secton 149 of the Revenue ct of 1934 provdes that every
person dong busness as a broker sha, when requred by the Com-
mssoner, render a correct return duy verfed under oath, under
such rues and reguatons as the Commssoner, wth the approva
of the Secretary, may prescrbe, showng the names of customers for
whom such person has transacted any busness, wth such detas
as to the profts, osses, or other nformaton whch the Comms-
soner may requre, as to each of such customers, as w enabe
the Commssoner to determne whether a ncome ta due on profts
or gans of such customers has been pad.
2. Treasury Decson 4510, approved anuary 12, 1935 (C. .
I -1, 128), provdes that when drected by the Commssoner,
ether specay or by genera reguaton, every person dong busness
as a broker sha render a return on the prescrbed form, showng the
names and addresses of customers to whom payments were made or
for whom busness was transacted durng the caendar year or other
specfed perod ne t precedng, and gvng the other nformaton
caed for by the form. (See aso Mm. 4284, C. . I -1, 128.)
3. In accordance wth the foregong, every person or organza-
ton actng as broker or other agent n stock, bond, other securty, or
commodty transactons (ncudng banks whch hande orders for
depostors or custodan accounts) s hereby drected to make an an-
nua return of nformaton on orm 1100 for each customer, de-
postor, or account for whom or whch the tota amount of ether
the purchases or saes of securtes or commodtes, for the customer,
or the tota market vaue of the securtes e changed for the customer,
s 25,000 or more durng the caendar year 1935 and each subsequent
caendar year, e cept as provded n paragraphs 4, 5, G, and 7 of ths
mmeograph or as otherwse specfcay drected. The form sha
show the name and address of the customer and the tte of the ac-
count the name and address of the broker or agent the names and
addresses of the guarantor of the account and others wth power to
make wthdrawas of cash, securtes or commodtes from the ac-
count and, e cept as provded n paragraph of ths mmeograph,
the form sha aso show the tota of the purchases, the tota of the
saes and/or the tota market vaue of the securtes e changed for
the customer or account.
4. The makng of orms 1100 by banks and trust companes may
be confned to cases nvovng saes and e changes for customers ag-
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147
149, rt. 140-1.
egatng 25,000 or more durng the year, and the doar totas may
omtted from the orms 1100. It s to be understood, however,
that such a form sha be made for each case nvovng saes and
e changes aggregatng 25,000 or more durng each year.
5. anks and trust companes w not be requred to fe orms
1100 coverng purchases, saes, or e changes made by them when act-
ng for themseves or as e ecutor, admnstrator, trustee, or n any
other fducary capacty (not ncudng custodan or safe-keepng ac-
counts as fducary), or for other banks, trust companes, brokers, or
other fnanca nsttutons dong busness n the Unted States. so,
banks and trust companes w not be requred to fe orms 1100
coverng purchases and saes where they do not actuay gve the
orders for the purchases and saes.
. rokers and other agents handng purchases and saes of com-
modtes for customers may report on orm 1100 for each year the
tota proft or oss of each customer on a of such transactons, when
500 or more, n eu of the tota purchases or saes of 25,000 or
more. If the proft or oss s reported a orm 1100 shoud be pre-
ared for each customer whenever the amount of the tota proft or
oss of the customer from a of such transactons s 500 or more
for the caendar year, and the form shoud be noted accordngy.
7. Persons or organzatons havng domestc correspondents w
not report on orm 1100 for such domestc correspondents nasmuch
as each correspondent w report for hs or ts ndvdua customers.
8. orm 1100 s prnted on whte paper and a dupcate thereof
s prnted on pnk paper. In each case where the account s guar-
anteed or others have power to make wthdrawas of cash, secur-
tes, or commodtes from the account, a dupcate of the form as
prepared on whte paper sha be made on the pnk form for each
name and address, other than the customer, requred to be shown
on orm 1100.
9. orm 1100 s provded for use as a etter of transmtta and
affdavt to accompany orms 1100. The orms 1100 for each year
accompaned by orm 1100 , propery fed n and e ecuted, sha
be forwarded to the Commssoner of Interna Revenue, Sortng
Secton, Washngton, D. C, not ater than the 15th day of ebruary
foowng the cose of the caendar year. The forms w be ds-
trbuted through the coectors of nterna revenue for the varous
coecton dstrcts.
10. Returns made by ndvduas must be sworn to by the nd-
vdua or hs duy authorzed agent. Returns made by corpora-
tons, partnershps, and other organzatons must be sgned and
sworn to by an offcer or member of the organzaton.
11. e stng nstructons whch are nconsstent wth the fore-
gong are hereby revoked.
12. Inqures and correspondence regardng ths mmeograph
shoud refer to the number and the symbos IT: : CTR.
Gut T. evertng,
C omm tnner.
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1 2, rt. 1G2-1.1 148
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 2. N T INCOM .
btce 1G2-1: Income of estates and trusts. I -40-7724
I. T. 2925
R NU CT OP 1934.
Where the soe benefcary of an estate Is aso e ecutor and
speca bond s gven under secton 2 4 of the Code of the Dstrct
of Coumba (Tte 20, secton 133, 1930 Code), the date of approva
of the bond by the court shoud be taken as the cose of the perod
of admnstraton or settement of the estate under secton 1 2(c)
of the Revenue ct of 1934, and the ncome of the estate shoud
be ta ed to the soe benefcary.
dvce s requested as to the proper treatment for edera ncome
ta purposes of ncome of the estate of , who ded n March, 1935.
It appears that s the soe benefcary of s estate and s aso
e ecutor. In accordance wth secton 2 4 of the Code of Law for
the Dstrct of Coumba (Tte 29, secton 133, 1930 Code), he gave
a speca bond, condtoned to pay a the debts and |ust cams
aganst the testator, whch was approved by the court n pr, 1935.
The queston presented s whether there s a perod of admnstra-
ton of s estate durng whch the ncome s ta abe to the estate or
whether the ncome s ta abe to , the benefcary. The answer to
the queston depends upon whether the e ecuton of the speca bond
cosed the admnstraton of the estate.
Secton 2 4 of the Code of Law for the Dstrct of Coumba (Tte
29, secton 133, 1930 Code) provdes:
ecutor resduary egatee Speca ond . If the e ecutor Is the
resduary egatee of the persona estate of the testator, or provded te resduary
egatee of fu age sha notfy hs consent to the court, he may, nstead of the
bond prescrbed as aforesad, gve bond wth securty approved by the court, and
n a penaty prescrbed by the court, condtoned to pay a the debts and |ust
cams aganst the testator, and a damages whch sha be recovered aganst
hm as e ecutor, and a egaces bequeathed by the w, n whch case he sha
not be requred to fe any Inventory or render any account., nd f such bond
be gven by the e ecutor, he sha be answerabe for the fu amount of a debts,
cams, and damages that may be recovered aganst hm as e ecutor as f he
were sued n hs own rght, and any egatee may recover the fu amount of
hs egacy n a sut on the e ecutor s bond or n equty, and the gvng of the
bond sha be consdered an assent to the egacy: Provded, That the surety or
securtes n sad bond sha not be abe for a greater amount than the penaty
thereof.
In vew of the fact that s the soe benefcary and e ecutor of s
estate and that upon the fng of hs speca bond and ts approva
by the court he, as e ecutor, became answerabe for the fu amount
of a debts, cams, and damages that may be recovered aganst hm
as e ecutor as f he were sued n hs own rght and was reeved from
returnng an nventory and from fng accounts, t s hed that the
approva and acceptance of hs speca bond by the court had the
effect of a dstrbuton to hm of the entre estate, sub|ect to hs per-
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149
204(a), rt. 204(a)- .
sona abty for the decedent s debts and the |ust cams aganst s
estate. It foows that the perod of admnstraton or settement of
the estate was cosed upon the fng of s speca bond and the ap-
prova thereof by the court. The entre estate, ncudng the ncome
thereof from the date of death, was accordngy dstrbuted to as
the soe benefcary durng the estate s ta abe year 1935. Secton
1 2 (c) of the Revenue ct of 1934 provdes that n the case of ncome
receved by estates of deceased persons durng the perod of admns-
traton or settement the amount of the ncome of the estate for ts ta -
abe year whch s propery pad or credted durng such year to any
egatee, her, or benefcary sha be aowed as a deducton n com-
putng the net ncome of the estate and sha be ncuded n computng
the net ncome of the egatee, her, or benefcary. ccordngy, the
entre ncome of s estate s ta abe to , the soe benefcary.
SUPPL M NT . P RTN RS IPS.
S CTION 181. P RTN RS IP NOT T L .
rtce 181-1: Partnershps.
R NU CT O 1934.
mendment of artce 181-1. (See T. D. 4585, page 54.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203(a). N T INCOM O LI INSUR NC
COMP NI S: G N R L RUL .
rtce 203(a) (8)-: Interest.
R NU CT O 1034.
mendment of artce 203(a) (8)- of Reguatons 8 . (See T. D.
4 15, page 310.)
S CTION 204(a). INSUR NC COMP NI S OT R T N
LI OR MUTU L: IMPOSITION O T .
rtce 204(a)-: Ta on nsurance companes other than fe
or mutua.
R NU CT O 1934.
mendment of artce 204(a)- . (See T. D. 4585, page 54.)
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322, rt. 322-8.
150
S CTION 207. MUTU L INSUR NC COMP NI S
OT R T N LI .
rtce 207-1: Casses of mutua nsurance I -31-7 21
companes other than fe. I. T. 2907
R NU CT O 1934.
The appcaton of the provsons of artce 207-1 of Reguatons
8 , n reaton to casses of mutua nsurance companes other than
fe, shoud be confned to returns for ta abe years begnnng after
December 31, 1933.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 322-3: Cams for refund by ta payers.
R NU CT O 1034.
mendment of artce 322-2. (See T. D. 4585, page 54.)
rtce 322-8: Credtng of accounts of coectors I -35-7 71
n cases of assessments aganst severa persons T. D. 4581
coverng same abty.
ncome, estat::, and GI T ta es.
Coectors to be temporary reeved of abty as to assessments
aganst severa persons coverng tbe same ta abty If the
abty n respect of whch the assessments were made s pad
by one or more of such persons.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons G9, approved ugust 28, 192 , are amended by addng
after artce 130 a new artce numbered 1307. Reguatons 74,
approved ebruary 15, 1929, are amended by addng after artce
1257 a new artce numbered 1258. Reguatons 77, approved ebru-
ary 10, 1933, are amended by addng after artce 1257 a new artce
numbered 1258. Reguatons 8 , approved ebruary 11, 1935, are
amended by addng after artce 322-7 a new artce numbered 322 8.
Reguatons 80, approved November 7, 1934, are amended by addng
after artce 105 a new artce numbered OS1/ . Reguatons 79,
approved October 30, 1933, are amended by addng after artce 8
a new artce numbered 81 .
ach new artce heren prescrbed sha provde as foows:
Credtng of accounts of coectors n cases of assessments aganst severa
persons coverng same abty. If assessments have been made aganst severa
persons coverng the same ta abty, and payment of such abty by one or
more of such persons has been duy certfed to the Commssoner, the Comms-
soner, for the purpose of temporary reevng the coector from abty under
secton 3218 of the Revsed Statutes, may authorze hm to take credt tempo-
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151
801, rt. 801- .
rary wth respect to the assessments not specfcay pad. Such acton, how-
ever, sha not consttute an abatement and sha not dscharge the abty of
the persons concerned.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 21, 1935.
. MORGO NT U, r.,
Secretary of the Treasury.
TITL . C PIT L STOC ND C SS-PRO ITS
T S.
S CTION 702. C SS-PRO ITS T .
I 38-770
I. T. 2921
R NU CT O 1934.
or an ncome ta fsca year begnnng n 1934 and endng on or
after uy 31, 1935, the capta stock vaue to be used n computng
the deducton under tem 3 of orm 1120 s the ad|usted decared
vaue as shown n the corporaton s capta stock ta return for the
year ended une 30, 1935. In usng the form for such fsca years,
1934 at the end of tem 3 shoud be changed, ether n nk or -wth
typewrter, to 1935.
TITL I. G N R L PRO ISIONS.
S CTION 801. D INITIONS.
rtce 801- : Lmted partnershp as part- I -28-7589
nershp. I. T. 2904
R NU CT O 1934.
or edera Income ta purposes, a mted partnershp formed
under the Te as statutes shoud be treated as a partnershp under
the Revenue ct of 1934.
dvce s requested whether a mted partnershp under the aws
of the State of Te as shoud be treated as a partnershp or as a cor-
poraton under the Revenue c t of 1934.
In G. C. M. 24 7 (C. . II-2, 188), the foowng statement ap-
pears :
It s aso the opnon of ths offce that a mted partnershp formed
under the Te as statutes s of the type descrbed n artce 1505 of Reguatons
5, and s to be treated as a partnershp for ncome ta purposes.
The queston nvoved n G. C. M. 24 7, supra arose under the
Revenue ct of 1924, but the above-quoted concuson s equay ap-
pcabe under the Revenue ct of 1934. ccordngy, a mted part-
nershp formed under the aws of the State of Te as shoud be treated
as a partnershp for edera ncome ta purposes under the Revenue
ct of 1934.
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23(a), rt. 120. 152
INCOM T RULINGS. P RT II.
R NU CT O 1932.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce G8: Sae and retrement by corporaton of
ts bonds.
R NU CT O 1932.
Unamortzed dscount on bonds retred, premums pad upon
retrement, and ssuance e penses connected therewth. (See T. D.
4 03, page 507.)
Premums pad by the M Company for past servce fe annutes
consttute addtona compensaton and as such are deductbe
for edera ncome ta purposes n the year n whch the pay-
ments of the premums are made pursuant to contract wth
the O Insurance Co., provded such payments, when added to the
stpuated saares of the empoyees and the premums pad by
the M Company for future servce annutes, do not e ceed reason-
abe compensaton for the servces rendered.
dvce s requested reatve to the deductbty, for edera n-
come ta purposes, of premums pad by the M Company n 1933
to the O Insurance Co. as part of the cost of past servce annutes
for ts empoyees.
The M Company adopted a pan for the payment of past and
future servce annutes to ts empoyees upon retrement, whch
pan became effectve as of anuary 1, 1933. The pan provdes
that the M Company w furnsh at ts own e pense at the norma
age of retrement ( 5 years for maes and 0 years for femaes) to
each empoyee then survvng who was actvey n servce on De-
cember 31, 1932, a monthy past servce fe annuty equa to
per cent of hs reguar saary or wages for the month of December,
1932, for each year of servce pror thereto. ach empoyee who
becomes a contrbutng member of ths pan s requred to contrbute
an amount suffcent to purchase at the norma age of retrement
a monthy future servce fe annuty equa to per cent of hs
saary or wages whe a contrbutor for each year of servce after
anuary 1, 1933. The M Company provdes each contrbutng em-
S CTION 23(a)
IN(
). D DUCTIONS ROM GROSS
COM : P NS S.
rtce 12 : Compensaton for persona
servces.
I -32-7 38
I.T. 2910
R NU CT O 1932.
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153
23(c), rt. 151.
poyee at the norma age of retrement wth a monthy future serv-
ce fe annuty equa to the annuty to be purchased wth the em-
poyee s contrbutons. Whe the M Company reserves the rght
to dscontnue the pan, t does not have the rght to wthdraw any
funds aready contrbuted by t. funds contrbuted under the
pan by the M Company and ts empoyees must be pad over to
the O Insurance Co., whch corporaton guarantees a annutes so
purchased. Pursuant to ths pan, the M Company entered nto a
wrtten contract wth the nsurance company, n whch t agreed to
make certan monthy premum payments and the nsurance company
agreed to pay to the empoyees the past and future servce fe
annutes as provded by the pan. Under the terms of the con-
tract, the M Company agreed to pay the O Insurance Co. the sum of
3.17a doars a month begnnng on March 1, 1933, over a perod
of 20 years as the cost of the past servce fe annutes n queston.
The contract provdes that the M Company may at any tme make
addtona payments on account of past servce annutes. Durng
the year 1933 the M Company made 10 monthy payments on ths
contract at the rate of 3.17a doars, or a tota of 31.70a doars
and durng the same year the M Company aso made an addtona
payment on ths contract amountng to 40a doars. The queston
nvoved s the amount deductbe n 1933 on account of payments for
past servce annutes.
Secton 23 of the Revenue ct of 1932 provdes n part as foows:
In computng net Income there sha be aowed as deductons:
(a) penses. the ordnary and necessary e penses pad or Incurred
durng the ta abe year n carryng on any trade or busness, ncudng a rea-
sonabe aowance for saares or other compensaton for persona servces
actuay rendered .
It s hed that the premums pad by the M Company for past
servce fe annutes consttute addtona compensaton and as such
are deductbe for edera ncome ta purposes n the year n whch
the payments of the premums are made pursuant to the contract
wth the O Insurance Co., provded such payments, when added to
the stpuated saares of the empoyees and the premums pad by
the M Company for future servce annutes, do not e ceed a rea-
sonabe compensaton for the servces rendered.
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT O 1932. ,
Ta mposed by Lousana on gasone and motor fue. (See
G. C. M. 14970, page 9.)
rtce 151: Ta es.
R NU CT O 1932.
entucky gasone ta . (See I. T. 2914, page 79.)
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123(e), rt. 171.
154
rtce 151: Ta es.
R NU CT O 1 32.
Utah emergency saes ta . (See I. T. 2917, page 83.)
rtce 151: Ta es.
R NU CT OP 1932.
Revocaton of G. C. M. 14128 (C. . I -1, 142). (See G. C. M.
15530, page 107.)
S CTION 23(e). D DUCTIONS ROM GROSS
INCOM : LOSS S Y INDI IDU LS.
rtce 171: Losses. I -42-7743
G. C. M. 15 9
R NU CT O 1932.
The sae or forfeture of rea estate for denquent ta es n the
State of Inos does not resut In a deductbe oss, for edera
Income ta purposes, pror to the e praton of the statutory
perod of redempton.
n opnon s requested whether the owner of rea property may
deduct a oss n the year 1932 for ncome ta purposes where the
property was sod n that year for denquent ta es due the State of
Inos.
In the return fed for the caendar year 1932 the ta payer camed
a oss of doars wth respect to rea estate whch was sod (or
forfeted) durng that year for denquent ta es due the State of
Inos on such property. The perod of tme wthn whch the
property coud have been redeemed by the owner through the pay-
ment of the ta es and other charges e pred n a ater year wthout
that rght beng e ercsed.
Under the consttuton of the State of Inos, secton 5, rtce
I , t s provded that The rght of redempton from a saes of
rea estate for the nonpayment of ta es or speca assessments of
any character whatever, sha e st n favor of owners and persons
nterested n such rea estate, for a perod of not ess than two years
from such saes thereof. (See page 49, Smth- urd Inos Re-
vsed Statutes, 1925 see aso secton 19 , ch. 120. Smth- urd I-
nos Revsed Statutes as to statutory method of redempton.) It
s not necessary here to enter nto a dscusson of the ega procedure
prescrbed n the Inos Revsed Statutes wth regard to the sae
of rea property for denquent ta es and ts redempton by the
owner. The queston appears to be fuy covered by the State
Supreme Court n Zccare v. Stuekart (277 111., 2 , 115 N. ., 192),
Wes v. Gos (277 111., 51 , 115 N. ., 58), and owers v. Gos et
a. (34 111., 23, 179 N. ., 80). It s suffcent to state that the
purchaser of the ta certfcate acqures no mmedate tte to the
property and the owner may reman n possesson unt the redemp-
ton perod e pres.
Secton 23(e) of the Revenue ct of 1932 provdes that there sha
be aowed as deductons n computng net ncome, n the case of an
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155
23(e), rt. 171.
ndvdua, osses sustaned durng the ta abe year not compensated
for by nsurance or otherwse (| f ncurred n trade or busness,
or (2) f ncurred n any transacton entered nto for proft, though
not connected wth the trade or busness. rtce 171 of Reguatons
77, promugated wth respect to the Revenue ct of 1932, provdes
that osses must usuay be evdenced by cosed and competed
transactons. It woud be faacous to state that when property
s sod for ta es the transacton s cosed and competed, as, under
the consttuton of the State of Inos, the owner s gven two years
wthn whch to redeem the property. urthermore, from the e -
perence of a who are famar wth ta saes of rea property, t
s a we known fact that no actua oss s sustaned by the owner
through the technca sae of and for denquent ta es. Property
sod for ta es generay s redeemed wthn the perod permtted by
statute or the consttuton of the State. Some nvestors engage n the
busness of purchasng numerous propertes at ta saes for the
reason that such saes yed them a proftabe return when the rea
estate s redeemed. To permt a deductbe oss for ncome ta pur-
poses n the case of a technca sae of rea property for denquent
ta es woud ead to an unwarranted concuson. or e ampe, f
property havng a cost bass of 10,000 was sod on December 31,
1932, for ta es amountng to 100, t coud not reasonaby be hed
that the ta payer sustaned a deductbe oss for ncome ta pur-
poses of 9,900 when he had the rght under the State aw to pay
the denquent ta es and redeem hs property on the foowng day.
queston dentca wth the one here at ssue was consdered by
the oard of Ta ppeas n rederck rauss v. Commssoner
(30 . T. ., 2). In that case t was hed that the sae of rea
estate for ta es n the State of orda does not dvest the owner
of tte so ong as the rght of redempton e sts, does not const-
tute abandonment, and s not such an event as gves rse to a deduct-
be oss for ncome ta purposes. In the course of ts opnon the
oard stated as foows:
Snce there were no bdders for the property when t was offered for sae
by the ta coector, t was bd n by the ta coector for the State. Ths,
however, dd not deprve the ta payer of the ownershp of that property. e
had two years n whch to redeem and onger f some one dd not purchase
the certfcates from the State and undertake proceedngs n accordance wth
the statute to obtan tte. Ttte ta sae nvoved n ths case dd not have
any more effect than to estabsh a en n behaf of the State for these ta es.
The ta payer, therefore, st owns the property and ths brngs us to the
queston as to whether the record n ths case presents such facts as to entte
the ta payer to a deducton for a oss wth respect to ths property. The
ta payer testfed that he fet that the chance of orda rea estate havng
any vaue was ong n the future and that the ots woud never be worth the
ta es, pus Interest, n hs fetme. e aso e pressed the opnon that the
property was worthess n 1030. We do not beeve, however, that any
Identfabe event occurred n 1930 of suffcent character as to entte the
ta payer to a deductbe oss wth respect to the property.
We see no reason to depart n ths case from our ong ne of decsons
on that sub|ect. (See . . Schwarzvr Co., supra . M. N. Muhe, 19 . T. .,
1247 Consodated rck Co., 17 II. T. ., 831 Coanga-Mohawk O Co., 25
. T. ., 201 affrmed, 4 ed. (2d), 2 2 Ct. I). 775, C. . III-1, 270 ,
certorar dened, 290 U. S., 37.)
Lkewse, n I. T. 2711 (C. . II-2, 51), t was hed that where
a ta payer s rea property n New ersey was sub|ected to a ta
sae n 1932 by a muncpaty and thereafter hed by the muncpa-
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23(r), rt. 272.
15
ty, the sae dd not resut n a oss for ncome ta purposes for the
reason that the ta sae was not a cosed transacton. It was ponted
out n that rung that there was no actua sae so ong as the rght
of redempton e sted.
It s not known n the nstant case whether the rea estate nvoved
was forfeted to the State by beng offered for sae and no bds beng
receved or whether the property was advertsed for sae and subse-
quenty sod to the hghest bdder. In ether event there s no ds-
tncton for ncome ta purposes. Under the consttuton of the
State of Inos, the ta payer had the rght of redempton for a
perod of two years from the date of the ta sae and he was not
deprved of that rght by secton 212, chapter 120, Smth- urd
Inos Revsed Statutes, 1925, whch provdes that when there are
no bdders the property sha be forfeted to the State and that upon
forfeture the ta payer may redeem the property through the offce
of the county cerk by payng the amount of ta es upon the prop-
erty and other charges, such as nterest and prnter s fees. Upon
carefu consderaton of the queston, ths offce s of the opnon that
n the nstant case the ta payer dd not, pror to the e praton of
the redempton perod prescrbed by the State aw, sustan a de-
ductbe oss from the sae or forfeture of the rea estate for
denquent ta es.
Consderaton has aso been gven to another ange of ths case,
namey, whether the forfetng of the property to the State, or the
sae of the property by the State, may be consdered a payment of
ta es by the owner of the reaty and whether upon that theory the
owner may be entted to a deducton for ta es pad or accrued
wthn the ta abe year 1932 as provded by secton 23(c) of the
Revenue ct of 1932. That proposton can be dsposed of n a few
words. The property nvoved was taken over or sod by the State
for the nonpayment of ta es. There beng no payment of ta es on
the property n 1932, a deducton therefor can not be aowed.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 23(r). D DUCTIONS ROM GROSS INCOM :
LIMIT TION ON STOC LOSS S.
Where husband and wfe fed a |ont return for the year 1932,
osses sustaned by the wfe from saes or e changes of securtes
whch were not capta assets may not be aowed as an offset
aganst gans derved by the husband from ke transactons, nor
may such osses be apped aganst other ncome of the husband.
rtce 272: Lmtatons on deductons for
osses from saes and e changes of stocks
and bonds.
I -45-7782
G. C. M. 15438
R NU CT O 1932.
dvce s requested whether, where a |ont return was fed by hus-
band and wfe, osses of 3ar doars sustaned by the wfe n the year
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157
23(r), rt. 272.
1932 from saes or e changes of stocks and bonds whch were not
capta assets may be aowed as an offset aganst gans aggregatng
a doars derved by the husband n that year from saes or e -
changes of such securtes.
Secton 23(r) of the Revenue ct of 1932 reads as foows:
(r) Lmtaton on stock osses.
(1) Losses from saes or e changes of stocks and bonds (as defned In sub-
secton (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).
Secton 101(c)8 of the Revenue ct of 1932 provdes that the term
capta assets means property hed by the ta payer for more than
two years (whether or not connected wth hs trade or busness), but
does not ncude stock n trade of the ta payer or other property of
a knd whch woud propery be ncuded n the nventory of the
ta payer f on hand at the cose of the ta abe year, or property hed
by the ta payer prmary for sae n the course of hs trade or
busness.
Secton 51(b) of the Revenue ct of 1932 provdes that f a hus-
band and wfe vng together have an aggregate net ncome for the
ta abe year of 2,500 or over, or an aggregate gross ncome for such
year of 5,000 or over (1) each sha make such a return or (2) the
ncome sha be ncuded n a snge |ont return, n whch case the
ta sha be computed on the aggregate ncome.
In consderaton of a queston smar to the present ssue, the
oard of Ta ppeas hed that where a husband and wfe e ercse
the statutory rght to fe a snge |ont return, even though gross
ncome and deductons are sted as though they beonged to the one
makng the return, n reaty they represent the combned recepts
and deductons of each that to reach the aggregate net ncome on
whch the ta s computed, consderaton must be gven to the trans-
actons of each and that n fng a |ont return each must be con-
sdered as a separate ta payer. (See rank . Gummey v. Com-
mssoner, 2 . T. ., 894, acquescence, C. . III-2, 8.)
rtce 381 of Reguatons 77, promugated wth respect to the
Revenue ct of 1932 and reatng to ndvdua returns requred of
husband and wfe| provdes that where the ncome of each s n-
cuded n a snge |ont return, the ta s computed on the aggregate
ncome and a deductons and credts to whch ether s entted
sha be taken from such aggregate ncome. Secton 23(r) of the
Revenue ct of 1932 specfcay provdes that osses from saes or
e changes of stock and bonds whch are not capta assets sha be
aowed ony to the e tent of gans from such saes or e changes.
Inasmuch as the husband and wfe, under the rue ad down n
rank . Gummey v. Commssoner, supra, are separate ta payers
even though they fed a snge |ont return, the wfe s not en-
tted to any deducton wth respect to the transactons n ques-
ton because she dd not have any gans from such saes or e -
changes. The wfe not beng entted to a deducton for the
osses n queston, the amount thereof can not be aowed as a de-
ducton n the |ont return of the husband and wfe. The resut s
that osses sustaned by the wfe from saes or e changes of se-
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23(r), rt. 272.
158
curtes whch are not capta assets may not be aowed as an offset
aganst gans derved by the husband from ke transactons, nor
may such osses be apped aganst other ncome of the husband.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 272: Lmtatons on deductons for I -52-7872
osses from saes and e changes of stocks and I. T. 2948
bonds.
( so Secton 101, rtce 501.)
R NU CT O 1032.
Stocks and bonds hed by a trader In securtes prmary for
sae n the course of hs busness as a trader In securtes, regard-
ess of the perod for whch hed, are not capta assets as
defned n secton 101(c)8 of the Revenue ct of 1932 and osses
from saes or e changes of such stocks and bonds, as we as from
stocks and bonds hed by hm for a perod of two years or ess
as nvestments, are aowabe ony to the e tent of hs gans from
other such saes or e changes.
I. T. 2 71 (C. . II-1, 41) modfed.
dvce s requested on the foowng questons:
1. Whether stocks and bonds hed for more than two years by a
trader n securtes consttute capta assets wthn the meanng of
secton 101(c) 8 of the Revenue ct of 1932.
2. Whether a trader n securtes who hods no stocks or bonds for
nvestment purposes may, under the provsons of secton 23(r) of
the Revenue ct of 1932, be aowed osses on saes of securtes hed
for a perod of two years or ess to the e tent of gans on saes of
securtes hed for more than two years.
The pertnent provsons of the Revenue ct of 1932 read as
foows:
Sec. 23. Deductons from gross ncome.
In computng net ncome there sha be aowed as deductons:

(r) Lmtaton on stock osses.
(1) Losses from saes or e changes of stocks and bonds (as defned n sub-
secton (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 retre-
ment of hs own obgatons).

(3) Ths subsecton sha not appy to a deaer n securtes (as to stocks
and bonds acqured for resae to customers) n respect of transactons n the
ordnary course of hs busness, nor to a bank or trust company ncorporated
under the aws of the Unted States or of any State or Terrtory, nor to persons
carryng on the bankng busness (where the recept of deposts consttutes a
ma|or part of such busness) n respect of transactons n the ordnary cours9
of such bankng busness.

Sec. 101. C. rT L net rans and osses.

(c) Defntons. or the purposes of ths tte
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159 23(r), rt. 272.
(8) Capta assets means property hed by the ta payer for more than
two years (whether or not connected wth hs trade or busness), but does
not ncude stock n trade of the ta payer or other property of a knd whch
woud propery be ncuded n the nventory of the ta payer f on hand at
the cose of the ta abe year, or property hed by the ta payer prmary for
sae n the course of hs trade or busness.
s an ndcaton of the ntenton of Congress n enactng secton
23 (r) 1, supra, the foowng s quoted from the report of the Senate
nance Commttee (Report No. 5, page 18):
In ths dscusson of the mtaton on stock osses, stocks and bonds hed
by a ta payer prmary for sae n the course of hs trade or busness are
treated as stocks and bonds hed for two years or ess regardess of the tme
for whch they may have been hed.
It s apparent from the cear and unambguous anguage used
n secton 23(r), supra, that the mtaton on osses from saes or
e changes of stocks and bonds appes ony to stocks and bonds whch
are not capta assets as defned n secton 101(c)8, supra, and that
osses from saes or e changes of stocks and bonds whch are not
capta assets as defned n secton 101(c) 8, supra, are aowabe
ony to the e tent of gans from saes or e changes of stocks and
bonds whch are not capta assets as defned n the aforementoned
secton of the ct (ncudng, however, gans whch may be derved
by a ta payer from the retrement of hs own obgatons).
Secton 101(c)8, supra, e cudes from the term capta assets
as defned n that secton (property hed more than two years)
property hed by the ta payer prmary for sae n the course of
hs trade or busness. (See G. C. M. 9958, C. . -2, 158.) It s,
therefore, evdent that a stocks and bonds hed by a trader n se-
curtes prmary for sae n the course of hs busness as a trader
n securtes, regardess of the perod of tme for whch the| were
hed, do not consttute capta assets as defned n secton 101(c)8,
supra. ccordngy, under the provsons of secton 23(r), supra,
the osses of a trader n securtes from saes or e changes of stocks
and bonds hed by hm prmary for sae n the course of hs bus-
ness as a trader n securtes (regardess of the perod of tme hed),
as we as hs osses, f any, from saes or e changes of stocks and
bonds hed by hm for a perod of two years or ess as nvestments,
are aowabe ony to the e tent of hs gans from other such saes or
e changes (ncudng gans whch may be derved by the ta payer
from the retrement of hs own obgatons). In other words, such
osses of a trader n securtes (or the e cess of such osses over such
gans) are not aowabe as an offset aganst, or a deducton from,
gans from saes or e changes of capta assets as defned n sec-
ton 101(c) 8 of the ct. In short, the answer to both of the ques-
tons propounded s n the negatve.
The provson of secton 23 (r)3 that subsecton (r) of secton
23 sha not appy to a deaer n securtes (as to stocks and bonds
acqured for resae to customers) n respect of transactons n the
ordnary course of hs busness tacs suppped obvousy has
reference ony to ta payers who dea n securtes for customers
and not to ta payers who trade n securtes for ther own account.
The statement contaned n the ast paragraph of I. T. 2 71
(C. . II-1, 41) that Stocks and bonds hed over two years are
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555, rt. 421.
1 0
n a cases treated n the same manner under the Revenue ct of
1932 as n the pror ct, s hereby modfed to read as foows:
Stocks and bonds hed for over two years are treated n the same manner
under the Revenue ct of 1932 as under the pror ct, e cept that f hed
by the ta payer prmary for sae n the course of hs trade or busness,
osses from saes or e changes thereof are sub|ect to the mtaton provded
by secton 23(r), uness the ta payer s one who s specfcay e cepted by
subsecton (r) from ts appcaton. (Certan amendments, effectve anuary
1, 1983, were made of secton 23(r) (2) and (3) by secton 218 (b) and (c)
of the Natona Industra Recovery ct.)
In the genera consderaton of secton 23(r) t shoud be noted
that secton 23(r)2, whch provdes for certan carryng over nto
a succeedng ta abe year, wth mtatons, of osses dsaowed as
a deducton under secton 23(r), was repeaed, effectve as of anu-
ary 1, 1933, by secton 218(b) of the Natona Industra Recovery
ct, approved une 1 , 1933, and that secton 23(r)3 was amended,
effectve aso as of anuary 1, 1933, by secton 218(c) of the same
ct, by strkng out a anguage after the word Terrtory and
nsertng a perod.
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 333: ampes of constructve recept.
R NU CT OP 1932.
Treatment of dstrbutons made by budng and oan assoca-
ton. (See G. C. M. 155 5, page 105.)
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1032.
Commttee on grcuture and orestry, Unted States Senate,
(See T. D. 45 4, page 313.)
rtce 421: Inspecton of returns,
R NU CT O 1032.
Speca Commttee to Investgate Lobbyng ctvtes, Unted
States Senate. (See T. D. 4574, page 314.)
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1 1
103, rt. 527.
rtce 421: Inspecton of returns.
R NU CT O 1932.
Commttee on Interstate Commerce, Unted States Senate. (See
T. D. 4582, page 31 .)
rtce 421: Inspecton of returns.
R NU CT O 3032.
Reguatons governng preparaton and pubcty of wrtten dec-
sons n respect of overassessments of ncome and profts ta es
aowed n e cess of 20,000. (See T. D. 4583, page 318.)
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. C PIT L N T G INS
ND LOSS S.
rtce 501: Defnton and ustraton of capta
net gan.
R NU CT O 1932.
Stocks and bonds hed by a trader n securtes prmary for
sae. (See I. T. 2948, page 158.)
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 521: Proof of e empton.
R NU CT O 1932.
Corporaton organzed for a busness actvty. (See I. T. 290 ,
page 11 .)
rtce 521: Proof of e empton.
R NU CT O 1932.
utomobe nsurance company. (See G. C. M. 1574 , page 124.)
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1932.
Schoo, prncpa stockhoder and trustee havng power to reguate
hs own saary as nstructor. (See I. T. 2933, page 118.)
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114, rt. 11.
1 2
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1932.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1032.
Ordnary trust. (See G. C. M. 15778, page 118.)
rtce 530: Soca cubs.
R NU CT O 1932.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 113. D UST D SIS OR D T RMIN-
ING G IN OR LOSS.
rtce 05: d|usted bass for determnng gan or oss.
R NU CT O 1932.
Deprecaton aowed and aowabe. (See I. T. 2944, page 12 .)
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 11: ass for aowance of depreca- I -27-7581
ton and depeton. G. C. M. 15215
R NU CTS O 1918, 1921, 1924, 1928, 1928, ND 1932.
The deducton for dscovery depeton of a natura resource
depost aowabe to an ntercompany transferor may not be avaed
of by an ntercompany transferee n the case of a transfer of assets
between affated corporatons durng the years for whch conso-
dated ncome ta returns were fed n accordance wth the pro-
vsons of the varous Revenue cts. That porton of G. C. M.
1345 (C. . I-2, 154) hodng to the contrary Is revoked.
G. C. M. 1345 provdes n part, where affated corporatons are
requred to fe a consodated return for any year, as foows:
n ntercompany transfer of a natura resource depost, a transacton pro-
ductve of nether gan nor oss to the group nor of a new bass for com-
putng gan or oss, does not operate to destroy the dscovery vaue bass for
depeton avaabe to the transferor member for the beneft of the group. De-
peton aowance to the group n connecton wth property hed by the trans-
feree shoud be computed upon that bass whch woud have been conceded
to and recognzed n the transferor had the ntercompany transacton never
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1G3
8114, rt. 11.
been consummated. To the e tent that the Intercompany transferor woud
have been entted to depeton on the bass of dscoveres prevousy made, ds-
covery depeton shoud be aowed to the ntercompany transferee.
The queston has been rased whether the above rung s correct,
n vew of subsequent court and oard of Ta ppeas decsons.
It has been decded defntey that a ta payer s not entted as a
matter of rght to any deductons from gross ncome on account of
natura resources e tracted and sod durng a ta abe year. (Darby-
Lynde Co. v. Commssoner, 51 ed. (2d), 32, ctng cases.) u-
thorty for the depeton deducton must be found n the appcabe
statutes. ( urnet v. Thompson O ct- Gas Co., 283 U. S., 301, Ct.
D. 331, C. . -, 390.) egnnng wth the Revenue ct of 1918,
dscovery depeton has been aowed on certan natura resources
under a of the Revenue cts. The Revenue ct of 1918, sectons
214(a)10 and 234(a)9, the Revenue ct of 1921, sectons 214(a)10
and 234(a)9, and the Revenue ct of 192-4, secton 204(c), permt
dscovery depeton n the case of mnes, o and gas wes dscovered
by the ta payer. The Revenue ct of 192 , secton 204 (c), and
the Revenue ct of 1928, secton 114(b)2, mt the deducton to
mnes dscovered by the ta pa|7er. The Revenue ct of 1932, secton
114(b)2, and the Revenue ct of 1934, secton 114(b)2, mt the
deducton to mnes (other than meta, coa or suphur mnes) ds-
covered by the ta payer.
Under a of the Revenue cts cted above, the dscovery must have
occurred after ebruary 28, 1913, and a of the cts contan the
provson dscovered by the ta payer. The Revenue ct of 1924
and a ater cts provde that the term ta payer means any per-
son sub|ect to a ta mposed by ths ct. corporaton does not
cease to be such a person by affatng wth another. (Wooford
Reaty Co., Inc., v. Rose, 28 U. S., 319, 52 S. Ct., 5 8, Ct. D. 493,
C. . I-1, 154.) n affated group |onng n a consodated
return s not a ta payer. (Swft ct Co. v. The Unted States, 9
Ct. CI., 171, 38 ed. (2d), 3 5 Deaware udson Co. v. Comms-
soner, 5 ed. (2d), 292, Ct. D. 801, C. . III-1, 197, cert, dened,
54 S. Ct., 89 Sweets Co. of merca et a. v. Commssoner, 40 ed.
(2d), 43 Commssoner v. en Gnsburg Co., Inc., 54 ed. (2d),
238 Woo ford Reaty Co., Inc., v. Rose, supra.)
In nterpretng the dscovery depeton provsons of the varous
Revenue cts, the oard of Ta ppeas and the courts have hed
unformy that the deducton for dscovery depeton s avaabe
ony to the ta payer who makes the dscovery and can not be avaed
of by a transferee of the dscoveror. (Rato Mnng Corporaton
v. Commssoner, 25 . T. ., 980 Darby-Lynde Co. v. Commssoner,
20 . T. ., 522, affrmed 51 ed. (2d), 32.) In the ght of the
above authortes, t s cear that an ntercompany transfer of a
natura resource depost whch s productve of nether gan nor oss
to the corporaton, nor of a new bass for computng gan or oss,
s nevertheess a transfer of the natura resource depost from one
ta payer to another ta payer. The natura resource depost was not
dscovered by the transferee, but by the transferor. The dscovery
depeton deducton s persona to the transferor and does not become
avaabe to the transferee because the two are affated and |oned n
a consodated return. (Cf. Wooford Reaty Co., Inc., v. Rose,
supra.)
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203, rt. 971.
1 4
In vew of the foregong, that porton of G. C. M. 1345 pro-
vdng that to the e tent that the ntercompany transferor of a
natura resource depost woud have been entted to depeton on
the bass of dscoveres prevousy made dscovery depeton shoud
be aowed to the ntercompany transferee n the case of a transfer
of assets between affated corporatons effected durng years for
whch consodated ncome ta returns were fed n accordance wth
the provsons of the varous Revenue cts s revoked.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 11: ass for aowance of deprecaton and depeton.
R NU CT OP 1932.
Deprecaton aowed and aowabe. (See I. T. 2944, page 12 .)
S CTION 11 . CLUSIONS ROM GROSS
INCOM .
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1032.
Offcers and empoyees of State Compensaton Insurance und of
Caforna. (See G. C. M. 14952, page 130.)
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 95: Countres whch do or do not satsfy the
smar credt requrement.
R NU CT O 1932.
Smar credt requrement Span. (See I. T. 2901, page 138.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 971: Ta -e empt nterest and reserve funds.
R NU CT O 1932.
mendment of artces 971 and 975 of Reguatons 77. (See
T. D. 4 15, page 310.)
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1 5
322, rt. 1258.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1254: Cams for refund by ta payers. I -30-7 09
G. C. M. 15052
R NU CT O 1032.
cam for refund of eder. ncome ta propery e ecuted and
tmey fed by a mnor resdng n the State of New York s a vad
cam for refund whch may be consdered by the ureau on ts
merts.
Inqury s made whether a cam for refund whch was e ecuted by
, a mnor resdng n the State of New York, for the overpayment
by her of edera ncome ta , may be accepted by the ureau as
consttutng a vad cam and consdered on ts merts. The ta -
payer rees upon G. C. M. 51G9 (C. . II-2, 74), n whch t was
fed that the mnors there concerned, who were resdents of Cafor-
na, coud fe vad cams for refund.
In G. C. M. 51 9, supra, the queston at ssue was whether the
father of the mnor chdren there concerned was entted to fe
refund cams n ther names. It was hed that under the aws of
Caforna the father was not entted to fe such cams ether as the
natura guardan of the chdren or as ther agent, and that the
cams shoud be fed by the chdren themseves, or by a awfuy
apponted guardan of the chdren. In the present case the ony
queston at ssue s whether the cam for refund fed by a mnor
resdng n New York s a vad cam.
There s no New York statute deang wth the precse queston
here nvoved. Under the aws of the State of New York, however,
as nterpreted by ts courts, most casses of contracts of mnors are
vodabe but not vod. (.Casey v. aste, 237 N. Y., 305 142 N. .,
71 oseph v. Schatzkn et a., 259 N. Y., 241, 181 N. ., 4 4.)
Mnors have the rght to hod property, and the rue of aw that the
contracts of mnors generay are vodabe has for ts purpose the
speca safeguardng of ther property. ( oseph v. Schatzan et a.,
supra.) There s nothng n the cam for refund here under con-
sderaton to ndcate that a guardan has been apponted for the
camant (mnor).
It s the opnon of ths offce that the camant, even though she
s a mnor, may fe a vad cam for the refund of ta es pad by
her, and the cam when propery e ecuted and tmey fed may be
consdered by the ureau on ts merts.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
rtce 1258: Credtng of accounts of coectors n cases
of assessments aganst severa persons coverng same
abty.
R NU CT O 1932.
Reguatons 77 amended by addng a new artce. (See T. D.
4581, page 150.)
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1103. 1
TITL I . DMINISTR TI ND G N R L
PRO ISIONS.
S CTION 1103. LIMIT TION S ON SUITS
Y T P Y RS.
Secton 1103. I -33-7 51
Ct. D. 1001
D R L T S R IS D ST TUT S D CISION O COURT.
Suts ganst Unted Statks Procedure Under Tucker ct
Statute ok Lmtaton.
Where pettons were fed wth the court wthn the tme pre-
scrbed by secton 3220 of the Revsed Statutes (ns amended by
secton 1103 of the Revenue ct of 1032), but copes thereof were
not served on the Unted States attorney or maed to the ttorney
Genera of the Unted States and affdavts of servce were not
fed wth the court, as requred by the Tucker ct (28 U. S. C. .,
sectons 7 2 and 703), unt after the statutory perod had e pred,
the suts were barred by the statute of mtaton. The procedure
ad down by the ct must be strcty comped wth and unt a
Its requrements have been met an acton s not duy commenced.
Unted States Dstrct Court, Southern Dstrct of New York. Nos. L
59-148 and L 50 9.
achmann, mmerch f Co., Inc., pantff, v. Unted States of merca,
defendant.
une 4, 1935.
opnon.
Goddard, Dstrct udge: Motons to dsmss the petton In each of the above-
entted suts for ack of |ursdcton on the ground that the cause of acton
set forth n each s barred by the provsons of secton 3220 of the Revsed
Statutes of the Unted States as amended by secton 1103 of the Revenue ct
of 1932 (20 U. S. C. ., secton 15 ).
The actons are brought to recover ncome ta es aeged to have been Iegay
and erroneousy coected from the pantff for varous years. The coector
who coected the ta es from pantff durng the years nvoved had retred
from offce at the tme pantff s acton was nsttuted, and the actons were
brought n ths court pursuant to secton 24, subdvson 20, of the udca
Code (28 U. S. C. ., secton 41(20)).
In the frst cause of ncton L 59-148 the cams for refund were dsaowed
by the Commssoner of Interna Revenue on October 14, 1932, and notce of
dsaowance was maed to the ta payer on that date. The petton was fed
wth the cerk of the Unted States Dstrct Court, Southern Dstrct of New
York, on October 11, 1034, pursuant to the provsons of the Tucker ct (Tte
28, U. S. C. ., secton 7 2). copy thereof wth notce of fng was served
on the Unted States attorney, southern dstrct of New York, on October 17,
1934, and a copy maed to the ttorney Genera of the Unted States on October
20, 1934. n affdavt of servce on the Unted States attorney and of the
mang by regstered ma to the ttorney Genera was fed wth the cerk
of the Unted States dstrct court on October 27, 1934.
In the second cause of acton 1 59-49 the cams for refund were ds-
aowed by the Commssoner of Interna Revenue on September 15, 1932,
and notce of dsaowance was maed to the ta payer on the same date. The
petton was fed wth the cerk of the Unted States Dstrct Court. Southern
Dstrct of New York, on September 14, 1934, and a copy of the petton wth
notce of fng was served on the Unted States attorney for the southern
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1 7
1103.
dstrct of New York on October 17, 1934, and a copy was maed by regstered
ma to the ttorney Genera of the Unted States on October 2 , 1934. n
affdavt of such servce and mang was fed wth the cerk of the Unted
States dstrct court on October 27, 1934.
The contenton of the Government Is that the actons were begun after the
e praton of the two years from the date of dsaowance of the cams by the
Commssoner of Interna Revenue, and therefore not n conformance wth
secton 322 of the Revsed Statutes as amended by the Revenue ct of 1932,
whch provdes that suts for the refund of ta es pad must be commenced
wthn two years from the date of mang by regstered ma by the Com-
mssoner of Interna Revenue to the ta payer of dsaowance of the cam
for refund.
The queston to be determned s when are actons, such as these, deemed
to be begun. If begun by the fng of a verfed petton wth the cerk of ths
court pursuant to secton 7 2 of 28 U. S. C. ., tte motons to dsmss shoud
be dened. ut f an acton under the above provsons s not begun unt servce
of the petton on the Unted States attorney and after mang to the ttorney
Genera, then more than two years woud have e pred and the actons are
barred and the Government s motons must be granted.
The procedure for suts aganst the Unted States under secton 24, subdvson
20, s reguated by the Tucker ct (28 U. S. C. ., sectons 7 2, 7C3). Secton
7 2 requres the fng of a petton contanng certan aegatons wth the
cerk of the dstrct court. Secton 7 3 provdes:
The pantff sha cause a copy of hs petton fed under secton 7 2 of
ths tte, to be served upon the dstrct attorney of the Unted States n the
dstrct wheren sut s brought, and sha ma a copy of the same, by reg-
stered etter, to the ttorney Genera of the Unted States, and sha thereupon
cause to be fed wth the cerk of the court wheren sut Is nsttuted an affdavt
of such servce nnd the mang of such etter.
Ths procedure must be comped wth strcty (Red Wreckng Co. v. Unted
States, 202 ed., 314), and a Its requrements must be met before the com-
mencement of the acton can be effected.
In a sut aganst the Unted States under sectons 7 2 and 7 3 the fng of
the petton and notce to the Unted States and the mang to the ttorney
Genera were not made unt after two years, t was hed that the tme mtaton
had e pred and the acton was barred. (Creasy v. Unted States, 4 ed. Supp.,
175.)
In Red Wreckng Co. v. Unted States (202 ed., 314), referrng to the pro-
cedure for commencement of a sut under the Tucker ct, t was stated
The servce must be by causng a copy of the petton fed n the
cause to be served upon the dstrct attorney of the dstrct where the sut s
brought, mang a copy of the same by regstered etter to the ttorney Genera
of the Unted States, and thereafter causng to be fed wth the cerk of the
court wheren the sut s nsttuted an affdavt of such servce and the mang
of such etter.
I thnk that the pan nference of secton 7 3 Is that unt ts requrements
have been comped wth, the sut s not duy commenced, and t foows that If
ths s not done wthn the 2-year perod, the pantff Is out of court. Ths
Interpretaton of secton 7 3 s n ne wth the vews e pressed n severa cases.
(See Creasy v. Unted States, 4 ed. Supp., 175 Natona Casket Co. v. Unted
States, 2 0 ed., 240 CassareUo v. Unted States, 2 5 ed., 32 Mc esson t
Robbns, Inc., v. dwards ct a., unreported opnon of udge Mack, Southern
Dstrct, New York, March 21, 1929, L 42-121.)
It s true that n the case of M Creek tt Mneh Sav. R. Co. v. Unted
States (24 ed., 1013, . D. Pa.), t was hed that sut was commenced on the
Issuance of the summons, but t seems to me ths s contrary to the provsons of
the Tucker ct and that the weght of authorty s the other way.
In Red v. Unted States (211 U. S., 529, at page 538), t was sad
Suts aganst the Unted States can be mantaned, of course, ony by per-
msson of the Unted States, and n the manner and subect to the restrctons
that t may see ft to mpose.
ccordngy, as t appears that n each of the cases at bar the pantff has
faed to commence sut wthn the perod prescrbed by the statute, I am con-
straned to grant the motons to dsmss. Motons grnnted.
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522(a), rt. 51. 1 8
INCOM T RULINGS. P RT III,
R NU CT O 1928.
SU TITL . G N R L PRO ISIONS.
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 51: What ncuded n gross ncome. I -34-7 2
Ct. D. 1003
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Communty Property greement etween usband
and Wfe.
greements entered nto between a husband and wfe, vng
separatey n Caforna, whch provded for the transfer of certan
property from the husband to the wfe and for the future support
and mantenance of the wfe and mnor chdren, but made no
reference, drecty or ndrecty, to the future earnngs of husband
and wfe, dd not termnate the nterest of the wfe n the com-
munty property, and one-haf of the saary of the husband for
the year 1929 was sub|ect to ta as her Income.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 1 ) affrmed.
Unted States Crcut Court of ppeas for the Nnth Crcut.
dna Smart Sherman, pettoner, v. Commssoner of Interna Revenue,
respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur, Garrecht, and Denman, Crcut udges.
pr 8, 1935.
OPINION.
Wbur, Crcut udge: Pettoner seeks to revew the acton of the oard
of Tu ppeas confrmng a defcency etter of the Commssoner for the)
year 1029 for the sum of 7,243.90. The soe queston nvoved n the appea
s whether or not one-haf of the saary of the husband for the year 1929
shoud e assessed to the wfe. Ths woud be n accordance wth the aw
of Caforna (Unted States v. Macom, 282 U. S., 793, 104-a, Ca. Cv. Code
Ca. Stnt. 1927, page 484), uness the reatons were atered by contract ( e-
verng v. ckman, 70 . (2d). 9S5 Ct. D. 8 , C. . III-2, 274 ).
The contenton of the pettoner s based upon a wrtten property agree-
ment entered nto between husband and wfe on May 12, 1920, at whch tme
they separated. Ths agreement was modfed by one of ebruary 11, 1927.
These agreements dd not e pressy provde for the separaton nor dd they
make any reference to the future earnngs of the husband or wfe. The
agreement rectes the fact that the partes are husband and wfe and had
three mnor chdren, and that the husband desres to nsure the future
support and mantenance of hs wfe and chdren. In pursuance thereof the
husband transfers to hs wfe certan property descrbed n the agreement
and further agrees that he w pay the wfe 1,000 per month for the
support and mantenance of hersef and chdren. The agreement aso pro-
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1 9
22(a), rt. 1.
Tdes that n the event the wfe shoud remarry the monthy payment of
1,000 shoud be reduced to an amount suffcent and adequate for the support,
mantenance, and educaton of the chdren. The suppementary agreement
of ebruary 11, 1027, referred to the agreement of May 12, 192 , and made
certan dfferent and addtona provsons n regard to the property assgned by
the husband to the wfe.
The pettoner testfed that when she entered Into the two agreements
wth her husband she ntended thereby to make a compete dvson of her
property rghts wth her husband termnatng her communty nterest n any
property then e stng, and In the husband s earnngs and saary thereafter.
It was stpuated that the husband woud testfy to the same effect. The
ntenton of the partes to a wrtten agreement must be determned from Us
terms. Testmony that they Intended by t to cover a sub|ect not ncuded
theren must be dsregarded. The testmony does not show or purport to show
that any agreement other than the wrtten one was entered nto between
husband and wfe. There s nothng n the agreement whch drecty or n-
drecty deas wth the sub|ect of the future earnngs of ether husband or
wfe. In the absence of such agreement the aw f es the rghts of the partes
wth reaton thereto. earng In mnd that the wfe has an Immedate vested
Interest n one-haf the earnngs of the husband n the absence of any con-
veyance or agreement by her transferrng that rght to the husband, It woud
be retaned by her and be sub|ect to ta as her ncome.
Pettoner rees upon two decsons of the oard of Ta ppeas whch
she cams are nconsstent wth ther decson n the case at bar dth
Page Skeces-Co v. Commssoner (27 . T. ., 1C7) : Grant v. Commssoner
(29 . T. ., 7 0). These decsons are not nconsstent wth the concuson
of the oard n the case at bar nor wth our concuson because they are based
upon the terms of a contract deang wth future earnngs and property sub-
sequenty acqured by the spouses.
Order affrmed.
rtce 51: What ncuded n gross ncome. T -45-7783
Ct. D. 1028
INCOM T R NU CT O 1928 D CISION O COURT.
1. Income Partnershp Contract wth Corporaton to Receve
Partnershp arnngs.
Where a corporaton on the accrua bass contracted to advance
cash and securtes to a partnershp, agreeng to assume a e -
penses and possbe osses, and In return therefor was to receve
a the partnershp profts after deductng e penses, saares of
the partners, and a percentage of profts to be pad to the estate
of a deceased partner n a pror partnershp, the amounts shown
on the returns of the corporaton for 1928 and 1929 as ts dstrbu-
tee share of the partnershp earnngs consttuted ncome earned
under the contract and were propery ta ed to the corporaton.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 988) affrmed.
Unted States Crcut Court of ppeas, ghth Crcut.
Wam C. ordyce and ndrew W. ohnson, a Statutory Lqudatng Trustees
of nco Investment Co., a former Corporaton, pettoners, v. Ouy T. e-
wrng, Commssoner of Interna Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Stone, Woodrough, and ooth, Crcut udges.
uy 1, 1935.
OPINION.
Woodrough, Crcut udge, devered the opnon of the court.
Ths Is an appea from a decson of the oard of Ta ppeas (30 . T. .,
C88) Invovng the corporate ncome ta es of the nco Investment Co. for the
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22(a), rt. 51.
170
years 1028 and 1929. The facts were stpuated and those matera to a sou-
ton of the queston are presented.
On May 1, 1924, Lorenzo . nderson, rthur C. mer and Over .
nderson entered nto an agreement of copartnershp under the frm name of
Lorenzo . nderson Co., whch provded among other thngs that n the event
of the death of Lorenzo . nderson and the contnuance of the busness of
that frm by the survvng partners or ether of them, 25 per cent of the net
profts of the busness of the successor frm by that name shoud be pad to the
estate of Lorenzo . nderson for a perod of three years after hs death.
On une 22, 1925, Lorenzo . nderson ded. On uy 1, 1925, Over .
nderson and rthur C. mer, together wth two other persons, formed a
new partnershp under the name of Lorenzo . nderson Co., renewng the
agreement provdng that 25 per cent of the net profts of the busness for a
perod of three years shoud be pad to the estate of Lorenzo . nderson,
before any dvson of partnershp ncome shoud be made among the partners.
s of May 31, 1927, mer purchased the nterests of the other partners n
the frm and the assets of Lorenzo . nderson Co. To enabe hm to carry
out ths purchase he obtaned oans or advances from nne persons n the
tota amount of 470,000, whch he pad out to the retrng partners. y the
same contract mer agreed to assume and carry out the obgaton to the
nderson estate.
On une 20, 1927, mer and Wam C. ordyce, who had advanced 100,000
of the 470,000, formed a copartnershp under the od frm name of Lorenzo
. nderson Co. In December, 1927, the nco Investment Co. was ncor-
porated under the aws of the State of Mssour, and mer, Its promoter,
caused ts stock to be ssued to hmsef. e retaned one-haf of t and ds-
trbuted the remander pro rata among those who had advanced the 470,000,
accordng to the sum furnshed by each one.
mer and ordyce entered Into a new agreement of copartnershp on anu-
ary 2, 1928, and on the same date an agreement was entered nto by and
between nco Investment Co., as party of the second part, and Lorenzo .
nderson Co., as party of the frst part, whch contaned the foowng
provson:
rst: Party of the second part ( nco Investment Co.) agrees to advance
to the party of the frst part (Lorenzo . nderson Co.) cash and securtes
as requred by the party of the frst part for a purposes of the busness to be
conducted by the party of the frst part for the party of the second part, It
beng understood that the party of the second part sha bear a e penses
and ksses connected wth sad busness and sha receve a profts derved
therefrom after deductng sad e penses, ncudng saares to e f ed by the
board of drectors of the party of the second part, but nothng heren sha be
taken as makng sad corporaton or any of Its sharehoders, other than those
who have personay sgned the artces of copartnershp of Lorenzo . nder-
son Co., partners n sad frm of Lorenzo . nderson Co.
The frm of Lorenzo . nderson Co. was engaged n the genera stock,
bond and commodty brokerage busness and the partners were members of
the prncpa stock and commodty e changes, ncudng the New York Stock
change. The partnershp had ts prncpa offces n St Lous, Mo., wth
branches n San ntono and Daas, and transacted a of Its busness n ts
own name. of ts operatons were refected on the partnershp books.
The net profts therefrom, wth the e cepton of the amounts pad to the estate
of Lorenzo . nderson, deceased, were credted to the account of rthur C.
mer, gent, Capta ccount, whch account when so credted represented
the entre net worth of the partnershp. Wth the e cepton of the amounts
so pad to the estate, the tota profts of the partnershp were then set up on
the books of the nco Investment Co. under an account entted rthur
C. mer, gent The nco Investment Co. had no Income from any other
source.
The partnershp made an ncome ta return for Its fsca year endng May
31, 1928, n whch t showed a tota ncome of 252,541.0 . Under the headng
Partners share of ncome and credts It showed the foowng dstrbuton:
to rthur C. mer, gent for nco Investment Co., 18 ,929.09. 25 per cent
of the net ncome pad to the estate of Lorenzo . nderson, deceased, 50,-
011.97, rthur C. mer, 15,000.
or the fsca year 1929 the partnershp returned a tota Income of 494,929.0
and refected the foowng dstrbuton thereof under the tte Partners share
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522(a), rt. 51.
of Income and credts : to rthur C. mer, gent for neo Investment Co.,
454,34 .14, and state of Lorenzo . nderson, deceased, 40,582.02.
The nco Investment Co. made ts returns on the accrua bass and for the
caendar years 1928 and 1029 reported as ta abe Income the amounts shown
above as ts dstrbutve share of the earnngs.
On audt of these returns the Commssoner hed that the entre ncome
of the partnershp, wthout reducton on account of the amount pad to the
estate of Lorenzo . nderson, was ncome of the nco Investment Co. and
assessed a defcency on that bass.
Upon appea to the oard of Ta ppeas the nco Investment Co. ob|ected
to the assessment aganst t of any of the ncome whch t had receved or
became entted to receve from the partnershp on the ground that the partners
of Lorenzo . nderson Co. were the persons who shoud be ta ed and t
prayed that the oard of Ta ppeas redetermne ts correct ta abty
and order a refund. The oard hed that the nco Investment Co. was ta abe
as to the amounts t had receved or had the rght to receve under Its
contract wth the partnershp, but that the ncuson of that part of the Income
whch had been pad to the nderson estate was erroneous.
The pettoners are the statutory qudatng trustees of the nco company.
The Commssoner has not fed a cross-appea and the ony queston presented s
whether the nco Investment Co. was ta abe on the amounts t returned as
havng accrued to It n 1028 and 1929 under ts contract wth the partnershp,
Lorenzo . nderson Co.
To smpfy the ssue and to estabsh the premse upon whch the souton
utmatey depends, certan saent facts must be made to appear n ther proper
perspectve. The ta payer, nco Investment Co., was a corporaton and as such
It represented that t earned certan ncome durng the years 1928 and 1020 for
whch t made return and pad the ta . It was a ega entty operatng for the
beneft of ts stockhoders, and our concern here s soey wth the corporaton
and whether or not t was abe for the ta t reported and pad. Ths s not
a case n whch we are asked to dsregard some corporate entty n order to
|ustfy a ta where an attempt to avod a ta has been made by resort to the
fcton of corporate e stence. Nether are we here concerned wth any ta
abty that may e st aganst the ndvdua partners of Lorenzo . nderson
Co. It coud not change the rung here even If t shoud be made to appear,
as strenuousy urged by pettoners, that the Government coud have pursued the
ndvduas as partners and mght have sub|ected them n that capacty to an
addtona ta whch s now barred by the statute. That we need not decde.
Though, n vew of the fact that the ndvdua partners kept none of the money
but suffered t a to go to the corporaton, such an assessment woud have ap-
peared harsh. The reatonshp of the ndvduas as partners s pertnent to
ths case ony n so far as It hears upon the queston of what consttutes n-
come to the nco Investment Co. The ssue shoud not be confused by co-
atera Inqures havng no bearng upon ts souton. We are to consder ony
the substance of transactons on account of whch the ta payer, a corporaton,
represented that It derved Income and upon whch It vountary pad the ta .
If, on consderaton of the transactons, It appears that the amounts whch
accrued to t durng the ta abe years In queston consttuted Income to t,
there s an end to the nqury.
or ta purposes Income has been defned as gan derved from capta, from
abor, or from both combned, ncudng proft ganed through sae or converson
of capta. ( ocers v. erbaugh mpre Co., 271 . S., 170. 174 T. D. 3881,
C. . -, 109 Stratton Independence, v. owbert, 231 U. S., 399, 415 sner
v. acomber, 252 U. S., 189, 207 T. D. 3010, C. . 3, 251 Unted State v. ege
(C. O. . 8), 52 ed. (2d), 3 Ct. D. 430, C. . -2, 321 .)
The amounts whch the ta payer, n ths case, represented consttuted ta -
abe gans to t were sums whch t receved or was entted to receve by vrtue
of Its contract wth Lorenzo . nderson Co. That t was competent, for
t to enter nto such a contract wth the partnershp wthout becomng ether
a partner or an agent In the enterprse can not be doubted. (London ssur. Co.
v. Drcnnen, 110 U. S., 4 1 etna re Insurance Co. v. urray (C. C. . 10),
ed. (2d), 289.) The contract, the reevant porton of whch has been
set out, supra, mposed defnte obgatons upon the nco Investment Co. Its
stockhoders had theretofore made very arge advancements and. by the terms
of ths contract, the corporaton agreed to advance cash and securtes for a
the needs of the partnershp s brokerage busness. It assumed the e penses of
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22(a), rt. 8.
172
operaton and the possbty of osses. In consderaton t was to receve a
the profts, f any, after deducton of e penses, ncudng the saares of offcers.
or the years n queston the operaton of the partnershp s busness acheved
substanta profts. These profts, after deducton of e penses, saares and the
porton thereof payabe to the nderson estate, were taken upon the books of
the nco Investment Co. under an account entted rthur C. Iraer, gent.
No record of dsbursement appears, but If t be matera, such funds were, ac-
cordng to the Inw of corporatons, dstrbutabe to the stockhoders for whose
beneft t was organzed and operated, accordng to ther respectve nterests.
In ther ndvdua returns the partners reported ony ther saares as ncome.
y fung to report as Income any share n the partnershp s earnngs each, n
effect, decared that no such ncome had been receved. ( othce v. Comms-
soner (C. C. . 10), 77 ed. (2d), 35 Crane v. Commssoner (C. C. . 5),
C8 ed. (2d), 40, 41 Ct D. 852, C. . III-2, 247 .)
Nor does the record dscose that the partners ever receved or were entted
to receve these amounts as ther dstrbutve shares n the partnershp profts.
Rather t supports the concuson that the contract was carred out as a of the
partes contempated and ntended.
ow then can t be sad that the nco Investment Co. dd not receve, by
vrtue of ts contract, sums whch were ta abe to t as Income No conten-
ton Is made that the amounts do not come wthn the defnton of ta abe
Income. Such Income became defntey recevabe durng the years n ques-
ton and under the accrua system of accountng was ta abe In those years.
( urnet v. Sanford rooks, 282 U. S., 53, 59 Ct. D. 277, C. . -, 3 3
Unted States v. nderson, 2 9 U. S., 422 T. D. 3839, C. . -, 179 Tayor
v. Commssoner (C. C. . 8), 51 ed. (2d), 915 Ct. D. 459, 0. . I-1, 219 .)
The pettoners contend, however, that nasmuch as Income s ta abe to and
must be pad by the earner (Lucas v. ar, 281 U. S., I urnet v. Lennger,
285 U. S., 13 an Meter Co. v. Commssoner (C. C. . 8), 1 ed. (2d), 817
Ct. D. 75, C. . II-1, 207 ), the Indvdua partners of Lorenzo . nder-
son Co. are the earners and the ony ones ta abe as such. The prncpe s
we estabshed but t does not operate to reeve ths ta payer. The partner-
shp earned Its ncome through ts operatons n the brokerage busness. The
nco Investment Co. earned ts ncome through ts contract wth such partner-
shp. rauduent pretense absent, the Government accepts the ta payer as It
represents tsef to be, and t must make ts returns and pay ts ta es accord-
ngy. (Saenger v. Commssoner (C. C. . 5), 9 ed. (2d), 31: Panters
Cotton O Co. v. opkns (C. C. . 5), 53 ed. (2d), 825 Ct. D. 492, C. . I-1,
153 .) nd there s no suggeston that n makng ts returns the company
was actuated by frauduent motves.
In each of the foowng cases cted by pettoners (Saenger v. Commssoner,
supra Lucas v. ar, supra Peterson v. Commssoner, 27 . T. ., 1009
umentha v. Commssoner (C. C. . 2), 0 ed. (2d), 715 Parker v. Rout-
aahn (C. C. . ), 5 ed. (2d), 730 Ct. D. 489. C. . I-1, 25 : shop v.
Commssoner (C. C. . 7), 54 ed. (2d), 298 Ct. D. 477, C. . I-1, 1 4
Luce v. urnet ( pp. D. C), 55 ed. (2d), 751 arrs v. Commssoner (C. C.
. 2), 39 ed. (2d), 45 Mtche v. owers (C. C. . 2), 15 ed. (2d), 287
T. D. 3982, C. . I-1, 244 ), the rght to ta to the assgnor, as earner, the
part of the ncome assgned by hm to another has been sustaned. In vew of
what has been sad, these decsons do not affect the concuson that the nco
Investment Co. earned the Income nvoved and was propery sub|ect to ta .
The decson of the oard of Ta ppeas s affrmed.
rtce 8: Sae and retrement by corpora- I -27-7582
ton of ts bonds. Ct. D. 98
INCOM T R NU CT O 1028 D CISION O COURT.
1. Income Purchase and Retrement or onds.
Where a corporaton purchased certan of ts bonds In 1928 at
ess than the ssung prce and hed them In ts treasury unt the
foowng year, when they were canceed, the e cess of the ssung
prce over the purchase prce consttuted ta abe ncome for the
year 1928, n the absence of evdence of a cear ntenton to keep
the bonds ave for nvestment.
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1522(a), rt. 8.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 318) affrmed.
Unted States Coubt of ppeas fob the Dstrct of Co/dmha.
Garand Coa Mnng Co., pettoner, v. ny T. cv rny, Commssoner of
Interna Revenue, respondent.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, tz, and Grower,
ssocate ustces.
anuary 14, 1935.
OPINION.
Groner, udge: Pettoner s a Deaware corporaton. In 192 t ssued
175,000 of bonds secured by a mortgage upon ts propertes ocated n rkan-
sas and Okahoma. The entre Issue was sod at par. part of the bonds
were desgnated and a part bonds.
On nnuary 1, 1928, 0,000 of bonds and 100000 of bonds were out-
standng. Durng that year pettoner acqured 100,000 prncpa amount of
bonds by purchase at a cost of 47,039.80. The bonds were a acqured
n one transacton and the purchase prce was a ump sum for the ot. The
pettoner hed these bonds n Its treasury throughout 1928. In ebruary,
1929, pettoner devered the bonds to the trustee for canceaton. Smutane-
ousy, the bonds were pad off at par. Pettoner dd not n Its 1928 return
report the dfference between the ssung prce and the redempton prce of
the bonds as ta abe Income. The Commssoner ncuded t. The oard
of Ta ppeas approved the Commssoner s acton, and ths appea was taken.
The snge queston we have to decde s, whether a corporaton whch has
purchased ts own bonds at a prce ess than the amount at whch they wore
sod, and thereafter hed them In Its treasury unt the foowng year, reazed
ta abe ncome n the year of purchase. In the case of Unted State, v. rby
Lumber Co. (284 U. S., 1 Ct. D. 420, C. . -2, 35 ) the Supreme Court hed
that gan hence Income resuted where a corporaton purchased and retred
some of ts own bonds for ess than the amount receved for them when ssued.
Te decson approved a reguaton of the Treasury Department as foows:
If, however, the corporaton purchases and retres any of such bonds at a
prce ess than the Issung prce or face vaue, the e cess of the ssung prce
or face vaue over the purchase prce Is gan or ncome for the ta abe year.
( rtce 545(1) (c) of Reguatons 2, Revenue ct, 1921.) The same regua-
ton was n effect when the return n the nstant case was made, and the
argument here s based upon the anguage of ths reguaton. Pettoner cas
our attenton to the fact that t provdes that the bonds sha be both purchased
and retred n order that the reguaton sha be effectve. ere, we are tod,
the bonds were purchased n 1928, but were not retred unt 1929, and conse-
quenty, pettoner says, no gan resuted unt the atter year. ut even f we
concede as correct the bass of the argument, the facts do not sustan the con-
euson, for here the record dscoses that In ts baance sheet fed wth ts
1928 return, pettoner subtracted 100,000 from ts prevous bonded abty,
showng as of the end of the ta abe year under the tem Long-term debt
ony the then outstandng bonds. Ths we thnk tends to show that the ob|ect
of the purchase was to retre the bonds, and ths nference s not weakened by
the further statement that the bonds were then retaned In pettoner s treasury.
Undoubtedy a corporaton may purchase ts own bonds as an Investment and
ressue them, but n such a case the ntenton to keep the ndebtedness ave
must be ceary shown, for the genera rue s that where an ndebtedness s
n fact pad the evdences of t can not be ressued for a new or dfferent debt.
The test n such cases s the ntenton of the partes at the tme of the trans-
acton. Ordnary the rue s that payment by one prmary abe on a
note or bond e tngushes the obgaton thereof, rrespectve of hs ntenton
to the contrary but In ths case whether there was a payment or merey a
transfer of the bonds s the e act queston n ssue. Ths, we thnk, depends
upon the ntenton of the partes. (Ia udnq Corporaton v. dwards, 142
a., 209, 128 S. ., 521 etchum v. Duncan, 9 U. S., 59, 24 L. d., 8 8.)
( rgna Securtes Co. . Patrck Orchards, 20 . (2d), 78. nd see aso ones
on Corporate onds and Mortgages, 3d ed., secton 325.)
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174
nd so, In ths case the queston s, the ntenton of pettoner when t re-
deemed ts bonds. nd ths, from a that appears, was ceary, as we thnk, to
pay the bonds and retre them, for that s actuay what dd happen, and there
s not a word of evdence to show a dfferent or contrary ntenton at any other
tme. The fact that the Intenton was aso to postpone actua surrender and
canceaton to a subsequent year, rather than the year of the purchase, does
not affect the queston nor keep the bonds ave. In short, f the acquston
of the bonds from the hoder was for the purpose of payng the debt, there coud
not at the same tme be an ntenton to keep the debt ave, and wthout that
ntenton the transacton was a competed one and the bonds, even though hed
n the treasury, were not sub|ect to ressue, and were as much retred as f
they were uctuay surrendered and marked canceed. In that vew t s
not necessary to consder whether the Commssoner s reguaton, approved n
the rby case, was as far-reachng as pettoner contends, because, as we have
seen, the ntenton to cance the bonds, as n fact was done at the begnnng of
the new year, woud brng the transacton wthn the e act terms of the
reguaton.
ut we thnk t at east doubtfu whether the Commssoner s reguaton
shoud he construed as pettoner woud construe t. To say, as the reguaton
does say, that when bonds are purchased and retred at ess than the seng
prce, the e cess ts ncome, Is by no means to say that when they are purchased,
but not retred, t s not ncome and f the reguaton must be so construed,
the queston whether t voates the terms of the statute (Revenue ct, 1028, ch.
852, secton 22(n)) woud at east be arguabe, but we have no need to pass
upon that queston here. nough appears to convnce us beyond any reasonabe
doubt that when pettoner purchased the 100,000 of bonds, t purchased them
for canceaton and retrement nnd not for the purpose of keepng them ave
for ressue, and the mere fact that t hed them n Its treasury unt the com-
mencement of the ne t year does not, n the absence of evdence of a cear
Intenton to hod them for nvestment, mtate aganst ths concuson. In ths
vew, the Commssoner and the oard were correct.
ffrmed.
rtce 8: Sae and retrement by corporaton of
ts bonds.
R NU CT OP 1928.
Unamortzed dscount on bonds retred, premums pad upon re-
trement, and ssuance e penses connected therewth. (See T. D.
4 03, page 507.)
S CTION 22(c). GROSS INCOM :
IN NTORI S.
rtce 105: Inventores by deaers n I -44-77 9
securtes. Ct. D. 1025
INCOM T R NU CT OP 102S D CISION O COURT.
1. Gross Income oor Tradke Deaeb n Securtes Inven-
tores.
trader on the foor of the New York Stock change who was
assocated wth, but not a member of, a brokerage frm, and who
aso dd busness on hs own account, buyng and seng for hm-
sef on margn, s not a deaer n securtes wthn the moanng
of artce 105, Reguatons 74, promugated pursuant to secton
22(c) of the Revenue ct of 1028, and therefore s not entted to
the use of Inventores n determnng ncome.
2. stoppe,
The fact that the Commssoner had from 1924 to 1928 permtted
the computaton of Income upon an erroneous bass does not estop
hm from ater correctng hs error.
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175 22(c), rt. 105.
Unted States Chcvt Court of ppeas fob the Second Cracurr.
Nathane S. Seeey, appeant, v. Guy T. everng, Commssoner of Interna
Revenue, appeee.
Petton to revew an order of the oard of Ta ppeas f ng a defcency In the ta -
payer s Income ta for the year 1920.
efore Manton, L. and, and Chase, Crcut udges.
May , 1935.
OPINION.
L. and, Crcut udge: Ths appea rases the queston of a ta payer s
power to have hs ncome ta for the year 1929 computed by the use of nven-
tores under secton 22(c) of the Revenue ct of 1928. e was a stock broker
n New York Cty, assocated wth, but not a member of, a frm, some of whose
orders he e ecuted on the foor of the e change but he aso dd busness
upon hs own account, buyng and seng for hmsef on margn. e was, as
we understand t, what s commony known as a foor trader, and he had no
persona customers. In makng hs return he camed the rght to compute
hs ncome by subtractng from the sum of hs Inventory at the begnnng of
the year pus hs purchases durng the year, the sum of hs nventory at the
end of the year, pus hs saes durng the year. Ths both the Commssoner
and the oard refused to aow, and the ta payer appeaed.
Secton 22(c) of 1928 eaves atogether to the dscreton of the Comms-
soner the queston of when nventores may be used, and the reguatons
promugated under It have the force of aw. ( nance Guaranty Co. v.
Commssoner, 50 ed. (2d), 10 1 (C. C. . 4) Ct. D. 418, C. . -2, 331 .)
rtce 105, Reguatons 74, aows a deaer n securtes to use nventores
and defnes that phrase as foows: deaer In securtes Is a merchant of
securtes wth an estabshed pace of busness, reguary engaged n
the purchase of securtes and ther resae to customers that s, one who as
a merchant buys securtes and ses them to customers wth a vew to the
gans and profts that may be derved. Ta payers who buy and se
or hod securtes for nvestment or specuaton and not In te course of an
estabshed busness are not deaers n securtes. Seeey dd not
buy securtes and rese them to customers, as dd the ta payers for nstance
n In Re a (29 . T. ., 1255). So far as he acted for the frm wth whch
he was assocated, he was merey a broker when he bought, he dd not buy
for hmsef but for the frm s customers when he sod, e dd not se to those
customers, but for them. merchant s not a broker nor a broker a merchant.
So far as he traded n securtes on hs own account, hs snes were on the
e change to persons whom he dd not even know these were not hs customers,
but customers of the brokers who bought of hm. Probaby on occason he
sod to other traders, actng, ke hm, for themseves, but they woud have
been amazed to hear that they were hs customers. rtce 105 meant by a
merchant a deaer who bought securtes for hmsef and sod them to n-
vestors who mght or mght not rey upon hs advce. Whe the securty
busness s usuay conducted by brokers who act ony as agents, such mer-
chants are by no menus unknown they do a busness e acty ke any other
merchant. esdes, a merchant, ordnary at east, does not rese to the
same cass of persons from whom he buys he s a mddeman n dstrbutng
the goods. Seeey was a specuator. Were t not for the concudng sentence
of te artce, we shoud have thought the meanng too pan for dscusson.
The uncertanty arses from the fact that not ony must a merchant se to
customers, but he must have an estabshed pace of busness. We shoud
have therefore e pected the ast sentence, whch was redundant anyway, to read:
Ta payers who buy and se or hod securtes for nvestment or specuaton,
or not n the course of an estabshed busness. nd, n pace of or,
suggests that those who buy and se or hod n the course of an estabshed bus-
ness mght be deaers. ut though ths may throw a fant shadow across
the earer words, t can not obscure them. foor trader woud ndeed be
qute naturay descrbed as a deaer n securtes, but nobody woud thnk
of cang hm a merchant wth customers. The ntent Is cear at the
outset, and t s much more reasonabe to substtute the ds|unctve tnn to
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22(c), rt. 105.
17
seze on such a frage Inference to make the whoe artce equvoca, f not
Incomprehensbe. Our own decson n arrman Natona ank v. Comms-
soner (43 ed. (2d), 000), whch appears to be the ony one n the courts, does
not touch the queston.
One other queston remans. Seeey had aways made up hs returns upon the
same theory, begnnng n 1924, and the Commssoner had aways passed them.
e argues that ths acquescence shoud contro the year 1929. We do not
understand that ths s put forward as more than a make-weght n nterpreta-
ton as such, It s certany not enough. Whatever the Commssoner may have
thought before, the artce Is much too cear for us to yed to hs constructon
of t. So far as the argument asserts that, havng passed the earer returns,
the Commssoner n some way dsabed hmsef from ater correctng hs error,
t s so pany unsound as to need no dscusson. (Sweets Co. v. Commssoner,
40 ed. (2d), 43 (C. C. . 2) ohn M. Parker Co. v. Commssoner, 49 ed.
(2d), 254 (C. C. . 5) Ct. D. 399, C. . -2, 388 onwt Teer d Co. v.
Commssoner, 53 ed. (2d). 381 (C. C. . 2).)
Order affrmed.
rtce 105: Inventores by deaers n I 1 -7798
securtes. Ct. D. 1031
ncome ta revenue act of 1028 decson op court.
Gboss Income Sae of onds Deaer n Securtes Deduc-
ton fob stmated Shrnkage n aue.
Where a ta payer n 1929 and 1930 bought for resae certan
mortgage bonds ssued to fnance the budng of a hote on hs
property, nnd n the atter year mantaned an offce for the pur-
pose of seng the bonds, gvng up hs former busness to devote
practcay a of hs tme to ther sae, and empoyng a saesman
for that purpose, he s not a deaer n securtes wthn the
meanng of artce 105, Reguatons 74, nnd secton 22(c) of the
Revenue ct of 1928, and therefore s not entted to deduct the
estmated shrnkage n the market vaue of bonds unsod, n de-
termnng ncome for 1930.
Unted States Crcut Court of ppeas for the Thrd Crcut.
erks County Trust Co. (formery Coona Trust Co. of Readng, Pa.), Ray-
mond Sharp and orence S. rkpatrck, ecutors of the state of Wam
. Sharp, Deceased, pettoners, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffnoton, Wooey, and Thompson, Crcut udges.
une 19, 1935.
opnon.
uffngton, . : The cruca queston n ths ncome ta case s whether
the decedent, of whom the appeant s e ecutor, was a deaer In securtes and
as such entted to a reducton n hs ncome. The Commssoner hed he was
not and the oard of Ta ppeas sustaned the Commssoner. Thereupon
the e ecutors took ths appea.
rom the proofs It appears that on September 28, 1928, the decedent, Wam
. Sharp, and one Robert . Meyer, entered nto a contract for the organzaton
of a corporaton whch was to bud a hote on a property of the decedent, whch
he agreed to se to the corporaton for 435,000. It was to have a captazaton
of 2,000 shares of per cent preferred stock of the par vaue of 100 and 2.000
shares of no par vaue. The decedent subscrbed for 1,000 shares of the pre-
ferred stock and Meyer for an equa amount. The hote was to cost appro -
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177
23(a), rt. 12 .
matey 1,900,000 and t was agreed that a frst mortgage of 900,000 and a
second mortgage of 800,000 shoud be paced thereon. Ths was done. The
decedent and Meyer each bought 200,000 of the second mortgage bonds, the
decedent buyng hs as an nvestment. Ths ot of bonds s not here nvoved.
In ther contract Meyer and the decedent agreed to se or cause to be sod, or,
f they coud not se, they agreed to buy, the baance of the second mortgage
bonds amountng to 400,000. The decedent was unabe to se a of the 400,000
second mortgage bonds as soon as he agreed to do so and, pursuant to the con-
tract, bought the unsod porton of sad bonds, a part of them n 1929 and the
baance n 1930. These bonds were bought by hm soey for the purpose of sae
and not as an nvestment. Durng the year 1930 the decedent mantaned an
offce for the purpose of seng sad second mortgage bonds and durng that year
he devoted at east 90 per cent of hs own tme n that effort. Pror thereto
he had been engaged n another busness, whch he gave up for the purpose of
dsposng of the bonds. e empoyed a saesman, whom he pad personay and
who devoted a of hs tme to the sae of the bonds. The decedent sod 45,000
of the bonds durng 1930. In hs return for that year he deducted 40, 50 as an
aeged dfference between the market vaue of sad bonds as of anuary 1, 1930,
and the market vaue thereof on December 31, 1930, on the theory that he was a
deaer n securtes wthn the meanng of artce 105 of Reguaton 74 and sec-
ton 22(c) of the Revenue ct of 1928. Ths reguaton provdes:
deaer n securtes s a merchant of securtes wth an estab-
shed pace of busness reguary engaged n the purchase of securtes and
ther resae to customers.
In support of ts vew the oard hed that one who undertakes as the agency
of a pro|ect to e pot the securtes of that pro|ect and nothng ese, who does
not buy and se securtes, qua securtes, but who undertakes ony to se the
securtes of a partcuar pro|ect, of one company, s not wthn the anguage of
the reguatons and was not wthn the ntenton of the statute.
Wthout dscussng the matter n deta, we fnd ourseves of opnon that n
vew of the facts of ths partcuar case, the oard commtted no error n hod-
ng the decedent was not a deaer n securtes as contempated by the reguaton.
The decson of the oard s affrmed.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
btce 12 : Compensaton for persona I -28-7591
servces. Ct. D. 989
INCOM T R NU CT O 1928 D CISION O COURT.
1. Deducton pense ddtona Compensaton I usta-
ment Saes Contracts Dvdends.
Pursuant to contracts made n 1923 between a corporaton and
ts empoyees, the atter purchased stock of the corporaton on the
nstament pan at appro matey market vaue. Cash dvdends,
as decared, were apped on the purchase prce, and payments were
competed and the stock ssued and devered n 1928. those
concerned havng treated the transactons as saes on credt from
the tme of acceptance, the corporaton may not deduct from gross
Income n,1928 the amount of the Increase In vaue of the stock
durng the 5-year perod, or the amount of dvdends credted, as
an e pense representng addtona compensaton pad to the em-
poyees.
2. udgment ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 1171) affrmed.
3. Cetoear Dened.
Petton for certorar dened une 3, 1935.
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23(a), rt. 12 .
178
Unted States Crcut Court op ppeas for the Seventh Crcut.
ardner-Denvcr Co., pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore schuer, vans, and tzhenry, Crcut udges.
ebruary 5, 1935.
opnon.
schuer, Crcut udge: Pettoner chaenges the order of the oard of
Ta ppeas determnng ts ncome ta for the ta abe year 1928.
In 1923, an n some of the subsequent years, two corporatons to whch pet-
toner subsequenty succeeded, and whose obgatons t assumed, submtted to
certan of ther empoyees propostons to se to them shares of stock n the
corporatons at specfed prces, whch were then appro matey ther market
vaue. There was some dfference n detas of the propostons, of no materaty
here. The propostons were, n substance, that the acceptng empoyees pay
monthy upon the purchase prce a sum wthn a f ed mnmum and ma mum
durng contnuance of ther empoyment that cash dvdends decared upon the
stock be apped, as decared, upon the purchase prce that semannuay the
empoyees be charged wth Interest at 0 per cent per annum on so much of the
purchase prce as remaned unpad, and that they be credted wth nterest at
per cent on the cash payments and the dvdends that the purchase prce be
thus fuy pad wthn fve years, and that at the end of fve years, and not be-
fore, f the purchase prce be then fuy pad, and the empoyees remaned n the
empoyment, the stock be devered to the empoyees. It was specfed that f
durng the 5-year perod the empoyment ceased, the contract shoud be term-
nated and the empoyee be refunded the amount he had actuay pad upon the
stock, wth per cent nterest thereon but that he shoud not then be entted to
the dvdends, nor be charged nterest on deferred payments. It was specfed
that unt the e praton of the 5-year perod, and the fu payment of the stpu-
ated prce and devery of the stock, the empoyee had no rght to vote the stock
nor to assgn any Interest n t.
arous of the empoyees, Incudng offcers of the two corporatons, to whom
the propostons aso ran, sgnfed ther acceptance of the propostons, and
made ther payments upon the stock as provded. In 1928 varous of the con-
tracts had been pad up through payments and credts thereon, and the stock
was, n that year, accordngy Issued and devered to these empoyees. The
subscrpton prce of the stock whch was so ssued was 373,824 and the
market vaue of the stock n 1928 was 80 ,037.50. Pettoner contends that
the dfference of 432,213.50 shoud be deducted from ts gross ncome for 1928,
upon the theory that ths dfference represented addtona compensaton to
the empoyees for ther servces durng the perod between the date of ther
subscrpton for the stock and ts devery, and as such was a deductbe e -
pense of pettoner for the ta abe year 1928. It nssts aso that the dvdends
decared and credted to the subscrpton prce of the stock durng that perod,
amountng to 40,990.30, wns kewse addtona compensaton to these em-
poyees, and deductbe accordngy as an e pense In that year. The oard of
Ta ppeas re|ected both contentons.
Pettoner mantans that whe the propostons of empoyers and the
acceptances by the empoyees are n the form of sae and purchase of the stock,
a of the facts ndcate that they were not such n essence but that nstead
they dscose a purpose of makng Inducements to the empoyees for reman-
ng n the empoy, and thereby mnmzng the abor turnover, to the dstnct
advantage of the empoyer, and that such advantage woud be and was com-
pensated to the empoyees by gvng them the Increase In vaue of the stock
as a further compensaton to them for ther oyaty and contnuous servce
durng the perod.
There have been cases ad|udcated where there was Invoved the queston
of bonus or addtona compensaton to empoyees through transactons whereby
they purchased stock from ther empoyers for ess than market vaue. Wth-
out ctng or dscussng them, we thnk they do not have appcaton to a
stuaton such as ths. Nor are those cases In pont where the queston was
as to the ta abty to offcers and empoyees of the e cess In vaue of such
stock over what such offcers or empoyees had pad therefor.
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179
523(a), rt. 12 .
The fndng here was that the market vaue of the stock at the tme the
agreement was made was substantay the stpuated subscrpton prce to be
pad by the empoyees. Whe there woud thus at that tme have been no
advantage to the empoyees n respect to the purchase prce, t s pan that
any advantage to them conssted n the very easy terms on whch they mght
pay for and acqure the stock.
If at the tme the agreements were made the market vaue of the stock had
been substantay hgher than the stpuated prce, there mght be ground
for the contenton that, notwthstandng the form of the contract, that dffer-
ence was n contempaton as a bonus or added compensaton to the empoyees,
whch, f reasonabe, mght be treated as such addtona compensaton or
bonus, and deductbe accordngy from gross ncome. See artce 128, Regu-
atons 74 (promugated under Revenue ct of 1028). ut where, as here,
the conveyance of the stock was pursuant to an agreement between empoyer
and empoyees for conveyance of stock to the empoyees when a specfed
prce was pad, a subsequent ncrement n the vaue of the stock can not be
regarded as contempated or actua addtona compensaton to the empoyees.
nd n no event woud such subsequent advance n vaue represent oss or
outay or e pense to the corporaton tsef.
The subsequent hstory of the stock, whether t advanced or decned n
vaue, coud not have been contempated as affectng In any manner the com-
pensaton of the empoyees as bonus or addtona compensaton f the stock
advanced, or as nothng at a of that nature f It dd not. We are not here
concerned wth the manner of treatment for ta aton of a proft to the em-
poyees under such crcumstances.
We are not greaty Impressed wth pettoner s contenton that, because ths
contract mght have been termnated by ether party before ts consummaton by
fu payment of the purchase prce and devery of the stock, t can not be
treated as a sae unt such consummaton. It s true that the empoyee mght,
If he chose, before the stock was pad for n the manner specfed, have term-
nated the agreement and receved back the money he had pad, wth nterest
and the empoyer mght aso, under the strct terms of the agreement, by ds-
chargng the empoyee have termnated the contract and reeved tsef from
further obgaton thereunder.
ut we do not beeve that under the ssues here there shoud be taken nto
consderaton the possbe contngency of the empoyer dong so harsh and n-
equtabe a thng as to dscharge the empoyee for the purpose ony of preventng
hs competon of the specfed payments and avodng the obgaton to convey
to hm the stock when pad for as specfed. Indeed, the corporatons dd not
undertake to dea thus nequtaby, but the contract of sae was carred out by
deverng the stock as agreed, notwthstandng Its substanta advance n vaue
durng the nterm.
The oard found, n effect, that a those concerned treated the transacton
from the begnnng as a sae of the stock to the empoyees upon credt as nd-
cated and that the corporate books and accounts of the transactons n a
respects treated them as saes, wthout dscosng anythng to ndcate that at
any tme from the acceptance of the proposton was there nvoved or contem-
pated any eement of added compensaton, actua or potenta, to these em-
poyees.
Pettoner havng deberatey and knowngy consdered and treated the ac-
cepted propostons as saes to the empoyees from the tme of the acceptance, we
do not thnk that t shoud now be permtted to regard them as somethng df-
ferent for the purpose of enabng deducton to be made from gross ncome.
It may aso be noted that pettoner sought no deducton on account of trans-
actons wth corporate offcers of these corporatons who had, In the same manner
and at the same tme and on the same terms, subscrbed to the same knd of
stock, and who receved ther stock durng the ta abe year In queston.
What we have sad s appcabe as we to the contenton for deducton of
dvdends decared on ths stock and credted to the empoyees on the purchase
prce. The dvdends are an ncdent of ownershp of the stock, and however
ther payment may have advantaged the empoyees they dd not represent out-
ay or e pense to the corporatons or to pettoner, and they are not deductbe
from gross ncome as camed.
The facts are set forth n greater deta n the fndngs of the oard, to whch,
as we as to the oard s opnon, appearng n 27 . T. ., 1171, we refer.
The order of the oard of Ta ppeas s affrmed.
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523(e). rt. 171.
180
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 151: Ta es.
R NU CT OP 1028.
Ta mposed bv Lousana on gasone and motor fue. (See
G. C. M. 14970, page 9.)
rtce 151: Ta es.
R NU CT O 1028.
Revocaton of G. C. M. 9234 (C. . -, 117). (See G. C. M.
15530, page 107.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
rtce 171: Losses.
R NU CT O 1028.
Sae of stock to controed corporaton and repurchase thereof.
(See Ct. D. 1037, page 233.)
rtce 171: Losses. I -52-7874
Ct. D. 1051
INCOM T R NU CT O 1028 D CISION O COURT.
1. Deducton Loss Sae or Stock.
The ta payer on December 5, 1930, nstructed a stock broker to
se certan shares of stock owned by hm and to purchase the same
number of shares n the same companes for a corporaton com-
petey controed by the ta payer. These nstructons were carred
out, both sae and purchase beng made upon the New York Stock
change, n e acty the same amount, and upon dates narrowy
e ceedng 30 days thereafter the ta payer repurchased the stock.
The prce at whch the stock was sod to the corporaton was ess
than the cost to the ta payer, and the repurchase prce was ess
than the cost to the corporaton. Under such crcumstances, the
the entre pan must be consdered n determnng oss, and e am-
naton of a the transactons dscoses that the corporaton was
used by the ta payer as an agency to purchase, hod, and rese the
stock and that no actua oss was sustaned.
2. D C18I0N ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 59) affrmed.
3. Certorar Dened.
Petton for certorar dened October 14, 1935.
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23(e) rt, 171.
Unted States Crcut Court of ppeas, ghth Crcut.
Sydney M. Shocnbcrg, pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Stone, Gardner, and an akenburgh, Crcut udges.
pr 19, 1935.
OPINION.
Stone, Crcut udge, devered the opnon of the court.
Ths s a petton to revew a redetermnnton of the ncome ta es of pet-
toner for the year 1930. The matter n ssue concernng these ta es s the
refusa of the Commssoner (affrmed by the oard of Ta ppeas) to permt
a deducton of 191,88 .30 camed by pettoner to represent a oss occurrng n
that year through the sae of certan corporate stocks.
There s no dspute as to the facts here nvoved, though there Is dsagree-
ment as to some essenta nferences to be drawn therefrom. The evdence
ceary shows the foowng. In 1929 and 1930, pettoner purchased:
300 shares of Lehman Corporaton, 1,000 shares of Te as Corporaton, 5 5
shares of Chase Natona ank, 2,352 shares of Natona Dary Products, 4
shares of Lqud Carbonc, 1,0 1 shares of ectrc ond Share Co., 1,000
shares of Irvng Trust Co.
for whch he had pad a tota prce of 502,383.17. e owned a of these shares
on December 5, 1930. fter consutaton wth an accountant and wth the
purpose of showng a ta abe deducton, he nstructed a stock broker, upon
the above date, to se a of these shares on the New York Stock change at
current prces. t the same tme he nstructed the same broker to purchase
the same number of shares n the same companes upon the above e change for
the Gobe Investment Co. Under the above nstructons, on December 5, the
broker sod and bought the shares In the Natona Dary Products, Lqud
Carbonc, ectrc ond Share Co. and Irvng Trust Co. on December
10, the shares of the Te as Corporaton and Chase Natona ank, am on
December 22, the shares n the Lehman Corporaton. mnatng the comms-
sons of the broker, the prce at whch the stock of pettoner was sod and
the prce at whch the same stock was bought for the Gobe Investment Co-
was e acty the same amount, both as to tota ( 311,752.50) and aso as to
Items. t varous tmes n anuary and ebruary, foowng, and upon dates
whch narrowy e ceeded 30 days after the sae and purchase transactons
above, pettoner bought from the Gobe Investment Co. the shares t had
purchased as above, payng therefor the then market prce on the day of
purchase by hm n a tota sum of 304,593.87.
The Gobe Investment Co. was a corporaton wheren pettoner owned over
70 per cent of the capta stock and hs mother, a wdow, owned the baance.
Somethng more than a year before the above transactons he had been em-
powered by the drectors of the company to act very broady wth reference to
buyng and seng for the company and pettoner testfed that
snce hs father s death, nne years prevousy, he had had the e cusve
handng of the affars of the company, and that t was hs practce for years
to enter Into transactons for the company.
e dd not consut wth hs mother about the above transactons. o further
testfed as foows:
That he had asked hs accountants whether or not t woud be proper for
hm to se the stock for the purpose of regsterng a oss, so that he coud take
a deducton n hs ncome ta return, and they tod hm he coud se It through
a broker. Upon beng asked whether or not he had dscussed wth hs account-
ants the queston of whether or not It woud be better to se ths stock on the
open market, or whether t woud be proper for hm to se t to the Gobe
Investment Co. whch he controed, he reped that at the tme he sod these
stocks, the Gobe Investment Co. had suffcent funds of Its own on hand to go n
the open market and buy securtes: that he was famar wth those stocks,
and t was at a tme when the market condtons were rather unsatsfactory
and uncertan that he consdered the purchase by the Gobe Investment Co. of
these stocks woud at that tme be perfecty proper for the nvestment of Its
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23(e), rt. 171.
182
nfoney, and In takng a oss he woud receve suffcent funds to enter nto other
fnanca Investments. e testfed further that he asked hs accountants f t
woud be perfecty proper for the Gobe Investment Go. to buy stocks ke those
he sod, and was advsed that t woud be proper that there woud be no ob|ec-
ton to the Gobe Investment Co. purchasng the stocks on the open market.
In response to a queston as to whether or not he had oaned any money, or
had repad any money to the Gobe Investment Co. |ust pror to December 5, the
wtness stated that he had not oaned the company any money, but that he had
repad them between 110,000 and 120,000 that he dd not thnk ths amount,
pus the amount the Gobe Investment Co. had on hand, was substantay the
amount whch the company pad to the broker for these stocks that t was a
part of the amount whch they appro matey had on hand that he presumed
they needed some money, but whether or not t was appro matey the amount
he repad he dd not reca. Upon beng asked agan as to whether or not he
had dscussed wth hs accountants the queston of reacqurng the securtes
from the Gobe Investment Co., the wtness stated that he had not done so at the
tme he sod ths stock that, as he recaed It, he dscussed the matter of takng
a deductbe ta oss for the year 1930 wth hs accountants n regard to the
seng of these securtes, and subsequenty he asked the accountants whether
t woud be perfecty proper for the Gobe Investment Co. to make the purchase
of ke securtes, and the accountants stated t was perfecty proper for t to
do so. Wtness stated that he recaed havng a conversaton wth hs account-
ants regardng hs rght to buy those securtes from the Gobe Investment Co.,
but that he was unabe to reca the e act date when t occurred. Wtness
stated that he had not dscussed the sae of these securtes by the Gobe Invest-
ment Co. n anuary, 1931, wth any of the drectors of that company that
durng hs supervson of the company for many years, he was empowered to
hande ts fnanca transactons to the best of hs abty. e stated that there
was nether much oss nor gan to the Gobe Investment Co. In the purchase and
sae of ths stock.
The queston to be answered Is whether, n vew of the entre stuaton and
transactons above set forth, pettoner s entted to a deducton for a oss
sustaned by the sae of hs stock.
The Revenue ct here nvoved ( ct of 1928, 45 Stat., 791) as we as earer
and ater Revenue cts permt deductons of osses from ta abe net ncome. It
requres such osses to be reazed by some cosed and competed dentfabe
event (Unted States v. Whte Denta Co., 274 U. S., 398, 401 T. D. 4059, C. .
I-2, 198 ), whch defntey settes and determnes the e stence of and the
amount of such oss ( urnet v. uff, 288 U. S., 15 , 1 1 Ct. D. 40, C. . II-1,
220 Wess v. Wener, 279 U. S., 333, 335 Ct. D. 0, C. . III-1, 257 Unted,
States v. Whte Denta Co., 274 U. S., 398, 401) and t requres such osses to be
actua and rea (Gregory v. everng, 293 U. S., 405 Ct D. 911, C. . I -1,
1931 urnet v. uff, 288 U. S., 15 , 1 1 Unted States v. annery, 2 8 U. S.,
98 IT. D. 3703, C. . I -1, 100 McCaughn v. Ludngton, 2 8 U. S., 10 T. D.
3705, C. . I -1, 110 ).
mong the transactons or dentfabe events whch may operate to
reaze and f a oss, the most commony occurrng s a sae of the property.
ere there was an actua sae of these shares and, f our e amnaton must stop
wth that sae, ths oss Is concusvey shown. The questons here are whether
we can consder the entre stuaton whch comprehends ths sae, the purchase
by the Gobe Investment Co. and the sae by t to the ta payer and, f we can,
the effect thereof upon the above oss as beng a deductbe oss.
It woud seem there coud be no doubt of the proprety of e amnng a
matters, reatng to the sae by the ta payer, whch bear upon the deductbe
character of the oss shown by that sae. There are many cases nvovng
deductons from edera ncome ta es wheren the entre transacton on account
of whch the deducton was camed have been e amned. The most recent case
n the Supreme Court s Gregory v. everng (293 U. S., 4 5), where a deducton
was sought under the pan of reorganzaton provson of the ct of 1928
(secton 112 (g) and () ) There a new and entrey vad corporaton had been
created for the soe purpose of attemptng to take advantage of the secton.
The court dd not fee that t was stopped by the mere reguarty of the pro-
ceedng and ther apparenty strct conformty wth the statute but t ooked
through the form to the substance and hed the devce neffectve.
The pace of a sae n camng a deducton s as evdence that a oss has been
reazed. If the sae s rea and Is an soated transacton, It s concusve
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183
23(e), rt. 171.
proof. If It s ony part of an entre pan, then the entre pan Is e amned to
ascertan whether ts effect s to produce a oss or a reazed oss. It Is Im-
matera that the motve promptng the sae or the pan of whch the sae was
a part was to secure a deducton. The matter of nterest s whether an actua
oss has been reazed. Ta aws dea wth reates ( everng v. Securty
Savngs Commerca ank, 72 ed. (2d), 874, C. O. . 4 Ct. D. 940, C. .
I -1, 300 Mac ueen d Co. v. Commssoner, 7 ed. (2d), 857, C. C. . 3
ret. D. 830, C. . III-1, 2 ) and ook at the entre transacton (cases |ust
cted and hcs Reaty Corporaton v. Commssoner, 71 ed. (2d), 150, C. C. .
2 Ct. D. 931, C. . I -1, 245 ). Two very recent cases (Commssoner v.
Dyer,1 ed. (2d), , and Marston v. Commssoner, ed. (2d), ) n the
second crcut, taken together, revea the rue as to saes and repurchases. In
the Dyer case, there were saes and repurchases both parts of an orgna entre
pan and the camed deductons were dened. In the Marston case there was
a sae wth no ntenton or pan to repurchase but there was a ater repurchase
and the camed deducton on account of the sae was aowed.
To secure a deducton, the statute requres that an actua oss be sustaned.
n actua oss s not sustaned uness when the entre transacton Is concuded
the ta payer s poorer to the e tent of the oss camed n other words, he
has that much ess than before.
oss as to partcuar property Is usuay reazed by a sae thereof for ess
than t cost. owever, where such sae s made as part of a pan whereby
substantay dentca property s to be reacqured and that pan Is carred
out, the reazaton of oss s not genune and substanta It s not rea.
Ths s true because the ta payer has not actuay changed hs poston and
s no poorer than before the sae. The partcuar sae may be rea but the
entre transacton prevents the oss from beng actuay suffered. Ta aton
s concerned wth reates and no oss Is deductbe whch s not rea.
amnng ths entre transacton, t s cear that ths sae by ta payer was
merey part of a pan by whch he hoped to create a ta deductbe oss wthout
any rea change n hs poston. t the tmes he drected the broker to se
partcuar stocks, he aso gave nstructons to purchase dentca stocks for the
Gobe Investment Co. ust over the 30-day perod of the statute, he purchased
these same stocks from the Gobe. e had compete domnon over the Gobe as
to such purchase by t, as to ts retenton of the stock for resae to hm and
as to such sae by t to hm. or a practca purposes, he used the Gobe
as an agency for purchasng, hodng and seng to hm, stocks Identca wth
those he sod to estabsh the camed oss. That these actons by the Gobe
and hs use of the Gobe was a part of the pan whch Incuded sae by hm
s cear. The pan was an entrety and e sted at the tme of the sae by hn.
It was fuy carred through. e was no poorer when the pan was e ecuted
than he had been before the saes by hm, e cept for the brokerage comms-
sons. e suffered no rea oss but soey a paper one whch coud be shown
ony by consderng one part of an entre pan and transacton. The entre
pan was devsed for the purpose of showng such oss. Its resuts must be
udged as an entrety.
It s argued that the Investment company and the ta payer are separate
enttes and must be consdered so here. Grantng that they were, the domna-
ton of the company by the ta payer was compete and In ths transacton t
was no more, n effect and substance, than hs ater ego. so t s urged that
the statute (secton 118) aows repurchase after 30 days and these repurchases
were beyond that tme. Ths statutory provson was enacted to meet a stua-
ton of ta avodance whch had grown up whereby securtes were sod at
the end of a ta year to secure a deductbe oss and were repurchased wthn
a day or so after the begnnng of the ne t ta year. Where such saes and
purchases were part of one pan, they were neffectve to produce deductbe
osses but there remaned the dffcuty of provng that they were parts of one
pan more correcty of meetng proof by the ta payer that they were not.
Ths provson met that stuaton to the e tent that repurchases wthn 30
days of sae were Ineffectve but t was far from vadatng repurchases after
30 days even where such were part of an orgna pan Invovng the sae
made the bass of the camed oss.
The determnaton of the oard s affrmed.
1 The Dyer case Is e pressy foowed In Commssoner v. Carence G. Troup ( ed.
(2d). ) (C. C. . 7). so see tkns v. Commssoner ( ed. (2d), ) (C. C. .
) and Sauton v. Commssoner ( ed. (2d), ) (C. C. . 1).
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(23|). rt. 195.
184
S CTION 23(5)- D DUCTIONS ROM GROSS
INCOM : D D TS.
rtce 195: Reserve for bad debts. I 7-7821
Ct. D. 1034
INCOM T R NU CT O 192S D CISION O COURT.
L Deducton . n De|ts Reserve fob Inactve Contngen-
ces vdence.
Where the ta payer, on the accrua ha s, set up n reserve for
bad debts, and aso a reserve for Inactve contngences to
ncude possbe dscounts tnd prce ad|ustments, and deducton for
bad debts was aowed for the fsca year endng uy 31, 1930, an
amount representng dscounts and prce correctons whch was
credted to the reserve for Inactve contngences at the end of the
fsca year s not deductbe under the provsons of secton 23 of
the Revenue ct of 1928 and artce 195, Reguatons 74, where the
evdence faed to show that t was the ta payer s orgna ntenton
to use the addton to the reserve for Inactve contngences at the
cose of the year as a part of the reserve for bad debts, and where,
f there was such an ntenton, the evdence faed to show how
much was ntended as a reserve for dscounts and ad|ustments and
how much was ntended as a reserve for bad debts. The fact that
the tota reserve for bad debts was nsuffcent n 1932 to cover a
bad debts and osses then outstandng s Insuffcent to show that
the addtons to reserve n 1930 were nadequate.
2. Decson ffbmed.
Decson of the oard of Ta ppeas (30 . T. ., 1048) affrmed.
Unted States Crcut Coubt of ppeas, oubth Crcut.
armve O ertzer Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
efore Parker and Soper, Crcut udges, and Meekns, Dstrct udge.
une 3, 1935.
OPINION.
Sopeb, Crcut udge: The oard of Ta ppeas affrmed a determnaton by
te Commssoner of Interna Revenue of a defcency of 1,885.97 n the ncome
of the ta payer for the fsca year endng uy 31, 1930 and ths concuson
s assaed on the ground that the Commssoner dsaowed a deducton from
gross ncome of 20,859.70 out of 21,545.42 camed as a reserve for nactve
contngences. The ta payer contends that the deducton shoud have been a-
owed under the terms of secton 23 of the Revenue ct of 1928 ( 45 Stat., 791),
whch provdes that n computng net ncome, there sha be aowed a deducton
for debts ascertaned to be worthess and charged off wthn the ta abe year,
cr, n the dscreton of the Commssoner, a reasonabe addton to a reserve
for bad debts. Treasury Reguatons 74, artce 195, provde that what const-
tutes a reasonabe addton to a reserve for bad debts must be determned n the
ght of the facts, and w vary as between casses of busness and wth cond-
tons of busness prosperty.
armve O ertzer Co., the ta payer, Is a North Carona corporaton
engaged prncpay n the manufacture of fertzer, and to some e tent. In the
manufacture of cottonseed n. Its factory Is ocated n the argest tobacco-
producng county of North Carona, and tobacco Is the prncpa crop produced
n the terrtory whch t serves. In the ta abe yenr endng uy 31, 1930, wth
whch we are concerned, and pror thereto, the ta payer kept ts books on an
accrua bass, and set up a reserve for bad debts caed reserve for doubtfu
accounts and osses. It aso kept an account caed fertzer dscount to
serve as a record of cash dscounts, trade dscounts, quantty dscounts, deaers
and |obbers dscounts, and prce ad|ustments aowed to Its customers and
ths account was annuay ceared to proft and oss as an offset to fertzer
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185
23( ), rt. 195.
saes. The practce n the sae of goods was to credt fertzer saes and charge
the customers for goods at reta prces, and to make ad|ustments for dscounts
and prce correctons when the customers subsequenty setted ther accounts.
The prce correctons were dependent upon prces estabshed by compettors.
The amounts added to the reserve for bad debts durng 1925 to 1927 appro -
mated to 8 per cent of the outstandng accounts and notes recevabe. In the
year endng uy 31, 1929, when the tobacco crop faed, appro matey 12 per
cent was added and aowed, and 78,597.57 was charged aganst the reserve.
Durng ths year, new accounts and notes recevabe to the amount of 139,-
810.39 were created, of whch not qute one-haf had been coected tweve and
a haf months after the fsca year cosed.
usness durng the ne t ta abe year endng uy 31, 1930, was worse, the
average market prce of tobacco droppng from 18 cents, prevang n 1929, to
12 cents. The accounts and notes recevabe outstandng at the end of the year
amounted to 990,73 .08. t the begnnng of the year, the accumuated bad
debt reserve was 250,789.49, to whch the ta payer added 4,405.44 durng
the year, whch was more than 12 per cent of the new accounts and notes
recevabe added durng the year. Ths amount was aowed by the Comms-
soner as a deducton from gross ncome. The ta payer charged off 101, 38.22
as worthess accounts aganst the reserve. It coected on accounts prevousy
charged off 0,502.72.
In addton to the sum of 4,405.44 added to the reserve for bad debts, the
pettoner at the end of the ta year charged fertzer dscount account wth
the sum of 21,545.42 for dscounts and prce correctons on a seected st of
accounts, representng about 10 per cent thereof, and credted the reserve for
Inactve contngences wth the same amount, and deducted ths sura from ts
gross saes. fter the cose of the year, the ta payer actuay aowed totu
dscounts upon the seected accounts of 3,252.70, and ascertaned 57,778.43
to be worthess. The Commssoner dsaowed 20,859.70 of the amount credted
to reserve for nactve contngences, and t Is ths acton whch the ta payer
seeks to revew, contendng that the amount dsaowed was propery deductbe
as an addton to ts reserve for bad debts under the statute, or as an addton
to ts reserve for nactve contngences or both.
We agree wth the oard n ts concuson that the deducton may not be
aowed on ether ground. In the frst pace, there s substanta evdence to
support the oard s fndng that t was not the orgna ntenton of the ta -
payer to use the addton to the reserve for nactve contngences made at the
cose of 1930 as a part of ts reserve for bad debts. It s true that there s
evdence tendng to show that the reserve for nactve contngences was set up
to take care of both dscounts and osses n makng coectons but, on the
other hand, the separate estabshment of ths reserve and ts assocaton on
the ta payer s books wth the fertzer dscounts account, Indcates that t was
not desgned to be a part of the reserve aowed by the statute. Moreover, the
ta payer n ts ta return entered the sum of 4,405.44 as a deducton for bad
debts, but subtracted the tem n queston from the amount of ts gross saes.
The oard, therefore, had the rght to fnd that the addtona reserve was
desgned to cover dscounts and not bad debts.
It s nevertheess contended by the ta payer that n vew of the ncreasng
busness and fnanca depresson whch prevaed n the year 1930, the aow-
ance of the addtona sum of 21,545.42 as a deducton for bad debts for the
ta abe year, woud be entrey reasonabe. Ths may be true but It s not a
certanty, for athough the ta payer has shown that the tota reserve for bad
debts was nsuffcent n 1932 to cover a bad debts and osses then outstandng,
ths condton, so far as the evdence shows, may have been attrbutabe to n-
adequate addtons to the reserve n 1931 and 1932, and not to an Inadequate
addton n 1930. urthermore, the reazaton by the ta payer ong after the
cose of the ta abe year that Its reserve for bad debts durng that year was
Insuffcent does not ustfy Its enargement retroactvey. The statute aows a
deducton for bad debts f ascertaned to be worthess and charged off wthn
the year, or, n the aternatve, a reasonabe addton to a reserve for bad debts
n the dscreton of the Commssoner. We do not thnk that Congress meant
that the amount of the reserve mght be ncreased by the ta payer ong after
the ta abe year had e pred, whe mtng deductons for debts charged off to
those actuay ascertaned to be worthess and charged off wthn the year.
Doubtess under proper crcumstances, the correctness of the ta payer s
estmate n f ng the amount to be added to the reserve In any year may be
47318 3 7
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42, rt. 331.
18
supported by reference to the osses actuay ncurred n subsequent years, as
was hed n Peyton Du Pont Securtes Co. v. Commssoner ( . (2d), 718)
or the faure of the ta payer durng the ta abe year to observe the proper
technca procedure In camng a deducton may be overooked, as n Rhode
Isand ospta Trust Co. v. Commssoner (29 . (2d), 339) but estmates
fary made at the tme may not be enarged n the ght of subsequent events,
for then the reserve woud cease to be a true reserve, and the ta payer,
contrary to the sprt of the statute, woud be permtted to deduct worthess
debts n a year pror to that n whch ther worthessness woud be reazed.
Such a resut woud be entrey out of harmony wth our ta ng system, whch
was desgned to produce revenue, ascertanabe and payabe to the Government
at reguar annua ntervas, based upon the net resut of the ta payer s opera-
tons wthn the ta abe year. ( urnet v. Sanford d rooks Co., 282 U. S.,
259 Ct. D. 277, O. . -, 3 3 .)
ven If It shoud be found that the ta payer s addton to reserve for nactve
contngences was ntended, when made, to serve n part as a reserve for bad
debts, t woud be mpossbe to determne from the evdence how much thereof
was Intended for ths purpose, and how much for a reserve for dscounts. s
we have seen, the tota amount was charged to fertzer dscount account,
and confessedy, a part thereof was ntended to take care of dscounts and
prce ad|ustments upon fertzer saes n an amount to be ater determned.
The presdent of the ta payer corporaton testfed that the amount of the
reserve was estmated to take care of ad|ustments to be made after the cose
of the ta abe year, and that the outcome of the accounts coud not be estab-
shed when the ta return was fed. It s now setted, the decson n rgna
Lncon urnture Co. v. Commssoner (5 . (2d), 1028), havng been ds-
approved, n rown v. everng (291 U. S., 193, 200 Ct. D. 78 , C. . I -1,
223 ), that athough a abty accrued durng the year may be treated as an
e pense ncurred, and serve as a bass for a deducton, a abty whch re-
mans contngent durng the year does not accrue and may not be deducted,
uness specfcay authorzed by statute and ths prncpe appes to a reserve
for dscounts. ence, the oard was confronted wth the certanty n the
nstant case that some ndetermnabe part of the amount under consderaton
was not aowabe as a deducton under any permssbe theory. The ta payer
now suggests that quantty dscounts and prce ad|ustments must have been
determnabe durng the year but proof on these ponts Is ackng, and t
Is not shown n any event how much of the whoe these ateratons comprse.
The decson of the oard of Ta ppeas s affrmed.
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 331: When ncuded n gross ncome.
R NU CT O 1028.
stoppe wth respect to changng year n whch ncome shoud be
reported, statute of mtatons havng run. (See Ct. D. 1018,
page 203.)
rtce 331: When ncuded n gross ncome. I -43-7758
( so Secton 311, rtce 1231.) Ct. D. 1023
INCOM T R NU CT O 102S D CISION O COURT.
1. Gkoss Income M ed Cams Commsson waed.
n award receved by the ta payer n 1928, 1929, and 1930 from
the M ed Cams Commsson on account of the destructon of a
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187
42, rt. 331.
schooner In 1917 was not n the nature of a gft or gratuty but
was compensaton for the destructon of the property, and, havng
had the beneft of a deducton n the year 1918 for the amount of
the oss, the entre amount of the award consttuted ta abe ncome
n the years receved, n the absence of proof that the ta payer
was on the accrua bass.
2. ssessment Labty or Transferee Lmtaton.
Defcences may be asserted aganst a transferee wthout assess-
ment frst beng made aganst the transferor, where the transferor
had ceased to do busness and had no assets n the years nvoved,
and the assessments are not barred f made wthn the tme pre-
scrbed by secton 311 of the Revenue ct of 1928.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 578) affrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
. D. ynn, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
abama).
efore ryan, oster, and Waker, Crcut udges.
May 4, 1935.
OPINION.
Waker, Crcut udge: The pettoner sought a redetermnaton of ta def-
cences for the years 1928 and 1929 of the Mcntyre Lumber port Co., an
abama corporaton (heren referred to as the corporaton), totang 14,081.30,
assessed, on March 5, 1932, aganst pettoner, as transferee of the assets of
the corporaton, under the provsons of secton 311 of the Revenue ct of
1928 (45 Stat, 801, 20 U. S. C. ., secton 2311). The oard of Ta ppeas
sustaned the acton of the respondent. That acton s before us on a petton
for revew. Concurrenty wth the fng of that petton for revew, W. W.
Ceveand, another transferee of the corporaton, fed a petton for revew of
smar acton of the oard of Ta ppeas, whch s now pendng before ths
court Pursuant to stpuaton n that case (No. 74 4 on the docket of ths
court), ths court ordered that ts decson n the nstant case woud be contro-
ng n that case.
Tne facts, as found by the oard of Ta ppeas, are as foows: The cor-
poraton was organzed n 1908, and engaged n the e port busness. It
contnued n that busness unt some tme n 1918, when t ceased actve
operatons, but contnued n e stence unt after years nvoved n ths pro-
ceedng. Its ssued capta stock was 250 shares of a par vaue of 100 per
share. Its stockhoders durng the years nvoved were the pettoner, who
owned 118 shares, W. W. Ceveand, who owned shares, and Mrs. W. W.
Ceveand, who owned 5 shares. In March, 191 , the corporaton bought a
two-thrds nterest n the schooner Magnus Manson for 77,000. That vesse
was sunk by a German submarne on May 25, 1917. The vesse carred a tota
nsurance of 100,000, a of whch was coected n the year 1917. The dffer-
ence between the cost of the corporaton s Interest and ts share of the nsur-
ance was 10,333.34. It took no deducton n ts 1917 return for any oss on
account of the snkng of the vesse, but In 1918 t cosed the account on ts
books, charged the sum of 10,333.34 off ts books as a oss, and n ts 1918
ncome and profts ta return took the Item of 10,333.34 as a oss. On anuary
10, 1920, the corporaton and the other |ont owners of the vesse fed a |ont
cam wth the Department of State for 300,000, representng the aeged
vaue of the vesse (aowance to be made, however, for the Insurance recov-
ered) at the tme she was sunk. The Unted States prosecuted the ont cam
so fed before the German- mercan M ed Cams Commsson, whch, on
anuary 14, 1027, made nn award to the severa camants. The amount
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42, rt. 331.
188
awarded to the corporaton was 100,000, wth nterest :t the rate of 5 per cent
per annum from November 11, 1918, to the date of payment The net payments
to the corporaton on account of the award were as foows:
On account of
1928.
1929.
1930.
9 ,900.00
13,041.04
7,585.82
4,402.57
The corporaton reported the amount receved durng 1928 as nonta abe
Income In ts edera ncome ta return for 1928. It smary reported the
amounts pad t durng 1929 and 1930. It dstrbuted the payments on the
award. In those dstrbutons the pettoner receved sums as foows: In 1928.
53,515.72 In 1929, 3,192.85 and n 1930, 2,082.42. oowng the above
dstrbutons the corporaton had no assets. Whe t was engaged n actve
busness, the corporaton kept ts books and records on the accrua bass.
Pror to the determnaton of the abtes n queston aganst pettoner
and Ceveand, the respondent maed no defcency notces for 1928 and 1929
to the cor raton, whch tmey fed ta returns for each of the years n
queston, at dates not ater than March 15, 1929 and 1930. The abty notces
for the years 1928 and 1929 were maed to the pettoner and Ceveand on
March 4, 1932.
The statement of evdence contaned n the record conssts of the foowng:
The evdence n these proceedngs conssts of the facts n the peadngs whch
are admtted, the fndngs of fact made and promugated by the oard on une
28, 1933, whch fndngs are hereby adopted and made a part hereof by refer-
ence, together wth the foowng addtona evdence whch was offered at the
hearng. The addtona evdence referred to s a copy of the above-mentoned
award of the M ed Cams Commsson, and a copy of a stpuaton, fed n the
proceedng n whch that award was made, as to the amount of damages suf-
fered by the camants theren.
The opnon rendered by the oard of Ta ppeas contans statements to the
effect that on anuary 1, 1931, the award was unpad to the e tent of 20,-
5 5.02, and that ths amount was receved and dstrbuted pror to respondent s
determnaton of abty aganst the corporaton, and that at the date of
such determnaton the corporaton had no assets.
The pettoner chaenges the acton of the oard of Ta ppeas on grounds
mentoned beow.
The contenton that amounts pad to a ta payer under awards made by the
M ed Cams Commsson are gfts or gratutes and do not consttute ta abe
ncome where the ta payer s cost bass has aready been restored was adversey
dsposed of by the decson of ths court n the case of Marne Transport Co. v.
Commssoner ( ed. (2d), Ct. D. 1024, page 190, ths uetn ), the facts
of the cted case pertnent to the contenton under consderaton not beng
materay dfferent from those of the nstant case.
Pettoner contends that the corporaton was on the accrua bass of account-
ng for the years nvoved, wth the resut that f the amount awarded was
ta abe ncome of the corporaton, that amount shoud have been assessed for
the year n whch the rght of the corporaton to receve the amount awarded
accrued. The record does not show that the corporaton was upon the accrua
bass n the years n queston. The oard s fndngs of fact ncuded one to
the effect tat whe the corporaton was engaged n actve busness t kept
ts books and records on the accrua bass but the oard aso found that the
corporaton ceased actve operatons n 1918, and that n ts edera ncome ta
returns for the years 1928, 1929, and 1930. the corporaton reported the amounts
receved by t n those years, respectvey, on account of the award as nonta -
abe ncome for those years, respectvey. That the corporaton was not usng
the accrua method of accountng n the years n queston s ndcated by ts
omsson to return the amount awarded as ncome for the year n whch
the rght to receve that amount accrued ether upon the makng of the award
or upon the enactment of the Settement of War Cams ct. March 10. 1928
(45 Stat., 2M) and by ts acton n returnng the amounts receved under
the award as nonta abe ncome for the years In whch those amounts, respec-
tvey, were receved. The corporaton s omssons and acts show that durng
the years In queston the accrua method of accountng was not reguary
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189
42, rt. 331.
empoyed by t, wth the resut, under secton 41 of the Revenue ct of 1928
(45 Stat, 805, 2 . S. C. ., 2041), of requrng ts net ncome to be computed
n accordance wth that method. or support of ts contenton cow under
consderaton the pettoner cted the decson n the case of utomobe Ins.
Co. v. Commssoner (72 ed. (2d), 2 5). The facts of the cted case are
materay dfferent from those of the nstant one, n that n the former the
ta payer, whch was on the accrua bass, reported the entre amount of the
award n ts favor n ts return for the year, 1928, n whch the Settement of
War Cams ct (45 Stat., 254) was passed, the court approvng the acton of
the ta payer n treatng ts rght to the sum awarded as havng accrued upon
the passage of that ct whe n the nstant case t does not appear that the
corporaton was on the accrua bass n the years n queston, but t does appear
that the corporaton, n Its returns for the severa years n whch t receved
parts of the tota amount awarded to It, reported the amounts receved by t
under the award as ncome for the years n whch those amounts, respectvey,
were actuay receved by t tnder the statute (sectons 41, 42, Revenue ct
of 1928, 45 Stat, 791) a tems of Income sha be ncuded n the gross ncome
for the ta abe year In whch receved by the ta payer, uness propery accounted
for as of a dfferent perod. The burden s upon the ta payer to estabsh
the nvadty of the Commssoner s determnaton. (.Lucas v. Structura Stee
Co., 281 U. S., 2 4, 271 Ct. D. 223, C. . I -2, 299 everng v. Tayor, 293
U. S., 507, 515 Ct D. 912, C. . I -1, 1 8 .) Ths burden was not carred
It was not proved that the amounts receved by the corporaton under the
award were propery accounted for otherwse than by ts reportng them n ts
returns for the years In whch those amounts respectvey were receved.
nother contenton of the pettoner s that the defcences n queston were
barred by the e praton of the tme for assessng a defcency aganst a trans-
feree of property of a ta payer. Secton 311 of the Revenue ct of 1928 (45
Stat., 791, 2 U. S. C. ., secton 2311) provdes that the perod for assessment
of a ta abty of an nta transferee of a ta payer sha be one year after
the e praton of the perod of mtaton for assessment aganst the ta payer.
The ncome ta returns of the corporaton for the years 1928 and 1929 were
tmey fed not ater than March 15 of the years 1929 and 1930, respectvey.
The perod of mtaton for assessment aganst the corporaton was two years
after ts return was fed. (Secton 275, Revenue ct of 1928 45 Stat., 85
2 U. S. C. ., secton 2275.) It foows that the perods of mtaton upon
assessments aganst the corporaton, uness awfuy e tended, e pred on
March 15, 1931 and 1932, respectvey. The defcency assessment notces were
maed to the pettoner on March 4, 1932, each notce beng wthn one year
after the e praton of the perod of mtaton for assessment aganst the
corporaton. The suggeston that the pettoner s not abe under the assess-
ment made aganst hm for the year 1928, because the tme for assessment
aganst the corporaton had e pred wthout any assessment aganst t beng
made, s not sustanabe. That suggeston s adversey dsposed of by the
decson of ts court n the case of Cty Natona ank v. Commssoner (55
ed. (2d), 1073 Ct. D, 548, C. . I-2, 35 , certorar dened, 28 U. S., 5 1).
To the same effect s the decson n the case of aumgartner v. Commssoner
(51 ed. (2d), 472). The anguage of the statute prescrbng the perod of
mtaton for assessment aganst a transferee contans nothng ndcatng an
Intenton to make a transferee s abty to assessment dependent upon the
makng of an assessment aganst the transferor ta payer wthn the tme
aowed for makng such assessment. statute Is not to be construed as requr-
ng the dong of a fute thng uness such requrement s ceary dscosed by
the anguage used. It appears from the above referred to statement contaned
n the opnon rendered by the oard of Ta ppeas that at the tme the
defcency assessments notces were transmtted to the pettoner the corporaton
had no assets, wth the resut that If a ta assessment had been tmey made
aganst t that acton woud have been entrey fute. It was argued In behaf
of the pettoner that the statement n the oard s opnon to the effect that
on March 4, 1932, the corporaton had no assets was unwarranted, because not
supported by a fndng contaned n the oard s fndngs of fact. The proce-
dura provson governng the oard s acton, that t Incude n ts report
ts fndngs of fact or opnon or memorandum opnon (2 U. S.
C. ., secton 1219(b)), permts a fndng of fact by the oard to be emboded
n ts opnon, wthout beng supported by a forma fndng Incuded n ts
fndngs of fact. (Insurance Tte Guarantee Co. v. Commssoner, 3 ed.
(2d), 842 Ct. D. 155, O. . I -1, 279 , certorar dened, 281 U. S., 748.) The
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190
fndng by the oard to the effect that the corporaton had no nssets at the tme
the defcency assessments were made aganst the pettoner as assgnee was
prma face correct, and nnder the facts found the pettoner was abe for the
amounts of defcences assessed aganst hm. (Phps v. Commssoner, 283
U. S., 5S9 Ct. D. 350, C. . -, 2 4 ercrng v. Tayor, supra.) The
evdence on whch the oard of Ta ppeas made ts fndngs and based ts
decson not beng ncuded In the record, there s an obvous faure of the
pettoner to sustan the burden restng upon hm to show that the Comms-
soner s determnatons, whch were sustaned by the oard of Ta ppeas,
were wrong.
rror not beng shown by the record, the petton Is dened.
rtce 331: When ncuded n gross ncome. I -43-7759
( so Secton 43, rtce 342.) Ct. D. 1024
INCOM T R NU CT O 1928 D CISION O COURT.
1. Gross Income M ed Cuus Commsson wabd.
n award receved by the ta payer n 1928 from the M ed
Cams Commsson on account of the destructon of a schooner
n 1917 was not n the nature of a gratuty but was compensaton
for the destructon of the property, and, havng had the beneft
of a deducton n the year 1917 for the cost of the schooner,
the entre amount of the award consttuted ta abe ncome n
1928, In the absence of a showng that the ta payer was not
on the recepts and dsbursements bass.
2. Deducton Loss.
company whch sustaned a oss of stores and suppes n
1917 but faed to take deducton therefor n that year Is not
entted to deduct the amount of the oss n any subsequent year.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 5 ) affrmed.
Unted States Crcut Court of ppeas fob the fth Crcut.
Marne Transport Co., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
abama).
efore ryan, oster, and Waker, Crcut udges.
pr 29, 1935.
OPINION.
Waker, Crcut udge: The pettoner sought a redetermnaton of an n-
come ta defcency assessed aganst It for the year 1928. That defcency
assessment was based upon the recept by pettoner In 1928 of the sum of
1,589.25 under an award made In ts favor by the M ed Cams Comms-
son, estabshed n pursuance of the agreement of ugust 10, 1922, between
the Unted States and Germany.
The facts as found by the oard of Ta ppeas, were as foows: The
pettoner, an abama corporaton, was organzed n 1917, and was dssoved
n March, 1930. oowng ts Incorporaton t bought the schooner nne .
Condon for 30,000. In October of the same year that schooner, together
wth stores and suppes whch cost the pettoner 2,200, was destroyed by
a German submarne. In ts ta return for 1917, whch dscosed recepts of
38,2 3.48 from the operaton of sad schooner, pettoner deducted 30,000
from gross ncome as a oss sustaned n the ta abe year. That deducton
was aowed by the respondent The above mentoned award was made on
account of the destructon of pettoner s schooner n 1917. That award was
based on a far market vaue of 50,000 for the schooner and 2,200 for the
suppes, ess nsurance and savage of 10, 85.71, or a net oss of 41,514.29,
pus nterest computed at 5 per centum per annum from November 11, 1918,
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191
42, rt. 331.
and a sma charge for the e pense of the M ed Cams Commsson. In
Its ncome ta return for 1928 the ta payer dscosed the recept of 1,580.25
from the M ed Cams Commsson, but dd not ncude that amount n ts
gross ncome. Upon audt the respondent added the entre amount of the
award to the ta payer s ncome, aowed certan camed deductons, and de-
termned the defcency now n queston. Ths acton of the respondent was
approved by the oard of Tu ppeas.
Upon the dssouton of the corporaton ts severa stockhoders, Peyton
Norve, Wam . Norve and Mrs. W. . engrath, receved dstrbutons
from the corporaton s assets n proporton to ther hodngs of stock theren.
Income ta defcences were assessed aganst the severa stockhoders for the
year 1928. ach of the stockhoders pettoned for a redetermnaton of the
defcency assessment aganst the stockhoders. The four proceedngs were
consodated for hearng. Pursuant to stpuatons n the cases n whch
the stockhoders severay were pettoners, the prntng of the records n
those cases was dspensed wth, each pettonng stockhoder admttng that
he, or she, Is abe as a transferee for any ta nganst the pettoner n ths
case whch may resut from ths court s fna decson n ths case. The
pettoner n ths case was sub|ect to ta defcency assessment, and was
competent to petton for a redetermnaton of the defcency assessed aganst
t under the abama statute (Code of abama, 1928, secton 7089) provdng
that a corporaton contnues as a body corporate for a perod of fve years
after dssouton, for the purpose of sung and beng sued, payng ts debts,
dstrbutng ts assets, and wndng up ts affars.
In behaf of the pettoner t was contended that the award mentoned was a
gft, a mere gratuty, whch, under secton 22(b)3 of the Revenue ct of 1928
(2 U. S. C. ., secton 2022(b)3), Is e cuded from gross Income.
In support of ths contenton the decson n the case of dwardg v. Cuba
Raroad Co. (2 8 U. S., 28 TT. D. 3728, C. . I -2, 122 ), was nvoked. In
that case It was decded that amounts contrbuted by the Cuban Government
to the ta payer, the aroad company, dd not consttute ta abe ncome of the
atter. The purpose of those contrbutons was to promote the pubc nterest
by encouragng and assstng n the constructon of a raroad n Cuba. It
was hed that amounts so receved by the ta payer were contrbutons to ts
capta, and nonta abe as such. The award In favor of the pettoner n
ths case was not of the nature of a gratuty or bounty, but was compensa-
ton e acted for the destructon of property. In the case of Unted States v.
Whte Denta Co. (274 U. S., 398 T. D. 4059, C. . I-2, 198 ), whch aso
was nvoked n behaf of the pettoner, t was decded that, pror to the
payment of an award of the M ed Cams Commsson, based on the ta -
payer s oss of ts nterest as a stockhoder n a German corporaton, the assets
and busness of whch were sequestered by the German Government durng
the war, the ta payer was entted to deduct from ts gross ncome for the
year n whch the sequestraton occurred the entre amount of Its nvestment
n that corporaton. The facts of that case are materay dfferent from those
of the nstant one, n that n the former, whe the queston of the ta payer s
ta abty was open, there was a mere possbty of t beng compensated
for the oss of ts nvestment, whe n the nstant ease the ta payer, durng
the ta year n queston, receved fu compensaton for the destructon of
ts schooner. The opnon n the ast cted case contans no ntmaton that
the amount of such an award as the one now n queston may not be ncuded
n the ta payer s gross ncome for the year n whch the ta payer receved
that amount. It appears from the opnon rendered In that case that the
court recognzed that, though the sequestraton n queston was wthn the
rghts of the German Government as a begerent power, the acquston by
the ta payer of a rght to be compensated by Germany for the oss of ts
nvestment mght be a consequence of the Unted States beng a vctor n the
war. rom the tme pettoner s schooner was sunk t was reasonaby to be
antcpated that, n the event of Germany gettng the worst of t n the
war, the payment by Germany to natonas of the Unted States of compen-
saton for ther property n|ured or destroyed durng the war by the German
Government or ts forces woud be e acted. That s what occurred. The
award made In favor of the pettoner was of compensaton for property
destroyed. The pettoner dd not receve from Germany a gft or gratuty.
Wth reference to a smar award made by a M ed Commsson created by the
Unted States and Great rtan, the court, n the case of Pheps v. McDonad
(99 U. S., 298, 303), sad: There s no eement of donaton n the payment
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42, rt. 333.
192
utmatey made In such cases. Natons, no more than Indvduas, make
gfts of money to foregn strangers. The dstncton between awards or
aowances of compensaton for oss of or n|ury to property or property rghts
due to acton by a government or Its agences, and governmenta subsdes or
bountes, consttutng contrbutons to capta, s ponted out In the cases of
Te as Pacfc Raway Co. v. Unted States (28 U. S., 285 Ct. D. 49 , 0. .
I-1, 2 31), Contnenta Te L. Co. v. Unted States (28 U. 8., 290 Ct. D.
494, C. . I-1, 2 0 ). The contenton under consderaton s not sustanabe.
What one receves for hs property In e cess of Its cost Is ncome. (Doye v.
Mtche ros. Co., 247 U. S., 179, 185 T. D. 2723 .) or ta purposes the pet-
toner recovered the cost ( 30,000) of the destroyed schooner by the aowance
of that amount as a deducton from ts gross Income for the year 1917. The
pettoner so havng had the beneft of recoverng the cost of the schooner n
the settement of Its ta abty for 1917, the amount of the award pad to
t n 1928 was ncome for that year. ( urnet v. Sanford rooks Co., 282
U. S., 359 Ct. D. 277, C. . -, 3 3 Putnam Natona ank v. Commssoner,
50 ed. (20), 158 Ct. D. 415, C. . -2, 249 Wchta State ank d T. Co. T.
Commssoner, 9 ed. (2d), 595 Ct. D. 847, C. . III-2, 187 , certorar
dened, 293 U. S., 5 2 Carr v. Commssoner, 28 ed. (2d), 551.)
The appcabe statute (secton 42, Revenue ct of 1928, 45 Stat., 791) re-
qures a tems of gross ncome to be Incuded In the gross ncome for the
ta abe year n whch receved by the ta payer, uness, under methods of ac-
countng permtted under secton 41 of that ct, such amounts are to be prop-
ery accounted for as of a dfferent perod. There was no showng as to
whether the pettoner used the accrua method of accountng or the recepts
and dsbursements method. The burden was on the pettoner to prove that the
respondent was In error In treatng the amount of the award pad to pettoner
n 1928 as ncome for that year. ( everng v. Tayor, 293 U. S.. 507, 515
Ct. D. 912, C. . I -1, 1 8 .) There beng no showng that the pettoner
at any tme used other than the recepts and dsbursements method of account-
ng, It was not made to appear that the amount pad on the award was m-
propery treated as Income of the pettoner In the year 1928.
The pettoner assgns as error the faure of the oard of Ta ppeas to
fnd that the M ed Cams Commsson made ts award to pettoner on pr
21, 192 . In the absence of a showng that at any tme the pettoner used the
accrua method of accountng, the date of the accrua of pettoner s rght to
receve the amount awarded was not matera.
s to the tem of stores and suppes, vaued at . 2,200, pettoner dd not
take a deducton therefor n 1917 or In any subsequent year. That oss havng
been sustaned In 1917, under Unted States v. Whte Denta Co., supra, was
deductbe n that year. The e tent of that oss havng been defntey ascer-
taned In that year, a deducton therefor may not be taken n a. subsequent
year. (DeLoss v. Commssoner, 28 ed. (2d), 803, certorar dened, 279
T . S., 840.) It foows that the amount of that oss was not deductbe from
the amount of the award receved by the pettoner n 1928.
The record showng no error, the petton s dened.
rtce 333: ampes of constructve I -35-7 72
recept. Ct. D. 100
ncome ta revenue acts of 192 and 1928 decson of court.
1. Income Dkdvcton Interest Payments on Note Gves n
Leu of mony.
The ta payer, benefcary under a testamentary trust created by
the w of s father, entered nto an agreement wth hs dvorced
wfe whereby t was stpuated that, n eu of amony and other
rghts secured to her by prevous separaton agreements, she shoud
he gven a promssory note sgned by the ta payer, and that a
porton of hs share n hs father s estate shoud stand as securty
for payment of the note. Thereafter varous payments of prncpa
and nterest were made to the wfe by the e ecutors and trustees
of the father s estate. Under these facts, the amount of the pay-
ments made n satsfacton of the note consttuted ncome to the
ta payer, wthout deducton of such part thereof as represented
nterest on the note.
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42, rt. 333.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 108 ) aff vmed.
Unted States Couet of ppeas fob the Dstrct of Coumba.
ohn M. Longyear, r., pettoner, v. Guy T. everng, Commssoner of Interna
Revenue.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn, Chef ustce, and Robb, an Orsde, tz, and Groner,
ssocate ustces.
March 18, 1935.
OPINION.
Martn, Chef ustce: petton for the revew of a decson of the Unted
States oard of Ta ppeas reatng to ncome ta es assessed aganst pettoner,
ohn M. Longyear, r., for the years 1925, 192 , 1927, and 1929. The decson
of the oard s reported n 28 . T. ., 108 .
It appears that ohn M. Longyear, the pettoner s father, a resdent of
Mchgan, ded testate on May 28, 1922, possessed of a arge estate, and hs
ast w and testament was duy admtted to probate n that State. y the
terms of hs w the testator drected that a resdue of hs estate composed
of both rea and persona property shoud be paced wth trustees n trust for
the purpose of coectng rents, Issues, and profts, wth power n the trustees
to nvest and renvest, and to se the corpus, and wth drectons to dstrbute
the ncome as we as the proceeds from the sae of the property share and share
ake to hs chdren, of whom pettoner was one.
t the tme of decedent s death pettoner was marred, hs wfe beng za-
beth . Longyear, but they were estranged and actuay separated from one
another.
On November 1, 1922, the pettoner whe n Me co e ecuted and devered
to hs wfe an nstrument of assgnment herenafter caed the Me can
assgnment, whereby he assgned to her for her support and the support and
educaton of ther two chdren a one-haf part of whatever sums of money
due or to become due to hm from the estate of hs deceased father. Thereafter
for a whe durng 1923 and a part of 1924 payments were made by the trustees
of the estate under ths assgnment to pettoner s wfe and chdren.
In October, 1923, a sut for dvorce was fed n the State of Nevada wheren
the pettoner was pantff and cross-defendant, and hs wfe was defendant
and cross-pantff.
On December 20, 1923, pettoner and hs wfe entered nto a wrtten agree-
ment n the State of Nevada whch by ts terms canceed the Me can agree-
ment. The Nevada agreement rectes n part that t was the ntenton of the
partes to sette a ther property rghts and to provde for the custody, man-
tenance, and support of ther chdren, and aso to provde for the future com-
fort, mantenance, and support of pettoner s wfe. In order to carry out the
purposes of the agreement pettoner e ecuted an assgnment whereby he as-
sgned to each of bs two chdren a one-egth nterest and to hs wfe a one-
fourth nterest n whatever sums of money or other property mght be due
or comng to hm from the estate of hs father, stpuatng theren that shoud
hs wfe remarry after recevng from the trustees of hs father s estate the
sum of 150,000 n money or property then her rght to any further dstrbuton
from pettoner s share of the estate shoud cease up n such remarrage and
that f she shoud remarry before she receved money or property to the vaue
of 150,000 from pettoner s share of hs father s estate, then and n that case
she shoud contnue after such remarrage to receve such payments as before
nnt the tota vaue receved by her shoud equa the sum of 150,000, and
thereupon her rght to any further dstrbuton from the estate shoud cease.
Ths agreement contaned the foowng provson:
rtce II. Mrs. Longyear does covenant and agree wth Mr. Longyear
that upon the fu performance of each and a of the covenants and agreements
heren contaned by hm to be performed, she does and w e pressy reease
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542, rt. 333.
104
Mr. Longyear from any and a cams or demands for amony pendente te or
permanent, cen.se money, attorneys fees, costs of sut, mantenance or
support.
On December 22, 1023, a decree of dvorce n favor of pettoner s wfe was
entered by the Nevada court n the dvorce case. The decree dssoved the
marrage between the pettoner and wfe, and approved the agreement entered
nto on December 20, 1923, supra, settng the property rghts of the partes and
provdng for the mantenance and support of Mrs. Longyear and the support,
educaton, custody, and guardanshp of the two mnor chdren.
Some tme after the date of the Nevada decree the e ecutors and trustees of
the estate of ohn M. Longyear, deceased, began to queston the vadty of the
assgnments made by pettoner to hs wfe, and refused to make any further
payments under them. Thereupon, on uy 7, 1924, pettoner s wfe n her
Indvdua capacty, and as guardan of the mnor chdren fed a b n equty
n the Crcut Court of Marquette County, Mch., askng a decree of the court
hodng .he assgnments vad and enforcng the terms thereof.
On December 29, 1925, whe the sut was pendng, the partes thereto. Incud-
ng the e ecutors and trustees of decedent s estate, and Mrs. Longyear Indvd-
uay and as guardan for the mnor chdren, entered nto a wrtten agreement
n settement of the varous questons rased n the case. Ths agreement was
duy fed n the crcut court and was approved by the court. The court n
Its decree hed that the agreement of December 29, 1925, was a |ust and reason-
abe settement of certan good-fath controverses arsng n and growng out
of the admnstraton of the estate of ohn M. Longyear, deceased, under hs
w, and thereupon decreed that a the controverses nvoved n the acton
be and hereby are forever setted, compromsed, and ad|usted n accordance
wth the terms of sad agreement.
s to Mrs. Longyear the settement agreement provdes for the payment to her
by the trustees of the sum of 12,500, and a further sum equa to nterest at the
rate of per cent per annum upon 150,000 from the 1st day of uy, 1925.
to the effectve date of the agreement. It aso provded for the e ecuton and
devery by the pettoner to her of a note bearng date as of the effectve date
of the agreement, for the payment to her of 150,000 together wth Interest at
per cent per annum and payabe on or before the 1st day of anuary, 1945.
The agreement was to be made a part of the note by reference on ts face. The
agreement aso provdes that there sha stand as securty for the note a
one-fourth part or porton of the share of the pettoner n the estate of hs
father, and that a dstrbutons from such one-fourth part from and after the
effectve date of the agreement and unt fu payment of the prncpa and
nterest of the note sha be pad to the hoder of the note, and apped frst to
the payment of any accrued Interest thereon and then on account of any baance
of the ndebtedness. copy of the agreement s contaned n the record.
Mrs. Longyear on her part reeased any and a rghts whch she had or
mght thereafter cam under the Me can or Nevada assgnments herenbefore
referred to.
fter the date of ths agreement varous payments of Interest on the 150,000
note and on account of the prncpa thereof were made drecty to Mrs. Long-
year as hoder of the note, by the e ecutors and trustees of ohn M. Longyear,
deceased, from the share of pettoner n the estate. of such payments and
dstrbutons were made In accordance wth the provsons of the settement
agreement. The dstrbutons ncuded a payment of 4,510.95 as nterest on
the note from uy 1, 1925, to December 30, 1925. Other payments of nterest
were made on the note by the trustees under the terms of the settement
agreement as foows, to wt: 5,812.33 n 192 5,237.07 n 1927 and 4,S00.2S
n 1929.
The Commssoner of Interna Revenue ncuded n the gross ncome of the
pettoner the foregong payments made to Mrs. Longyear by the trustees of
the estate under the terms and condtons of the agreement and decree of
the court above rected. The pettoner camed that the Commssoner erred
n ncudng these sums n hs gross returns upon the ground that they were
not pad to pettoner, nor receved by hm, but were n fact pad by the trustees
to hs dvorced wfe n her ndvdua rght and capacty. Pettoner therefore
prayed that the court shoud hod that the tems of ncome above referred to
were not hs ncome and. furthermore, that f they were hed to be ncome
receved by hm, he shoud be entted to deducton from hs gross returns for
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195
42, rt. 333.
such part of the payments as represented nterest upon the note for 150,000 hed
by hs wfe. Pettoner prayed that the defcences In ta determned by the
Commssoner for the years n queston be overrued and set asde, and that
no defcency order be entered for such years. The oard of Ta ppeas rued
aganst pettoner s contenton n both partcuars. Whereupon the present
petton for revew was fed n ths court.
We are of the opnon that the decson of the oard of Ta ppeas s correct.
It appears from the record that n the so-caed Nevada agreement, made
December 20, 1923, t was stpuated n contempaton of a dvorce between the
partes that the pettoner shoud make an assgnment of part of hs nterest n
hs father s estate to hs wfe and that she shoud accept the same n eu of a
cams or demands for amony, mantenance, and support. The decree of d-
vorce granted by the Nevada court two days thereafter approved of the terms
of ths contract provdng as stated for the future support and mantenance of
Mrs. Longyear. In the agreement made on December 29, 1925, t was stpuated
that Mrs. Longyear shoud reease the rghts secured to her by the Me can and
Nevada contracts and In eu thereof she shoud be gven a promssory note
sgned by pettoner, promsng to pay her the sum of 150,000 wth nterest
at the rate of per cent per annum, payabe on or before the 1st day of anu-
ary, 1945. It was stpuated that ths note shoud be secured by a en upon a
one-fourth part of the share of pettoner n hs father s estate, and that a
dstrbutons from such part from and after the effectve date of the agreement
and unt the fu payment of the prncpa and nterest of the note shoud be
made to the hoder of the note. These facts effectuay contradct any cam
that the pettoner had rrevocaby dvested hmsef of hs tte and Interest to
such share of hs father s estate as was sub|ected to the en of the pantff s
cam. e remaned the owner thereof, sub|ect to the en securng the pay-
ment of the debt. The debt was payabe on or before anuary 1, 1945, the pet-
toner thereby reservng the rght to pay the debt and dscharge the en at any
tme. The transacton does not sustan the cam that the pettoner had made
an rrevocabe assgnment of ths share of hs father s estate or the ncome
therefrom to hs former wfe. The case therefore fas wthn the prncpe
decared by ths court n ames McDonad v. everng, decded December 10,
1934 ( pp. D. C, ). In ths case as n that the ncome upon pettoner s
share of hs father s estate accrued to hm and became constructvey hs prop-
erty before t was pad upon hs ndebtedness by the trustees to hs former
wfe. (Lucas v. ar, 281 U. S., I Corss v. owers, 281 U. S., 37 Ct. D.
188, C. . I -1, 254 urnet v. Lennger, 285 U. S., 13 Luce v. urnet, 55
. (2d), 751 Lans v. urnet, 8 . (2d), 512.) ccordngy he was requred
to ncude the entre ncome In hs gross return.
The cam made by pettoner for a deducton of such part of the payments
made to Mrs. Longyear as pad nterest upon the note hed by her can not be
sustaned. The note represented amony secured to her by agreement between
hersef and her former husband. The obgaton dd not ose the character of
amony when Incorporated n the note. (Oman v. Commssoner, 53 . (2d),
47, 50.) It s we estabshed that money pad by a husband to hs wfe for
amony, or for the nterest upon an obgaton e ecuted for such a consdera-
ton, does not come wthn the e empton of nterest provded for by secton
214(a) of the Revenue ct of 192 (44 Stat., 9). In Goud v. Goud (245 U. S.,
151, 154), It s hed that amony pad monthy to a dvorced wfe under a de-
cree of court s not ta abe as ncome under the Income Ta ct of ugust 3,
1913 (38 Stat., 114, 1 ). It s sad by the court, page 154, that: The net
ncome of the dvorced husband sub|ect to ta aton was not decreased by pay-
ment of amony under the court s order and on the other hand, the sum re-
ceved by the wfe on account thereof can not be regarded us ncome arsng
or accrung to her under the enactment. In Treasury Reguatons 45, Revenue
ct of 1918, artce 291, It s sad: mony and an aowance pad under a
separaton agreement are not deductbe from gross ncome. In artce 73,
Idem, t s sad: Nether amony nor an aowance based on a separaton
agreement Is ta abe ncome. These provsons appear n Reguatons 2,
Revenue ct of 1921, artces 291 and 73 Reguatons 5, Revenue ct of 1924,
artces 291 and 73 Reguatons 9, Revenue ct of 192 , artces 291 and 73
Reguatons 74, Revenue ct of 1928, artces 281 and 83. ccordngy upon
both contentons of pettoner we sustan the decson of the oard of Ta
ppeas.
ffrmed.
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42, rt. 333.
19
ktce 333: ampes of constructve recept. I -4 -7799
Ct. D. 1032
INCOM T R NU CTS OP 1924, 19 , ND 1928 D CISION O COURT.
Income arnngs or Partnershp ssgnment Compensaton
fob Persona Servces.
The ta payer, after wthdrawa from a partnershp, oray agreed
wth the other member of the frm that the partnershp shoud re-
tan hs name as ts eadng member and that, n consderaton
therefor and n recognton of past servces, he shoud receve a
certan percentage of the recepts of the busness. e thereafter
assgned to hs former partner as trustee for hs wfe a sums due
or to become due to hm under the agreement. Under these facts,
the amounts pad to the wfe under the assgnment were ta abe
to the assgnor as earnngs n the nature of compensaton for
persona servces, wthn the meanng of the statute.
Unted States Crcut Court or ppea.b fob the rst Crcut.
Grace . mery, ecutr , pettoner for rcvetv, v. Commssoner of Interna
Revenue.
ppea from oard of Ta ppeas.
efore ngham, Wson, and Morton, .
une 20, 1935.
opnon.
Morton, .: Ths s an appea by the e ecutr of the deceased ta payer,
rederck L. mery, from an adverse decson by the oard of Ta ppeas
on assessments of addtona ncome ta es for the years 1924 to 1928, ncusve-
Mr. mery was a we-known patent awyer. s prncpa offce was n
oston. Many years ago he formed a partnershp wth Lucus . aruey,
another patent awyer, under the rm name of mery, ooth, auney arney
wth offces n New York Cty. Ths New York frm and the oston frm wrth
whch Mr. mery was connected forwarded busness to each other on an arrange-
ment between them. egnnng n 1922 t was arranged between mery and
Mr. arney that Mr. mery shoud no onger be a member of the New York
frm and shoud have no further nterest n ts busness that he shoud per-
mt the New York frm to retan hs name as ts eadng member, and n
consderaton thereof and n recognton of hs past servces to the frm he
shoud receve a certan sum or percentage of the recepts of the busness.
The amount to be pad was modfed from tme to tme by ater suppementary
agreements. Ths agreement was made oray between the two and was not
put nto wrtng. Important ponts are eft ndefnte, e. g., t does not appear
how ong the agreement was to ast, nor whether t was to termnate at mery s
death.
On 2 une, 1922, Mr. mery assgned to Mr. arney as trustee for Mrs.
mery a sums due or to become due to hm under ths agreement. Thereafter
a such sums were pad to her she returned them as her persona ncome
and pad ta es on them Mr. mery dd not ncude them n hs returns. On
reaudtng Mr. mery s returns the Commssoner hed tat the sums referred
to ought to have been ucuded n Mr. mery s ncome and he accordngy
assessed aganst hm the addtona ta es here n queston. The oard of
Ta ppeas sustaned the Commssoner s rung.
The genera prncpes of aw nvoved are not n dspute. The ncome of
property may, generay speakng, be assgned and, f assgned, ceases to
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43, rt. 342,
be ncome of the assgnor and becomes ta abe to the assgnee. ( a v. urnet,
54 ed. (2d), 443 Commssoner v. ed, 42 ed., 820 Neson v. erguson,
5 ed. (2d), 121.) On the other hand payments for persona servces are
aways due prmary to the person renderng the servces he remans the
owner of the rght or tte from whch the ncome sprngs. (Sacnger v.
Commssoner, 9 ed. (2d), 31 Luce v. urnet, 55 ed. (2d), 751.) When
such, earnngs are assgned, the assgnee takes as representatve of the assgnor
and the earnngs contnue to be ta abe to the assgnor. (Lucas v. ar, 281
U. S., I Luce v. urnet, supra Corss v. owers, 281 U. S., 37 Ct. D. 188,
C. . I -1, 254 .)
The queston n ths case s to whch of these two casses the sums pad by
Mr. arney to Mrs. mery under the assgnment from her husband beong. The
pettoner contends that the payments were made for the rght to use mery s
name that ths rght was a property rght, anaogous to the use of a trade-
name and that the payments were therefore fuy assgnabe. We do not
thnk that ths s a correct nterpretaton of the rather nforma arrangement
whch Mr. mery and Mr. arney made. The bass on whch that arrangement
rested was that Mr. mery had been for years the senor member of the frm
and had been of much vaue to t and that when he wanted to wthdraw, Mr.
arney as the ony other partner at that tme wshed to contnue to use the
od frm name and to recognze Mr. mery s past servces to the frm and to
hmsef. These crcumstances ed to the arrangement between them. In the
assgnment to Mrs. mery Mr. mery refers to hmsef as a member of the
New York rm and to the sums thereby assgned as earnngs of that frm.
Mr. mery dd not hre out hs name to a frm wth whch he had nothng
to do. Such an arrangement woud be unprofessona. On hs retrement from
the frm whch he had headed and had evdenty done much to bud up, he
arranged for the contnued use of hs name and for defnte payments due hm
from the earnngs. Such payments were dstncty persona n character,
bearng some anaogy to a prvate penson, and were not sub|ect to be assgned
ke the ncome of property. They were compensaton for persona servce
wthn the meanng of the statute and as such ta abe to the person entted
to them. ( an Meter v. Commssoner, 1 ed. (2d), 817, 818 Ct. D. 75,
C. . II-1, 207 .) That the sums n queston have been returned and ta ed
to Mrs. mery does not estop the Government from assessng the ta es n
queston. No such contenton s made. Doubtess the Commssoner w make
a far ad|ustment of ths phase of the matter.
The decson of the oard of Ta ppeas s affrmed.
ktce 333: ampes of constructve recept
R NU CT O 1928.
Treatment of dstrbutons made by budng and oan assocaton.
(See G. C. M. 155 5, page 105.)
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 342: When charges deductbe.
R NU CT O 1928.
aure to take deducton n year of oss. (See Ct. D. 1024, page
190.)
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44, rt. 355.
198
S CTION 44. INST LLM NT SIS.
htce 355: Gan or oss upon dsposton I -27-7588
of nstament obgatons. Ct. D. 987
INCOM T R NU CTS O 192 ND 1928 D CISION O COURT.
Income Instament Sae Gan oe Loss upon Transmsson or
Instament Obgatons by Death Consttutonaty of
Statute Retroactvty.
Where the decedent receved nterest-bearng promssory notes,
payabe over a perod of 10 years, as part of the consderaton for
the sae n 1027 of certan o-producng property, and eected to
treat the transacton as an nstament sae under the provsons of
secton 212(d) of the Revenue ct of 192 , the unreported porton
of the proft, measured by the dfference between the cost of the
notes and ther far market vaue at the date of the decedent s
death, March 27,1929, as provded by secton 44(d) of the Revenue
ct of 1928, consttuted Income to the decedent. The atter secton
s retroactve to the e tent of ts appcaton to an nstament
sae made before the effectve date of the ct, and s not unconst-
tutona as ayng a drect ta upon property. The secton paces
property receved as a proft by the decedent durng hs fetme
and transmtted by hs death n the same cass as the dstrbuton,
sae, or other dsposton of such property durng hs fetme.
Coubt op Cams of the Unted States.
Sarah . Moore, ecutr of the state of Martn . Moore, Deceased, v.
The Unted States.
March 4, 1935.
OPINION.
Ltteton, udge, devered the opnon of the court
In 1927 the decedent, Martn . Moore, sod hs nterest In certan o-pro-
ducng and for 1, 8, . 7, reazng a proft on such sae. Part of the con-
sderaton receved from the purchaser conssted of 10 nterest-bearng proms-
sory notes, each n the face amount of 100,000 payabe 1 each year for 10
years, begnnng wth the year 1928, and secured by a deed of trust on the
property sod. One of the notes of 100,000 was pad n 1928.
Martn . Moore ded March 27, 1929, and at the tme of hs death he was
the owner of the nne remanng notes, none of whch was due or pad.
these unpad notes became, upon Moore s death, a part of hs gross estate.
When the sae was made n 1927 the decedent eected to treat t as an nsta-
ment ae, under authorty of secton 212(b) of the Revenue ct of 192 , re-
portng as a proft thereon for 1927 and 1928 the proporton of the tota proft
that the payments receved by hm n those years bore to the tota payments
to be made under the contract by whch the sae was consummated.
The Commssoner of Interna Revenue, actng under the authorty of secton
44(d) of the Revenue ct of 1928, determned that the far market vaue of
the nne unpad notes owned by the decedent at the tme of hs death on
March 27, 1929, was 55,000 and that the cost aocabe to these notes out
of the cost of the property sod n 1927 was 4 1,099.47. The e ecutr does
not contest the correctness of ths determnaton. The dfference of 193,900.53
wns ncuded by the Commssoner as ta abe ncome of the decedent for the
perod anuary 1 to the date of hs death, March 27, 1929, resutng n an
ncome ta , whch, wth nterest thereon, amounted to 23,937.41. Ths ta was
assessed and pad. Thereafter a cam for refund was duy fed by the
e ecutr , whch cam was re|ected by the Commssoner November 30, 1932,
and ths sut was tmey nsttuted.
The defendant demurs to the petton on the ground that t does not set
forth facts suffcent to consttute a cause of acton enttng pantff to a
|udgment aganst the Unted States.
The queston rased by pantff s whether upon the death of the hoder of
certan unmatured promssory notes, receved as a part of the consderaton
for the sae of property n a pror year, an ncome ta may awfuy be co-
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199
44, rt, 355,
ected from the decedent for the perod pror to hs death upon a proft meas-
ured by the dfference between the cost of the notes and ther pror market
vaue at the date of death.
Secton 212(d) of the Revenue ct of 192 provdes that
Under reguatons prescrbed by the Commssoner wth the approva of
the Secretary, a person who reguary ses or otherwse dsposes of persona
property on the nstament pan may return as ncome therefrom n any
ta abe year that proporton of the nstament payments actuay receved
In that year whch the tota proft reazed or to be reazed when the pay-
ment s competed, bears to the tota contract prce. In the case (1) of a
casua sae or other casua dsposton of persona property for a prce e -
ceedng 1,000, or (2) of a sae or other dsposton of rea property, f n
ether case the nta payments do not e ceed one-fourth of the purchase
prce, the ncome may, under reguatons prescrbed by the Commssoner wth
the approva of the Secretary, be returned on the bass and n the manner
above prescrbed n ths subdvson. s used n ths subdvson the term
nta payments means the payments receved n cash or property other
than evdences of Indebtedness of the purchaser durng the ta abe perod n
whch the sae or other dsposton s made.
nd secton 44(d), Tte I, of the Revenue ct of 1928, provdes that
(d) Gan or oss upon dsposton of nstament obgatons. If an In-
stament 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 case 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 other-
wse than by sae or e change the far market vaue of the obgaton at the
tme of such dstrbuton, transmsson, or dsposton. 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 satsfed n
fu.
rtce 355 of Reguatons 74 provdes that
If an nstament obgaton s satsfed at other than ts face vaue or s
sod or e changed, gan or oss resuts to the e tent of the dfference between
(1) the e cess of the face vaue of the obgaton over the amount of ncome
whch woud be returnabe were the obgaton satsfed n fu and (2) the
amount reazed upon such dsposton.
If an nstament obgaton s dstrbuted, transmtted, or dsposed of
otherwse than by sae or e change, gan or oss resuts to the e tent of the
dfference between (1) the e cess of the face vaue of the obgaton over the
amount of ncome whch woud be returnabe were the obgaton satsfed n
fu and (2) the far market vaue of the obgaton at the tme of such ds-
trbuton, transmsson, or dsposton.
The entre amount of gan or oss resutng from the dsposton or sats-
facton of Instament obgatons sha be recognzed e cept as provded n
secton 112 and artces 571-581.
Pantff contends, frst, that death s not such an occurrence as w gve
rse to ncome n a consttutona or statutory sense and that secton 44(d),
supra, Imposes a drect ta upon property whch s vod for ack of apporton-
ment under rtce I, secton 2, cause 3, and rtce I, secton 9, cause 4,
of the Consttuton of the Unted States second, that secton 44(d) can not be
apped to a competed sae whch took pace pror to ts passage and, thrd,
that the Commssoner erred n computng the ta under secton 44(d) upon
the hoder of the promssory notes for the perod anuary 1 to March 27, 1929,
for the reason that t s the transmsson of the notes whch gves rse to the
supposed ta abe gan, and as such transmsson coud ony occur by reason
of death any gan derved woud be a gan to hs estate, a separate ta abe
entty, after hs death, and that the ta coected n ths case shoud be re-
funded because asserted aganst the wrong person for the wrong perod.
The questons presented n ths case have been decded by the Unted States
oard of Ta ppeas n favor of the Government n Oscar Lacer and Robert
R. Ross, ecutors, v. Commssoner (29 . T. ., 22 ) Provdent Trust Co.
of Phadepha, ecutor of the state of Oeen Osborne, v. Commssoner
(29 . T. ., 374) e ander M. Crane ct a. v. Commssoner (30 . T. .,
29), wth whch decsons we agree. The fact that the sae of the property
gvng rse to the proft n queston occurred before the effectve date of the
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44, rt. 355.
200
Revenue ct of 1928, Is, we thnk, of no consequence. To ths e tent sectoo
44(d) s retroactve. I Ross v. Commssoner, supra Oeorge W. Wams,
ecutor, state of rancs Wams, v. Commssoner, 30 . T. ., 134 .)
These cases hod that the appcaton of the secton denes no prvege whch
any Revenue ct ntended a decedent shoud en|oy. The anguage of the
secton shows that t was ntended to Impose the ta upon the unreported
porton of a proft on a sae where the hoder of the property, representng
such proft, ded after the passage of the 1928 ct or where the notes receved
were dstrbuted, sod, or otherwse dsposed of where death does not occur.
The ta aton of such proft does not ay a drect ta upon property.
cept for the prvege e tended by secton 212(d) of the 192 ct, any
proft receved upon a sae, such as the one made by the decedent n 1927,
woud have been ta abe n that year to the e tent of the far market vaue
of the Interest-bearng promssory notes receved by the decedent as a part
of a consderaton for the property sod. The decsons on ths pont are
unform. ven n ths case the promssory notes receved by Martn .
Moore at the tme of the sae woud have consttuted ta abe ncome n that
year to the e tent of the far market vaue f the cash payment receved at
the tme of the sae had e ceeded one-fourth of the saes prce of the property.
Ther nature, as Income under the s teenth amendment, was not changed
merey because Congress permtted the owner of such notes to postpone report-
ng such proft for ta aton unt the notes shoud be dstrbuted, sod, or
otherwse dsposed of durng hs fe or transmtted upon hs death. The
prvege e tended to a ta payer by secton 212(d) of the 1928 ct to defer
the payment of the ta unt the nstament obgatons had been qudated
does not by the e press provson of secton 44(d) e tend the stuaton
where death ntervenes whe some of the obgatons are yet outstandng.
In grantng the ta payer the prvege of deferrng the ta on the proft
arsng from a sae to some future year, the Congress dd not surrender ts
authorty to mpose the ta upon that proft upon the ta payer who receved
t, f the property representng the proft shoud be transmtted to others by
hs death.
In our opnon the thrd contenton made by pantff, that If a ta may be
egay Imposed upon an unta ed proft represented by the far market vaue
of notes when such notes are transmtted t fas upon the estate for the
ta abe .perod subsequent to the date of death rather than the decedent for
the perod pror to hs death, Is wthout mert. Secton 44(d) manfests a
cear ntent to ay the ta upon the gan represented by notes to the person
by whom such gan was derved, whch, n ths case, was the decedent. The
statute smpy wthdrew, smutaneousy wth death, the nstament prvege
e tended by the statute n force at the tme the sae was made n 1927.
The statute paces property receved as a proft by the decedent durng hs
fetme and transmtted by hs death n the same cass as the dstrbuton,
sae, or other dsposton of such property durng the ta payer s fetme.
contrary hodng woud resut n the proft, represented by the far market
vaue of the notes, escapng ta aton for the reason that the estate of the de-
cedent, beng a dstnct ta abe entty, s ta abe under the statute ony upon
the dfference between the far market vaue of such property at the date of
death and the amount utmatey reazed therefor.
The demurrer s sustaned and the petton Is dsmssed. It s so ordered.
rtce 355: Gan or oss upon dsposton of I -35-7 73
nstament obgatons. Ct. D. 1005
INCOM T R NU CT O 1928 D CISION OP COURT.
1. Gan or Loss Instament Sae Transmsson op Insta-
ment Obgaton Consttutonaty of Statute.
Where n ta payer, who ded on pr 1 , 1930, had sod rea
estate n 1929. takng payment n cash and a purchase money bond
and mortgage, and had eected to return the proft therefrom on
the nstament bass, as aowed by secton 44(b) of the Revenue
ct of 1928, the nstament obgatons were transmtted upon
the death of the ta payer, and gan resuted In 1930 to the e tent
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201
44, rt. 355.
provded by secton 44(d) of the ct That secton s not unconst-
tutona on the ground that t ncudes unreazed gans as
Income.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 29) affrmed.
Unted States Cbcttt Couht or ppeas for the Second Cbout.
e ander M. Crane and others, pettoners, v. Guy T. everng, Commssoner
of Interna Revenue, respondent.
Petton to revew an order of the oard of Ta ppeas, f ng a defcency n the pet-
toners ncome ta for the perod between anuary 1 ana pr 1 , 11)30.
efore L. and, Swan, and Chase, Crcut udges.
March 11, 1935.
opnon.
L. and, Crcut udge: Crane, the pettoners testator, who ded on pr
1 , 1930, had owned a parce of and snce before March 1, 1913, of whch he
sod a part on May 17. 1929. e receved n payment 10,000 In cash, and a
purchase money bond and mortgage for 390,000. The vaue of the and on
March 1,1913, was 125,000, and he eected under secton 44(b) of the Revenue
ct of 1928 to return hs proft upon an nstament bass, whch the Comms-
soner aowed. y the tme of hs death the bond and mortgage had been
reduced to 387,000, and ts far market vaue was 344,430. The ta payers,
Crane s e ecutors, fed a return under secton 44(d) on the assumpton that
by hs death the mortgage had been transmtted, n whch event the statute
made ts far market vaue the mnuend n an equaton of ta abe gan. The
ncome whch they so returned, the Commssoner rased, and they concede that
n so dong hs fgures were rght, but, beng now better advsed, they protest
the defcency and decare that they w demand a refund, because they were
entted to contnue to return ony the nstaments as they fe due. The oard
decded aganst ths poston and they appea (petton to revew).
s to the meanng of secton 44(d) the oard was certany rght. The fu
phrase s dstrbuted, transmtted, sod or otherwse dsposed of ds-
trbuted s fary apt to cover dvdends, and transmtted, to mean
devouton by w or by aw. It s, however, ony far to sny that the te t
s not entrey cear, and we are |ustfed n recourse to the reports of the
commttees of Congress. There had been a acuna n the aw as t had stood
n 1920, because when an obgaton receved upon a sae reached the hands
of a egatee, he coud use ts vaue at that tme as hs bass. Thus any
earer gan escaped ncome ta es e cept as to the nstaments aready pad
before the testator s death. It was to remedy ths that secton 44(d) was
amended. Ths appears very ceary from the report of the Ways and Means
Commttee of the ouse, and of the nance Commttee of the Senate.1 Thus:
Subsecton (d) contans new provsons of aw to prevent evason of ta es n
connecton wth the transmsson of nstament obgatons upon death, ter
dstrbuton by way of qudatng or other dvdends or ther dsposton by
way of gft or n connecton wth smar transactons. Transmsson
meant devouton by death. There remans, therefore, ony the queston of
consttutonaty, as to whch the argument s ns foows: The debt, though
secured by the property sod, may be of ess vaue than ts face when receved
usuay It s. If so, t s key to Increase between ts recept by the testator
and hs death, and secton 44(d) ta es that ncrease, though t s not rea-
zed. Under sner v. Macomber (252 U. S., 189 T. D. 3010, C. . 3, 25 ),
such an ncrease s not Income and s beyond the power of Congress under
the s teenth amendment. To ths t woud ndeed be answer enough to say
that no such stuaton here confronted the oard the e ecutors proved no
ncrease n the vaue of the bond and mortgage from the tme Crane took t
unt hs death. Normay no one may chaenge the vadty of a aw who s
not hmsef aggreved. Lousve d Nashve R. R. Co. v. nn, 235 U. S.,
1 ouse Report No. 2, Seventeth Congress, frst sesson, pages 14 and 1 Senate eport,
Seventeth Congress, frst sesson, pages 22 to 24.
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55, rt. 421.
202
01, 08.) ut we nre not content to eave the matter at arge. The statute
mght have ta ed at once a gan based upon the vaue of the bond and mortgage,
for that was reazed as soon as they were receved. (Pneas ee Co. v.
Commssoner, 287 U. S., 4 2 Ct D. C30, C. . II-1, 1 1 Rusk v. Comms-
soner, 53 ed. (2d), 428 (C. C. . 7) Wofson v. Renecke, 72 ed. (2d), 52
(C. C. . 7).) It s true that n these cases the obgatons were a short-
term notes, whe here It was a bond and mortgage but the prncpe s the
same n ether case. If a note or other promse, payabe n a ater ta abe
year, s reazed on ts recept, t can make no dfference how ong the
payment Is deferred whether for ten years, or for ony one. Secton 44(b)
gave the ta payer a prvege to avod such a ta f he wshed, but aff ed to
It the condton that f he ded, the vaue of the obgaton shoud be regarded
as then reazed. That rsk he was free to accept or not at hs peasure f
t chanced that the obgaton had rsen In vaue meanwhe hs eecton mght
prove a oss. It makes no dfference that the ncrease was Itsef unreazed
and perhaps beyond the powers of Congress to ta n nvtum. It was not so
ta ed t was ta ed wth the ta payer s consent and n consderaton of escap-
ng a ta of ndubtabe vadty. The sancton beng vad, the consequences
of ts coercon were aso awfu. ut If there be a remanng doubt, as
possby there mght be If the e acton had had no reaton whatever to ncome,
we may rest upon the ta aton of accrued gans when the ta payer keeps hs
books on an accrua bass. Those are as much unreazed as any putatve
ncrease here. The ta payer s consent s enough to sub|ect them to ncome
ta , snce they are a vountary substtute for assessments certany vad.
Order affrmed.
P RT . R TURNS ND P YM NT O T .
S CTION 55. PU LICITY O R TURNS.
rtce 421: Inspecton of returns.
R NU CT O 1928.
Commttee on grcuture and orestry, Unted States Senate.
(See T. D. 45 4, page 313.)
rtce 421: Inspecton of returns.
R NU CT O 1928.
Speca Commttee to Investgate Lobbyng ctvtes, Unted
States Senate. (See T. D. 4574, page 314.)
rtce 421: Inspecton of returns.
R NU CT O 1928.
Commttee on Interstate Commerce, Unted States Senate. (See
T. D. 4582, page 31 .)
rtce 421: Inspecton of returns.
R NU CT O 1928.
Reguatons governng preparaton and pubcty of wrtten dec-
sons n respect of overassessments of ncome and profts ta es
aowed n e cess of 20,000. (See T. D. 4583, page 318.)
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101, rt. 501.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. C PIT L N T G INS
ND LOSS S.
rtce 501: Defnton and ustraton of
capta net gan.
( so Secton 42, rtce 331.)
1 -41-7734
Ct. D. 1018
ncome ta revenue act of 1928 decson of court.
1. Income Sae of Stock Capta Gans.
Where the ta payers n 1922 contracted wth a corporaton and
ts subsdary to manage the corporatons for a certan perod and
were gven optons to purchase stock of the parent corporaton,
whch optons were e ercsed n 1927, the profts reazed upon the
sae of stock n 1928 were ta abe as ordnary ncome and not as
capta gans wthn the meanng of secton 101 of the Revenue
ct of 1928.
2. stoppe.
Where the ta payers n ther 1928 returns reported as capta
gans the proft upon sae of stock acqured by them n 1927 through
the e ercse of optons, and contnuousy mantaned that poston
unt after the statute of mtaton had run aganst ta es for 1927,
they are estopped by ther wrongfu acts and omssons from ater
assertng that the dfference between the opton prce and the far
market vaue of the stock at the tme they acqured t was com-
pensaton for servces.
3. Neggence Penaty.
Neggence penaty asserted pursuant to secton 293(a) of the
Revenue ct of 1928 and sustaned by the oard of Ta ppeas
was supported by substanta evdence that the ta payers were
neggent In fang to dscose the true date of acquston of stock.
4. Decson ffbmed.
Decson of the oard of Ta ppeas (27 . T. ., 1351) affrmed.
Unted States Crcut Court of ppeas, Tenth Cecut.
D. O. othce, pettoner, v. Commssoner of Interna Revenue, respondent.
. . Darby, pettoner, v. Commssoner of Interna Revenue, respondent.
On pettons to revew the decson of the Unted States oard of Ta ppeas.
Phps, Crcut udge, devered the opnon of the court.
The razos O Corporaton, herenafter caed the parent corporaton, was
organzed n 1918 wth an authorzed capta stock of 500,000 shares. Two
hundred and one thousand shares of such stock were Issued and outstandng on
une 28, 1922. It owned a of the stock of the razos Rver O Corporaton,
herenafter caed the subsdary. The two corporatons had not prospered, and
n 1922 ther offcas approached Darby, an e perenced and successfu o
operator, wth a vew to Inducng hm to accept the genera management of the
corporatons. Darby was unwng to assume the management of the corpora-
tons wthout an opton to acqure a substanta bock of the stock of the parent
corporaton, n order that he mght be In a poston to share n any benefts
efore Phps, McDermott, and eatton, Crcut udges.
pr 10, 1935.
OPINION.
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5101, rt. 501.
204
whch woud Inure to the corporatons from hs management, shoud It be
successfu.
Negotatons between the corporatons and Darby resuted n the e ecuton
concurrenty of two contracts on une 28, 1922, one between the parent corpora-
ton and Darby and the other between hm and the subsdary.
The contract wth the parent corporaton provded that Darby shoud serve
ns ts genera manager for a term of fve years wthout saary, and that the
parent corporaton woud cause the subsdary to enter nto a contract wth
Darby to act as ts genera manager aso for the same term at a saary of
12,000 a year.
It further provded: That Darby shoud have the opton to purchase 181,000
shares of the capta stock of the parent corporaton at any tme pror to une
30, 1927, at 2.50 per share, whch Its board of drectors had determned to be
the far vaue of ts stock on une 2 , 1922 that In the event of Darby s death,
hs persona representatve mght e ercse the opton wthn three months there-
after, and that any assgnee of Darby s mght e ercse the opton wthn ve
months thereafter and that, wth the e cepton of the 181,000 shares, and
20,000 shares whch mght be ssued to empoyees upon the recommendaton of
Darby as genera manager wth the approva of the board of drectors, no stock
of the parent corporaton shoud be ssued pror to the e praton of the opton,
and that no dvdends shoud be dstrbuted unt 300,000 had accumuated from
future earnngs or unt the opton had been e ercsed.
The contract wth the subsdary provded that Darby shoud serve as ts
genera manager for fve years at an annua saary of 12,000.
Tror to une 28, 1922, Darby had been assocated wth othwe n the o
busness, and he desred othwe s assstance In the management of such cor-
poratons. It was agreed that othwe shoud be empoyed as assstant man-
ager by the subsdary at a saary of 10,000 annuay. To Induce othwe to
accept ths empoyment, Darby agreed that othwe mght share n the op-
ton to the e tent of 40,000 shares.
y suppementa contracts entered Into on March 1 , 192 , ther terms of
empoyment were e tended to une 30, 1929, othwe s saary was Increased to
12,000 yeary, the opton prce on the stock was reduced to 2 a share, and
the reserve surpus requred before dvdends coud be decared, was Increased to
500,000. The reducton of the opton prce from 2.5 to 2 a share was made
because the atter fgure more neary represented the vaue of the stock In
une. 1922.
t the tme the orgna contracts were made, a group ownng the ma|orty
of the outstandng stock of the parent corporaton entered nto an agreement
creatng a votng trust for a term of fve years. The agreement provded for
fve votng trustees, of whch Darby and othwe were two, and that no vote
shoud be vad uness concurred n by four-ffths of the trustees.
Durng the years 1922 to 1924, ncusve, the corporatons earned no net
profts, but by 1927 they were prosperng and the stock of the parent corporaton
was seng for about 8 a share.
In December, 1927, Darby and othwe e ercsed ther optons and purchased
the stock at 2 a share. In 1928 Darby sod 9,943 shares at a net proft of
138,818.28, and othwe sod 9,000 shares at a net proft of 100,180. Indvdua
ncome ta returns for 1928 were prepared for Darby and othwe by account-
ants and fed. It was stated n such returns that the stocks sod were acqured
n 1922, and the above profts were reported as capta gans sub|ect to a ta
of 12 per cent under the provsons of secton 101, Revenue ct of 1928 (45
Stnt, 791, 811).
The Commssoner hed that n each case the proft was ordnary gan, sub|ect
to both the norma ta and surta , and proposed an addtona assessment
aganst Darby of 17,4 5.14, and aganst othwe of 10,141.89. 5 per cent
neggence penaty was aso proposed aganst othwe, based on hs faure to
report the true date of the acquston of the stock.
ach fed a petton for redetermnaton wth the oard of Ta ppeas.
othwe s petton was fed October 25, 1930, and Darby s ebruary 4, 1931.
oth pettons set up that the profts derved from the foregong transactons
were capta gans, and therefore not sub|ect to norma ta and surta .
mended pettons were fed by Darby and othwe on November 1 , 1932,
whch set out, frst, that the proft from the saes of stock was capta gan,
1 The oames of the two corporatons were changed to Darby Petroeum Corporaton
nm Darby Petroeum Corporaton of New York, respectvey, shorty after the contract
were e ecuted.
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205
t 101, rt. 501.
and second, If It was not, then part of t was compensaton for servces and
the cost of the stock shoud have been computed at the far market vaue
n December, 1927, or 8 a share. Nether Darby nor othwe reported any
part of the stock as compensaton for servces, n hs ta return for 1927.
The Commssoner, n hs answers to such amended pettons, set up that
Darby and othwe were estopped from makng the aternatve cam, because
of ther faure to report any part of the stock vaue as compensaton for
ervces, n ther returns for 1927. neggence penaty of 5 per cent was aso
asserted aganst Darby.
The oard sustaned the contentons of the Commssoner, and aso asserted
the neggence penaty aganst Darby.
Darby and othwe now concede they erred In reportng the ncome as
capta gan, but assert that the dfference between the opton prce and the
far market vaue of the stock at the tme they acqured It, was a reward for
ther servces. They contend the oard erred n hodng that the cost bass
for determnng the gan or oss on the transactons, was the opton prce
rather than the far market vaue n December, 1927, when the stock was
acqured.
If the dfference between the opton prce and the far vaue of the stock
In 1927 was compensaton for servces, then Darby and othwe were obgated
to report such dfference as Income In ther returns for 1927, and to pay the
ta thereon. y fang to report such ncome, each n effect decared that
no such ncome had been receved by hm. (Crane v. Commssoner (C. C. . 5),
8 . (2d), 40, 41 Ct. D. 852, C. . III-2, 247 .) urthermore, up to the
tme the amended pettons were fed, each had asserted that the ncome
receved by hm was capta gan rather than compensaton for servces. t
the tme the amended pettons were fed the statute of mtaton had run
as to the 1927 ta es. In Stearns v. Unted States (291 U. S., 54, 1 Ct. D. 780,
C. . III-1, 821 ) the court sad:
The appcabe prncpe s fundamenta and unquestoned. e who pre-
vents a thng from beng done may not ava hmsef of the nonperformance
whch he has hmsef occasoned, for the aw says to hm n effect ths s your
own act, and therefore you are not damnfed. (Doan v. Rodgers, 149 N. Y.,
489, 491 44 N. ., 1 7 and Imperator Reaty Co. v. Tu, 228 N. T., 447, 457
127 N. ., 2 3 quotng West v. akecay, 2 Man. O., 828, 839.) Sometmes
the resutng dsabty has been characterzed as an estoppe, sometmes as a
waver. The abe counts for tte. nough for present purposes that the
dsabty has ts roots n a prncpe more neary utmate than ether waver
or estoppe, the prncpe that no one sha be permtted to found any cam upon
hs own nequty or take advantage of hs own wrong. Imperator Reaty Co. v.
Tu, supra.) sut may not be but on an omsson nduced by hm who sues.
In skn d Marne Co. v. Commssoner (0. C. . 2) ( 0 . (2d), 77 , 778
Ct D. 80 , C. . III-1, 229 ) the court sad:
Whe the Commssoner must nvestgate returns to satsfy hmsef of
ther correctness n fact and aw, a ta payer may not beneft at the e pense
of the Government by msrepresentng facts under oath by succeedng n
havng the Commssoner accept ts representatons as the truth and by cam-
ng ater that what It represented to be true mght have been found fase had
the Commssoner refused to have fath In the sworn return. (Commssoner v.
Lberty ank d Trust Co. (C. C. .), 59 . (2d), 320.)
(See aso dward G. Stoartz, Inc., v. Commssoner (C. C. . 5), 9 . (2d),
33.)
Darby and othwe each havng decared n 1927 that no part of the vaue
of the stock was compensaton for servces, and havng contnuousy asserted
from 1928 unt after the statute of mtaton had run aganst ta es for 1927,
that the whoe of the proft derved from the sae of such stock was capta
gan, they are now precuded from assertng that a porton of the vaue of such
stock was compensaton for servces. They are barred from so dous by ther
wrongfu acts and omssons.
urthermore, we agree wth the fndng of the oard that no part of te
proft from the transactons nvoved here was compensaton for servces,
ta abe In 1927, but that the entre proft was derved from the sae of stock
n 1928, and snce the stocks were hed ess than two years (see secton 101 (a)
and (c)8, Revenue ct of 1928, 45 Stat., 811), the proft thereon was sub|ect
to norma ta and surta n 1928.
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5101, rt. 501.
20
Stock gven to an empoyee as remuneraton for servces s Income and ta -
abe at ts far market vaue at the tme t s receved. (Od Coony Trust Co.
v. Commssoner (C. C. . 1), 59 . (2d), 1 8 Crovce v. Commssoner
(C. C. . ), 02 . (2d), 51 Oson v. Commssoner (C. C. . 7), 7 . (2d),
72 Ct. D. 825, C. . III-1, 330 .) nd where a contract s entered nto
for the purpose of provdng a reward or remuneraton for servces, a ta abe
gan resuts to the e tent of the dfference between the cost of the stock and
ts far market vaue at the tme of devery. (See ppea of bert R.
rskne, 2 . T. ., 147 ngsbury v. Commssoner, 31 . T. ., .)
Darby and othwe rey prncpay upon the rskne case, supra. In that
case rskne, n addton to hs saary as presdent of the Studebaker Cor-
poraton, was gven the rght, by agreement, to e ercse an opton from tme
to tme to buy a certan number of company shares. The rght to e ercse
the opton was condtona. It accrued to rskne ony provded hs manage-
ment resuted In net earnngs by the company of not ess than a stpuated
amount. It was pany addtona compensaton for servces.
The stuaton here was materay dfferent. Darby and othwe were
empoyed as manager and assstant manager of the two corporatons. They
were gven optons to purchase stock In the parent corporaton at 2.5 a share,
whch was the vaue then paced upon the stock by the drectors of that corpo-
raton. No condtons attached to the optons. They coud-have e ercsed
them mmedatey, had they eected so to do. ad they e ercsed the optons
wthout deay, they woud have receved nothng more than they pad out, and
the future success of the two corporatons woud have Increased the vaue of
ther stock, or capta nvestment. No doubt the optons were Inducements to
them to enter nto the contracts of empoyment, but they consttuted a present
consderaton and not an agreement to pay for servces n the future.
There s no showng that the vaue of the optons n 1922 was n e cess of
the dfference between the opton prce of 2.5 a share and the then actua
vaue of the stock of 2 a share. bsent such a showng, we must concude
the entre gan was reazed n 1928.
nay, t Is contended that the oard erred In sustanng the neggence
penaty Imposed on othwe, and n mposng a ke penaty on Darby. The
penaty was asserted pursuant to secton 293(a), Revenue ct 1928 ( 45 Stat,
858).
The assessment of such a penaty Is a purey admnstratve act dependent
upon a fndng of the e stence of neggence. ( oard v. Commssoner (C. C. .
), 51 . (2d), 73.) Ths s conceded, but Darby and othwe contend that
under a rung by the Interna Revenue ureau In effect In 1928, they were
authorzed to add the perod of the optons and treat the stock as If acqured
n 1922.
The reguaton contans nothng to support the Interpretaton contended for.
It foows that the oard s fndng s supported by substanta evdence that
Darby and othwe were neggent n fang to dscose that the stock was
acqured In 1927, when the optons were e ercsed.
The udgments are affrmed.
. INCOM T R NU CT O 1928 D CISION OP COURT.
1. Gan ob Loss ercse of Opton Warrants change and
Sae of Stock Capta Gan.
Where the ta payer n 1925 purchased opton warrants on sock
of Corporaton whch were e ercsed n 1929, foowed by an e -
change of the stock thus acqured for stock and warrants of Cor-
Secton 293(a), Revenue ct of 1928. In part reads as foows:
Neggence. If any part of any defcency s due to neggence, or Intentona dsre-
gard of rues and reguatons but wthout ntent to defraud, per centum of the tota
amount of the defcency (n addton to such defcency) sha be assessed, coected, and
pad In the same manner as If t were a defcency.
I. T. 178 reads as foows:
In the case of stock acqured upon the e ercse of rghts, f the stock wth respect to
whch such rghts were ssued was acqured and hed by the ta payer for proft or
Investment for more than two years, he may eect to be ta ed upon the gan from th
sae of auch stock under the provsons of secton 20 of the Revenue ct of 1921.
rtce 501: Defnton and ustraton of
capta net gan.
I -Wr-7770
Ct. D. 102
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207
5101, rt. 501.
poraton, the gan derved from the sae ater In that year of Cor-
poraton stock was ta abe as ordnary proft and not as capta
gan, snce the 2-year perod for whch the property must be hed
to make t a capta asset began wth the acquston not of the
warrants but of the stock acqured through the e ercse of the pur-
chase rghts they gave.
Unted States Cbcut Court of ppeas fob the fth Crcut.
Commssoner of Interna Revenue pettoner, v. rancs P. Cummngs,
respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (dstrct of
abama).
efore btan, oster, and utcheson, Crcut udges.
May 1 , 1935.
OPINION.
utcheson, Crcut udge: Ths petton to revew a oard of Ta ppeas
decson questons the fndng of the oard that gans from 1,202 of the
2,800 shares of common stock of Commonweath Southern Corporaton the
ta payer sod n 1929 were capta assets, and the gans from ther sae,
capta gans.1 These shares and the 01 shares of .Southeastern Power
Lght Co. whch had been surrendered for them n what the partes have
agreed was a nonta abe e change, had been hed by the ta payer for ess
than two years before the sae. The chaenged fndng that the shares n
queston were capta assets s based upon the vew that they reay repre-
sent, were reay receved n e change for 01 opton warrants the ta payer
had bought n and had hed snce 1925. The case as stpuated s set out n
fu n the oard s opnon ( . T. ., ) to whch we refer. It there
appears that n connecton wth a sae n 1925 of ts god debentures the
Southeastern Power Lght Co. ssued opton warrants on ts common stock
at 50 a share. These opton warrants, e ercsabe at any tme, were detach-
abe and were traded n on the New York curb. In 1925 the ta payer, pay-
ng 3,510 for them, bought 01 of these warrants. In 1929 the Common-
weath Southern Corporaton, n acqurng the Southeastern Power
Lght Co., offered hoders of the outstandng securtes of that company, (a)
for each share of ts common stock 4 shares, and 2 warrants for shures
of the common stock of Commonweath Southern Corporaton, (b) or
each opton warrant 2 shares of common stock, and 1 warrant of Common-
weath. The ta payer coud have e changed hs 01 opton warrants drecty
wth Commonweath for 1,202 of ts shares and 01 of ts warrants. e
chose nstead to e ercse hs opton wth Southeastern. In une, 1929, pay-
ng It 30,050, he receved from t 01 shares of ts common stock. In the
same month he e changed these for 2,704 shares of the common stock, an
1,352 4 warrants of Commonweath. Durng 1929 pettoner made saes, on
dfferent days and at dfferent prces, of Commonweath stock, aggregatng
2,300 shares. It s stpuated that of the tota number of shares of common
stock and warrants of Commonweath receved by the pettoner 1,202 shares
of stock and 01 warrants were receved by reason of the pettoner s orgna
ownershp of the Southeastern opton warrants, and 1,502 shares and
751 warrants were receved by reason of hs addtona nvestment of
30,050. It s aso stpuated that n the sae of the 2,300 shares the pet-
toner reazed a proft of 27,27 .10. Of ths proft 25,121.81 was reazed
by reason of the sae for 28,080. 1 of the 1,202 shares of Commonweath stock
receved by pettoner by reason of hs orgna ownershp of the 01 opton
warrants. It s further stpuated that the proft s arrved at by deductng
from the seng prce the 3,510 the orgna warrants cost, ess 551.21,
the market vaue, at the tme of the e change, of the 01 warrants of Com-
monweath Southern the ta payer receved wth the 1,202 shares of common
stock. The Commssoner has a aong contended, and now contends, that
the entre proft s ta abe as an ordnary proft at the norma and sur ta
rates. e nssts that the 2-year perod for whch the property must be hed
to make It a capta asset began from the acquston not of the warrants, hut
Revenue ct of 1028 (ch. 852: 45 Stats., 791, secton 101(c)).
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101, rt. 501.
208
of the stock acqured through the e ercse of the purchase rghts they gave.
The ta payer has contended, and now contends, In accordance wth the
fndng of the oard, that the proft of 25,121.81 stpuated as the proft
arsng from the 1,202 shares of the common stock receved n e change
for the warrants shoud be ta ed as a capta net gan, and that the proft
of 2,154.29 stpuated as the proft derved from the sae of the shares
attrbutabe to the 30,050 cash, shoud be ta ed at the norma and sur ta
rates. e admts that what he dd n form and n fact was to e ercse hs
opton to purchase stock n the Southeastern and afterwards e changed them
wth Commonweath for Its stock and warrants. e nssts that what he
n fact dd was the same n substance and n resut as f he had devered hs
01 Southeastern optons to Commonweath, and pad t 30,050 cash, thus
e changng 01 warrants for 1,202 shares and 01 warrants of Commonweath,
and wth 30,050 purchasng 1,502 of ts shares and 751 of ts warrants. e
nssts that f he had done ths the Commonweath stock and optons thus
aocated to the Southeastern optons woud have been capta assets. e
Inssts further that snce t s stpuated that he coud have done that nstead
of what he dd do, t must be taken as setted by the stpuaton that what
he dd s the equvaent n fact and n aw, as to hs ta abty, of what he
coud have done.
The Commssoner ponts out that n fact the Southeastern warrants were
not e changed for stock- at a they were merey e ercsed n the purchase of
stock n Southeastern. e nssts that the stpuaton that the proft n
ueston was reazed by reason of the sae of 1,202 shares of the common
stock of Commonweath, receved by the pettoner by reason of hs orgna
ownershp of the 01 warrants, and the one that the proft from the sae of
the 2,300 shares shoud be aocated to 1,100 purchased and 1.200 e changed
shares, are stpuatons not of facts, but of concusons, drecty contrary to
what admttedy occurred. e urges that the stpuaton of these erroneous
concusons Is what has msed the oard nto reachng an erroneous decson
that the oard shoud have dsregarded these, and that we shoud now do so.
e nssts that what pettoner s ta abe stuaton mght have been f he had
merey e changed hs warrants wth Commonweath for ts stock and war-
rants, as under ts offer he coud have done, s whoy besde the mark, for that
Is not the case the facts make out. e nssts that a that occurred here was
the e ercse of rghts to purchase stock n Southeastern, foowed by an
e change of stock so purchased for stock and warrants of Commonweath, and
the subsequent sae of part of ths stock wthout aocaton of any knd at the
tme of the e change or of any of the saes. Why these concusons so out of
accord wth the rea facts were stpuated, s not made to nppear, but t does
ceary enough appear from the record that the concusons companed of are
not stpuatons of fact havng any bass n the record. They are merey
hypotheses arbtrary assumed on an as f bass, n an apparent effort to
scrbe to what was done the assumed effect of what mght have been done.
Stpuatons of matera facts made wth authorty must of course be regarded
n the decson of cases. (otca rdge Co. v. Commssoner, 39 ed. (2d),
777.) Stpuatons of concusons, wthout bass n facts, but contrary to them,
may not be. (Swft v. ockng aey R. R., 243 U. S., 281 Scft v. Com-
mssoner, 59 ed. (2d), 533 Unted States v. Pugh, 99 U. S., 205.)
Do the stpuated facts, the stpuated concusons re|ected, support the
oard s fndngs We do not thnk so. They show merey the ssuance and
purchase of stock optons on Southeastern stock, and the e ercse of these
optons by the purchase of the stock. They do not show the e change of
Southeastern optons for Commonweath stock. They do not even show, f that
were matera, that what the ta payer dd was the equvaent to hm of what
he coud have done. On the contrary, they negatve ths for t s defntey
stpuated that due to the market vaue of Southeastern stock the pettoner
found t to hs advantage to frst e ercse the opton warrants, and then make
the e change. Whether, f the ta payer had actuay e changed hs South-
eastern warrants for Commonweath stock the e change woud have been ta
free, we need not consder, though see our cases of ancker v. Commssoner
(7 ed. (2d), 1) and Prescott v. Commssoner (7 ed. (2d), 3), for no
e change was made. Ta aton does not concern tsef wth hypotheses, but
wth rea stuatons. everng v. artett, 71 ed. (2d), 598.) The rea
stuaton here s that detachabe stock rghts, purchased and owned detached
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209
101, rt. 501.
from the ownershp of stock, and havng a vaue of around 50 a rght, were
e ercsed. ad these warrants been sod, the gans woud have been ta abe
as ncome. (Metcafs state v. Commssoner, 82 ed. (2d), 192 Ct. D. 58,
C. . III-1, 219 everng v. artett, supra.) They were not sod, they
were e ercsed n the purchase of the stock. They were nothng but optons
to purchase stock. Nether ther purchase nor ther e ercse resuted n
ta abe gan. They came nto e stence as property when they were pur-
chased they dsappeared as property when, nstead of beng sod or e changed
as property, they were by ther e ercse merged nto the e ecuted contract
represented by the stock they gave the rght to buy. ( everng v. Comms-
soner artett , supra.) The shares thus acqured came to the ta payer as
new property. (Wood v. Commssoner, 75 ed. (2d), 3 4.) They may not
be consdered as standng for the optons upon the e ercse of whch they
were purchased, and therefore as hed for more than two years pror to ther
e change and sae. The resut of the facts stpuated s that whatever the
ta payer mght have done, what he dd do was to e ercse hs rghts to buy
stock that the e ercse of ths opton gave rse to no ta abe gan. It
merey put hm n the poston of acqurng shares of stock as new capta, as
to whch, when he sod them, he had to account for the profts on the bass
of ther cost, whch was the cost of the warrants, pus 30,050 cash pad when
the stock was acqured.
The oard erred n determnng the ta on a capta gans bass. The petton
s granted, the order of the oard s vacated, and the cause Is remanded to the
oard for further proceedngs not Inconsstent herewth.
rtce 501: Defnton and ustraton of I -49-7845
capta net gan. Ct. D. 1040
( so Secton 113, rtce 59 .)
INCOM T R NU CT OP 1928 D CISION O SUPR M COURT.
Gan or Loss Capta ssets Sae op Property cqured by
Genera equest or Under Intestate Law Constructon of
Statute.
Ta payers who acqured property by genera bequests and under
ntestate aws, and who sod such property more than two years
after the death of the decedents from whom tte was derved but
ess than two years after dstrbuton by the ega representatves
of the estates, are entted to treat the property as capta assets
under the provsons of secton 101(c)8 of the Revenue ct of 1928.
The date of the decedent s death s that from whch the perod
of hodng shoud be computed and not the date of dstrbuton.
Secton 101(c)8 s cear on ts face and deas soey wth the ten-
ure necessary to cam the rate aowed upon capta net gan and
s not Inconsstent wth secton 113(a)5, whch deas ony wth the
bass for the cacuaton of the ta n cases fang under secton
101(c)8. ach secton shoud be read as affectng the sub|ect to
whch aone It appes.
Supreme Court of the Unted States.
No. 24. Nancy . Mc eey, pettoner, v. Commssoner of Interna Revevue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
No. 110. The Unted States of merca, pettoner, v. The rst Natona ank of
oston ct a.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
No. 111. Guy T. everng, Commssoner of Interna Revenue, pettoner, v.
rances O. Lec.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
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101, rt. 501.
210
No. 439. Iufua R. Rand, r., pettoner, v. Guy T. everng, Commssoner
of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court ot ppeas for the ghth Crcut.
No. 494. Isabe . Dbbee, pettoner, v. Commssoner of Interna Revenue.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut
November 11, 1935.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
These cases were brought here ou wrts of certorar to resove a con-
fct between crcuts wth respect to the appcaton of secton 101 of the
Revenue ct of 1928,1 whch permts ta payers, at ther opton, to pay at
the rate of 12 per cent on capta net gans. Subsecton (c)(8), so far as
matera, s: Capta assets means property hed by the ta payer for
more than two years . Whether property acqured from a decedent
through ntestacy, or a genera bequest, : s, wthn the meanng of the cause,
hed by the ta payer from the date of the decedent s death or from the date
of dstrbuton, s the matter n dspute.
The ta payers are: n Nos. 110, 111, and 494, resduary egatees, n No.
24 the donee of a wdow who eected to take aganst her husband s w,
and n No. 439 one of those entted under the ntestate aws. In each
case the ta payer sod the asset more than two years after the death of
the decedent from whom tte was derved but ess than two years after ds-
trbuton by the estate s representatves. In each a return was made of
the proft on the sae as capta net gan ta abe at 12 per cent, but the
Commssoner refused to recognze the correctness of the returns and ca-
cuated the ta at the norma and surta rates payabe on ordnary ncome.
The oard of Ta ppeas sustaned the Commssoner n four of the cases.
In No. 110 the ta was pad and |udgment recovered In a sut for refund.
The Crcut Courts of ppeas of the Thrd, ghth, and Nnth Crcuts affrmed
the acton of the oard that of the rst Crcut reversed the oard n No.
I and affrmed the udgment of the Dstrct Court In No. 110.
The Commssoner contends that unt actua dstrbuton property can not
be sad to be hed by one havng an nterest n a decedent s estate, and, even
f ths be not true, secton 113(a)5, makng vaue at the date of dstrbuton
the bass for cacuatng gan n such cases, requres that the word hed
In secton 101 (a)8 be construed to set the same date as the tme at whch the
hodng sha begn.
The ta payers on the other hand assert that property s, n contempaton of
aw, hed from the date of acquston and one dervng property from a de-
cedent s estate through devse, bequest or ntestacy acqures the property at
the date of death and hods t from that date that so a pror cts usng
smar phraseoogy have been nterpreted by the Treasury that the reenact-
ment of these wthout sgnfcant change consttutes a egsatve confrmaton
of the admnstratve nterpretaton and that secton 113, havng to do wth the
bass for the cacuaton of the ta , can not ater the pan meanng of secton
101 whch prescrbes the ength of tme property must be hed to consttute
t a capta asset. We concude that the date of the decedent s death s
that from whch the perod of hodng shoud be computed.
In the Revenue ct of 1921, the frst whch granted a speca rate of ta
on capta net gan, secton 20 (a) defned capta assets as property ac-
qured and hed by the ta payer for more than two years. 1 rom
the correspondng sectons of the Revenue cts of 1924, 1920, and 1928, the word
acqured was omtted. cqured n the phrase acqured and hed was
mere surpusage and doubtess was eded from the ater cts for that reason.
Ch. 832. 45 Stat, 701. 811.
29 . T. ., 998 29 . T. ., 1070. Two of the oard s decsons are not reported.
7 . Supp., 915.
74 . (2d), 1017 : 7 . (2d), 200 70 . (2d), 203 75 . (2d), 017. The opnon of
the Crcut Court of ppeas of the ghth Crcut Is not reported.
42 Stat.. 233.
rst Natona ank v. Unted States (7 . (2d), 200, 202).
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211
101, rt. 501.
s Indcated In em ng v. eo York Trust Co. (292 C. S., 455, 4 9 Ct. D.
840, C. . III-1, 188 ), the omsson dd not change the meanng of capta
assets as defned n the earer ct
In common understandng to hod property Is to own t. In order to own or
bod one must acqure. The date of acquston s then, that from whch to com-
pote the duraton of ownershp or the ength of hodng. Whether under oca
aw tte to persona property passes from a decedent to the egatee or ne t of
kn at death sub|ect to a wthhodng or possesson for purposes of admnstra-
ton, or passes to the persona representatve for the purposes of admnstra-
ton the tte of the benefcary, though derved through the e ecutor, reat-
ng back to the date of death s for present purposes mmatera. In ether
case, the date of acquston wthn the ntent of the Revenue ct s the date
of death.
The Commssoner has heretofore admnstered the secton upon ths theory.
s respects the Revenue ct of 1921, he so rued n 1923, and agan In a very
fu memorandum n 1924. It was stated n brefs and at the bar that these
rungs have never been canceed or revoked, and the statement was not cha-
enged. The repetton of the defnton wthout matera change n the sub-
sequent cts, ncudng that of 1928, amounts to a confrmaton of the admns-
tratve nterpretaton. There s nothng n the secton, ts hstory, or the
admnstratve practce, to enarge or ater the connotaton commony ascrbed
to the word hed.
The Commssoner says, however, that Congress has undoubted power to set
the date of dstrbuton as the termnus a quo and that an e amnaton of the
whoe statute dscoses that the purpose wus to ater the pree stng rue to that
end.
In support of ths argument t s ponted out that secton 113, whch pre-
scrbes the bass for determnng capta gan or oss, radcay atered pre-
e stng aw on the sub|ect n such a way as to show an ntent to change
the norma meanng of the word hed n secton 101 (c)8. In the Revenue
cts of 1924 and 192 the sectons deang wth the bass for cacuatng capta
gan or oss provded that n the case of property acqured by bequest, devse,
or Inhertance, the bass sha be the far market prce or vaue of such property
at the tme of such acquston. s we have seen, n common understand-
ng, wth whch the admnstratve Interpretaton was n accord, the tme of
acquston n such cases s the tme of the decedent s death. The date for
ascertanng the basc vaue, and the date of commencement of the 2-year
hodng perod were, therefore, under these cts, Identca. Commttee reports
Indcate that by reason of doubt as to what s n fact the moment of acquston
by persons havng varous reatons to a decedent s estate, Congress resoved
arbtrary to f the bass for the cacuaton of capta gan or oss.
In consequence the ct of 1928, for the anguage used In the earer cts,
substtuted ths:
Property transmtted at death. If persona property was acqured by
specfc bequest, or If rea property was acqured by genera or specfc devse
or by Intestacy, the bass sha be the far market vaue of the property at
the tme of the death of the decedent. If the property was acqured by the
decedent s estate from the decedent, the bass In the hands of the estate sha
be the far market vaue of the property at the tme of the death of the
decedent. In a other cases f the property was acqured ether by w or by
Intestacy, the bass sha be the far market vaue of the property at the
tme of the dstrbuton to the ta payer. Secton 113(a)5.
7 T - ta payers In Nob. 24, 110, 111, and 439 contend that such a tbe aw In Pennsy-
vana. Massachusetts, New ampshre, and Mnnesota, where tbe devoutons In those
caaes respectvey occurred. (See Robertt v. ettnger, 184 Pa., 298, 309 Lathrop v.
Urrrm. 207 Mass., , 10 Carter v. Whtromb, 74 N. .. 482, 484 Granger v. arrman,
89 Mnn.. 303.) The opnon of the Crcut Court of ppeas n No. 494 dscoses that the
ta payer asserted that the aw of Caforna was the same. The court, however, dd not
dscuss or decde the pont, and we are referred to no pertnent authortes.
.Sec reurtter v. Gage (280 T . 8., 327, 834) and cases cted.
retctter v. Gage (supra). The queston there decded arose under the ct of 1921
and was dstnct from that now presented but as concerns date of acquston, whch
necessary determnes duraton of nodng, the decson Is authorty here.
I. T. 1 0 (C. . II-, 8 ) L T. 1719 (C. . II-2, 45).
I T. 1889 (C. . III-, 70). e had made the same runc under the Revenue ct
Of 1918: O. 1012 (C. . 2, anuary- une, 1920, 34). nd he so rued In answer to an
Inqury respectng the 1921 ct (Prentce a Ta Servce, 1923, 2703-2704).
everng v. Utt (293 U. S., 144).
Revenue ct of 1924, secton 204(a)5 (43 Stat., 258) Revenue ct of 192 . secton
204(a)5 (44 Stat., 14).
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101, rt. 501.
212
No change was made In the phraseoogy of secton 101(c) 8 from that used
In pror cts defnng capta assets as property hed by the ta payer
for more than two years. The argument for the Commssoner s that the
ateraton of the basa date necessary mpes an ntent to make a smar
ateraton n the orgn date of the hodng perod. We thnk the argument
can not preva. The commttee reports dscose no purpose to ater the
rue ad down n the earer statutes and reenacted n secton 101(a)8. Con-
gress must be taken to have been famar wth the e stng admnstratve
nterpretaton. The fact that the two sectons dea wth the same genera
sub|ect capta gans s cted In support of the Commssoner s poston that
they ought to be consstenty apped. There s, however, nothng nove In
the namng of arbtrary bass dates dfferng from the admtted dates of
acquston. The outstandng e ampe s the use of March 1, 1913, vaue n
certan cases for property theretofore acqured. Indeed subparagraphs ( ),
( ), and (C) of secton 101(c)8 f arbtrary dates for cacuaton of the
perod of hodng of capta assets whch dffer from the tme of actua acqus-
ton, showng that Congress, had t desred to change the connotaton of the
word hed, as used n secton 101 (c)S, coud ready have done so.
Counse urge that everng v. New York Trust Co. (supra), requres us to
construe secton 101(c)8 as f ng the same date for the begnnng of the
hodng perod as secton 113(a)5 sets for determnng the bass. We thnk,
however, that the case s not authorty here. The ct of 1021 e hbted an n-
consstency n that whe a donee was permtted to tack hs tenure to that of
hs donor, he was not permtted to use hs donor s bass. Ths nconsstency
fowed from a tera readng of the separate sectons deang wth these two
sub|ects. Such a resut the court hed woud run counter to the very pocy
and purpose of the capta gans rate reducton, whch was to encourage saes
of capta assets, and woud penaze the ta payer makng such saes. The
departure from the strct terms of the ct was |ustfed n order to secure hm
the beneft Intended to be conferred. The court was carefu to say The rue
that where a statute contans no ambguty, t must be taken teray and
gven effect accordng to Its anguage s a sound one . That rue was
hed nappcabe for the reasons stated.
ere the rue obtans that a ta ng statute, If of doubtfu Intent, shoud be
construed favoraby to the ta payer. To depart from the tera meanng of
secton 101 (c)8 woud be to penaze the ta payer by engthenng the perod
durng whch the capta asset must be hed n what s reay a snge owner-
shp to obtan the advantage of the reduced ta . Under these crcumstances
we ought not to depart from the pan meanng of the secton In an effort to
brng about a unformty whch It s camed Congress ntended but faed to
e press.
The nstant case Is much coser to everng v. ss (293 TT. S., 144 Ct D.
884, C. . III-2, 191 ), where the Government asserted that a secton n
terms appcabe to the ta payer s rght to make a deducton from gross ncome
shoud be modfed n meanng and effect by another deang wth a reated
topc reated n the sense that both sectons bore on the utmate amount of
the ta Independent, however, In the sense that one reated to the deducton
permtted n ascertanng ta abe ncome, whe the other f ed the rate of
ta on a porton of such ncome. We refused to modfy the obvous meanng
of the appcabe secton to accord, as was camed, wth the other.
further argument of the Commssoner s that, snce under secton 101
(c)8( ) the perod for whch the ta payer has hed property, however ac-
qured, s to Incude any perod durng whch such property was hed by any
other person f, under secton 113, the property has, for purposes of deter-
mnng gan or oss, the same bass n the ta payer s hands as t woud have
n the hands of such other person, t s mpossbe to construe secton 101
ndependenty of secton 113. It s sad that Congress has ceary ndcated
the successor n tte shoud not have the beneft of hs predecessor s tenure
when he was not requred to use the predecessor s bass, and, therefore, tenure
and bass are so connected n the two sectons that the one may not fary be
construed wthout reference to the other. The argument s not convncng.
Crookt v. arreson (2S2 U. S.. 55. 1).
Compare everng v. Tvn e Syndcate (293 D. S., 312), where the ta payer s
pca for modfcaton of the meanng of one secton based upon the nconsstency wth
another was dened. In that case both sectons bad to do wth depeton, the one wth
the cacuaton of tbe amount thereof, the other wth the apportonment of depeton
between the essor and essee.
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103, rt. 527.
The reference In subparagraph ( ) Is not to paragraph (a) (5) of secton
113 but to the entre secton whch embodes a number of nstances of the
arbtrary f ng of bass dates for ascertanng capta gan or oss. Sub-
paragraph ( ) has, on ts face, no reevance to the facts n the cases here for
decson.
We are of opnon that secton 101 (c)8 s cear on ts face that t deas
soey wth the tenure necessary to cam a rate of 12 per cent on capta net
gan as dstngushed from the norma and sur ta rate upon ordnary gan
that secton 113(a)5 deas ony wth the bass for the cacuaton of the ta In
cases fang under secton 101(c) 8 that the sectons are not nconsstent and
that each shoud be read as affectng the sub|ect to whch aone t appes.
No. 24. udgment reversed.
No. 110. udgment affrmed.
No. 111. udgment affrmed.
No. 439. udgment reversed.
No. 494. udgment reversed.
S CTION 103. MPTIONS ROM T
ON CORPOR TIONS.
rtce 521: Proof of e empton.
R NU CT O 1028.
Corporaton organzed for a busness actvty. (See I. T. 290 ,
page 11 .)
rtce 521: Proof of e empton.
R NU CT OP 1928.
utomobe nsurance company. (See G. C. M. 1574 , page 124.)
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1028.
Schoo, prncpa stockhoder and trustee havng power to reguate
hs own saary as nstructor. (See I. T. 2933, page 117.)
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1928.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
rtce 527: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1028.
Ordnary trust. (See G. C. M. 15778, page 118.)
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112, rt. 571. 214
rtce 530: Soca cubs.
R NU CT OP 1928.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 112. R COGNITION O G IN OR LOSS.
rtce 571: Recognton of gan or oss. I -33-7 52
Ct. D. 1002
INCOM T R NU CT OP 1928 D CISION O COURT.
Gan oe Loss change of Stock Convertbe ond Rue.
Where a company whch was organzed to hod the stock of
another company decded to reduce ts stock and rrevocaby agreed
to permt the e change of one share of ts stock for two shares of
stock of the other company, and the ta payer thereafter e changed
ts stock n the hodng company and ater n the same year sod
at a proft a porton of the stock so receved, a ta abe gan was
reazed upon the e change, under the provsons of secton 112 of
the Revenue ct of 1928, and the gan from the sae was sub|ect
to surta . The convertbe bond rue prescrbed n artce 15 3 of
Reguatons 45 Is not appcabe, snce the two companes were sep-
arate and dstnct enttes.
Unted States Cbcut Coubt of ppeas for the fth Crcut.
. T. Rose, ormer Coector of Interna Revenue, appeant, v. Trust Co. of
Georga, ecutor of the state of . . Goodrum, r., Deceased, appeee.
ppea from the Dstrct Court of the Unted States for the Northern Dstrct of Georga.
efore byan, oster, and utcheson, Crcut udges.
May 11, 1935.
opnon.
obtkr, Crcut udge: In uy, 1928, appeee was apponted e ecutor of the
estate of . . Goodrum, who had ded une 4 of that year, and receved
as part of the estate 1,488 shares of stock of the Coca-Coa Internatona
Corporaton, whch had been organzed for the purpose of retanng contro
of the Coca-Coa Co. n the hands of certan Southern nterests. The Inter-
natona corporaton obtaned a ma|orty of the stock of the Coca-Coa Co.,
whch t hed. It dd no other busness. Pror to the death of Goodrum, t was
decded to reduce ts stock and permt the e change of one share of ts
stock for two shares of the Coca-Coa Co. stock, whch t hed. y a seres
of resoutons, the e change prvege was made Irrevocabe. In uy and
ugust, 1930, appeee e changed the 1,488 shares of Internatona stock by
transactons wth four Indvduas, recevng n each nstance two shares of
stock of the Coca-Coa Co. therefor. Thereafter, n the same year, 100 shares of
the Coca-Coa Co. stock receved n e change were sod at an advance over
the bass of e change. ppeee made ts ncome ta returns for 1930 on the
theory that no gan resuted from he e change of stock and the gan on the
sae of the 100 shares was ta abe as a capta net gan, at the fat rate of
12 per cent. The Commssoner of Interna Revenue hed that ta abe gan
had resuted from the e change and the gan from the sae was sub|ect to
surta es. On that bass he determned a defcency whch wth Interest,
amounted to 18,870.83. Ths was pad to the then coector of nterna revenue,
appeant heren, and ths sut was brought to recover t back. The |ury was
waved and the case was submtted upon a stpuaton as to the facts. udg-
ment was entered n favor of appeee. Ths appea foowed. rror s assgned
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5112, rt. 571.
to the dena of a moton for |udgment In favor of defendant and to the
enterng of |udgment for pantff.
In the cases of ancker v. Commssoner ( . (2d), ) and Prescott v.
Commssoner ( . (2d), ), both decded March 12, 1935, we affrmed the
rungs of the Commssoner as to other e change transactons of the two
Stocks, smar to hs determnaton In ths case. We refer to the opnons
In the two cases |ust cted for a more compete dscusson of the hstory of
the Internatona corporaton.
Under the provsons of secton 112, Revenue ct of 1928, whch governs,
any gan or oss resutng from an e change of property must be recognzed,
uness the transacton comes under one of the fve e ceptons set up n subdv-
son (b) of the secton. It s conceded that these e ceptons do not appy n
ths case. It s further conceded that f the ancker and Prescott cases
appy, the |udgment shoud be reversed. owever, appeee seeks to ds-
tngush those cases on the ground that n the ancker case the ta payer
had no rght to demand an e change of stock and n the Prescott case the rght
of converson was not granted to the ta payer unt after she acqured the
Internatona stock. In support of an affrmance of the |udgment, It s argued
that the convertbe bond rue, recognzed by the Treasury Department n
artce 15 3 of Reguatons 45 and a number of Treasury decsons, shoud be
apped by anaogy.
The convertbe bond rue Is ths: Where a corporaton ssues bonds, whch
n themseves contan a provson that the bond may be converted nto stock
of the same corporaton, and an e change s made, ta abe gan or oss does
not resut unt the stock s sod. In the ancker and Prescott cases, supra,
we ponted out that the Coca-Coa Internatona Corporaton and the Coca-Coa
Co. were separate and dsnct enttes. stuaton anaogous to one comng
under the convertbe bond rue dd not arse. It s not shown n ths case when
Good ram acqured hs stock and, of course, the e ecutor woud be n no better
poston than the decedent, but In any event we consder t mmatera when the
rght to the e change accrued. There s no practca dfference between the
questons decded n the ancker and Prescott cases and those nvoved n ths
case. It foows that the |udgment appeaed from must be reversed.
Reversed and remanded.
rtce 571: Recognton of gan or oss. I -51 78 5
Ct. D. 1048
INCOM T R NU CT O 1928 D CISION OP COURT.
1. Gan or Loss change of Stock.
Where Y, a hodng company, authorzed an e change of shares
of ts stock for shares n Company, whch t controed, and the
ta payer, a stockhoder of , e changed hs shares wth another
ndvdua for shares n Y, the e change was a true converson of
the ta payer s capta nto a substantay dfferent nvestment,
and, the market vaue of the stock thus acqured beng much
greater than the amount orgnay nvested, a ta abe gan was
reazed upon the e change.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 14) affrmed.
3. Certorar Dened.
Petton for certorar dened October 14, 1935.
Unted States Crcut Court of ppeas fob the fth Crcut.
vert . ancker, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Lousana).
efore ryan, oster, and Sbey, Crcut udges.
March 12, 1935.
OPINION.
Sbey, Crcut udge: vert . ancker n the year 1930 owned 1, 00 shares
of common stock of the Coca-Coa Co. and 1,28 shares of ts cass pre-
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5112, rt. 571.
-21
ferred stock, whch he e changed wth another Indvdua for 800 shares of
common stock and 43 shares of cass preferred stock n Coca-Coa Inter-
natona Corporaton. The market vaue of the shares he acqured beng much
greater than the amount he had orgnay Invested, the Commssoner hed that
a ta abe gan had been reazed by the e change, and assessed a ta accord-
ngy, whch the oard of Ta ppeas sustaned. The contenton here s that
by reason of the reaton between the stocks the ta payer had after the e -
change |ust what he had before, and reazed no gan. The facts are not ds-
puted, the most matera ones beng the foowng: In 1919 the Coca-Coa Co.
was reorganzed under the aws of Deaware and a ts stock paced In the
hands of a votng trust, the trustees Issung votng trust certfcates to repre-
sent the stock hed by them. In 1922 the Coca-Coa Internatona Corporaton
was organzed under the aws of Deaware, and ts capta stock e changed
share for share for sad votng trust certfcates unt t had more than a
ma|orty of them, after whch the votng trust was dssoved and the new
corporaton hed more than a ma|orty of the shares of the Coca-Coa Co. and
thus controed It, the other shares of the atter beng hed by members of
the pubc. In 1920 a resouton was passed by the drectors of Internatona
and ratfed by ts stockhoders whch rected that no debts were owng and
that t desred to reduce Its capta stock, and t therefore Irrevocaby author-
zed every sharehoder at any tme ownng Its shares to e change, by payng
a sma transfer fee, any number of shares for an equa number of shares of
Coca-Coa, share for share, ts own stock so receved to be retred and ts
capta stock thereby reduced. The charter was amended so as to permt such
reducton. Thereafter the Coca-Coa Co. made a stock dvdend of 100 per cent,
whereby each share of the Internatona stock came to be entted to two shares
of Coca-Coa stock and when the Coca-Coa Co. ssued ts cass preferred
stock as a further stock dvdend the Internatona Issued ts cass stock
havng ke condtons and atered ts resouton touchng stock retrement so
that each of ts common or cass shares coud be e changed for two ke
shares of Coca-Coa. Internatona had no substanta assets save ts Coca-Coa
stock, and no Income e cept the dvdends from t whch, after retanng a
sma amount for corporate e penses, t pad out as dvdends to ts share-
hoders. The stocks of both companes were sted on the Stock change,
and the market prce of Internatona shares was usuay ust doube that
of the correspondng Coca-Coa shares. To what e tent the capta stock of
Internatona has been reduced by retrements does not appear. ancker dd
not surrender hs Internatona stock, but had new certfcates ssued n hs
name and retaned t.
The ncome ta amendment speaks of ncome from whatever source
derved. It s we setted that the mere Increase n vaue of property hed
does not make ta abe ncome, but that t must be reazed by some severance
or change of nvestment. sner v. McComber Maoomber , 252 U . S., 189,
207 T. D. 3010, C. . 3, 25 Trust Co. of Georga v. Rose, 25 ed. (2d),
997.) money-measured sae or an e change for property havng a ready
ascertanabe market vaue s the usua means of reazaton recognzed by
the statutes. See Revenue ct of 1928, sectons 111, 112. ut dffcutes
arse touchng corporate stocks. stock dvdend though representng an
ncrease of vaue n corporate assets s no reazaton of ncome by the stock-
hoder. (Towne v. sner, 245 U. S., 418.) nd surrender of stock n a
corporaton for an equa proporton of stock n a reorganzed corporaton
takng over the former s busness may not represent any rea converson
of the stockhoder s capta. (Wess v. Steam, 2 5 U. S., 242 T. D. 3 09,
C. . III-2, 51 .) ut f there are dfferences n the corporate powers and
n the terms of the stock certfcates, there may be a rea e change suffcent
to reaze gan or oss. (Marr v. Unted States, 2 8 U. S., 53 T. D. 3755,
C. . I -2, 11 .) The ta aws make substanta dfferences between Ind-
vduas and corporatons, and n ta matters the tendency s not to gnore
the corporate entty uness t be used to defraud the aw, but rather when
natura persons are usng corporate forms to do ther busness they and ther
corporatons are hed to the tera consequences. (Panters O Co. v. opkn,
28 U. S., 332 Ct. D. 492, C. . I-1, 153 Daon v. ooers, 287 U. S.,
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217
113, rt. 591.
404 Ct D. 21, C. . II-1, 177 urnet v. Commonweath Improvement Co.,
287 U. S., 415 Ct D. 22, 0. . II-1, 277 New Coona Ice Co. v. everng,
292 U. 8., 42 Ct. D. 841, 0. . III-1, 104 .) Notwthstandng the cose
reatonshp mantaned n 1930 between the shares nvoved n ancker s
e change, they were essentay dfferent. The corporatons though organzed
under the same aw probaby had dfferent corporate powers and certany
were engaged n whoy dfferent actvtes. share of Coca-Coa stock
entted ts owner to vote n the meetngs of that company, to draw dvdends
drecty from t and to share n ts assets on dssouton. share of Inter-
natona coud at the hoder s opton be used to make hm the hoder of two
shares of Coca-Coa, but unt ho e ercsed the opton he was entted ony
to vote n the meetngs of Internatona, to receve such dvdends as t
decared, and on dssouton to share n ts then assets. So ong as Inter-
natona hed a ma|orty of the stock of Coca-Coa t controed the atter,
and because of ths fact Internatona stock mght have an added vaue.
On the other hand, If Internatona s Interna management shoud become
e travagant or dshonest, ts stockhoders mght ose ther dvdends and even
ther capta, athough Coca-Coa contnued to prosper. The charter of Inter-
natona authorzes It to dea n a sorts of bonds, stocks and property, rea
and persona. It coud no doubt, at east by further charter amendment, put
an end to Its stock retrement, se out ts Coca-Coa stock, and enter on
actvtes of qute another sort Uness there was a rea dfference between
the stocks, a shares of Internatona woud ong snce have been retred,
and uness ancker saw some dfference between hs beng a stockhoder n
Coca-Coa and n Internatona he woud not have ncurred the troube and
e pense of makng the e change. It was a true converson of hs capta
nto a substantay dfferent nvestment and served to reaze and to measure
the gan he had from hs orgna purchase of Coca-Coa stock. The petton
to revew Is dened.
S CTION 113. SIS OR D T RMINING
G IN OR LOSS.
rtce 591: ass for determnng gan or I -34-7 3
oss from sae. Ct. D. 1004
INCOM T R NU CTS OP 192 ND 1028 D CISION O COURT.
1. Gan ob Loss ass ab Market aue of Stock Opnon
vdence urden op Pboof.
Where the record contaned undsputed evdence as to the far
market vaue as of March 1, 1913, of certan stock, showng many
actua saes between anuary and uy, 1913, a st of pubshed bd
and asked quotatons wthn that perod, and ncome ta returns of
an offcer of the company statng the far market vaue of the stock,
and where the ta payers presented opnon evdence before the
oard of Ta ppeas as to the March 1, 1913, vaue, the oard
erred n acceptng ths specuatve evdence as the bass for f ng
vaue, snce t acked substantaty In vew of the evdence as to
actua market saes, the number of transfers, and the sworn Income
ta returns. Such evdence was nsuffcent to sustan the ta -
payers burden of provng that the vaue determned by the Com-
mssoner was ncorrect.
2. Decson Reversed.
Decson of the oard of Tu ppeas (28 . T. ., 53) reversed.
3. Certorar Dened.
Petton for certorar dened une 3, 1935.
47318 30 8
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113, rt. 591.
218
Unted States Crcut Court of ppeas, S th Cbcttt.
Commssoner of Interna Revenue, pettoner, v. . O. Robertson, respondent.
Commssoner of Interna Revenue, petoner, v. C. . Chapman, respondent.
Pettons to revew decsons of the Unted States oard of Ta ppeas.
efore Moorman, cks, and en, Crcut udges.
ebruary 8, 1935.
OPINION.
en, Crcut udge: These cases were consodated and heard as one before
the oard of Ta ppeas. They nvove edera ncome ta es for the years
1927 and 1928, the Commssoner determnng a defcency aganst Robertson for
each year, and aganst Chapman for 1928 ony. The soe queston before the
oard of Ta ppeas was as to the far market vaue of the common stock f
the restone Tre Rubber Co. on March 1, 1913, wthn the meanng of
sectons 204(b) of the Revenue ct of 192 and 113(b) of the Revenue ct of
192a
The Commssoner found that the stock had a far market vaue of 310.24 per
share on March 1, 1913, whe the oard of Ta ppeas decded that the stock
had a far market vaue on the basc date of 550 per share.
The cases rase the same ega queston as that nvoved In Robertson v.
Routzahn, Coector, No. 374, ths day decded. The record presents much of
the same evdence as In that case, but contans fuer evdence on the queston
of actua market saes and far market vaue. It presents not ony a st of
actua saes reported to red S. orton, a Ceveand broker, but aso a st of
27 saes of restone stock made by Care pp, an kron broker, from anuary
4, 1913, through uy 24, 1913, the hgh prce beng 3 0 and the ow beng
230. ght shares were sod by pp on March 5, 1913, for 300 each, and on
March 10 he sod 10 shares for 297 each. In addton, a st of bd and asked
quotatons reatve to restone stock, pubshed In the kron eacon- ourna
by Care pp Co., brokers from ebruary 1, 1913, to May 17, 1913, wns
admtted wthout ob|ecton. It comprses 107 separate quotatons, most of
them gvng both bd and asked prce. The bds vared In amount from 3f0
on ebruary 3 to 220 on une 12. The asked prce vared from 3 2 to 231.
On March 1, 293 was bd and 298 asked. Ths sheet, taken together wth the
st of actua saes made by pp, corroborates the fndng of the Commssoner.
Durng ebruary, March, pr, and May, appro matey S00 shares of re-
stone common stock were transferred. bout 20 per cent of ths was trans-
ferred to Insders. Ths evdence shows that upon the basc date there was
an actua market of wng seers and wng buyers.
The record aso contans respondent Robertson s sworn ncome ta returns
for the years 1923 and 1924, n whch he stated that the vaue of ths stock on
March 1, 1913, was 293 a share. Robertson, from 1909 to 1922, was treasurer
of the restone company. In hs testmony he sad the stock was worth n
e cess of 750 a share.
ohn Grmes, vauaton e pert, made a fuer statement than In the ta
refund case. e gave t as hs opnon, based upon restone earnngs for one
year pror to March 1, 1913, captazed at 13 per cent, that the far market
vaue of the stock on the basc date was 300.
S. G. Carhuff, secretary of the company, sad he woud not have sod hs
common stock upon the basc date for ess than 700 or 800 a snare.
red S. orton stated that the saes reported to hm dd not represent far
market vaue, but aso decared that he coud not say that one of these saes
was forced, and that he woud not advse a purchaser to pay more than the
current market prce.
. L. Swnehart, an accountant, gave opnon testmony based upon varous
hypothetca estmates and upon varyng degrees of captazaton, that the far
market vaue of the stock on the basc date wns not ess than 00 a share.
The record shows that the oard, n makng ts vauaton, accepted ths
specuatve evdence as the bass of ts fndng. In our opnon t acks snh-
stantaty n vew of the undsputed evdence as to the prces at whch the stock
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219
115, rt. G21
was sod, the number of transfers, and the sworn ncome ta returns of Robert-
son. Snce t was not substanta, t was an error of aw for the oard to
accept t as a bass for f ng the vaue as of March 1, 1913.
The ad|udcatons upon whch respondents prncpay rey, Unted States v.
Phps (12 ed. (2d), 598), affrmed upon ths pont, and reversed upon another
queston n 24 ed. (2d), 195, and Rener, Coector, v. Crosby (24 ed. (2d),
191), were cases of vauaton n whch the Commssoner consdered saes upon
certan soated dates as f ng the far market vaue.
On the other hand, n Commssoner v. Swenson (5 ed. (2d), 544 (C. C. .
5) Ct. D. 555, O. . I-2, 184 ), the oard of Ta ppeas was reversed upon
the ground that t shoud have consdered the prvate sae of stock at par for
cash to acquantances and od stockhoders, and erred n hodng that the stock
had no market vaue.
In Rce v. sner, Coector (1 ed. (2d), 358 (C. C. . 2) T. D. 3974, C. .
I- 1, 182 ), the court hed that the sae of 1,215 shares of common stock of
the company and 425 shares of ts preferred stock on the New York Cur) -
change when t was oosey organzed was not too meager to requre submsson
to a ury of the queston of vaue.
In Penney d Long, Inc., v. Commssoner (39 ed. (2d), 849 (C. C. . 4)),
the court reversed the acton of the oard of Ta ppeas, basng ts reversa
upon the ground that the ta payer sustaned the burden before the oard of
overturnng the fndng of the Commssoner by showng that stock was sod n
a comparatvey arge quantty at par, even though t was sod argey to frends
and reatves of the ncorporators of the pettoner company.
These decsons n prncpe support the present hodng.
t the hearng before the oard of Ta ppeas the burden was on the ta -
payer to prove that the vaue paced on ths stock by the Commssoner was
Incorrect. ( otany Worsted Ms v. Unted States, 278 U. S., 282 Ct. D. 39,
C. . III-1, 279 Wckwrc v. Renecke, 275 U. S., 101 T. D. 412 , C. .
II- 1, 31 Unted States v. nderson, 2 9 U. S., 422 T. D. 3839, C. . -,
179 Unted States v. Mtche, 271 U. S., 9 T. D. 38 5, C. . -, 233
ustn Co. v. Commssoner, 35 ed. (2d), 910 (C. C. . ) Ct D. 189, C. .
I -1, 332 Lousve Cooperage Co. v. Commssoner, 47 ed. (2d), 599 (C. C.
. ) very v. Commssoner, 22 ed. (2d), (C. C. . 5) T. D. 411 , C. .
II-1, 155 rown v. Commssoner, 22 ed. (2d), 797 (C. C. . 5) shoff
v. Commssoner, 27 ed. (2d), 91 (C. C. . 3).) ere the respondents dd not
sustan the burden.
The order and decson of the oard of Ta ppeas s reversed and the cause
s remanded for further proceedngs.
rtce 59 : Property transmtted at death.
R NU CT OP 1928.
Sae of property acqured by genera bequest or under ntestate
aws. (See Ct. D. 1040, page 209.)
S CTION 114. SIS OR D PR CI TION
ND D PL TION.
rtce 11: ass for aowance of deprecaton
and depeton.
R NU CT OP 1928.
Depeton aowance n the case of an ntercompany transferee
where dscovery made by ntercompany transferor. G. C. M. 1345
(C. . I-2,154) revoked n part. (See G. C. M. 15215, page 1 2.)
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115, rt. 21.
220
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 21: Dvdends. I -38-7 99
Ct D. 1011
INCOM T NU CTS O 192 ND 1028 D CISION O COU T.
1. Income Testamentary Trust traordnary Cash Dv-
dends State Law edera Law.
Where the decedent, who ded on May 12, 1925, bequeathed In
trust certan persona property, the ncome therefrom to be pad
to fe benefcares wth remander over as to prncpa, e traor-
dnary cash dvdends pad to the trustees n 1027 and 1929 upon
stocks whch formed a part of the trust estate consttute ncome
to the e tent that they were pad from earnngs accumuated
snce ebruary 28, 1913, under the provsons of sectons 201 and
213(a) of the Revenue ct of 192 and sectons 22(a) and 115 of
the Revenue ct of 1928, regardess of the State aw whch hods
that such dvdends accumuated pror to the decedent s death and
dstrbuted thereafter consttute trust corpus. The edera aw
contros as to what s a dvdend and as to what s ta abe
Income.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 731) affrmed.
Unted States Crcut Court of ppeas for the Thrd Crcut.
a P. urdck, Trustee, state of oe W. urdck, Deceased, pettoner, t.
Commssoner of Interna Revenue, respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffnoton, Wooey, and Thompson, Crcut udges.
March 21, 1935.
opnon.
Wooey, Crcut udge: On May 12, 1925, oe W. urdck, a resdent of
Pttsburgh, Pa., ded. y hs w he bequeathed In trust the most of hs
persona property, the ncome to be pad to bs sster and wfe for ther ves
wth remander over as to prncpa. mong the assets of the trust estate
were 1,350 shares of stock of West Penn Stee Co., vaued for estate ta pur-
poses at 425 per share. Ths substanta vauaton was based n part on the
company s arge surpus consstng many of cash and Government securtes.
In 1927 and 1929, when the shares were st a part of the corpus of the trust,
the Stee company, n each year, decared an e traordnary cash dvdend out
of Its surpus, stpuated to be earnngs and profts accumuated snce ebruary
28, 1913. The trustees retaned for the remandermen the part of the dvdends
pad from earnngs whch had accumuated before May 12, 1925, the date of the
testator s death, and dstrbuted the part whch had accumuated snce that
date to the fe benefcares. The orphans court approved the trustees account
showng these dstrbutons and showng aso that the amount at whch the
shares had been carred was reduced by the amount of the dvdends retaned,
and that by the dvdends retaned the corpus of the trust was restored to ts
orgna eve. The trustees made ncome ta returns dscosng the dvdends
but assertng the amount retaned was a return of capta and therefore not
ta abe.
Opposed to the reducton of ta aton, consequent upon ths dstrbuton, f
vad, the Commssoner of Interna Revenue ncuded the entre amount of the
dvdend receved by the trust n each year as gross ncome for that year and
assessed defcency ta es accordngy. The oard of Ta ppeas sad that was
rght nnd the ta payers by ther pettons for revew say t was wrong.
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221
115, rt. 21.
Obvousy, the correct answer to these opposng postons s whether the dv-
dends on stock hed and owned by the trustees admttedy an accumuaton of
earnngs snce ebruary 28, 1913 were n part capta or were whoy ncome.
If capta whose capta, that of the trustees The pettoners say t was
ther capta, returned to them through the dvdends and therefore nonta abe.
We can see that the shares hed by the trustees were a capta asset of the
trust whch produced ncome n the form of dvdends. ut we have dffcuty
n seeng |ust how profts and gans of the corporaton dstrbuted by dvdends
consttute capta gans n the hands of the trustees. ke dstrbuton made
before the testator s death woud ceary have been ncome to hm. Though
on hs death there was a transfer of the shares from 1dm to hs trustees, and a
consequent transfer of ownershp and ta abty for Income from the shares,
there was no change n the shares themseves. Nor was a gan or oss recog-
nzed n the transfer. The shares, e cept us to ownershp, stood ns before.
nd whatever they shoud yed, by way of dvdends of profts or dstrbuton
of assets n qudaton or by sae woud be the same n the hands of whoever
then mght own them and woud be sub|ect to payment of ta es. Nether before
nor after the testator s death dd ownershp of the shares gve the hoders
ownershp of the corporate assets of the Stee company. ( sner v. Macomber,
nfra.) The surpus of the Stee company was not a part of the trust unt t
was dstrbuted through the dvdends. (Lynch v. ornby, 247 U. S., 339 T. D.
2731 Peaoody v. sner, 247 U. S., 347 sner v. Macomber, 252 U. S., 189
T. D. 3010, O. . 3, 25 .) Nor coud the testator by hs w, makng the
shares corpus or prncpa of the trust make the Income from them capta and
thereby make a return of ther profts a return of capta. (Merchants L. T.
Co. v. Smetanka, 205 U. S., 509 Ct. D. , C. . 4, 34 .) They wpre the same
thng a aong. It was not wthn the power of the testator to transmute n-
come nto capta by change of ownershp and thereby render ther gans non-
ta abe when dstrbuted. Dfference n ownershp of the shares made no
dfference In ther corporate quaty and no dfference n the abty of the
one ownng them for payment of ta es on ther earnngs when decared and
pad, uness, as the pettoners urge, the aw of Pennsyvana works a dfference.
( arp s state, 28 Pa., 3 8, 374 Smth s state, 140 Pa., 344, 350 nowes
state, 2 3 Pa., 781 Waterman s 3tate, 279 Pa., 491.)
The courts of that State have hed that an e traordnary dvdend pad from
e traordnary accumuatons of surpus of a corporaton on hand when the
testator ded, must on dstrbuton after hs death be hed for the remander-
man as corpus of the trust and may not, to hs dsadvantage, be dstrbuted to
the fe benefcary. In farness to benefcares of dfferent casses and partcu-
ary to carry out the Intenton of the testator, the rue treats e traordnary
accumuatons of gans n a corporaton before the testator s death as capta
but t treats them as capta ony after they have been receved by the trustees
through dvdends. That does not make the dvdends a capta return wthn
the meanng of the ta aws. If the dvdends are a return of gans and profts
they reman so for ta purposes, however the State aw may regard them for
property purposes. The rue has a very certan effect on the person, remander-
man or fe benefcary, who sha pay the ta , but t has no effect upon the
ta tsef. (Merchants L. T. Co. v. Smetanka, 255 U. S., 509.) That s the
busness of the edera Government. ( urnet v. arme, 237 U. S., 103, 110
Ct. D. 11, C. . I-2, 210 .) The Pennsyvana rue settes the queston
of property rghts n the dstrbuton. Wth that the edera Government s
not concerned. ut the edera aw contros as to what s a dvdend and as
to what s ta abe ncome. Wth that, as we understand t, the Pennsyvana
rue s not concerned. So the case reverts to the prmary queston whether
under edera aw the dvdends here n queston, beng pad entrey from
accumuatons of earnngs snce ebruary 28, 1913, are Income and are ta abe
as such.
We fnd the dvdends fa wthn the e press provsons of sectons 201 and
213(a) of the Revenue ct of 192 (44 Stat, 9) and the correspondng sectons
22(a) and 115 of the Revenue ct of 1928 (45 Stat., 791), and consttute ta -
abe ncome.
Ths s so pany true that, wth the dea of a capta return out of the way,
there s nothng to dscuss.
The order of the oard of Ta ppeas Is affrmed.
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115, rt. 25.
222
rtce 25: Dstrbutons n qudaton. I -42-7744
ct. D. 1020
ncome ta revenue act op 1028 decson of court.
1. Income Dstrbutons by Corporaton Lqudatng Dv-
dend Return of Capta vdence.
Where t was agreed, upon the reorganzaton of a corporaton,
that any refund of edera ta es for years pror to pr 1,
1925, shoud be pad to a trustee for the stockhoders of the
dssoved corporaton, a dstrbuton by the trustee of a ta re-
fund receved by the new corporaton n 1927 represented qu-
datng dvdends rather than a return of capta, n the absence
of evdence that the vaue of the securtes of the reorganzed
corporaton receved n e change was ess than the cost of the
stock n the od corporaton.-
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. .. 801) affrmed.
Unted States Ckcut Court of ppeas for the fth Crcut.
ugene W. Mente et a., pettoners, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of
Lousana).
efore ryan, oster, and Waker, Crcut udges.
pr 22, 1935.
OPINION.
Waker, Crcut udge: ach of the pettoners sought a redetermnaton of
a defcency of ncome ta for the year 1928 determned by the Commssoner
of Interna Revenue, whch determnaton was based upon the recept by the
ta payer of part of a sum, wth nterest thereon, pad by the Government n
refund of Income ta es overpad by Mente Co., Inc., a Lousana corporaton,
for years pror to pr 1, 1925. The proceedngs under the severa pettons
were consodated and the cases were heard and decded together by the
oard of Ta ppeas. In that hearng the pettoners, who were stockhoders
of that corporaton pror to the herenafter mentoned reorganzaton, contended
that the dstrbutons made to them of sad ta refund and nterest must be
regarded as returns of capta, and therefore not a part of ther ta abe n-
comes. The oard of Ta ppeas sustaned the above mentoned acton of
the Commssoner, decdng that the amounts so pad to the pettoners shoud
be treated as beated dvdends to stockhoders of sad corporaton made n
qudaton of a resdue of the assets of the corporaton, and that, because of
the absence of proof that at the tme sad dstrbuton was made the pettoners
had any unreturned part of ther nvestment In sad corporaton s stock, the
pettoners faed to prove that such payments made to them represented
returns of capta. That decson Is before us on a petton for revew.
On une 2, 1925, the stockhoders and drectors of Mente Co., Inc., whch
was Incorporated n March, 1919 (herenafter referred to as the od Mente
Co.), authorzed the presdent of the corporaton, Isaac T. Rhea (one of
the pettoners), to arrange and cose a contract for the reorganzaton and
refnancng of the corporaton. Pursuant to that authorty Rhea, actng for
hmsef and other stockhoders, entered Into a contract dated uy 1, 1925, wth
two frms for the reorganzaton and refnancng of the corporaton, that con-
tract beng n the form of a etter addressed by Rhea to the two frms, whch
was sgned by Rbea and was approved and accepted by the two frms. The
reorganzaton provded for nvoved the acquston of addtona capta by
sae of securtes. Pursunnt to that contract the name of od Mente Co.
was changed to urap Manufacturng Co., Inc., and on ugust 0, 1925, the
stockhoders of urap Manufacturng Co., Inc., e changed ther stock for
common and preferred stock and god debenture bonds of a new corporaton
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223
11 , rt. 25.
whch was then organzed under the name of Mente Co., Inc., whch a
herenafter referred to as the new Mente Co. The contract provded for
the new Mente Co. ssung descrbed shares of common and preferred stock
and debenture bonds, and for sad two frms purchasng some of the securtes
provded for. The contract In the ffteenth paragraph thereof, provded for
Rhea, n consderaton for such purchase, enterng Into a contract wth the
new Mente Co. to ndemnfy and save harmess the od Mente Co. and/or
the new Mente Co. from any cam or cams, abty or abtes, cause
or causes of acton arsng out of, caused by or n any way connected wth
any cam or cams for edera ta es accrung or whch may have accrued
aganst the od Mente Co. and/or the new Mente Co. pror to pr 1,
1925, n e cess of the amounts heretofore set up on the books of the od
Mente Co. as a reserve to provde for such ta es. In consderaton o ths
Indemnty agreement the contract, n the ffteenth paragraph thereof, provded
that Rhea shoud be entted to receve when and as pad by the edera
Government, any and a sums whch may be refunded and whch the od
Mente Co. and/or the new Mente Co. otherwse woud be entted to receve
on account of edera ta es for any perod or perods pror to pr 1, 1925.
stpuaton of facts was entered nto by the partes. The foowng was
paragraph I of that stpuaton: On the same date, ugust , 1925, the new
Mente Co., Inc., took over as of pr 1, 1925 (uness under the anguage
of the ffteenth paragraph of the agreement of uy 1, 1925, set forth n
paragraph II of ths stpuaton and/or the agreement of October 25, 1927, set
forth In paragraph of ths stpuaton, t be that some part of the assets
dd not pass to the new Mente Co., Inc.), a of the property, and assets,
rea, persona and m ed ncudng rea estate, budngs, Improvements, ma-
chnery, suppes, merchandse, cash on hand and In bank, accounts and bs
recevabe, busness, good w, and everythng whatsoever of every nature,
ort and knd wheresoever stuated beongng to the urap Co., Inc., whether
specay enumerated or not, In consderaton of the assumpton by the new
Mente Co., Inc., of a debts and obgatons of the sad urap Manufacturng
Co., Inc., and/or ts qudators and the canceaton of the Issued and out-
standng capta stock of the sad urap Manufacturng Co., Inc. It appears
from that stpuaton as It s set out n the record that the part of paragraph
I whch s In parentheses was by a footnote drected to be Inserted. Para-
graph of that stpuaton sets out an agreement entered Into between I. T.
Rhea and the new Mente Co. on October 25, 1927, whch, after rectng that,
through nadvertence, the agreement provded for n paragraph ffteenth of
the above mentoned contract had not been e ecuted as theren provded, and
that the partes had agreed upon the proper nterpretaton of sad paragraph
ffteenth, provded: 1. Rhea agrees that he w, on demand, Indemnfy and
save harmess sad former Mente Co., Inc., and/or the company from any
cam or cams, abty or abtes, cause or causes of acton, arsng out
of, caused by, or In any way connected wth any cam or cams for edera
ta es accrung or whch may have accrued aganst sad former Mente Co.,
Inc., and/or the company pror to pr 1, 1925, n e cess of the amounts set
up on the books of sad former Mente Co., Inc., pror to uy 1, 1925, as a
reserve to provde for such ta es.
2. In consderaton of such agreement, the company agrees that sad Rhea
sha be entted to receve, when and as pad by the edera Government
any and a sums whch have been or may be refunded, and whch sad
former Mente Co., Inc., and/or the company otherwse woud be entted
to hod or receve on account of edera ta es for any perod or perods pror
to pr 1, 1925, together wth the amount by whch sad reserve on the books
of sad former Mente Co., Inc., e ceeds a ta es fnay found to be due
for a perods pror to pr 1, 1925. On September 12, 1927, the Treasury
Department of the Unted States ssued checks, payabe to Mente Co.,
Inc., for a tota sum of 154,349.99, whch checks represented a refund of
edera Income and profts ta es In the amount of 109,174.91 pad by the
od Mente Co., n pror years, and Interest thereon of 45,210.08. The new
Mente Co. receved those checks, Indorsed them, coected the amounts
thereof, and credted the proceeds to an account opened on Its books under
the capton I. T. Rhea, Trustee, stockhoders od corporaton. In the eary
part of the year 1928 the new Mente Co. pad to Rhea the sum so credted
to hm, pus 1,949.43 Interest thereon and Rhea, after makng deductons
for costs of accountants and attorneys fees connected wth the coecton of
the refund payments, dstrbuted the net baance among the stockhoders of
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115, rt. 25.
224
urap Manufacturng Co., Inc., In proporton of ther respectve stock hod-
ngs on ugust , 1925, and wthout regard to ther hodngs of stock In the
new Mente Co., whch were reatvey dfferent. The amount receved by
each of the pettoners n the |ust mentoned dstrbuton was n fracton more
than 11 per share of the stock whch he hed n the urap Manufacturng
Co., Inc., on ugust , 102.1 It was stpuated that the stock of the urap
Manufacturng Co., Inc., owned by the pettoners, mmedatey pror to the
transacton and transfers on ugust , 1925, had cost them n e cess of 50
per share and that at the cose of ts fsca year ended March 31, 1925,
the od Mente Co., and at ugust , 1925, the urap Manufacturng Co
Inc., had earned surpus, and undvded profts n e cess of 500,000.
Counse for the pettoners contended that the rght to the amount refunded
was transferred to the new Mente Co. as part of the consderaton for
pettoners stock n the urap Manufacturng Co., Inc., n e change for
whch stock and debenture bonds of the new Mente Co. were ssued to
pettoners that the dstrbuton to pettoners of the amount refunded, wth
nterest added, ess stated e penses, was a payment by the new Mente Co. of
part of the consderaton due to pettoners for ther stock transferred to that
company and that the amounts dstrbuted, beng greaty ess per share than
the c.st per share of the stock transferred by the pettoners, shoud be
regarded as nonta abe returns of capta to the pettoners. In our opnon
the |ust stated contentons are not sustanabe.
It pany appears from the above-mentoned provson of paragraph ffteeut
of the contract n pursuance of whch the corporate reorganzaton was effected
that any abty n any way connected wth any cam or cams for edera
ta es accrung or whch may have accrued aganst the od Mente Co. and/or
the new Mente Co. pror to pr 1, 1925, n e cess of the amounts hereto-
fore set up on the books of the od Mente Co. as the reserve to provde
for such ta es, was not a abty whch the new Mente Co. was to take
care of or dscharge, and that the rght to sums refunded on account of
edera ta es for any perod pror to pr 1, 1925, was an asset In whch
the new Mente Co. had no benefca nterest. The rght to sums so refunded
was as effectuay e cuded from the assets of the od Mente Co. whch the
new Mente Co. was to and dd acqure benefcay as f that rght had
been transferred by the urap Manufacturng Co. to a thrd party, n trust
for the hoders of stock of that company. The anguage of paragraph I of
the stpuaton negatves the concuson that the partes admtted that the
rght to the sums refunded was ncuded n the assets transferred to the new
Mente Co. for ts own beneft The acts of the new Mente Co. n credtng
the amount of the proceeds of the refund checks to an account under the
capton I. T. Rhea, Trustee, stockhoders corporaton, and In payng to
Rhea that amount, wth nterest thereon added, evdenced Its recognton
of the fact that t had no benefca nterest In the money refunded. The
agreement set out n paragraph of the stpuaton was made n compance
wth an obgaton whch, at the tme the corporate reorganzaton was effected,
Rhea, n behaf of hmsef and the other stockhoders of the od Mente Co.,
was obgated to the new Mente Co. to make. The effect of what occurred
was that n the corporate reorganzaton the stockhoders of the od Mente
Co., or that company for Its stockhoders, reserved or retaned the rght
to receve, when and us pad by the edera Government, any and a sums
refunded on account of edera ta es for any perod pror to pr 1, 1925,
whch but for such reservaton or retenton, the new Mente Co. woud have
been entted to receve. The rght to sums so refunded was an asset whch
dd not enter nto the corporate reorganzaton whch was provded for by
contract and was consummated pursuant to that contract.
Under the contract In pursuance of whch the corporate reorganzaton was
effected the severa stockhoders of the od Mente Co. were to receve for
ther stock stock and debenture bonds of the new Mente Co. and aso ther
pro rata shares of any sums refunded on account of edera ta es of the
od Mente Co. for any perod pror to pr 1, 1925. The amounts pad to
the pettoners by Rhea were dvdends under the defnton contaned n sec-
ton 115(a) of the Revenue ct of 1928 (2 U. S. C. ., secton 2115 artce
25, Treasury Reguatons 74) and, under subdvson (c) of that secton,
those amounts, together wth the stock and debenture bonds of the new
Mente Co. receved for ther stock by the stockhoders of the od Mente
Co., are to be treated as fu payment In e change for the ast mentoned
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225
115, rt. 25.
stock. s the property receved In e change for the od Mente Co. stock
conssted not ony of stock or securtes (stock and debenture bonds of the
new Mente Co.) permtted to be receved wthout recognton of gan, but
aso of other money or property (the net amount of the refund), under secton
112(c) of that ct (2 U. S. C. ., secton 2112(c)(1)), the gan, f any,
to the recpent s requred to be recognzed. The dstrbuton by Rhea of the
net amount of the refund competed the qudaton of the assets and busness
of the od Mente Co. The amounts so dstrbuted shoud be treated as
payments n e change for stock, and any gan reazed thereby shoud be
ta ed to the stockhoders of the od Mente Co. as other gans or profts.
( emoh v. cman, 27 U. S., 233 T. D. 4217, C. . II-2, 233 .)
Those amounts, havng been dstrbuted n compete qudaton of the od
Mente Co.. were qudatng dvdends sub|ect to be ta ed aganst the pet-
toners severay, uness what the pettoners, pror to that dstrbuton,
severay had receved for ther stock n the od Mente Co. was of a vaue
ess Man the cost to them of ther ast mentoned stock. The chaenged
determnaton of the Commssoner was prma face correct. The burden
was on the pettoners to estabsh the ncorrectness of that determnaton.
(Wckcre v. Renecke, 275 U. S., 101 T. D. 412 , C. . II-1, 31 cverng
v. Tayor, 293 U. S., 507, 515 Ct. D. 912, C. . I -1, 1 8 Smth Rea
state Go. v. Page, 7 ed. (2d), 4 2.) That burden was not carred. It
does not appear from the record that pettoners attempted to prove that the
stock and debenture bonds of the new Mente Co. receved by the pettoners
for ther stock n the od Mente Co. under ts changed name was ess than
the cost to the pettoners of the ast mentoned stock. So far as appears
there was no evdence before the oard of Ta ppeas of the vaue, at the
tme the e change of corporate securtes occurred, of the stock and debenture
bonds of the new Mente Co. receved by the pettoners for ther stock m
the od Mente Co. There was no evdence to support a fndng that the
dstrbuton of the net amount of the refund consttuted returns to the pet-
toners of capta whch had not aready been fuy made good to them, rather
than qudatng dvdends the amount of whch was reazed from an asset of
the od Mente Co. remanng after ts stockhoders n a corporate reorgan-
zaton had receved for ther stock property whch was worth as much or
more than that stock had cost them. In the stated condton of the evdence
the companed of acton of the oard of Ta ppeas s not sub|ect to be set
asde or reversed.
The petton s dened.
rtce 25: Dstrbutons n qudaton. I -42-7745
Ct. D. 1021
ncome ta revenue act of 1928 decson of court.
1. Gan ob Loss change of Stock Dstrbuton n Lquda-
ton.
Where the ta payers n 1929 e changed ther shares of stock n
a hodng company for shares of a corporaton hed by the hodng
company, under a resouton passed n 192 for qudatng and
retrng the stock of the hodng company, a ta abe gan was rea-
zed at the tme of the e change, whether the transacton be con-
sdered as an e change of stock or as a dstrbuton to the stock-
hoders as a step n the qudaton.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (31 . T. ., 17) affrmed.
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115, rt 25.
22
Unted States Crcut Court of ppeas fob the fth Crcut.
W. R. Preacott, pettoner, v. Commssoner o Interna Revenue, respondent.
Mrs. W. R. Prescott, pettoner, v. Commssoner of nterna Revenue, respondent.
Pettons for revew of decsons of Unted States oard of Ta ppeas (dstrct of
Georga).
efore ryan, oster, and Sbey, Crcut udges.
March 12, 1035.
OPINION.
Sbey, Crcut udge: W. R. Prescott and Mrs. W. R. Trescott n 1029
e changed 400 shares of common stock n Coca-Coa Internatona Corporaton
for 800 shares of common stock of Coca-Coa Co. They sod part of the shares
receved, and reazng a gan thereby, pad a ta thereon. They have been
assessed addtonay for a correspondng gan n respect to te shares they
dd not se. The reatonshp of the two corporate stocks nvoved s stated
n ancker v. Commssoner (7(5 ed. (2d), 1), |ust decded. Ths case dffers
from that n thut the Prescotts deat wth ther own corporaton under ts
resouton for retrng ts capta stock. That resouton cas the transacton
whch t authorzes an e change, and provdes: Thrd: Upon the makng of
any such e change the tte to the shares of stock n ths corporaton so
receved n e change sha vest In ths corporaton. ourth: That such shares
receved n e change sha be retred and the capta stock reduced n pro-
porton. There s apparenty an effort to separate the act of e change from
the subsequent retrement of the acqured stock. If the Prescotts trans-
acton be ooked on as an e change of stocks, the case s rued by ancker s
case. It s not true that the Prescotts n recevng the shares of Coca-Coa
merey got what they aready equtaby owned as stockhoders. The assets of
a corporaton are not the property of the stockhoders, ether n aw or n
equty, but beong to the corporaton and are sub|ect to ts dsposa and
to ts debts. Ony when t censes to be a gong concern does the stuaton
change, and ther rght then s to share n the assets remanng after payment
of debts. ( sner v. Macomber, 252 U. S., at page 208 T. D. 3010, C. . 3, 25 .)
If ths transacton be ooked at n ts entrety as beng a return to the stock-
hoders of ther share n the corporate capta as a step n ts qudaton, a
ta abe gan s reazed under secton 115(c) (g) of the Revenue ct of 1928.
The ony contenton made n repy s that the gan ought to be treated as
accrung on the date of the passage of the resouton for qudaton ebruary
2 , 192 , and Mna . Young ( . T. ., 472) and dwards v. Commssoner
(10 . T. ., 39), are cted. In ths case, however, the resouton dd not
contempate mmedate cessaton of the corporate busness, and dd not oper-
ate fnay and of ts own force as a qudaton. It was ony an authorty or
opton offered to each stockhoder. It dd not cut hm off as a stockhoder or
nvest hm wth ownershp of any Coca-Coa stock uness or unt he accepted
the offer and tendered e change of hs stock. The Prescotts dd not do ths
unt 1930, and then ony dd they reaze on ther orgna nvestment n
Internatona stock. The pettons for revew are dened.
rtce G25: Dstrbutons n qudaton. I -50-7854
Ct. D. 1045
INCOM T R NU CT O 1928 D CISION O COURT.
1. Dstrbutons by Corporaton Dstrbuton n Lqudaton
Lqudatng Dvdend.
Where a corporaton dsposed of a of ts assets n March, 1928,
and dscontnued the busness formery conducted, mtng ts actv-
tes thereafter to the converson nto cash of some of the securtes
receved n e change for ts assets and to the retrement of ts
cass stock, and on December 2 , 1928, pursuant to a resouton
to qudate, dstrbuted the assets to Its soe stockhoder, and
ater, wth new stockhoders, entered nto a new and totay dffer-
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227
11 , rt. 42.
ent busness, the dstrbuton of assets was a step In the process
of qudaton, and amounts receved by the ta payer, Its soe
stockhoder, consttuted a qudatng dvdend. Its faure to ds-
sove Is not nconsstent wth a hodng that the dstrbutons were
In qudaton of the corporaton.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 355) affrmed.
3. Certorar Dened.
Petton for certorar dened October 14, 1935.
Unted States Crcut Court of ppeas foe the Thrd Crcut.
Ward M. Canaday, Inc., pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Wooey, and Davs, Crcut udges.
ebruary 28, 1935.
opnon.
uffngton, .: The compcated facts n ths case make It one whoy of Its
own knd, and on those facts, narrowng to ts basc factor, the queston
Invoved s whether the payment to the ta payer companed of was made In
parta qudaton of a corporaton. In that regard the Ta oard hed:
fu consderaton of a of the facts In ths case eads us, as t dd the
Commssoner, to the concuson that a of the amounts dstrbuted on December
2 , 1928, were dstrbuted n qudaton of the corporaton. though the
Deaers nance Co. was authorzed to do a number of thngs under ts charter,
as theretofore amended, there can be no queston as to the busness n whch
It was actuay and reguary engaged pror to March, 1928. In March, 1928,
It dsposed of a of Its assets wth whch It had carred on that busness and
never thereafter engaged n that busness. (Cf. ames P. Oossctt, 22 . T. .,
1279, affrmed, 59 ed. (2d), 3G5 Mton Toote, r., 20 . T. ., 892, affrmed,
58 ed. (2d), 57 Ct D. 574, C. . I-2, 170 .) rom that tme unt t
made the dstrbutons here n queston, t carred on no busness but mted
Its actvtes to the converson Into cash of some of the securtes receved n
e change for ts former assets and to the retrement of ts cass stock.
Then came December 28, 1928, wth the resoutons and dstrbutons descrbed
above. Thereafter the corporaton was dead so far as ts od busness was
concerned, a more empty she wthout sharehoders or property. (Cf. Roches-
ter Ry. Co. v. Rochester, 205 U. S., 23 .) Later, new stockhoders refed the
she wth dfferent property. The corporaton then went nto a new and totay
dfferent fe. Its faure to dssove Is not Inconsstent wth our hodng that
the dstrbutons were n qudaton of the corporaton. ( rcmort Reaty
Corporaton, supra.) The facts here show that the corporaton was n the
course of qudaton at the tme of the dstrbuton and that t competed ts
qudaton on the same day. The dstrbuton of the 500,509. 9 was a step
n that process. (Cf. red T. Wood, 27 . T. ., 1 2.)
fter fu consderaton of the facts and questons nvoved as above, and
aso of the contenton as to the 25,000 tem, we fnd no error n the concuson
reached by the Ta oard. The evdence |ustfed ts concuson that the pay-
ments made were payments made In parta qudaton. Such beng the case,
and wthout further dscusson, we mt ourseves to affrmng the acton of
the oard.
S CTION 11 . CLUSIONS ROM GROSS INCOM .
rtce 42: Income of States. I -29-7599
Ct. D. 993
INCOM T R NU CTS O 1928 ND 1928 D CISION O COURT.
1. Income empton Royates Subease of Schoo Lands.
Where a State eased schoo mnng ands to an ndvdua, who
assgned the eases to a prvate corporaton, and the atter, by sepa-
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(11 , rt. 42.
228
rate contracts, subeased to prvate partes who agreed to pay to
the State the royates stpuated n the orgna eases, and, n
addton, to pay royates to the corporaton, the ncome receved
by the corporaton from the subessees was not e empt from ed-
era ncome ta .
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 834) affrmed.
3. Certorar Dened.
Petton for certorar dened une 3, 1033.
Unted States Crcut Court of ppeas, ghth Crcut.
Wattess Iron Co., pettoner, v. Commssoner of Interna Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Gardner, Sanborn, and an akenburoh, Crcut udges.
ebruary 14, 1935.
opnon.
Gardner, Crcut udge, devered the opnon of the court
Ths s a petton to revew three orders of redetermnaton entered by the
oard of Ta ppeas, and nvoves pettoner s ncome ta for the years 1927,
1928, and 1929.
The pettoner Is the assgnee of two eases made by the State of Mnnesota,
as essor, and ames Waness, as essee, by the terms of whch eases ames
Waness was granted the rght to mne ore on certan State ands, funds from
whch were to be used for the pubc schoos.
The orgna ease to Waness provdes that the essee sha have the rght
to contract wth others to work n mnes or to subcontract, the provson beng
as foows:
The party of the frst part further agrees that the party of the second
part sha have the rght under ths agreement to contract wth others to work
such mne or mnes, or any part thereof, or to subcontract the same, and the
use of sad and, or any part thereof, for the purposes of mnng for ron ore,
wth the same rghts and prveges as are heren granted to the sad party of
the second part.
The ease aso contans a recta that the covenants, terms and condtons
of ths ease sha run wth the and and be n a respects bndng and operatve
upon a subtenses, etc., and contans provson for the payment of royates
as foows:
The party of the second part, n consderaton of the premses, hereby
covenants and agrees to and wth the party of the frst part, that the party of
the second part w, on or before the twenteth (20th) day of pr, uy,
October, and anuary, n each year, durng the perod herenbefore stpuated,
or durng the perod ths contract contnues n force, pay to the treasurer of
the State of Mnnesota, for a the ron ore mned and removed from sad and
durng the three (3) months precedng the frst (1st) day of the month n
whch payment s to be made, as aforesad, at the rate of twenty-fve (25)
cents r ton, for a ron ore so taken out, mned and carred away, each ton
to be reckoned at twenty-two hundred and forty (2,240) pounds.
The ease contans provson for the payment of ta es by the essee |ust
the same as though the ands heren eased were owned n fee by the sad party
of the second part,
fter securng ths ease, whch by ts terms was for a perod of 50 years
from May 5, 1900, and whch authorzed hm to take out and remove therefrom
the merchantabe shppng ron ore, Waness organzed a corporaton, the pet-
toner heren, and n ugust, 1901, he assgned to t the 50-year ease. Ths
assgnment was approved by the commssoner of the State and offce of the
State of Mnnesota, as requred by the Mnnesota aw. Snce the assgnment,
the pettoner has owned the ease, and the ands have been deveoped by t am
by ts subessees, and Iron ore has been mned and removed therefrom. The
ands eased are part of secton 1 , whch, by the organc act of Mnnesota,
was reserved for the purpose of beng apped to schoos of the State of
Mnnesota.
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511 , rt. 42.
In December, 1902, pettoner subeased a part of ths and. In une, 1917, It
subeased another part, and n anuary, 1923, a thrd part. ach subease
was for a term of two days ess than the term of the orgna State ease.
y each subease, the subessee covenanted to pay to the treasurer of the
State of Mnnesota, at the tmes and n the manner requred by the State ease
Issued to ames Waness and assgned to pettoner, royates theren provded
for, and n addton thereto to pay to the pettoner certan sums of money per
ton to pay a ta es eved on account of the sad premses, or upon any ore
or ores produced therefrom, or upon any mprovements that mght be made
thereon, or upon any busness or occupaton that mght be carred on upon
sad premses and further convenanted that t woud not assgn sad subease,
nor subet sad premses or any part thereof, e cept wth the wrtten consent
of the pettoner. One of the subeases was surrendered December 23, 1927.
Under the provsons of these subeases pettoner receved Income for the
years 1927, 1928, and 1929, whch It cams s e empt and mmune from edera
ta aton. The oard of Ta ppeas hed that ths ncome was sub|ect to ta ,
hodng that snce the pettoner s not an agency through whch the State
mmedatey and drecty e ercsed ts soveregn powers, snce pettoner Is not
ntmatey connected wth the necessary functons of the State, snce the sub-
eases and not the State eases are the source of the pettoner s Income here
nvoved, snce no drect and substanta burden Is ad upon the power of the
State to ease Its schoo ands, snce effect of the mposton of edera ta aton
on the pettoner s ncome heren on the State or ts revenue s remote and
at best merey con|ectura, and snce the grantng of the mmunty sought woud
unduy mpar the ta ng power of the edera Government, the determnaton
of the respondent that such ncome s sub|ect to edera ncome ta s ap-
proved.
The oard aso e pressed the vew that the State had waved mmunty from
ta aton. There are, therefore, presented two questons: (1) Is the ncome
receved from subessees mmune from edera ta aton, In the absence of a
waver from Immunty and (2) f so, has the State waved ts mmunty from
ta aton
Secton 18 of the organc act of Mnnesota ( ct of March 3, 1849, ch. 121,
9 Stat., 403, 408) provded:
nd be t further enacted, That when the ands n the sad Terrtory sha
be surveyed under the drecton of the Government of the Unted States, prepara-
tory to brngng the same nto market, sectons numbered 1 and 3 n each
townshp n sad Terrtory sha be, and the same are hereby, reserved for
the purpose of beng apped to schoos n sad Terrtory, and n the States
and Terrtores hereafter to be erected out of the same.
y ct of ebruary 20, 1857 (ch. 00, 11 Stat., 1 , 1 7), t was provded:
nd be t further enacted. That the foowng propostons be, and the same
are hereby, offered to the sad conventon of the peope of Mnnesota for ther
free acceptance or re|ecton, whch, f accepted by the conventon, sha be
obgatory on the Unted States and upon the sad State of Mnnesota, to-wt:
rst. That sectons numbered 1 and 3 n every townshp of pubc ands
n sad State, and where ether of sad sectons, or any part thereof, has been
sod or otherwse dsposed of, other ands, equvaent thereto and as contguous
as may be, sha be granted to sad State for the use of schoos.
The State of Mnnesota accepted these terms of compact by approprate
provsons n ts consttuton. Secton 2 of artce 8 of the consttuton of
Mnnesota provdes:
The proceeds of such ands as are or hereafter may be granted by the
Unted States for the use of schoos wthn each townshp of ths State sha
reman a perpetua schoo fund to the State . The prncpa of a
funds arsng from saes or other dsposton of ands or other property, granted
or entrusted to ths State n each townshp for educatona purposes, sha
forever be preserved nvoate and undmnshed and the ncome arsng from
the ease or sae of sad schoo and sha be dstrbuted to the dfferent town-
shps throughout the State, In proporton to the number of schoars n each
townshp, between the ages of 5 and 21 years and sha be fathfuy apped
to the specfc ob|ects of the orgna grants or appropratons.
y approprate egsaton, the State of Mnnesota has authorzed the easng
of these schoo ands contanng ron ore.
The contract between the State and nnes Waness, assgned by hm to the
pettoner, was a ease and not a sae or conveyance of ore n pace. State v.
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230
mus, 99 Mnn., 220,10 N. W., 9 8 oeng v. Owsey, 122 Mnn., 190, 142 N. W.,
129 State v. Roya Mnera sm., 132 Mnn., 232, 15 N. W., 128 Mnnesota
Loan Tr. Co. v. Dougas. 135 Mnn.. 413, 1 1 N. W., 158 Psbury our M
Co. v. ake Superor Consodated Iron Mnes, 178 Mnn., 254, 22 N. W., 843
on aumbach v. Sargent Land Co., 242 U. 8., 503 Unted States v. wabb
Mnng Co., 247 U. S., 11 T. D. 2721 .
There can be no doubt that the mantenance of the pubc schoos n conformty
wth the consttuton s one of the pubc dutes mposed upon the varous gov-
ernmenta and admnstratve dvsons of the State. ( ackson v. oard of
ducaton, 112 Mnn., 1 7, 127 N. W., 5 9 State v. Cty of St. Pau, 128 Mnn,
82, 150 N. W., 389 oard of ducaton v. oughton, 181 Mnn., 57 , 233 N. W
834.) The ease of pubc ands for the beneft of pubc schoos s the e ercse
of a functon strcty governmenta n character. ( urnet v. Coronado O d Gas
Co.. 285 U. S., 393 Ct. D. 485, C. . I-1, 2 5 .)
The Income here questoned s not that of the orgna essee, ames Waness,
but s the net ncome whch the pettoner, Waness Iron Co., receved not from
an actua operaton of the mnes, but n the form of royates receved n turn
from ts subessees. y the terms of the contracts between pettoner and ts
subessees, the subessees are requred to pay to the State the fu amount of
the royates stpuated n ts orgna ease, and royates so pad form no part
of the ncome here assessed, as t s ouy the net ncome that s assessed.
( reat reance s paced upon the decson of the Supreme Court n urnet v.
Coronado O d Oas Co., supra. In that case, ands granted by the Unted
States to the State of Okahoma for the purpose of common schoos and ded-
cated to that purpose, were eased by the State to a prvate mnng company for
e tracton of o and gas, the State reservng a part of the gross producton, the
proceeds of whch were pad nto the pubc schoo funds, the essee takng the
remander. It was hed that the ease was an nstrumentaty of the State n
the e ercse of a strcty governmenta functon, and that the ncome derved
from te ease by the essee coud not be ta ed by the edera Government In
the course of the opnon n that case, t s sad:
To ta the ncome of the essee arsng therefrom woud amount to an mpos-
ton upon the ease tsef.
The reason for the mmunty s based on the necessary protecton of the
ndependence of Natona and State Governments wthn ther respectve spheres
under our consttutona system. ( everng v. Powers et a. (U. S. Sup. Ct,
opnon No. 17, fed December 3, 1934 not yet reported).)
Whe the ne of demarcaton s often dffcut to foow or defne, there s a
recognzed dstncton between a nondscrmnatory ta upon the property of
an agent of government, athough the property s used n or has reaton to the
busness of the agency,_ vhere there s ony a remote, f any, nfuence upon the
e ercse of the functons of government, and a ta whch s deemed to mpose a
drect burden upon the e ercse of governmenta powers. (Wctts v. unn,
282 U. S., 21 Ct. D. 280, C. . -, 309 Indan Terrtory, etc.. O Co. v.
oard of quasaton, 288 U. S., 825 urnet v. . T. ergns Trust, 288 U. S.,
508 Ct. D. 53, C. . II-1, 214 Denman v. Commssoner (C. C. . 8), T ed.
(2d), 193.)
In Wcuts v. unn, supra, profts on the sae of muncpa and county
bonds are hed to be sub|ect to edera ta , athough the Income n the form
of nterest from these bonds was confessedy e empt from such ta aton. In
that case, the court sad:
The sae of the bonds by ther owners, after they have been Issued by the
State or muncpaty, Is a transacton dstnct from the contracts made by
the government n the bonds themseves, and the profts on such saes are n
a dfferent category of Income from that of the Interest payabe on the bonds.
In urnet v. . T. ergns Trust, supra, the Supreme Court consdered
an Income ta on the ncome of an o company reazed from a ease ssued
by the cty of Long each, Caf. In the course of the opnon, It Is sad:
The evy s not upon the property of the muncpaty, nor upon the
ncome It derves from ts property, s not upon the cty s share of the o
recovered, the ease, or the gross ncome therefrom. The aw measures the
assessment by the net ncome of the respondent, whose operatons are carred
on n a prvate and not n a pubc capacty for the persona gan of t cestus
que trustent.
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231
118, rt. 1.
odng that the Income was not Immune from edera ta aton, the court
further sad:
We thnk that n the present Instance the sub|ect of the ta Is so remote
from any governmenta functon as to render the effect of the e acton In-
consderabe as respects the actvtes of the cty. (Compare ward v. ohn-
son, 282 U. S., 509, 514.) Its coecton s not nconsstent wth and does
not trench upon the mmunty of the State as a soveregn. The ncome of
the respondent from the ease s not Immune from edera ncome ta .
In the nstant case, the source of the Income sought to be ta ed was not
operatons carred on under the State ease, but under a contract or ease
between the pettoner, a prvate corporaton, and certan other prvate n-
dvduas or corporatons. These contracts were not assgnments of the org-
na ease (Crag v. Summers (Mnn.), 49 N. W., 742), but were subeases,
and as has been observed, contan terms dfferng from those of the orgna
ease. They are dstnct, separate contracts, to whch the State of Mn-
nesota s not a party, and the ta here s measured by the net ncome of
the ta payer arsng from Its operatons n a prvate capacty for prvate
gan. The subessees agree to pay the pettoner royates, and t thus obtaned
a proft from the subessees operaton of the mnes.
In the Wcuts case, t was hed that so ong as the owner of the bonds sus-
taned hs orgna reatonshp to the State, and receved the nterest from
the State s contract, no ta coud be eved on the Income but when that
reatonshp was atered and used as a means of creatng proft by a sae of
the property, a ta attached to the Income so arsng. In the nstant case, the
pettoner has parted wth ts orgna and drect reatonshp wth the State, and
for prvate proft has changed that reatonshp. That net proft Is, we thnk,
sub|ect to ta wthn the rue of Wcuts v. unn and urnet v. . T. crgns
Trust, supra.
In vew of our concuson on ths branch of the case, t s unnecessary to
consder the further contenton of the respondent
The orders of the oard of Ta ppeas are therefore affrmed.
rtce 43: Compensaton of State offcers and empoyees.
R NU CT O 1928.
Offcers and empoyees of State Compensaton Insurance und
of Caforna. (See G. C. M. 14952, page 130.)
S CTION 118. LOSS ON S L O STOC
OR S CURITI S.
rtce 1: Losses n connecton wth sae I -40-7725
and repurchase of securtes. Ct. D. 1015
INCOM T R NU CT OP 1928 D CISION O COURT.
Deducton Loss vdence urden or Proof Sae and Repur-
chase of Stock.
Where the ta payers sod stock on December 31, 1929, for a
nomna consderaton and repurchased t s monts ater for the
same consderaton, no oss was deductbe uness the sae was
compete and fna wth no understandng as to repurchase. The
testmony offered by the partes to the transactons beng hghy
mprobabe n vew of the evdence of what was done, the oard
of Ta ppeas was ustfed In re|ectng t as nsuffcent to sus-
tan the burden of proof restng upon the ta payers.
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118, rt. 1.
232
Unted States Crcut Coubt of. ppeas, ghth Crcut.
R. R. Rand, r pettoner, v. Guy T. Ueverng, Commssoner of Interna
Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Stone, Gardner, and an akenburgh, Crcut udges.
pr 19, 1935.
OPINION.
Stone, Crcut udge, devered the opnon of the court
Tbe Commssoner refused to aow deductons camed by Rand Co. and by
. R. and, r., n assessment of the ncome ta of each of them for the year
1929. In each nstance, the camed deducton was based upon oss on certan
corporate stock aeged to have been reazed by saes on December 31, 1929.
The cases of the two ta payers were consodated by the oard and from orders
of the oard sustanng the Commssoner ths petton s brought.
The evdence s as foows. The ta payer, Rand Co., s a cosey hed famy
corporaton engaged n buyng, seng and hodng securtes and other proper-
tes. Ta payer R. R. Rand, r., s presdent of ths company. Pror to Decem-
ber, 1929, the company had acqured and owned 1,000 shares of the stock of
arrson s Orange uts, Inc., and R. R. Rand smary hed 3,450 shares of the
same stock. In December, 1929, the Orange uts corporaton was n serous
fnanca dffcuty and an nvountary petton n bankruptcy was fed on the
27th of that month. The abtes of ths corporaton were substantay n
e cess of ts assets, and ts stock, sted on the Chcago Curb, had decned much
n prce. Durng the ast haf of that month, 4,325 shares were traded on n that
market at prces rangng from 25 cents to 1.75 a share. The brokers of the
ta payers had Informed them that ther hodngs coud not be marketed there
and near the end of the month they sought unsuccessfuy to se the stock n
the markets at Mnneapos and St. Pau. On the ast day of the month the
ta payers sod these shares to . S. Tru , who was a saared empoye of the
Rand Co. as assstant secretary-treasurer, and had been such for about a year
and a haf. The certfcates representng the shares were assgned to hm,
ressued n hs name and devered to hm and the transactons were recorded
n the accounts of the ta payers. The Rand Co. receved 5 as fu payment
for ts 1,000 shares and Rand receved 10 n fu payment for hs 3,450 shares.
The 1,000 shares had cost the Rand Co. 29,020 and the 3,450 shares had cost
Rand 85,722.19. Treatng the above saes as a reazaton of osses on the
stocks, the company camed a oss deducton of 29,015 and Rand camed a
ke deducton of 85,712.19. These are the osses whch were dened as deduc-
tons and are here nvoved. fter December, 1929, the busness of the Orange
uts corporaton mproved the bankruptcy proceedngs were termnated a
reorganzaton of the company was panned and ts stock became actve on
the market, advancng n prce unt, n May, It was seng for a share. On
May 14, 1930, the stock was reconveyed by Tru to the ta payers for the same
amounts ( 5 and 10, respectvey) he had pad therefor. t that tme the
market vaue of a of the stock was 2 ,700, at per share.
The evdence as to why these saes and these conveyances took pace s as
foows: Rand testfed that he had nvestgated the vaue of the stock and had
concuded, n December, 1929, that t was entrey worthess that he had un-
successfuy tred to se the stock that, so thnkng, he and tbe company wshed
to reaze ths oss durng the ta abe year. e coud not remember the con-
versaton between Mr. Tru and hmsef concernng the sae of the stock to
Tru but the stock was offered to hm at 10 and he bought t. The ev-
dence of Tru as to ths transacton s that he dd not buy the stock as an
nvestment and that hs reason for buyng t was ust buyng t because t
was a matter of havng hm get hs oss back he coudn t se t any pace ese,
so I accommodated the genteman. s to the repurchase of the tock, Rand
testfed that he approached Tru concernng the matter that he coud not
remember the conversaton but that t was to the effect that t ooked as
though somethng was gong to be worked out and a reorganzaton made whch
mght gve arrson s Orange uts, Inc., some vaue. That t seemed to me we
ought to have the stock back. The testmony of Tru as to the repurchase
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233
118, rt. 1.
was that he earned of the Increased market on ths stock and, gong to Rand s
offce tod hm that ths stock had proven to be of vaue and I thought he
ought to have t back. Tru stated hs reason for such acton was that I
ddn t thnk I was entted to make a proft out of somethng that I thought
was worthess when I bought t. In response to a queston as to who had
set the prce for the repurchase, Tru testfed I thnk I vounteered to gve
It back to hm for ust what he (Tru ) pad for t Tru aso stated that
he thought Mr. Rand had suggested that Tru ought to have some proft but
t wasn t anythng that nterested me very much and he so advsed Mr. Rand.
oth Rand and Tru testfed that there was, at the tme of the sae to Tru ,
no understandng that the stock woud be repurchased. Tru testfed: That
Is the ony tme n my fe I ever had 1,000 shares of stock. There was ev-
dence of saes of ths stock on the Chcago Curb In bocks of 100 to 300 shares
day at from 75 cents to 1.75 per share, from December 18 to 24, 1920 that
on December 25 (probaby 2 ), 200 shares were sod at 25 cents, on the 27th,
425 shares, at 87 cents, on the 28th, 1.0C0 shares, at 75 cents to 87 cents, on
the 30th, 1,250 shares, at 25 cents to 75 cents, and the 31st, 00 shares, at 75
cents to 1.50.
If the saes by the ta payers to Tru were compete and fna wth no under-
standng wth hm as to repurchase the oss was deductbe, otherwse not.
( hoenberg v. Commssoner, 77 ed. (2d), 44 (C. C. . 8).) The burden was
upon ta payers to estabsh the above fact. Transactons of ths character are
necessary secret and the rea stuaton s known ony to themmedate partes.
The oard was not compeed bndy to accept ther testmony that there was
no such understandng. It coud e amne the probabtes of such truth as
reveaed by the evdence of what was done. That a saared offcer woud
Invest hs own money purey to accommodate hs superor and after the stock
reached a tota vaue of 2 ,700 woud want to return t soey because I
ddn t thnk I was entted to make a proft out of somethng that I thought
was worthess when I bought t Is a rather fmsy thng. It s possbe but
hghy not probabe. The oard was ustfed n re|ectng It as nsuffcent to
carry the burden of proof restng on the ta payers. There Is no good reason
why we shoud dsturb the concuson reached by the oard.
The orders of the oard are affrmed.
rtce 1: Losses n connecton wth sae I - 8-7830
and repurchase of securtes. . Ct D. 1037
( so Secton 23(e), rtce 171.)
INCOM T R NU CTS OP 192 ND 1028 D CISION O COURT.
1. Deducton Loss on Sae of Stock.
The ta payer and other stockhoders and drectors of Corpora-
ton (whch owned a the stock of Corporaton) on November
30,1027, sod to a porton of ther hodngs of s stock, pursuant
to a resouton of authorzng such purchase, and notes of
were taken n payment therefor. y resouton of anuary 3, 1928,
authorzed the sae of the stock at ts actua vaue as of Decem-
ber 31, 1927, and the stockhoders of repurchased the same num-
ber of shares prevousy sod, at an advance n prce, and the out-
standng notes were canceed. Smar formates took pace on
November 30, 1928, and anuary 2, 1929. Under these facts, the
transacton was not of the sort by whch a oss was sustaned, and
the ta payer Is not entted to deductons In the years 1927 and
1928, under the provsons of secton 214(a)5 of the Revenue ct
of 192 and sectons 23(e)2 and 118 of the Revenue ct of 1928.
2. Certorar Dew ted.
Petton for certorar dened October 14, 1935.
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118, rt. 0 1.
234
Unted States Crcut Coubt of ppeas fob the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. en|amn W. Dyer, respondent.
Petton for revew of an order of the Unted States oard of Ta ppeas.
efore L. and, Swan, and ugustus N. and, Crcut udges.
anuary 14, 1935.
OPINION.
The Commssoner of Interna Revenue seeks revew of a decson of the
oard of Ta ppeas whch reduced defcences In the respondent s Income
ta es for the years 1927 and 1928. Reversed.
Swan, Crcut udge: or each of the years In queston the Commssoner
dsaowed a deducton camed by the ta payer as a oss sustaned on a sae
of shares of stock, and determned a ta defcency. Upon appea by the ta -
payer, the oard of Ta ppeas hed that the osses were proper deductons
and reduced the defcences accordngy. The Commssoner seeks a reversa
of ths order. The case was heard by the oard upon stpuated facts.
In 1927 the respondent, Mr. Dyer, and s others were a the stockhoders
and drectors of Lamborn Co. Ths corporaton owned a the capta stock
of anco Reaty Corporaton, hereafter caed anco. On November 30, 1927,
the seven stockhoders of Lamborn Co. sod to anco out of ther ndvdua
hodngs ,700 shares of the preferred stock of Lamborn Co., each seer
partcpatng In the sae accordng to the percentage of hs ownershp of the
whoe ssue of such preferred stock. Mr. Dyer, who owned 15 per cent of the
ssue, contrbuted 1,005 shares of the ,700 sod. The drectors of anco by a
resouton of November 30, 1927, had authorzed the purchase of ,700 shares
of Lamborn Co. stock at the actua vaue of sad stock as of the cose of
busness on that day, payment to be made by anco s notes. The sae prce
to anco was 59.42 per share and each seer receved anco s note for the
sum due hm payabe anuary 3, 1928, and bearng nterest at 4 per cent
per annum. The transfer was recorded on the books of anco, and the stamp
ta es both edera and State were pad. y resouton of anuary 3, 1928, the
drectors of anco authorzed the sae of ,700 shares of the preferred stock
of Lamborn Co. at the actua vaue thereof as of the cose of busness De-
cember 31, 1927. ach seer repurchased from anco the same number of
shares he had prevousy sod but at an advance of 20 cents per share. The
outstandng notes of anco were canceed and the proft amountng to 1340
was ncuded n anco s ncome ta return for 1928. The shares whch Mr.
Dyer contends that he sod to anco on November 30, 1927, were part of
2,850 shares whch he had acqured n 1923 at a cost of 9 ,407 per share. Rey-
ng upon secton 214(a)5 of the Revenue ct of 192 (44 Stat, 2 ), he cams
the rght to deduct from hs gross ncome for 1927 the oss reazed by the
sae of November 30, amountng to 37,172.92. The proprety of ths deduc-
ton, whch the oard aowed, s the queston In dspute.
The same queston arses as to the year 1928. (Secton 23(e)2 and secton
118 of the Revenue ct of 1928 ( 45 Stat., 800, 82 ).) On November 30, 1928,
Mr. Dyer and four of the same assocates went through smar formates
wth reference to ,3 5 shares of preferred stock of Lamborn Co. Mr.
Lndgren who had partcpated In the 1927 transacton had n the meantme
sod out to two of hs former assocates. pparenty Mr. utchngs, the other
former partcpant, had ded n the meantme. s percentage of nterest n
the entre ssue was 5 per cent and ths e pans why ony ,3 5 shares, nstead
of ,700 shares, were nvoved n the 1928 transacton. The anco drectors
agan passed a resouton for the purchase and, ater, one for the sae of ,700
shares. The sae prce to anco was 48.8 9 per share, and was agan ev-
denced by ts notes, bearng nterest at the rate of 5 per cent per annum.
When the notes matured on anuary 2, 1929, each seer agan repurchased the
same number of shares as he had sod to anco. The number of shares of
Mr. Dyer nvoved n the 1928 transacton was agan 1,005. e cams as a
oss the dfference between the cost to hm n 1923 and the sae prce to anco,
- amountng to 47,778.79.
It s undoubtedy true that the motve Inducng Mr. Dyer and hs assocates
to se and dever ther stock to anco was to reduce ta es by camng
osses on the saes. Ths, however, despte the appeant s argument to the
contrary, s not enough to condemn the transactons. nyone Is prveged to
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235
141, rt. 2 (Regs. 7 )
arrange bs affars so that hs ta es sha be as ow as the statute permts.
evetng v. Gregory, 0 . (2d), 800, 810 (C. C. . 2), affrmed anuary 7,
1835 Ct. D. 911, C. . I -1, 103 Unted States v. / /wm, 17 Waa, 49 ,
008 uen v. Wsconsn, 240 U. S., 25, 30 Iowa rdye Co. v. Commssoner,
39 . (2d), 777, 781 (C. C. . 8).) ut the statute does not permt deducton of
a oss camed to have been sustaned n a sae of stock where wthn 30 days
before or after the date of such sae, the ta payer has entered nto a contract
or opton to acqure substantay Identca property and the property so ac-
qured s hed after such sae. (Secton 214 (a) 5, Revenue ct of 192 secton
118, Revenue ct of 1928.) In the case at bar, the nference s Inescapabe that
repurchase of the stock by return of the notes was part of the orgna pan,
and that from the begnnng the transferors ntended to reacqure ther shares
In ths manner. Coud any doubt e st, t s ad to rest by the repetton of
the rtua n the second year. The assocates had the power through ther
compete contro of Lamborn Co., whch n turn competey controed the
anco corporaton, to carry out ths ntent. It s apparent they were actng
n concert and had a mutua understandng that the transfers woud be re-
scnded when the notes came due. Under these crcumstances t s as though
there had been an agreement between a the transferors and anco that the
sae shoud be couped wth a contract, or at east an opton, to repurchase.
The transferors ownershp of ther stock was not so competey termnated as
to consttute the reazaton of osses by reason of saes. Compare sperson v.
Commssoner (49 . (2 1), 259 (C. C. . 5) Ct D. 422, C. . -2, 350 ). In
ths aspect, the fact that wth respect to the 1927 transacton a proft was
reported by anco s mmatera.
There s some dspute as to ust what ssue was presented to the oard. In
a cooquy between the oard member and the Commssoner s attorney, the
foowng queston s and answers appear:
You contend t s not a rea transacton, or a rea transfer
Yes that s t e acty.
You are not attackng the good fath
No that Is not n ssue.
These two statements seem somewhat contradctory. They may be harmonzed
by readng them as meanng that there was an actua transfer and devery
of the stock to anco, but the transacton was not of the sort by whch a oss
s reazed. or reasons aready stated we hod that t was not. The order
s reversed wth drectons to decree the asserted defcences.
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS O CORPOR -
TIONS 1929 ND SU S U NT T L Y RS.
rtce 2, Reguatons 75: Defntons. I -45-7784
Ct D. 1029
INCOM T R NU CT O 1928 D CISION O COURT.
1. ffated Corporatons Transfer of Stock eged Inva-
dty of Contracts Pursuant to Whch Stock was Trans-
ferred.
The ta payer corporaton transferred to a frm 1,000 shares of
ts tota hodngs of 2,095 shares of stock of a subsdary corpora-
ton, pursuant to contracts wth the frm for servces to be performed
n e ertng ts nfuence to procure the use of the company s product
for pubc mprovements. The contracts provded that the cer-
tfcate of stock ssued to the frm shoud have Inscrbed thereon
a statement that a rghts thereunder were sub|ect to the contracts,
and that the stock shoud be returned to the ta payer f the busness
of the subsdary dd not e ceed a certan amount at the end of fve
years. Under these facts, the ta payer may not aege that the
contracts were contrary to pubc pocy n order to avod the conse-
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141, rt. 41 (Regs. 75) 23
qucnces arsng from the transfer of the stock, and the Comms-
soner propery hed that, because of such transfer, the corporatons
were not affated wthn the meanng of secton 141 of the Revenue
ct of 1928.
2. Decson ff|bmed.
Decson of the oard of Ta ppeas (30 . T. ., 311) affrmed.
Unted States Cbcut Coubt of ppeas fob the Nnth Cbcut.
Maroete Corporaton of merca, Ltd., pettoner, v. Commssoner of Interna
Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbub, Denman, and Mathews, Crcut udges.
May 20, 1935.
opnon.
Wbcb, Crcut udge: The pettoner made a ta return for 1929 and 1930
upon the theory that t was affated wth a subsdary corporaton known as
the Marbete Corporaton of Inos. The atter corporaton had been organzed
by the pettoner wth a capta stock of 4,000 shares of the par vaue of
100 each. Of ths stock 2,995 shares had been ssued to pettoner and 5 shares
owned by pettoner were ssued to drectors as quafyng shares. On March
1 , 19 8, pettoner transferred 1,000 shares of Its 2,995 shares to asser,
ppus Rose. The Commssoner hed that the corporatons were not affated
corporatons authorzed to make consodated returns because of the transfer
of 1,000 shares of stock (Revenue ct 1928, ch. 852, 45 Stat., 791, secton 141).
The pettoner appeaed to the oard of Ta ppeas from the determnaton
by the Commssoner. It aeged that on March 1 , 1928, pettoner trans-
ferred 1,000 shares of sad 2,995 shares of stock to the frm of asser, ppus
Rose, pursuant to the terms of two agreements entered nto on sad date.
fter settng forth the terms of the agreements t further aeged, that the
pettoner contends that the contracts entered nto wth sad Messrs. asser,
ppus Rose were contrary to pubc pocy and vod, and that they hed
the stock as trustees for the ta payer, . The petton aso aeged
that the contract between asser, ppus Rose and the pettoner provded
for the ssuance of sad 1,000 s ares of stock at the par vaue of 100,000 and
provded that the certfcate of stock so ssued shoud have nscrbed thereon
a statement to the effect that the stock s ssued n accordance wth the terms
of an agreement between the Marbete Corporaton of merca, and the
partes named n the certfcate, and that a rghts thereunder were sub|ect
to the contract. The provson of the contract referred to was that f the
tota busness done by the Marbete Corporaton of Inos wthn the States
of Inos, Mchgan, Wsconsn, and Indana, sha amount to the sum of ess
than 1,000,000 In a perod of fve years, that the certfcate of stock was to
be returned to the pettoner.
The bass for the aeged nvadty of the contract was the aegaton that
(he partes contempated the use of the manufactured product of the Marbete
Corporaton of merca and of the Marbete Corporaton of Inos for pubc
mprovements, and that the stock n queston was ssued n order to secure
the nfuence of the certfcate hoder n procurng the use of such product
(standards for street ghts) for pubc mprovements.
The oard of Ta ppeas hed (30 . T. ., 311) that the pettoner coud
not aege ts own fraud n order to avod the consequences arsng from the
transfer of ts stock, ctng n support of that hodng, ohnston v. MoLaugfn
(55 . (2d), 1008 Ct. D. 509, C. . I-2, 139 ). In Its petton to ths court
the pettoner aeges that t was aso contended before the oard of Ta
ppeas that Irrespectve of the vadty of the sad contract no tte to the
stock passed from pettoner to asser, ppus Rose.
It was assgned as error that the oard of Ta ppeas faed to determne
that the pettoner was the owner of 95 per cent of the Issue outstandng
stock of the Marbete Corporaton of Inos durng the perod from March 10,
1928, to ebruary 19, 1929, and n fang to fnd the tte to 1,000 shares of
stock represented by the stock certfcate Issued to asser, ppus Rose dd
not pass from the pettoner to them.
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237
141, rt. 41 (Regs. 75)
These assgnments of course are not suffcent to show error because, as
aready stated, pettoner e pressy aeged before the oard of Ta ppeas
that t had transferred 1,000 shares of stock to asser, ppus Rose. More-
over the transfer of the certfcate by the pettoner to asser, ppns Rose
made them pto facto stockhoders of the Marbete Corporaton of Inos.
It s true the stock was not transferred for servces aready performed, but
for servces to be performed. Ths was a suffcent consderaton for the
transfer of the stock. The fact that the stockhoder agreed wth the pettoner
as transferor to retransfer the stock at the end of fve years n the event the
busness of the Marbete Corporaton of Inos dd rot e ceed 1,000,000,
and that the ndorsement on the stock certfcate was made so as to prevent
a transfer to an Innocent boder for vaue who otherwse mght not be bound
by the contract, s entrey mmatera.
The orders of the oard of Ta ppeas are affrmed.
rtce 41, Reguatons 75: Net osses. I -44-7771
G. C. M. 15595
R NU CT OP 1028.
In computng net osses of pror years whch may be carred for-
ward to 1920 under Reguatons 75, a net oss sustaned by the
parent company n 192 before affaton s not an aowabe deduc-
ton servng to ncrease consodated net oss for 1927, but the whoe
of such net oss for 192 may be carred forward as a deducton n
computng consodated net Income for 1928 and f no consodated
net Income remans for 1928 after such deducton, the consodated
net oss for 1927 s deductbe n computng consodated net ncome
for 1929.
G. C. M. 10028 (C. . -2, 1S9) s modfed accordngy.
dvce s requested reatve to carryng forward pror year net
osses aganst consodated net ncome of affated corporatons for
the year 1929.
The facts matera to the queston presented are tabuated as
foows:
192 .
1927.
1928.
1929.
doUort.
- 4
dotar .
212
-1 3
-10
z doars.
489

-51
doart.
-21
103
125
M Sons, Inc
Consodated net operatng ncome or oss
-G
-57
4S7
209
In G. C. M. 1002 (C. . -2, 189) t was hed that the baance
of the 1927 net oss of a subsdary, whch aso sustaned a net oss
n 1928, remanng after offsettng the 1927 net ncome of the parent
may be used to reduce the 1929 net ncome of the parent company
n determnng the consodated net ncome for that year.
It s ponted out that n G. C. M. 1002 , supra, there were no com-
pcatng net osses for 192 on the part of ether of the companes
there nvoved. Under the Revenue cts of 192 and 1928, the net
oss sustaned n ths case by M Sons, Inc., the parent, was an
aowabe deducton n computng the net ncome of that partcuar
company for the year 1927, and the e cess thereof over 1927 ncome
coud be deducted n computng the net ncome of that partcuar
company for 1928. Under the statutory provsons governng those
years, corporatons, though affated, were treated as separate ta -
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1141, rt. 41 (Regs. 75)
238
payers for purposes of appyng the net oss and other provsons.
(Wooford Reaty Co. v. Rose, 28 U. S., 319, Ct. D. 493. C. . I-1,
154 De-aware udson Co. v. Commssoner, 5 ed. (2d), 292, Ct.
D. 801, C. . III-1. 197 everng v. Post Shedon Corporaton,
71 ed. (2d), 930 Swft Co. v. Unted States, 38 ed. (2d), 3 5.)
The cted decsons hod n effect that, under the net oss pro-
vsons of the Revenue cts appcabe to 1928 and years pror
thereto, the net oss of an affated company, to the e tent not offset
n the current year by the ncome of other affates, may be carred
forward as a deducton n computng the net ncome of that com-
pany for the ne t two succeedng years and of that company ony.
Ths concuson was contrary to the reguatons and the depart-
menta practce thereunder, whch treated the affated companes
as a snge unt for purposes of both net ncome and net osses. (See
artce 734 of Reguatons 74 and L. O. 1113, C. . III-2, 3 , whch
guded the ureau practce respectng the manner of computng
consodated net oss and ts appcaton to other years.) That such
computaton mght produce a consodated net oss whch coud be
carred forward as a deducton aganst consodated net ncome seems
not to have been serousy questoned unt the decson n Swft
Co. v. Unted States, supra, wheren the genera practce then pre-
vang n cases where there were no changes n the affated group
s set forth as foows:
In other words, what the Commssoner dd, before e decded that
the decson of the oard of Ta ppeas prevented the deducton of a net oss
for 1019 from 1018 Income, was to deduct the tota of the consodated net oss
for 1919 from the tota of the consodated net Income for 1918.
In vew of ths we-estabshed practce prevang on anuary
3, 1929, when Reguatons 75 were promugated (the decson n the
Swft Co. case, supra, whch frst questoned the proprety of such
practce, not havng been decded unt ebruary 17, 1930), t s de
to contend that such reguatons antcpated tne ne of decsons
cted heren and changed the prevang practce to accord therewth.
That artce 41 of Reguatons 75 adopted the fundamenta concepts
of a consodated net oss and of treatng an affated group as
a snge corporaton from the prevang practce s cear from
the use of ke phraseoogy n artce 41. The fact that Reguatons
75 changed some features of the pror practce (for e ampe, the rue
of artce 41(a)3 confnng the appcaton of consodated net osses
to other years to the parent ony n cases of changes n the affated
group) merey confrms ths concuson as to adherence to the funda-
mentas of the pror practce. That s, such changes by Reguatons
75 (promugated pursuant to broad powers granted by secton 141(b)
of the Revenue ct of 1928) were manfesty ntended to emnate
nherent weaknesses n the controng theory upon whch the then
prevang practce rested. Thus, the above-mentoned fundamentas
of the ureau poston were carred unbroken (e cept as e pressy
changed by Reguatons 75) nto the year 1929 wth the force and
effect of aw after the year 1928. That the rue of the ater decsons
(cted and dscussed above as changng the practce of years pror
to 1929) s confned to the years not controed by Reguatons 75 s
cear from the statement pertanng to the purpose and force of such
reguatons n Wooford Reaty Co. v. Rose, supra, that
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239
141, rt. 41 (Regs. 75)
These provsons were adopted after the abty for the ta of
1927 had accrued, and they can have tte bearng upon the meanng to be
gven to statutes then n force. The Revenue ct of 1928 (secton 141(b))
protects aganst unfar evasons n the makng of consodated returns by
ncreasng the dscretonary power of the Commssoner n prescrbng regua-
tons.

The provson n ths reguaton mtng the deductons to the cost or the
vaue of the stock w make It proftess hereafter to purchase stock for the
purpose of ganng the beneft of deductons n e cess of what s pad.
The manner and e tent of the appcaton of net osses to the
ncome of affated groups n succeedng years as deveoped by the
ureau under the earer Revenue cts and adopted by artce 41 of
Reguatons 75 dffer radcay from the rue of the above-cted cases
whch govern years pror to 1929. s ponted out n Wooford
Reaty Co. v. Rose, supra, dherence to the one practce e cudes
adherence to the other. (See aso the dscusson as to the dfferences
n the resut of the two rues n everng v. Post Shedon Cor-
poraton, supra.) It foows that the mere fact that the computaton
and appcaton under the rue of the cases governng years pror to
1929 and the computaton and appcaton under the rue of the regu-
atons pertanng to 1929 reach dfferent resuts s of no consequence.
The year 1929 and a that pertans to t (and the amount and man-
ner of deducton of pror year osses appcabe thereto do pertan
to that year) fa wthn the ambt of the rue that contros that year.
Thus, n the nstant case the ta payer sustaned a consodated net
oss of 57# doars for 1927 and a consodated net ncome of 487a
doars (wthout deducton of consodated net osses of pror years)
for 1928.
There remans the queston as to what e tent the 4a| doars, the
192 net oss of the ta payer, the parent company, sustaned before
affaton, affects the consodated net osses to be carred forward
to 1929. s ponted out above, the reguatons havng adopted the
pror practce generay, the consodated net oss as computed under
the pror practce woud normay contro. owever, n ths re-
gard the pror practce was changed by artce 41 and such change
was e pressy gven retroactve effect to govern years pror to 1929
by paragraph (c) thereof. rtce 41 reads n part as foows:
rt. 41. Net osses.
(a) Consodated net oss for 1929 or subsequent ta abe year.
net oss sustaned by an affated group for any ta abe year (that s.
1929 or any subsequent ta abe year) for whch a consodated return s made
or s requred sha be aowed, In the same manner, to the same e tent, and
upon the same condtons as f the group were a snge corporaton, as a
deducton (1) n computng the consodated net ncome of such group for the
succeedng ta abe years, or (2) f consodated returns are not made or
requred, then In computng the net ncome of the parent corporaton for such
years, or (3) f the parent becomes a subsdary n another affated group
whch makes a consodated return, then n computng the consodated net
ncome of such other group for such years. In no case wU any such net
oss be aowed n computng the net ncome of a subsdary (whether on a
separate return or a consodated return of another affated group of whch
the subsdary has become a member).
(b) Consodated net oss for years pror to 1929.
consodated net oss sustaned for ether of the two ta abe years Imme-
datey precedng the ta abe year 1929, In the ease of a parent corporaton
and one or more other corporatons whch made a consodated return for
such year, sha, f such parent s a member of an affated group whch makes
a consodated return for the ta abe year 1929 or the ne t succeedng ta abe
year, be aowed as a deducton n computng the consodated net ncome of
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141, rt. 41 (Regs. 75)
240
such group for 1929 or the ne t succeedng ta abe year In the same manner,
to the same e tent, and upon the same condtons as If such group were a
snge corporaton and the same ta payer, e cept that no part of any such
consodated net oss whch has prevousy been aowed, or Is aowabe, as
a deducton n computng the net ncome of any such corporaton whch Is not a
member of such affated group durng 1929 or the ne t succeedng ta abe
year, sha be aowed as a deducton n computng such consodated net ncome
for 1929 or the ne t succeedng ta abe year. In no case w any such eon-
so hnted net oss be aowed In computng the net ncome for the ta abe year
1929 or the ne t succeedng ta abe year of a subsdary (whether on a sepa-
rate return or a consodated return of another affated group) whch durng
any part of the ta abe year 1929 or the ne t succeedng ta abe year s a
member of an affated group for whch a consodated return Is made.
(c) Net oss sustaned oy separate corporaton pror to consodated return
perod.
net oss sustaned by a corporaton pror to the date upon whch ts
ncome s ncuded n the consodated return of an affated group (ncudng
any net oss sustaned pror to the ta abe year 1929) sha be aowed as a
deducton In computng the consodated net ncome of such group n the same
manner, to the same e tent, and upon the same condtons as f the consodated
ncome were the ncome of such corporaton but In no case n whch the aff-
ated status s created after anuary 1, 1929, w any such net oss be aowed
as a deducton n e cess of the cost or the aggregate bass of the stock of
such corporaton owned by the members of the group.
Under the quoted provsons, the net oss for 192 s aowabe as a
deducton n computng consodated net ncome for 1927. There
was no consodated net ncome for the year 1927, and, accord-
ngy, the net oss for 192 s not an aowabe deducton servng
to ncrease consodated net oss for 1927, as that woud refect net
osses for both 192 and 1927, and such refecton woud utmatey
serve to avod the mtaton that net osses may be carred forward
ony to the two ne t succeedng years. s there s no consodated
net ncome for 1927 aganst whch the 192 net oss may be deducted,
the whoe of such net oss s e cess over 1927 consodated net ncome
and may be carred forward as a deducton n computng.conso-
dated net ncome for 1928. s the net oss for 192 e ceeds the
consodated net ncome of 487a doars for 1928, such consodated
net ncome for 1928 s reduced to zero. There beng no consodated
net ncome remanng for 1928 after deductng the 192 net oss,
the consodated net oss of 57a doars for 1927 (a of whch s
e cess over 1928 consodated ncome) s deductbe n computng
consodated net ncome for 1929. G. C. M. 1002 , supra, s mod-
fed to agree wth the concuson reached heren.
rthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
Intercompany dvdends shoud be emnated In computng con-
sodated net ncome or consodated net oss for years controed
by Reguatons 75.
dvce s requested reatve to the proper treatment to be accorded
ntercompany dvdends n computng consodated net ncome or
consodated net osses for years governed by Reguatons 75.
rtce 41, Reguatons 75: Net osses.
R NU CT OP 1D28.
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241
141, rt. 41 (Regs. 75)
G. C. M. 15595 (page 237, ths uetn) ponts out that for net
oss purposes artce 41 of Reguatons 75 generay adopts the u-
reau practce prevang at the tme such reguatons were promu-
gated and that fundamentay such practce (whch practce to the
e tent not specfcay changed by such reguatons was crystazed
nto aw controng 1929 and subsequent years) treated affated cor-
poratons as a snge corporaton for net oss purposes, so that the
net osses were consodated net osses as dstngushed from net osses
of the partcuar companes. (See G. C. M. 15595, supra, and cases
cted theren.)
s the provsons of Reguatons 75 do not e pressy state the
rue appcabe to the queston presented, the prevang practce
respectng ntercompany dvdends at the tme the reguatons were
promugated becomes mportant. In computng consodated n-
come or oss the gross ncome and deductons of the severa com-
Sanes were combned. Thus, ntercompany dvdends, ke dv-
ends from outsde companes, were ncuded n the ncome of the
recpent company. Such ncuson was offset by deductons n the
amount of such dvdends aowabe to the recpent company under
secton 23(p) of the Revenue ct of 1928 and correspondng pro-
vsons of pror Revenue cts n computng consodated ncome or
consodated oss. In reducng consodated oss to consodated net
oss, t was the ureau practce to emnate ony those deduc-
tons (aowabe n computng oss but not aowabe n computng
net oss) arsng from transactons wth strangers to the affaton.
The entry of ntercompany dvdends nto consodated ncome and
the offsettng correspondng deductons were consdered mmatera
and were not dsturbed. Such treatment wth respect to both con-
sodated oss and consodated net oss refected the ureau prac-
tce of dsregardng offsettng tems of ncome and deductons n
the emnaton of ntercompany tems when computng consodated
ncome or oss. (See the decson n evcrng v. Post Shedon
Corporaton, 71 ed. (2d), 930, whch ponts out that ntercompany
tems become mportant ony when t s necessary to segregate the
ncome or oss of the separate companes.) Thus, whe ntercom-
pany dvdends shoud, strcty speakng, have been emnated n
the frst nstance as ntercompany tems, the same resut was reached
by ncudng such dvdends n ncome and aowng the correspond-
ng deducton therefor. It s thus de to pont to the fact that the
offsettng deducton nvoved s not of the cass aowabe n com-
putng net oss when the tem of ncome thereby emnated shoud
tsef have been emnated rather than offset by deducton.
Whe the provsons of Reguatons 75 do not e pressy cassfy
ordnary dvdends as ntercompany transactons, they do so by
mpcaton n the adopton of the fundamentas of the then pre-
vang ureau practce as noted above that s, the concept of re-
gardng the affaton as a snge corporaton for consodaton pur-
poses dsputes the possbty of ntercompany dvdends. so, by
ncudng ntercompany dvdends to the recpent, manfest error
s commtted n the ncome of the group, snce f such dvdends
are pad out of current ncome, such ncome w appear twce n
group ncome and, f pad from earnngs of pror years, group
capta s converted nto group ncome. (See artce 37, Reguatons
75, whch emnates qudatng dvdends from group ncome.)
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242
The decson n Remco Steamshp Co. v. Commssoner (30 . T. ,
579, acquescence, C. . III-2, 15) hods that ntercompany dv-
dends must be ncuded n ncome of the recpent for net oss pur-
poses n computatons controed by Wooford Reaty Co. (28 U. S.,
319, Ct. D. 493, C. . I-1, 154) and ke cases. In that case the
oard makes t cear that ths resut turns upon the fact that t s
the net oss of the separate companes and not consodated net oss
that s mportant. Ths reasonng can not be apped to years con-
troed by the provsons of Reguatons 75, whch are concerned ony
wth consodated net oss.
It s accordngy the opnon of ths offce that ntercompany dv-
dends shoud be emnated n computng consodated net ncome
or consodated net oss for years controed by Reguatons 75.
rthue . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
SUPPL M NT . ST T S ND TRUSTS.
S CTION 1 1. IMPOSITION O T .
rtce 8 1: states and trusts. I -41-7735
G. C. M. 15401
R NU CTS O 102 ND 1928.
Where a trust nstrument provdes for the payment of ncome to
a certan benefcary on anuary 2 and uy 2 of each year provded
she s vng on those dates and f she s not vng dstrbu-
ton s to be made to another, the entre Income of the trust con-
sttutes ncome whch s to be dstrbuted currenty by the fducary
and s ta abe to the benefcary. The ncome for the ast haf of
the year whch s to be dstrbuted ony to the benefcary vng on
anuary 2 of the foowng year shoud be reported as Income by
the benefcary recevng t n that year.
G. C. M. 8724 (C. . -2, 197) s modfed, and t s recom-
mended that acquescence n ugustus . usts v. Commssoner
(30 . T. ., 820, C. . III-2, 7) be wthdrawn.
Reconsderaton of G. C. M. 8724 has been requested n vew of
the acquescence n the decson of the oard of Ta ppeas n
ugustus . usts v. Commssoner.
In G. C. M. 8724 t was hed that where a trust nstrument pro-
vdes for the payment of ncome to for fe and after her death
to her chdren and the ssue of any deceased chd, a payments to
be made on the 2d day of anuary and uy, the ncome for the
perod ended December 31,192 (the trust beng on the caendar year
bass), s ncome whch s to be dstrbuted currenty by the fducary
to the benefcares and s ta abe to the benefcares n accordance
wth secton 219(b)2 of the Revenue ct of 192 .
In the usts case, under the terms of a w creatng a trust the
ncome of the trust was to be pad semannuay on une 15 and
December 15 to the benefcares vng on such dates and coud not
be assgned or antcpated. In event of the death of a benefcary
between such dates, the share that he woud have receved f he had
remaned ave was dstrbutabe to other benefcares. The oard
hed that the ncome of the trust for the perod December 15 to
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51 1, rt M.
December 31 consttuted ncome accumuated n trust for the beneft
of unascertaned persons or persons wth contngent nterests wthn
the meanng of the provsons of secton 1 1 (a) 1 of the Revenue ct
of 1928 and was ta abe to the trustee.
Secton 219(a) of the Revenue ct of 192 and secton 1 1 of the
Revenue ct of 1928 provde that the ncome ta sha appy to the
ncome of estates or of any knd of property hed n trust, ncudng
(1) Income accumuated n trust for the beneft of unborn or unascer-
taned persons or persons wth contngent nterests, and ncome accumuated
or hed for future dstrbuton under the terms of the w or trust
(2) Income whch s to be dstrbuted currenty by the fducary to the
benefcares .
Secton 219(b) of the Revenue ct of 192 and secton 1 1(b) of
the Revenue ct of 1928 provde that the ta sha be computed
upon the net ncome of the estate or trust, and sha be pad by the
fducary, wth e ceptons not matera here. Under secton 219(b)2
of the Revenue ct of 192 and secton 1 2(b) of the Revenue ct
of 1928, t s further provded that n computng the net ncome of
the estate or trust there sha be aowed as a deducton
the amount of the ncome of the estate or trust for ts ta abe
year whch Is to be dstrbuted currenty by the fducary to the benefcares,
but the amount so aowed as a deducton sha be Incuded In com-
putng the net ncome of the benefcares whether dstrbuted to them or not.
The trust nstrument consdered n G. C. M. 8724, supra, provded
that a payments of ncome hereunder sha be made on the 2d days
of anuary and uy n each and every year, and that no benef-
cary hereunder sha be entted to any ncome for any haf year,
or any part thereof, uness vng at the tme f ed for such payment.
If the named benefcary was not vng, the payment was to be made
to another. Unquestonaby, therefore, n so far as the fducary s
concerned, the payments were perodc payments whch were to be
made to the benefcares. The ncome of the trust was payabe sem-
annuay, at a events and wthout condton, rrespectve of who
the benefcares at the tme mght be. Therefore, the payments con-
sttuted ncome whch s to be dstrbuted currenty by the fducary
to the benefcares (C ommssoner v. Steams (C. C. . 2), 5 ed.
(2d), 371). In the Stearns case, the court hed that the phrase
ncome whch s to be dstrbuted currenty s to be contrasted
wth ncome receved durng the perod of admnstraton as we
as wth ncome whch may be accumuated or dsbursed at peasure,
and that the phrase ncome to be dstrbuted currenty presupposes
a perodc duty of a trustee to make dstrbutons. Under such cr-
cumstances, the statutes specfcay provde that the payments sha
be deductbe by the fducary and ta abe to the benefcares. It
makes no dfference who the benefcares are or whether they have
changed or may change between dstrbuton or payment dates, or
that the dstrbutons or payments may actuay occur n a ater year.
The queston, n so far as the fducary s concerned, s whether the
ncome s currenty dstrbutabe. If so, such ncome s not ta abe
to the fducary. That s what G. C. M. 8724, supra, hods wth
respect to the fducary sde of the case athough e pressed n some-
what dfferent anguage. Snce the ncome under consderaton n
G. C. M. 8724 was currenty dstrbutabe the concuson reached n
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244
that case that no part of the ncome shoud be ta ed to the fducary
s ceary correct.
smar stuaton was present n ugustus . usts v. Comms-
soner, supra, n that the trust ncome was dstrbutabe to some
benefcary, the dates of dstrbuton beng une 15 and December 15.
The oard reached the concuson that the ncome for the perod
December 15 to December 31 consttuted ncome accumuated n trust
for the beneft of unascertaned persons or persons wth contngent
nterests. In vew of the concuson reached heren that G. C. M.
8724 s correct n hodng that no part of the ncome there nvoved
s ta abe to the fducary, t s recommended that the acquescence n
the usts case be wthdrawn.
ueston has aso arsen reatve to the year n whch the benefcary
shoud report the ncome of the trust consdered n G. C. M. 8724,
supra, that s, the ncome of the trust for the perod ended December
31, whch ncome s dstrbutabe on anuary 2 of the foowng year
to the named benefcary provded such benefcary s vng on that
date and f she s not vng the ncome s dstrbutabe to another.
It s stated that t s nferred from the anguage of G. C. M. 8724
that the entre ncome of the trust for the caendar year 192 (the
year consdered n that memorandum) shoud be ncuded n the
return of the benefcary for that year even though the ncome for the
ast haf of the year was not dstrbutabe or avaabe to the named
benefcary uness she was vng on anuary 2 of the foowng year.
though certan anguage used n G. C. M. 8724 may be construed as
hodng that the ncome of the trust for the perod ended December
31, 192 , shoud be reported by the benefcary for the caendar year
192 , that ssue (the year n whch the ncome shoud be reported)
was not specfcay passed upon. In the opnon of ths offce the
ncome of the trust for the ast haf of the year, that s, the perod
ended December 31 of each year, shoud be ncuded n the return
of the benefcary (whoever such benefcary may be) for the foow-
ng year for the reason that such ncome was nether dstrbutabe
to the named benefcary under the terms of the trust nstrument
nor was t avaabe to any benefcary unt anuary 2 of the fo-
owng year on whch date the benefcary then vng woud receve
the ncome n queston. G. C. M 8724 s modfed to accord wth
that concuson.
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 1 2. N T INCOM .
rtce 8 1: states and trusts. I -39-7712
Ct. D. 1013
INCOM T R NU CT OP 1928 D CISION OP COURT.
Sut Set-Off Statute ok Lmtaton Tkust Income Ta abe
to enefcaby.
In an acton at aw by trustees to recover ta es pad upon n-
come of the trust, whch shoud have been assessed aganst and
pad by the benefcary of the trust who was aso a trustee, the
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51 2, rt. 8 1.
coector may assert by way of equtabe set-off or defense the
abty of the benefcary for the ta whch shoud have been
pad, athough assessment and coecton of the ta aganst such
benefcary are barred by the statute of mtaton.
Unted States Crcut Court of ppeas foe the hst Crcut.
Thomas W. Whte, ormer Coector, defendant, appeant, v. Robert O. Stone
et a., Trustees, pantffs, appeees.
ppea from the Dstrct Court of the Unted States for the dstrct of Massachusetts.
efore ngham, Wson, and Morton, .
May 25, 1935.
OPINION.
ngham, .: Ths s an acton at aw brought by Robert G. Stone and Carre
M. Stone, trustees under the w of Gaen L. Stone, n whch they seek to
recover, In the frst count, the sum of 24,870. and nterest from the date or
dates of payment ns money had and receved for the pantffs beneft.
In the second count they aeged that they pad to the defendant under protest
the sum of 24,095.50, statng the dates of the payments that as trustees n
ther return of ncome receved by them durng the caendar year 1928 they
dscosed ncome receved and amounts pad to Carre M. Stone, soe benefcary
under the w of Gaen L. Stone and, at the same tme, fed a return showng
ta abe profts receved by them as trustees durng the caendar year 1928, whch
snm was not payabe to sad benefcary, and the return dscosng the same dd
not ncude the amounts of ncome receved and pad to Carre M. Stone that
the Department of Interna Revenue, after e amnaton of the returns, ncuded
the Income pad to the benefcary as ncome ta abe to the pantffs as trustees,
resutng n a ta thereon of 24,995.50 that ths acton of the Department was
ega and erroneousy dened to the pantffs the rght to deduct the ncome
pad the benefcary under the provsons of the Interna Revenue ct of 1928.
In answer to the pantffs decaraton the defendant peaded the genera ssue
and as an equtabe set-off or defense further answered that, under the w of
Gaen L. Stone, the pantff, Carre M. Stone, was named as soe trustee and
was the soe benefcary for her fe that the pantff, Robert G. Stone, was
apponted trustee to act wth Carre M. Stone that on March 19, 1929, Carre
M. Stone fed her ndvdua ncome ta return for the year 1928 reportng a
net ncome n the amount of 224,70 .53 and dscosng a ta due n the amount
of 37,441.35, whch was duy pad that n sad return Carre M. Stone dd not
ncude for ta aton any porton of the ncome of 153,545.37 receved by her
from the pantffs as trustees under the w of Gaen L. Stone and that her
return contans the foowng statement:
Income from trust Gaen L. Stone u/w of s not ncuded n accordance
wth oster decson (D828 ).
That the ta es whch Carre M. Stone shoud have pad to the defendant
on account of sad Income of 153,545.37 are argey n e cess of the amount
camed n the pantffs decaraton that the assessment and/or coecton
of the ta es aganst Onrre M. Stone are now barred by the statute of mta-
tons that the pantffs, as trustees, and Carre M. Stone are the same partes
n nterest that any recovery by the pantffs n ths acton w nure to the
beneft of Carre M. Stone and that the ncome In queston w not be ta ed.
It appeared that Gaen L. Stone by hs w, after makng certan specfc
bequests, bequeathed the resdue of hs property to hs wfe, Carre M. Stone,
as trustee, to pay over the net ncome to hersef at such tmes and n such
amounts as she may deem best for and durng her natura fe that Robert G.
Stone was .afterwards apponted a cotrustee and that the facts aeged n
the pantffs decaraton as to the makng of returns and the assessment
and payment by pantffs of 24,995.50 on the ncome pad by them to the
benefcary n the year 1928 are correct. It aso appeared that a cam for
refund was duy made that the cam was dened and ths sut seasonaby
brought and that the facts aeged by the defendant n hs answer as an
equtabe set-off or defense are true.
The controversy arses out of the dena by the Comm oner of a deduc-
ton of the ncome pad to Carre M. Stone n 1928, whch the pantffs cam
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24
shoud have been deducted under secton 1 2(b) of the Interna Revenue ct
of 1928, whch provded:
(b) There sha be aowed as an addtona deducton In computng the
net ncome of the estate or trust the amount of the ncome of the estate or trust
for ts ta abe year whch Is to be dstrbuted currenty by the fducary to the
benefcares, and the amount of the ncome coected by a guardan of an
nfant whch s to be hed or dstrbuted as the court may drect, but the
amount so aowed as a deducton sha be Incuded n computng the net ncome
of the benefcares whether dstrbuted to them or not.
It seems that at the tme of the assessment and coecton of these ta es n
1929 the Courts of ppeas for ths Crcut (Unted States v. oster, 2 ed.
(2d), 7 0 T. D. 4258, C. . III-1, 247 ), for the Second Crcut (Warner v.
Wash, 15 ed. (2d), 3 7 T. D. 4257, C. . III-1, 245 ), and for the ghth
Crcut ( en v. randes, 29 ed. (2d), 3 3 T. D. 425 , C. . III-1, 243 )
had hed that when a wdow renqushes her statutory rghts n her husband s
estate (as Mrs. Stone dd n ths case) by eectng to take n eu thereof the
provsons made for her n hs w, she acts as purchaser for a vauabe con-
sderaton and the ncome thereafter pad to her under the trust consttutes
a return of capta unt the payments equa the vaue of her statutory rghts,
and consequenty are not ta abe to her as a benefcary. (See aso tkns v.
Commssoner, 3 ed. (2d), 88 (C. C. . 1, decded anuary 31, 1933).) It
was because of these decsons and of the fact that Mrs. Stone, at the tme of
the assessment, had not receved the vaue of her statutory rghts that the
Commssoner ncuded the Income for 1928 pad to Mrs. Stone In the assess-
ment aganst the trustees and omtted to nssess the same aganst Mrs. Stone.
In fact t was not unt December, 1933, that the Commssoner earned that
the decson of ths court In Unted States v. oster and the ke decsons n
the second and eghth crcuts were not the aw, when the Supreme Court n
cverng v. uttcrusorth (290 U. S., 3 5 Ct. D. 7 9, C. . III-1, 151 ), de-
cded that the Income dstrbuted to the benefcary under the crcumstances
of ths case shoud have been ta ed to the benefcary and not to the trustees.
The ony queston before the dstrct court was and ths court s whether the
defendant n hs answer stated a good equtabe set-off n defense of the sut,
Mrs. Stone not havng been assessed for or pad any ta upon the ncome re-
ceved by her, and the tme wthn whch a ta coud be assessed and coected
aganst her havng e pred. (Secton 275 of the Interna Revenue ct of 1928
(45 Stat, 85 ).)
In the dstrct court t was hed that the fact that the Government dd
not seasonaby pursue ts remedy aganst Mrs. Stone wthn the tme when
It coud have done so, and the fact that Mrs. Stone has pad no ta on the
ncome In queston, do not consttute a defense to ths acton by trustees,
whose trust, for ncome-ta purposes s an entty separate and dstnct from
the benefcary of the trust. The same concuson Is reached f the trust s
not regarded as an entty. The trustees onty own a ega chose n acton,
and a barred cam at aw aganst one of them can not be used as a defense
to any acton by them both.
Secton 274b of the udca Code (38 Stat, 95 Tte 28, IT. S. C. ., sec-
ton 398) provdes:
Sec. 274b. In a actons at aw equtabe defenses may be Interposed by
answer, pea, or repcaton wthout the necessty of fng a b on the equty
sde of the court. The defendant sha have the same rghts n such case as f
he had fed a b embodyng the defense of seekng the reef prayed for n
such answer or pea. qutabe reef respectng the sub|ect matter of the
sut may thus be obtaned by answer or pea.
The dstrct court was of the opnon that, because the pantffs, as trustees,
|onty owned a cam or rght of acton aganst the Government and the Gov-
ernment owned a ega cam aganst one of them, the assessment ,nnd coec-
ton of whch was barred, the speca matter peaded dd not state an equtabe
defense. Ths s not necessary so. (Roeker v. romey-Shepard Co.. Inc.,
73 ed. (2d), 18.) That case was a b In equty brought by romey-Shepard
Co., Inc., and Sarah romey Shepard to compe the defendant Roeker, as
recever of an Insovent natona bank, to aow, as a set-off aganst ther |ont
note hed by the bapk, a cam of one of the |ont makers, and It was hed
that the set-off shoud be aowed and the recever en|oned from brngng sut
aganst the ont obgors on the note as he threatened to do. In that case It
appeared that romey-Shepard Co., Inc., and Sarah romey Shepard, at the
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247
1 , rt. 881.
tme the nssets of the bank were taken over by the recever, were ndebted
to te bank on ther |ont note for 5,000 that Sarah romey Shepard, nd-
vduay, had a depost n the bank n the sum of ,275.13 and the corporaton
a depost n the sum of 5, 11.10 and 5,000 of the depost of the corporaton
was aowed to be off set aganst the note. It was there sad:
Concedng that at aw, and generay n equty, a cam of one of two |ont
obgors can not be set off aganst the |ont debt, t s we estabshed that,
where |ustce requres, and there s no adequate remedy at aw, a court of
equty under such crcumstances w order a set-off, and a b n equty to
compe such set-off s a proper form of remedy.
In Scott v. rmstrong (14 U. S., 499, 507) the court sad:
Courts of equty frequenty devate from the strct rue of mutuaty (of
obgatons) when ustce of the partcuar case requres It, and the ordnary
rue s that where the mutua obgatons have grown out of the same transac-
ton, nsovency on the one hand |ustfes the set-off of the debt due upon the
other.
In ths case Mrs. Stone s not nsovent, but the Government has ost Its
remedy aganst her for the coecton of the ta mposed on the ncome pad
to her In 1928, due to no faut on ts part or ts offcers, they havng acted n
conformty to aw as then understood and apped n ths crcut and ese-
where. It can not be sad that the Government was neggent n assessng
the ta aganst the trustees rather than aganst Mrs. Stone, ths court havng
hed that that was the ony thng they coud do.
Mrs. Stone s ave and the soe benefcary under the trust. If the trus-
tees are aowed to recover t w redound to her beneft, and t s agreed that,
had the ncome n queston been ta ed to her nstead of to the trustees, she
woud have been requred to pay a greater sum than w be off-set by the
aowance of ths pea. Ceary no n|ustce w be done her by so dong.
urthermore Mrs. Stone, the soe benefcary, s the rea pantff n nterest
and equty and |ustce requre that her ta abty shoud be off-set aganst
the cam of the trustees.
In Thornton v. Maynard (33 Law Tmes Repts. (N. S.), 433, 435), t was sad:
Where the pantff Is sung merey as trustee, and the defendant has a
cam aganst the cestu que trust whch, but for the nterventon of the trust
coud have been set off at aw, such cam can be set off n equty.
In 2 Parsons on Contract (9th ed., 1904), page 905, t Is stated:
When an acton s brought by a trustee, n that capacty, money
due from the cestu que trust may be set off for t w be con-
sdered that the party In nterest and not merey the party of record, s the
one aganst whom the set-off shoud be made.
In Massachusetts, where ths sut was brought, the vew entertaned by the
ngsh court and Parsons on Contracts s emboded n a statute (G. L. Mass.,
1921, ch. 232, secton 5) as foows:
Sec. 5. In an acton brought by one person n trust or for the use or beneft
of another, the defendant may set off a cam aganst the benefcary.
(See aso ump v. Leon, 192 Mass., 511 Western Securtes Co. v. Spro, 2
Utah, 23 and Drggs v. Rockwe, 11 Wende, 504.)
In ths stuaton the case fas wthn the prncpe of Lews v. Reynods
(284 U. S., 281). (See aso u v. Unted States, . S., , decded pr 29,
1935 ICt. D. 9 9, C. . I -1, 310 .)
The |udgment of the dstrct court s vacated and |udgment w be entered for
the defendant costs to the defendant n both courts.
S CTION 1 G. R OC L TRUSTS.
rtce 881: Income of trusts ta abe to I -44-7773
grantor. Ct.D. 1027
ncome ta revenue acts of 1 2 and 102s decson op court.
1. Income Revocabe Trusts Income Ta abe to Gbantob
Consttutonaty.
The ta payer created trusts n 1923, namng hs ssters as fe
benefcares of the ncome, reservng to hmsef the power to ter-
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248
ntate the trusts on December 31, 1924, or the same day n any
subsequent year, by gvng 0 days wrtten notce to the trustee,
and provdng that upon the death of the benefcares the trust
property shoud revert to the settor, hs hers or assgns. Under
these facts, the trust ncome for the years 1927 and 1928 was prop-
ery ta abe to the grantor, under the provsons of secton 219(g)
of the Revenue ct of 192 and secton 1 0 of the Revenue ct
of 1928, whch sectons are not unconsttutona as apped to these
trusts.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (30 . T. ., 999) afrmed.
Unted States Crcut Coukt of ppeas fob the Seventh Cbcut.
ames Smpson, pettoner, v. Commssoner of Interna Revenue, respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore Sparks, tzhenby, and schueb, Crcut udges.
May 1 , 1935.
OPINION.
Spabks, Crcut udge: Pettoner seeks the revew of a decson of the oard
of Ta ppeas nvovng Income ta es for the years 1927 and 1928. The soe
queston rased Is whether the ncome for those years from certan revocabe
trusts was propery ta abe to the settor of the trusts or to the benefcares.
The three trusts n queston were created n 1923 by pettoner for the beneft
of hs three ssters. The corpus conssted of 3,000 shares of the common stock
of Marsha ed Co. whch the trustee was drected to dvde nto three equa
parts, the Income of whch t was to coect and pay over to the three benef-
cares. The trust agreement provded that the settor shoud have the power
to termnate the trusts or any one of them on December 31, 1924, or the same
day n any subsequent year. Uness the trusts were so termnated, they were
to contnue for the fetme of the varous benefcares, upon whose deaths the
property hod n trust was to revert to the settor, hs hers or assgns. It s the
revocaton provson whch gves rse to the present controversy. It was stpu-
ated that none of the trusts were termnated durng the years n queston, and
that no part of the ncome was receved by the trustee on December 31 of ether
year.
Secton 219(g) of the Revenue ct of 192 and secton 1 of the ct of 1928
(2 U. S. C. ., secton 9 0 note, and secton 210 ) provde as foows:
Where the grantor of a trust has, at any tme durng the ta abe year,
ether aone or In con|uncton wth any person not a benefcary of the trust,
the power to revest n hmsef tte to any part of the corpus of the trust, then
the ncome of such part of the trust for such ta abe year sha be ncuded n
computng the net ncome of the grantor. Our tacs.
Pettoner contends that the effect of ths provson s to permt the ta ng of
the grantor of a trust on the ncome of the trust ony n those cases where the
ncome was sub|ect to hs contro through some act of hs whch coud be per-
formed durng the ta abe year, and that where, as here, the rght to revoke
coud be e ercsed ony on the ast day of the year, and then ony f wrtten
notce of the ntenton to revoke had been gven 0 days before that day, he
dd not have the unfettered contro of the ncome, nor of the corpus, necessary
to brng hm wthn the ncdence of the ta . e quotes from paragraph 1,
artce 881 of Reguatons 74: Where the grantor renqushes durng the
ta abe year hs power to revest n hmsef tte to the corpus of the trust,
the ncome of the trust sha be ta abe to the grantor ony for the perod dur-
ng whch he had such power. e argues that n ths case, at the tme the
trust was created, the settor had renqushed hs rght to revoke e cept for
the perod of one day, hence shoud be ta ed ony for the ncome from the trust
on that one day, and that snce, as stpuated, the trustee receved no ncome
from the trust estate on that one day, no ta s due from the grantor. We do
not agree wth ths nterpretaton of the reguaton reed upon. We thnk
that t was ntended to cover cases where the trust agreement was so modfed
or amended durng the ta abe year as to do away wth the rght of the grantor
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1 , rt. 881.
to revoke the trust, transformng It Into an Irrevocabe one, In whch case he
woud be ta abe ony as to that part of the ncome receved by the trustee
durng the perod wthn whch e retaned the rght to revoke. To construe
the reguaton otherwse woud, t seems to us, overrde the pan anguage of
the statute, whch Is not permssbe.
Pettoner rees upon two cases nvovng the same secton of the statute, both
of whch were decded n favor of the grantor, hodng hm not abe for the
ta on the ncome of the trusts. (See Langcy v. Commssoner, 1 . (2d), 79
Ct D. 71, C. . II-1, 145 , and Lews v. Whte, 5 . (2d), 390.) owever,
the revocaton cause nvoved n each of those cases dffered n one very Im-
portant respect from the one Invoved In the case at bar, namey, that the
revocaton coud never be consummated wthn any one ta abe year, snce no-
tce of a year and a day was requred n each. In the case at bar, on the con-
trary, the revocaton coud be competey accompshed wthn any ta abe year.
We fuy agree wth the reasonng and concuson n Capp v. ener (51 .
(2d), 224) that f at any snge tme wthn the year the grantor has the power
to revoke the trust and revest tte to the corpus n hmsef, the ncome s to
be ta ed to hm. ven though the case of Renecke v. Smth (289 U. S., 172
Ct. D. 4, 0. . II-1, -5 ) nvoved a trust whch coud be revoked at
every moment, we thnk the anguage of the opnon supports the vadty of the
ta where the perod durng whch the trust s capabe of revocaton s a shorter
one, abet that perod be ony one day, as n the case at bar. The court sad
n that case:
We thnk Congress may wth reason decare that whore one has paced hs
property n trust sub|ect to a rght of revocaton n hmsef he sha
be deemed to be n contro of the property. We can not say that ths enactment
s so arbtrary and caprcous as to amount to a deprvaton of property wth-
out due process of aw. a revocabe trust amounts, n Its practca
aspects, to no more than an assgnment of ncome. Ths court has repeatedy
sad that such an assgnment, where the assgnor contnued to own the corpus,
does not mmunze hm from ta aton upon the ncome. It can not
therefore be successfuy urged that as the ega tte was hed by the trustees
the ncome necessary must for ncome ta aton be deemed to accrue from prop-
erty of some one other than Dougas Smth.
Pettoner aso argues that f the nterpretaton of the statute urged by re-
spondent and uphed by Capp v. cner, supra, s adopted here It w voate
the due process cause of the ffth amendment n that t w resut n measurng
the ta on one person s ncome by the amount of another person s Income whch
the frst dd not receve and over whch he had no contro. The same argu-
ment was rased In Corss v. owers (281 U. S., 37 Ct. D. 188, C. . I -1,
254 ) and n Renecke v. Smth, supra, both of whch cases sustaned the va-
dty of the statute as apped to trusts revocabe at a tmes by the settor,
wth, n the atter case, the consent of the trustee. The court there dstn-
gushed the stuaton where an attempt was made to ta ncome arsng from
property aways owned by one other than the ta payer who had never had
contro of the property nor of the ncome from t, as n the case of oeper y.
Ta Commsson (284 U. S., 20 ), where the ta eved on a husband was
measured by the Income of hs wfe.
The Corss and the Renecke cases, supra, hed the statute here nvoved
consttutona as to trusts revocabe wthout any quafcaton as to tme.
urnet v. Wes (289 U. S., 70 Ct. D. 88, C. . II-1, 2 1 ) uphed the con-
sttutonaty of secton 219(h) of the Revenue ct of 1924 permttng the ta -
ng of the grantor on the ncome even of rrevocabe trusts created to provde
for the mantenance of nsurance poces on hs fe. We thnk that these
three cases consdered together fuy sustan the consttutonaty of the statute
as apped to the trusts In the case at bar. s stated n Du Pont v. Comms-
soner (289 U. S., 85 Ct. D. 87, C. . II-1, 259 ), ere the grantor dd not
dvest hmsef of tte In any permanent or defntve way, dd not strp hmsef
of every nterest In the sub|ect matter of the trust estate. One who
retans for hmsef so many of the attrbutes of ownershp Is not the vctm
of despotc power when for the purpose of ta aton he Is treated as owner
atogether. The court there hed the statute nvoved In the Wes case,
supra, consttutona as apped to the ta on the ncome of trusts revocabe
ony at the end of any successve 3-year perods.
The order of the oard of Ta ppeas s nffrmed.
47318 38 9
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250
S CTION 1 7. INCOM OR N IT
O GR NTOR.
rtce 881: Income of trusts ta abe to I -49-7844
grantor. Ct D. 1041
INCOM T R NU CTS O 192 ND 1928 D CISION OP SUr M
COURT.
1. Income Tbust nnua Payments n Leu of mony
Ta abe to Gbantob.
trust agreement was e ecuted by the ta payer, hs wfe, and
a trustee, provdng for the payment of trust ncome to the wfe
n stated amounts annuay, the partes stpuatng that such pay-
ments were n eu of amony and any other nterest In the
husband s property. On the same day a sut for dvorce was nst-
tuted, and the dstrct court approved the provsons of the agree-
ment and ncorporated them In ts decree of absoute dvorce.
Under these facts, the ncome of the trust was ta abe to the
husband, the payments therefrom beng n dscharge of a ega
obgaton mposed by the decree of the court In contempaton
of aw the ncome remaned n substance that of the grantor.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, ghth Crcut (73 ed.
(2d), 130 Ct D. 913, C. . I -1, 228), affrmed.
Supreme Court of the Unted States.
dward . Dougas, pettoner, v. Lev M. Wruts, as Coector of Interna
Revenue for the Dstrct of Mnnesota.
On wrt of certorar to the Unted States Crcut Court of ppea for the ghth Crcut
November , 1035.
OPINION.
Mr. Chef ustce ughes devered the opnon of the Court.
On September 12, 1923, pettoner, dward . Dougas, entered Into an
agreement wth hs wfe and the Mnneapos Trust Co., by whch he trans-
ferred securtes n trust for hs wfe s beneft. Out of the Income of the
trust estate the trustee was to pay Mrs. Dougas annuay the sum of 15,000,
up to November , 1927, and thereafter 21,000. Defcences were to be made
up n a prescrbed manner. cess ncome (n case the prncpa was not
mpared) was to be pad to pettoner. On the death of hs wfe, he was
to receve the property free of the trust. Pettoner reserved the rght to
desgnate securtes for nvestment, sub|ect, however, to the approva of the
trustee actng n that respect on behaf of Mrs. Dougas.
The partes stpuated that the provsons for Mrs. Dougas were n eu
of, and n fu settement of amony, and of any and a dower rghts or
statutory nterests n the estate of her husband, and n eu of any and
a cams for separate mantenance and aowance for her support.
Three days ater, Mrs. Dougas obtaned a decree of absoute dvorce a a
dstrct court of the State of Mnnesota. The decree provded:
It s further ad|udged and decreed that the defendant provde and create
the trust fund ns set out n that certan agreement between sad partes and
the Mnneapos Trust Co. as trustee now on fe wth sad trustee, and that
the pantff have the provson theren made n eu of a other amony or
nterest n the property or estate of the defendant and that nether party
have any costs or dsbursements heren.
The queston n ts case reates to the net ncome of the trust whch was
dstrbuted to Mrs. Dougas n the years 1927 and 1928. The Commssoner
of Interna Revenue determned that these amounts were ncome to the pet-
toner. Ta es assessed accordngy were pad by pettoner under protest,
cam for refund was dsaowed, and ths sut was brought to recover the
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251
51 7, rt. 881.
amount pad. udgment for pettoner was reversed by the Crcut Court of
ppeas. (73 . (2d), 130.) We granted certorar ( pr 8, 1035) In vew
of an asserted confct wth the decson of the Crcut Court of ppeas of
the Seventh Crcut n the case of Schwetzer v. Commssoner of Interna
Revenue (75 . (2d), 702, 705, 70 ).
Pettoner contends that the agreement created an rrevocabe trust that
under the Revenue cts pettoner and Mrs. Dougas were separate ta payers,
and that, havng accepted the benefts of the trust, she was ta abe upon the
Income she receved as benefcary. (Revenue cts, 192 , secton 219 1928,
sectons 1 1, 1 2, 1 7 everng v. utterworth, 290 U. S., 3 5, 3 9, 370 Ct. D.
7 9, C. . III-1, 151 .) The Crcut Court of ppeas decded that the Income
was ta abe to the pettoner, snce t went to the dscharge of hs ega
obgaton that Is, the ncome was devoted to payments whch pettoner was
bound to make under the decree of the Mnnesota court. (75 . (2d), 133.)
The authorty of the dstrct court s defned by statute. (Mason s Mnne-
sota Statutes, 1927, sectons 8 01-8 04.) The court s empowered upon dvorce
for any cause, e cept that of the wfe s adutery, to decree to the wfe such
part of the persona and rea estate of the husband, not e ceedng n vaue one-
thrd thereof, as It deems |ust and reasonabe, havng regard to the abty of
the husband, the character and stuaton of the partes, and a other crcum-
stances of the case. The court may aso decree such amony out of the
estate, earnngs and ncome of the husband as t may deem |ust and rea-
sonabe, but the aggregate award and aowance made to the wfe from
the estate of the husband s not to e ceed n present vaue one-thrd of the
persona estate, earnngs, and ncome of the husband, and one-thrd In vaue
of hs rea estate. (Id., secton 8 02.) The court may appont trustees,
whenever t Is deemed e pedent, to receve any money ordered to be pad to
the wfe, upon trust to nvest the same, and pay over the ncome for the sup-
port of the wfe, or of the wfe and mnor chdren of the partes, or any of
them, n such manner as the court sha drect, or to pay over to the wfe
the prncpa sum In such proportons and at such tmes as the court sha
order. (Id., secton 8 01.) fter a decree for amony, or other aowance
for the wfe and chdren, or for the appontment of trustees to receve
and hod any property for the use of the wfe or chdren, the court may
from tme to tme revse and ater the decree, wth respect to the amount
of such amony or aowance and aso wth respect to the appropraton
and payment of the prncpa and ncome of the property so hed n trust,
and may make any order respectng any of the sad matters whch t mght
have made n the orgna acton. (Id., secton 8 03. )
1 Tbe te t of these provsons Is as foows :
Sec. 8 01. Trustee of amony. Tbe court may appont trustees, whenever It Is
deemed e pedent, to receve any money ordered to be pad to the wfe, upon trust to
Invest the same, and pay over the Income for the support of the wfe, or of the wfe and
mnor chdren of the partes, or any of them. In such manner as the court sha drect,
or to pay over to the wfe the prncpa sum In such proportons and at such tmes as the
court sha order, regard beng had n a such cases to the stuaton and crcumstances
of such wfe, and the chdren f there are any, provded for In the order and such
trustees sha gve such bond, as the court sha requre for the fathfu performance of
ther trust.
Sec. 8 02. Property of husband Permanent amony. Upon a dvorce for any cause
e cept that of adutery commtted by the wfe, f the estate and property restored or
awarded to her Is Insuffcent for the sutabe support of hersef and such chdren of the
marrage as sha be commtted to her care and custody, or f there s no such estate
and property, the court may further order and decree to her such part of the persona
and rea estate of the husband, not e ceedng n vaue one-thrd thereof, as t deems |ust
and reasonabe, havng regard to the abty of the husband, tbe character and stuaton
of tbe partes, and a other crcumstances of the case. The court may aso, n the rases
provded for In ths secton, decree to the wfe such amony out of the estate, earnngs,
and Income of the husband ns t may deem |ust and reasonabe, havng regard of the
abty of the husband, the character and stuaton of the partes, and other crcumstances
of the case, and may by ts decree make the same a specfc en upon any specfed parces
of hs rea estate, or authorze Its enforcement by e ecuton aganst hs property, rea and
ersona but the aggregate award and aowance made to the wfe from the estate of the
usband under ths secton sha not In any case e ceed In present vaue one-thrd of tbe
persona estate, earnngs, and Income of the husband, and one-thrd n vaue of hs rea
estate.
Sec. 8 03. Order for amony, etc., revsed. fter an order or decree for amony, or
other aowance for the wfe and chdren, or ether of them, or for the appontment of
trustees to receve and hod any property for tbe use of the wfe or chdren, the court,
from tme to tme, on petton of ether of the partes, may revse and ater such order
or decree respectng the amount of such amony or aowance, and the payment thereof,
and aso respectng the appropraton and payment of the prncpa and ncome of the
property so hed In trust, and nay make any order respectng any of the sad matters
whch t mght have made In the orgna acton.
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1 7. rt. 881.
252
The supreme court of the State has decded that the dstrct court n e er-
csng ths authorty Is not precuded by stpuatons and agreements of the
partes, entered nto pendng the acton (but not vod by reason of havng
been made to factate the decree of dvorce), from makng such provson for
the wfe as the court may deem approprate. Such stpuatons or agreements
do not contro the court. The court may adopt or re|ect them as t deems best
n the ght of the stuaton of the partes. When such agreements are ap-
proved, and n effect are emboded n the decree, they do not detract from the
authorty of the court to ater or revse ts decree and the provsons made for
the wfe s beneft. In Warren v. Warren (11 Mnn., 458) the court sad (pages
450, 4 0) :
It appears that the orgna |udgment for amony was based upon a stpu-
aton of the partes, entered nto pendng the acton, but not to factate the
grantng of the dvorce, and pantff contends that the |udgment so founded
and entered became a contract between the partes, and s not sub|ect to
change by the court, e cept upon restoraton of pantff to her poston and
rghts before ts entry. In ths we are unabe to concur.
Stpuatons and agreements of the knd, where not vod by reason of
havng been entered nto to factate a decree of dvorce, become merged n
the |udgment when entered, and are not, n the absence of statute upon the
sub|ect, so far of a contractua nature as to precude the court subsequenty
from changng and modfyng the |udgment, upon appcaton of one of the
partes. The court s not controed by the stpuaton, and may adopt or re-
|ect t as seems consstent and proper from the stuaton of the partes, as ds-
cosed by the evdence on the tra. The fact that such stpuatons are usuay
adopted by the court does not change the stuaton.
(See, aso, aske v. aske, 11 Mnn., 10 Martnson v. Martnson, 11
Mnn., 128 Sessons v. Sessons, 178 Mnn., 75 Randa v. Randa, 181 Mnn.,
18 rckson v. rckson, 181 Mnn., 421.)
s we have noted, ths contro over provsons for the beneft of the wfe n
connecton wth dvorce appes by the e press terms of the statute not ony
to amony but aso to other aowance for the wfe and chdren, or ether
of them, and to the appontment of trustees to receve and hod any prop-
erty for the use of the wfe or chdren. (See secton 8 03.)
In the Instant case, the trust agreement was made on the day that the sut
for dvorce was brought. The agreement was manfesty made n contempa-
ton of that sut. When the dstrct court was shorty caed upon to determne
what provson shoud be made for the wfe, the court was not bound by tha
trust agreement Wthn the mts prescrbed by the statute (and there Is no
suggeston that the provson here went beyond those mts) the court had
fu authorty to make an aowance to the wfe out of her husband s property
and to set up a trust to gve effect to that aowance. eng satsfed wth
the provson made by the trust agreement, the court ncorporated that pro-
vson n ts decree. The court dd not approve the trust agreement as one
dervng effcacy from the acton of the partes. The court made ts own re-
qurement The decree requred the pettoner to provde and create the
trust fund Whe the terms of the trust as set up n the trust agreement
were approved, the court made those terms ts own. It was from ths acton
of the court that the trust derved ts force.
mounts pad to a dvorced wfe under a decree for amony are not re-
garded as ncome of the wfe but as pad n dscharge of the genera obgaton
to support, whch s made specfc by the decree. (Goud v. Goud, 245 U. S.f
151, 153 udubon v. Shufedt, 181 U. S., 575, 577.) Pettoner s contenton
that the dstrct court dd not award amony s not supported by the terms
of the decree. It descrbed the provson as made In eu of a other amony
or Interest n the property or estate of the defendant owever desgnated,
t was a provson for annua payments to serve the purpose of amony, that
s, to assure to the wfe sutabe support. The fact that the provson was to
be n eu of any other nterest n the husband s property dd not affect the
essenta quaty of these payments. Upon the pree stng duty of the husband
the decree paced a partcuar and adequate sancton, and mposed upon pet-
toner the obgaton to devote the ncome n queston, through the medum of
the trust, to the use of hs dvorced wfe.
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253
203, rt. 971.
No queston s rased as to the consttutona power of the Congress to
attrbute to pettoner the Income thus segregated and pad In dscharge of
hs obgaton, and that authorty coud not be chaenged successfuy. ( ur-
net v. WeUs, 289 U. S., 70, 77, 82, 84 Ct D. 88, C. . II-1, 2 1 .) The
queston Is one of statutory constructon. We thnk that the defntons of gross
Income (Revenue cts, 192 , secton 213 1928, secton 22) are broad enough
to cover Income of that descrpton. They are to be consdered In the ght
of the evdent ntent of the Congress to use Its power to the fu e tent.
(Incn v. Gavt, 2 8 U. S., 1 1 T. D. 3710, C. . I -1, 123 cverng v.
Stockhom ank, 293 U. S., 84, 89 Ct. D. 887, C. . III-2, 299 .) We have
hed that Income was receved by a ta payer, when, pursuant to a contract,
a debt or other obgaton was dscharged by another for hs beneft. The
transacton was regarded as beng the same n substance as If the money had
been pad to the ta payer and he had transmtted t to hs credtor. (Od
Coony Trust Co. v. Commssoner, 279 U. S., 71 Ct. D. 895, C. . III-2,
205 Unted States v. oston t Mane Raroad, 279 U. S., 732 Ct. D. 73, C. .
III-2, 315 . See, aso, Unted States v. Mahonng Coa R. Co., 51 . (2d),
208 Ct. D. 398, C. . -2, 397 .) The creaton of a trust by the ta payer as
the channe for the appcaton of the ncome to the dscharge of hs obgaton
eaves the nature of the transacton unatered. ( urnet v. Wes, supra.) In
the present case, the net Income of the trust fund, whch was pad to the wfe
under the decree, stands substantay on the same footng as though he had
receved the ncome personay and had been requred by the decree to make
the payment drecty.
We do not regard the provsons of the statutes as to the ta aton of trusts,
fducares and benefcares (Revenue cts, 192 , secton 2, 219 1928, sectons
1 1, 1 2), as ntended to appy to cases where the ncome of the trust woud
otherwse reman, by vrtue of the nature and purpose of the trust, attrbut-
abe to the creator of the trust and accordngy ta abe to hm. These prov-
sons have approprate reference to cases where the ncome of the trust Is
no onger to be regarded as that of the settor, and we fnd no warrant for
a constructon whch woud precude the ayng of the ta aganst the one
who through the dscharge of hs obgaton en|oys the beneft of the ncome
as though he had personay receved It.
The decson n evcrng v. uttcrcorth (290 U. S., 3 5) Is not opposed.
There the trust was testamentary and the ony queston was wth respect to
the abty for the ta as between the trustee and the benefcary. The court
observed that the evdent genera purpose of the statute was to ta n some
way the whoe ncome of a trust estates. The decson has no appcaton
to a case where the Income s st ta abe to the grantor. Nor are the pro-
vsons of the statutes (Revenue cts, 1920, secton 219(h) 1928, secton 1 7)
defnng nstances n whch the grantor remans ta abe, as In case of certan
reservatons for hs beneft or provsons for the payment of premums upon
poces of nsurance on hs fe, to be regarded as e cudng Instances not spec-
fed, where n contempaton of aw the ncome remans n substance that of
the grantor. No such e cuson s e pressed and we see no ground for
Impyng t.
The decree of the crcut court of appeas s affrmed.
Decree affrmed.
SUPPL M NT G. INSUR NC COMP NI S
S CTION 203. N T INCOM O LI
INSUR NC COMP NI S.
rtce 971: Ta -e empt nterest and reserve funds.
NU CT OP 1928.
mendment of artces 971 and 975 of Reguatons 74. (See T. D.
4 15, page 310.)
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5204, rt. 992.
254
S CTION 204. INSUR NC COMP NI S OT R
T N LI OR MUTU L.
rtce 992: Gross ncome of nsurance com- I -29-7 00
panes other than fe or mutua. Ct. D. 992
ncome ta revenue act of 1028 decson of court.
1. Income Insurance Comfany Other than Lfe or Mutua
Premums arned.
premum receved by a tte nsurance company n consderaton
of the assumpton by t of n abty upon outstandng poces
ssued by another company, and premums receved on new poces
Issued, are earned when receved and consttute ta abe ncome
wthn the meanng of secton 204 of the Revenue ct of 1928.
2. Deductons Same Reserves Requred by State Law.
Reserve funds set up by a tte Insurance company, as requred
by the aws of the State, are not deductbe from gross ncome for
edera Income ta purposes under the provsons of secton 204
of the Revenue ct of 1928.
3. Decson ffrmed.
Decsons of the oard of Ta ppeas (29 . T. ., 479) affrmed.
Unted States Crcut Court of ppeas for the Thrd Crcut.
mercan Tte Co., pettoner, v. CommUscfner of Interna Revenue, respondent
Petton for revew from the Unted States oard of Ta ppeas.
efore uffngton, Wooey, and Davs, Crcut udges.
March 12, 1935.
OPINION.
Per curam: Ths case Is here on the ta payer s petton to revew a decson
of the Unted States oard of Ta ppeas sustanng and enargng a defcency
ta assessed aganst t by the Commssoner of Interna Revenue. There are
two questons:
1. Whether premums pad a tte Insurance company for poces guaranteeng
ttes are eurned when pad and consttute ta abe ncome wthn the meanng
of secton 204 of the Revenue ct of 1928. (45 Stat, 791, 883.)
2. Whether reserves set up by a tte nsurance company under the aws of
Pennsyvana (act of pr 2 , 1929, P. L. 834) consttute aowabe deductons
from gross ncome under the provsons of the same secton of the Revenue ct
of 192a
The questons arose out of these facts:
trust company, engaged n a trust and tte nsurance busness, was ab-
sorbed by a natona bank. Natona banks are not authorzed to conduct tte
nsurance busness. To contnue ths branch of the busness a new tte company
(the pettoner) was organzed whose soe functon was to nsure persons nter-
ested n rea estate from oss by reason of defectve ttes, ens, and encumbrances-
The natona bank pad the new tte company 25,000 as a premum or fee
n consderaton of the assumpton by t of a abty on the 3 ,000,000 out-
standng poces ssued by the trust company and tentatvey assumed by the
bank, whereupon the new tte company, the pettoner, took over the outstandng
poces. Ths premum together wth a percentage of premums t had receved
on new tte nsurance busness durng the ta abe year, the pettoner set up
as a reserve fund for the protecton of pocyhoders as requred by the aw of
Pennsyvana and deducted It from gross ncome n ts edera ta return. The
oard hed that the entre reserve thus consttuted was ta abe ncome.
Confessedy, whether the premum of 25,000 and premums on new busness
were ta abe Income wthn the ta abe year depends on whether they were
premums earned. The pettoner says that In the busness of Insurng ttes,
premums are not earned when receved, ndeed, are not earned at a, and
never can be earned unt the ast outstandng pocy of the company has ded,
whch Is the same as sayng that edera ta es on premums of tte Insurance
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255
204, rt. 993.
can not be assessed unt the poces are e tnct. In vew of the character of
nsurance aganst bad ttes and encumbrances, poces (e cept by mtaton
n ther terms) never e pre where ttes are good and there are no encum-
brances, and therefore, on the pettoner s theory, ta es can never be awfuy
assessed aganst and can never be coected on the premums. In addton, the
aw of Pennsyvana requres that 10 per cent of premums receved on poces
of Insurance sha be paced In reserve The pettoner contends that ths re-
qurement of State aw prevents edera ta aton of premums so paced a
reserve and accordngy authorzes ts act n ths nstance of deductng them
from gross ncome and |ustfes Its escape from ta aton.
It shoud be observed that the edera statute n queston deas wth ta a-
ton of three knds of Insurance companes: (1) fe nsurance companes
(2) nsurance companes other than fe or mutua and (3) mutua nsurance
companes other than fe, dstngushng them n the genera scheme of ta aton
from companes n other busnesses and gvng them, because of the pecuar
character of ther busness, separate paces wth dfferent ta abtes and
deductons. The pettoner n ths case comes wthn the cass of Insurance
companes other than fe or mutua and Its rghts and abtes are strcty
mted to what the statute says n respect to companes of that cass. The
statute mposes upon them a ta on net ncome earned, reckoned on certan
deductons from gross Income n respect to earned and unearned premums,
returned premums and premums pad for rensurance. It gves such com-
panes no rght to deduct reserves requred by State aw from gross Income for
edera ta purposes nor does t defne the ncome of such companes n the
form of premums for tte nsurance as ncome not earned. Therefore the
statute n the atter respect must be construed.
The oard of Ta ppeas, n construng the statute that premums for tte
Insurance are earned when receved and n refusng deducton of State reserves
from gross ncome, arrved. In our udgment, at correct concusons upon reason-
ng whch we approve. (29 . T. ., 479.)
Therefore the order of the oard of Ta ppeas s, on Its own fndngs of
fact and opnon, affrmed.
Where the M Company, a tte guaranty company, made a oan
evdenced by a note secured by a second mortgage, the equty beng
emnated thereafter by forecosure of the frst mortgage, the
amount of the note s deductbe as a bad debt In the year n
whch It was ascertaned to be worthess and charged off.
dvce s requested reatve to a deducton camed by the M
Company, a tte guaranty company, for the year 1931 on account
of a note charged off n that year.
The ta payer s an nsurance company other than a fe or mu-
tua nsurance company wthn the meanng of secton 204 of the
Revenue ct of 1928. It oaned to an ndvdua the sum of do-
ars, the oan beng evdenced by a note and secured by a second
mortgage on rea property. The equty of the ta payer under the
second mortgage was emnated by forecosure of the frst mort-
gage n 1930, and the note was ascertaned to be worthess and was
charged off n 1931.
The tem, f deductbe at a, must quafy as bs recevabe
wthn the meanng of those words as used n secton 204(c) of the
Revenue ct of 1928, whch provdes:
(c) Deductons aowed. In computng the net Income of an Insurance com-
pany sub|ect to the ta Imposed by ths secton there sha be aowed as
deductons:

rtce 993: Deductons aowed nsurance
companes other than fe or mutua.
I -38-7700
I. T. 2920
R NU CT O 1928.
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( ) ad debts In the nature of agency baances and bs recevabe ascer-
taned to be worthess and charged off wthn the ta abe year
Snce the oan n queston s the type of oan whch such nsurance
companes ordnary make, the note shoud be treated as a b
recevabe n accordance wth generay accepted accountng prac-
tce. Ths concuson s supported by the accountng method used by
the ta payer, whch treats ncome from such sources as ta abe
ncome from ts nsurance busness.
It s hed, therefore, that the amount of the note n queston s
deductbe as a bad debt under secton 204(c) of the Revenue ct
of 1928 n the year n whch t was ascertaned to be worthess and
charged off.
SUPPL M NT N. CL IMS G INST TR NS R S ND IDUCI RI S.
S CTION 311. TR NS RR D SS TS.
rtce 1231: Cams n cases of transferred assets.
R NU CT OP 1928.
sserton of defcences aganst transferee wthout pror assess-
ment aganst transferor. (See Ct. D. 1023, page 18 .)
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
rtce 1258: Credtng of accounts of coectors n cases
of assessments aganst severa persons coverng same
abty.
R NU CT O 1028.
Reguatons 74 amended by addng a new artce. (See T. D. 4581,
page 150.)
TITL I . DMINISTR TI PRO ISIONS.
S CTION 0 . CLOSING GR M NTS.
rtce 1301: Cosng agreements reatng to I -28-7592
ta abty n respect of nterna-revenue Ct. D. 990
ta es.
INCOM T R NU CT O 102S D CISION O COURT.
1. Cosng crkement adty Determnaton of Ta La-
bty fob Perod of Less Than a Year.
The dssouton of certan affated corporatons was author-
zed by the parent corporaton n anuary, 1923, and ther sepa-
rate books were cosed and baances transferred to the books of
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the parent on ugust 31, 1923. Upon request, the Commssoner
permtted a change n ther accountng perod from a fsca year,
endng pr 30, to a caendar year bass, and determned the a-
bty of the group for the fsca years 1920, 1921, 1922, and 1923
and for the perod May 1 to ugust 31, 1923, upon whch bass a
cosng agreement was e ecuted n accordance wth secton 0 of
the Revenue ct of 1928. Under these facts, the cosng agreement
was bndng and concusve, nether the statute nor the reguatons
e pressy e cudng from the scope of such an agreement the de-
termnaton that a specfc perod of ess than a year sha con-
sttute a separate ta abe perod If the partes so agree, and there
beng no showng of fraud, mafeasance, or msrepresentaton of
a matera fact on the part of the Commssoner.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 123 ) affrmed.
3. Certorar Dened.
Petton for certorar dened pr 29, 1935.
Unted States Crcut Court of ppeas, ghth Crcut.
Woverne Petroeum Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Sanborn, Woodrouoh, and ooth, Crcut udges.
anuary 22, 1935.
opnon.
Woodeough, Crcut udge, devered the opnon of the court.
Ths s an appea from a decson of the oard of Ta ppeas (29 . T. .,
123 ), sustanng the assessment by the Commssoner of a defcency of 32,-
258.8 n the pettoner s ncome ta for the perod September 1 to December
31, 1923. The facts as found by the oard of Ta ppeas are as foows:
The ta payer, a Mane corporaton, whch, on ugust 27, 1923, changed ts
name from the Centra Petroeum Co., was the parent company of affated
corporatons consstng of the Woverne O Co., Sagamore O Gas Co.,
Wgwam O Co., Roth- rgue-Mare ros. O Co., and the St. Lawrence O
Co. The pettoner owned a of the outstandng capta stock of the Woverne
O Co., Roth- rgue-Mare ros. O Co., and the St. Lawrence O Co., e cept
quafyng shares and substantay a of the outstandng capta stock of the
other two subsdares. On anuary 5, 1923, the board of drectors of the ta -
payer authorzed ts presdent to cause the assets of the subsdary companes
to be transferred to t and to brng about the dssouton of the subsdary
companes. The assets of the Roth- rgue-Mare ros. O Co. were conveyed
to the pettoner on March 1, 1923, and the assets of the other companes on
anuary 31,1923. The pettoner assumed a of the abtes of the subsdary
companes outstandng on September 31, 1022, and agreed to buy such stock
of the Sagamore O Gas Co. and the Wgwam O Co. as t dd not own.
of the subsdary companes were dssoved afer December 31, 1923. The
subsdary corporatons mantaned separate sets of books pror to the con-
veyance of ther assets and contnued ths system unt ugust 31, 1923, when,
as a matter of convenence, the books were cosed and the baances transferred
to ke accounts In the books of the ta payer.
The affated group fed returns on the bass of a fsca year endng pr
30 up to and ncudng 1923. Upon request, the Commssoner permtted the
corporatons to change ther accountng perod to a caendar year bass and
accordngy the ta payer fed a consodated return for ta es for the sub-
sdares for the perod of eght months endng December 31, 1923. The Com-
mssoner, n a etter dated uy 17,1929, advsed the ta payer of hs determna-
ton of the ncome ta abty of the affated group for the fsca years endng
1920, 1921, 1922, and 1923 and for the perod May 1, 1923, to ugust 31, 1923.
In ths etter he proposed defcences of 4,722. 0 for 1920, 238,478.50 for
1921, and no addtona ta es for 1922, 1923, and the perod May 1 to ugust
31, 1923. The statement attached to the etter showed a ta abty of 1 8,-
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258
745.89 for 1920, 419,720.97 for 1921, consodated net osses In 1922, 1923, and
for the 4-month perod endng ugust 31, 1923, and an overassessment of
12,200.33 for 1923, barred by the statute of mtatons.
On September 12, 1929, the members of the affated group e ecuted a cosng
agreement n pursuance of secton 0 of the evenue ct of 1928 (2 U. S. C. ,
secton 200 ) coverng ther ncome and profts ta abty for the perods
above mentoned. Ths agreement provded, In part:
Whereas, there has been a determnaton of the ta abty of sad ta -
payers n respect of ncome and profts ta for the sad perods sted above
(fsca years 1920, 1921, 1922, 1923 and perod May 1, 1923, to ugust 31, 1923)
In the prncpa sum of s hundred thousand s hundred s ty-seven doars
and nneteen cents ( 00, 7.19) and
Whereas, sad ta payers hereby agree to ths determnaton and consent to
the assessment and coecton of any defcency n ta ncuded n the amount
of the prncpa ta abty so determned, together wth any penaty or
nterest appcabe thereto as provded by aw, and/or to accept any abatement,
credt or refund made n accordance wth such determnaton, together wth any
nterest due thereon as provded by aw.
Now, ths agreement wtnesset, that sad ta payers and sad Commssoner
of Interna Revenue hereby mutuay agree that the prncpa amount of such
abty so determned sha be fna an concusve f and when ths agreement
s approved by the Secretary of the Treasury or the Undersecretary.
The agreement was e ecuted by the ctng Commssoner of Interna Revenue,
and approved by the Secretary of the Treasury on October 21, 1929.
Thereafter, the Commssoner computed the ncome ta abty of the ta -
payer for the ast four months of 1923 on the bass of a separate return, and
assessed the defcency nvoved In ths case.
The oss sustaned durng the 4-month perod ncuded n the cosng agree-
ment s admtted to be outsde the provsons of sectons 937, 2117, of 2
U. S. C. ., permttng deducton from the ta abe years. ut f t s hed
that the ast eght months of 1923 consttute but one ta abe perod, and the
Commssoner was wthout authorty to agree that any esser perod of tme
shoud consttute a separate ta perod, the net oss sustaned n the frst four
months thereof w argey offset the net ncome for the remander of the
caendar year upon whch the defcency was determned. Consequenty, the
mportance of the scope and effect of the cosng agreement becomes apparent
The pettoner contends frst that the statute does not authorze the Com-
mssoner to enter nto an agreement that a perod of ess than one year
shoud consttute a separate ta perod secondy, that the agreement dd
not undertake to f the perod, May 1 to ugust 31, 1923, as a separate ta abe
perod, and, f t dd, such agreement was based upon a msrepresentaton of
a matera fact.
Secton 0 of the Revenue ct of 1928 (2 U. S. C. , secton 2 0 ) au-
thorzes the Commssoner to enter nto wrtten agreements wth any ta payer
respectng hs abty as foows:
Sec. C0 . Cosng greements.
(a) uthorzaton. The Commssoner (or any offcer or empoyee of the
ureau of Interna Revenue, ncudng the fed servce, authorzed In wrtng
by the Commssoner) s authorzed to enter nto an agreement n wrtng
wth any person reatng to the abty of such person (or of the person or
estate for whom he acts) n respect of any nterna-revenue ta for any
ta abe perod endng pror to the date of the agreement
(b) naty of agreements. If such agreement s approved by the Sec-
retary, or the Undersecretary, wthn such tme as may be stated n such
agreement, or ater agreed to, such agreement sha be fna and concusve, and,
e cept upon a showng of fraud or mafeasance, or msrepresentaton of a
matera fact
(1) The case sha not be reopened as to the matters agreed upon or the
agreement modfed, by any offcer, empoyee, or agent of the Unted States,
and
(2) In any sut, acton, or proceedng, such agreement, or any determnaton,
assessment, coecton, payment, abatement, refund, or credt made In accord-
ance therewth, sha not be annued, modfed, set asde, or dsregarded.
The statement accompanyng the Commssoner s etter of uy 17, 1929,
temzed the ta abty or net oss accrung durng each stated perod named
theren. It e paned the consderaton gven the ta payer s consodated
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return coverng the ast eght months of 1923 and refected the treatment
of the perod. May 1 to ugust 31, 1923, on a bass separate and dstnct
from the succeedng four months. The Commssoner found that there was
no ta abe ncome durng the perod May 1 to ugust 31, 1923.
That the cosng agreement entered nto foowng the Commssoner s de-
termnatons contempated a fna and concusve settement of the abty
of the ta payer for the perod of May 1 to ugust 31, 1923, as we as the
ta abe years precedng t, can not be serousy doubted. The ony reasonabe
nference to be drawn from the facts s that the Commssoner was wng and
the company desred by agreement to concude a matters pertanng to the
ta payer s abty up to ugust 31, 1923. Presumaby the ta payer found
t to ts nterest to forecose further nqury nto and possbe redetermnaton
of ts abty for those months on the bass of a separate ta abe perod. The
ob|ect naturay to be attaned by the agreement was the termnaton of a
further ta nqures up to the tme the books of the affates were fnay
cosed.
The purpose of the statute authorzng cosng agreements s to enabe the
ta payer and the Government fnay and competey to sette a controverses
n respect of the ta abty for any prevous ta abe perod, and to protect
the ta payer aganst the reopenng of the matter at a ater date, and to pre-
vent the fng of addtona cams for refund or the Insttuton of sut for
the same purpose by the ta payer. Perry v. Page (C. C. . 1), 7 ed.
(2d), 35 Ct. D. 812, C. . III-1, 1 3 erng v. Tat (C. C. . 4), 5 ed.
(2d), 703 ankers Reserve Lfe Co. v. Unted States, 42 ed. (2d), 313 Ct.
D. 209, C. . I -2, 257 etna Lfe Insurance Co. v. aton (C. C. . 2), 43
ed. (2d), 711 Ct. D. 225, C. . I -2, 2 3 Parsh d ngham Corporaton
v. Unted States, 44 ed. (2d), 993.)
rtce 1301, Reguatons 74 of the Treasury Department, Revenue ct of
1928, provdes that such agreements may reate to the tota ta abty of
the ta payer or to one or more separate tems affectng the ta abty of
the ta payer, such as the amount of gross ncome, deductons for osses, de-
precaton, depeton, etc., or to the vaue of property on a basc date. The
statute and these reguatons do not e pressy e cude from the scope of a
cosng agreement the determnaton that a specfc perod of ess than one year
sha consttute a separate ta abe perod, f the partes so agree. To fac-
tate the settement of many tems affectng a ta payer s abty, the pocy
has been to broaden rather than mt the scope of these settements. It s
true, the Revenue cts have consstenty assessed ncome ta es on the bass
of annua accountng perods, ether the caendar or fsca year, and the prov-
sons of the ta ng statutes have been enacted wth reference to such norma
accountng perods. ( everng v. Morgans, Inc. (November 5, 1934) urnet
v. Sanford d rooks Co., 282 U. S.. 359, 3 3 Ct. D. 277, C. . -, 3 3
Wooford Reaty Co., Inc., v. Rose, 28 U. S., 319, 32 Ct. D. 493, C. . I-1,
154 .) The desrabty of such practce Is obvous. ut there s no authorty
for the proposton that the Commssoner and the ta payer can not by mutun
agreement determne and fnay concude a matters affectng the abty of
the ta payer for a perod ess than an annua accountng perod.
The statute e cudes mstakes of fact as we as of aw as grounds for
the rescsson of cosng agreements. Ony fraud, mafeasance, or msrepre-
sentaton are mentoned as a bass for attackng them. In recognton of
ther concusve character on a matters agreed upon, t has been hed thut
where the ta covered by the agreement has been assessed under a secton
of the Revenue ct ater decared to be unconsttutona, the cosng agree-
ment nevertheess was bndng and concusve upon the partes. ( etna Lfe
Insurance Co. v. aton (C. C. . 2), 43 ed. (2d), 711 ankers Reserve Lfe
Insurance Co. v. Unted States, 42 ed. (2d), 313 Great Southern Lfe Insur-
ance Co. v. Unted States, 42 ed. (2d), 319 erng v. Tat (C. C. . 4),
5 ed. (2d), 702, 70 .) In etna Lfe Insurance Co. v. aton, supra, the
court sad:
There can be no doubt that the ta payer coud ad|ust a cam for repay-
ment of ta es coected under a provson of aw afterwards hed to be uncon-
sttutona and we can see no reason why a statute can not provde that a
settement wth a ta ng offca sha embrace a matters affectng an assess-
ment. If etna had not wshed to prevent the presentaton of future cams
In reassessments by the Commssoner, t doubtess woud not have e ecuted
the cosng agreement. avng done so, t was necessary bound by the
consequences of such a mutua undertakng.
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2 0
u consderaton dctates that matters affectng the ta payer s abty
once concuded by a cosng agreement shoud be respected n every partcuar,
and sub|ect to attack ony upon the grounds enumerated n the statute. It
the harsh resuts attendant upon a ta eved and coected egay under a
statute ater decared to be unconsttutona can not be avoded when the
sub|ect of a cosng agreement, certany the settement of ta abty for a
perod of ess than one year presents no stronger case for rescsson.
The pocy of estabshng the fnaty and concusveness of cosng agree-
ments once effected, e cept upon a showng of fraud or mafeasance or msrep-
resentaton of a matera fact, has proven effcacous n encouragng the com-
promse of troubesome ta matters. To aow the fnaty of such agreements
to be mpeached upon grounds other than those enumerated n secton 0 (b)
woud tend to dmnsh the sautary effects of the statute.
The ta payer contends further that f ths court fnds that the agreement un-
dertakes to f the perod. May 1 to ugust 31, 1923, as a ta perod, such agree-
ment was based upon the msrepresentaton of n matera fact contaned n the
report of the revenue agent to the Commssoner to the effect that the ta payer
absorbed the subsdary companes on ugust 31,1923. There s no showng, how-
ever, that the Commssoner reed upon the agent s representaton that affa-
ton censed as of that date n hs treatment of the frst four months for whch a
consodated return was fed as a separate ta abe perod. nd there s no
proof that n hs redetermnaton of the ta payer s abty for the fsca years
1920 to 1923. ncusve, and the perod May 1 to ugust 31, 1923, whch formed
the bass of the cosng agreement, the Commssoner msrepresented any mate-
ra fact nducng the ta payer to sgn the agreement. The Itemzed statement
fuy advsed t that the 4-month perod had been audted on a bass separate and
dstnct from the remander of the caendar year. The fraud, mafeasance, or
msrepresentaton whch the statute contempates must be that of the party
camng under the agreement. ( erng v. Tat (C. C. . 4), 5 ed. (2d), 703
vde v. Unted States. 59 ed. (2d), 302 Ct. D. 528, C. . I-2, 141 .)
The decson of the oard of Ta ppeas s affrmed.
S CTION 07. CT O PIR TION O P RIOD
O LIMIT TION G INST UNIT D ST T S.
Secton 07. I -2 -75 9
Ct.D. 983
ncome ta revenue act of 1928 decson of court.
ssessment and Coecton ountary Patment efore s-
sessment1 Waver of Statute of Lmtaton.
Where the ta payer n 1928, after the perod of mtaton had
e pred, vountary fed amended returns for the years 1920 to
1923, together wth statements of the reasons therefor, and voun-
tary pad the addtona ta es shown to be due, whch were
subsequenty duy assessed by the Commssoner, such addtona
ta es do not consttute an overpayment wthn the meanng of sec-
ton 07 of the Revenue ct of 1928. The facts and crcumstances
consttute an effectve waver by the ta payer of hs rght to rey
on the statute of mtaton, and he can not compan on the ground
that f the Commssoner and the coector had n the frst Instance
compeed hm to pay he coud recover.
Court of Cams of the Unted States.
rank . oruff v. The Unted States.
March 4, 1935.
opnon.
Ltteton, udge, devered the opnon of the court.
fter pantff had fed hs orgna returns for 1920 to 1923, ncusve, and
pad the tn es shown thereon to be due, he decded n 1928 to acorporate bs
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07.
busness. In the negotatons eadng up to the Incorporaton the bank whch
had agreed to undertake to se the stock of the corporaton sent accountants
to make an audt of pantff s busness and hs books of account s a resut
of ths audt errors were dscovered n the method empoyed by pantff In
handng hs nventory. Such errors dscosed that he had underpad hs In-
come ta es for the years n queston. s a resut pantff nstructed that
amended ta returns for 1920 to 1923 be prepared showng any addtona ta es
that mght be due, together wth a fu statement concernng the matters gvng
rse to the addtona ta . These returns, to each of whch such a statement
was attached, were duy e ecuted by pantff and fed wth the coector, and
the addtona ta es computed and shown thereon to be due were vountary
pad to the coector wthout protest on pr 4, 1928, and such ta es, for each
of the years, were subsequenty duy assessed by the Commssoner on a
reguar assessment st sgned uy 12, 1928.
uy 12, 1931, pantff fed cams for refund of the addtona ta es so pad
on the soe ground that at the tme of payment the perod of mtaton wthn
whch such ta es coud have been assessed and coected for such years had
e pred. The refund cams were re|ected.
In the crcumstances of ths case, we are of the opnon that the addtona
ta es In queston do not consttute an overpayment wthn the meanng of
secton 07 of the Revenue ct of 1928 and that pantff s not, therefore,
entted to recover. Ths case Is unke one where a ta payer who fes hs
orgna return and vountary pays hs ta ater fnds that such ta was over-
pad, and t s aso unke a case where upon determnaton, assessment, and
demand, an addtona ta Is vountary pad, the refund of whch a ater
camed on the ground that coecton was made after the e praton of the
perod of mtaton appcabe thereto.
The facts and crcumstances n ths case consttute, we thnk, a waver
by pantff of hs rght to rey upon the statute of mtaton wth respect
to the assessment and coecton of ta es. The ta payer s wrtten evdence
of hs ntenton not to stand upon the statutory mtaton perod was accepted
and approved by the Commssoner In wrtng when he sgned the assessment
st of such ta es on uy 12, 1928. t the tme the amended returns and
the statements thereto attached were prepared and the addtona ta es com-
puted, and at the tme such returns were fed and the addtona ta es vo-
untary pad by pantff, he knew that the perod of mtaton wthn whch
such addtona ta es coud be assessed and coected by demand or dstrant
had e pred. It s we estabshed that the statute of mtaton can be
effectvey waved after the mtaton perod has run. (Stango v. Unted
States, 282 U. S., 270 Ct. D. 274, C. . -, 414 everng v. Newport Co.,
291 U. S., 485 Ct. D. 804, C. . III-1, 318 .) nd, whe an amended return
standng aone may not be consdered as a waver e tendng the statutory
perod of mtaton for assessment and coecton (.Natona Refnng Co. of
Oho, 1 . T. ., 23 , and ee R. Weaver et at, 4 . T. ., 15), n the crcum-
stances of ths case t must be assumed that the ta payer when he vountary
pad the addtona ta es In queston ntended that the payment shoud be
effectve and that he was not payng such amounts for the mere purpose of
Incurrng the e pense of havng the same returned to hm. It s aso estab-
shed that a waver of the statute of mtaton by a ta payer need not be
In any partcuar form (Stearns Co. v. Unted States, 291 U. S., 54 Ct D. 780,
C. . III-1, 321 Sabn v. Unted States, 70 C. Cs., 574) or that the waver
sha be embraced In a snge paper ( cpse Lawn Mower Co. v. Unted States,
7 C. Cs., 354, 1 . Supp., 7G8 Ct. D. 29, C. . II-1, 292 ). nd t has
been hed that a statute of mtaton may be oray waved. (Warner Sugar
Refnng Co., 5 . T. ., 9.) The makng of the vountary returns and the
vountary payment of the ta by the ta payer n ths case and the subsequent
forma acceptance and assessment of the ta by the Commssoner of Interna
Revenue gve rse to a case anaogous to an effectve revva of a prvate
debt by a new promse wthout new consderaton. (See Stange v. Unted
States, supra.)
Moreover, we thnk, notwthstandng the authorty of the Commssoner
egay to assess and enforce coecton of ta es s mted by the statute,
that a ta payer may make a vad payment of a ta n a case where the
statute has run wthout a forma wrtten waver as we as wth one. If
such a payment s made vountary before assessment or demand and the
ta s thereafter assessed by the Commssoner and covered Into the Treasury
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by the coector, the ta payer s In no poston to compan on the ground
that f the Commssoner am the coector had n the frst nstauce compeed
hm to pay the ta he coud recover t f the statute of mtaton had run.
On the whoe case, we are of the opnon that pantff s not entted to
recover. The petton must therefore be dsmssed. It s so ordered.
S CTION G13. LI N OR T S.
Secton 13. I -27-7584
Ct D. 988
federa ta es revsed statutes decson ok court.
Len fob Income Ta es omestead.
Under the provsons of secton 3180, Revsed Statutes, as
amended (secton 115, Tte 2 , U. S. C. .), a en for ncome
ta es In favor of the Unted States s good upon a property
and rghts to property, whether rea or persona, beongng to
the ta debtor, and uo e cepton Is made for a homestead.
Dstbct Court of the Unted States foe the Western Dstrct of
Okahoma.
Orover C. amson and arrett . amson, pantffs, v. W. C. Oeert and
. 0. ones, defendant .
March 18, 1935.
ORD R.
aught, udge: The above styed acton havng been fed by the pantffs
on the 10th day of ugust, 1934, and |udgment thereafter rendered for the
pantffs on ugust 1 , 1934, and the defendants havng been permtted by
order of the court on September 25, 1934, and wthn the same term of sad
court n whch sad |udgment was rendered, to fe a moton to vacate sad
|udgment, whch moton was fed on September 20, 1934, and thereafter the
partes to ths acton havng, wth permsson of the court, fed a bref n
support of ther contentons theren, and the court havng consdered snd
moton and e amned sad brefs and beng fuy advsed n the premses, fnds
that the |udgment rendered n ths case on ugust 1 , 1934, was rendered
In vew of a msapprehenson of the aw governng sad acton and the attor-
neys for both pantffs and defendants were at the tme of rendton of sad
udgment under a msapprehenson of such aw and the court beng fuy
and further advsed fnds that the moton of the defendants to vacate and set
asde sad |udgment Is we taken and shoud be sustaned.
The court further fnds that the property, the sub|ect matter of ths acton,
s and was the homestead of the pantffs and that the coector of Interna
revenue for the State of Okahoma caused to be fed aganst sad property
a ta en statement for the sum of 450, for ncome ta es due the Unted
States of merca the court further fnds that under the provsons of secton
115, Tte 20, U. S. C. ., a en for ncome ta es n favor of the Unted
States s good upon a property and rghts to property whether rea or
persona beongng to the ta debtor and that no e cepton Is made for the
homestead, and that therefore the pantffs n ther b have faed to state
a cause of acton aganst the defendants and that the udgment heren ren-
dered for the pantffs shoud be set asde and ths acton dsmssed at the
cost of the pantffs.
It s, therefore, by the court ordered, ad|udged and decreed that the acton
of the defendants to vacate and set asde the udgment of ths court heren
rendered on ugust 1 , 1934, be and the same s hereby sustaned and t Is
further ordered by the court that ths acton be dsmssed at the cost of the
pantffs.
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13.
Secton 13. I -3 -7 80
I. T. 2918
R NU CT O 1928.
ssets of an estate In the hands of an Independent e ecutor
or admnstrator n the State of Te as are not n the custody of the
probate court and are sub|ect to dstrant proceedngs n the coec-
ton of edera Income ta . G. C. M. 9991 (C. . I-1,135) s not
appcabe n such cases.
dvce s requested whether G. C. M. 9991, advsng aganst the
use of the dstrant process n the coecton of edera ncome ta
from admnstrators and e ecutors, appes to ndependent e ecutors
and admnstrators under the aws o Te as.
The poston taken n G. C. M. 9991, supra, s due to the we-
estabshed rue that ordnary assets of the deceased are n the
custody of the probate court durng the perod of admnstraton.
ccordngy, f the assets n the hands of an ndependent e ecutor or
admnstrator are not n the custody of the probate court, G. C. M.
9991 s not appcabe and shoud not be nterpreted as a drecton to
refran from dstrant proceedngs.
The prncpa statutory provsons of the State of Te as appcabe
to the queston presented are artces 343 and 3443, Compete Te as
Statutes, 1928, whch read as foows:
rt. 343 . Testator may provde that no acton be had n court, etc. ny
person capabe of makng a w may so provde n hs w that no other acton
sha be had n the county court n reaton to the settement of hs estate than
the probatng and recordng of hs w, and the return of an nventory,
apprasement and sts of cams of hs estate.

rt. 3443. ers requred to gve bond, when. When t s provded n a
w that no acton sha be had n the county court, e cept to probate and
record the w and return an nventory of the estate, any person havng a
debt aganst such estate may, by wrtten compant fed In the court where
such w was probated, cause a the persons entted to any porton of such
estate under the w or as hers at aw to be cted to appear before such court
at some reguar term and e ecute an obgaton, for an amount equa to the
fa vaue of such estate as shown by the Inventory and st of cams, such
obgaton to be payabe to the county |udge, and to be approved by hm, and
condtoned that a obgors sha pay a debts that may be estabshed aganst
such estate n the manner provded by aw.
Numerous decsons of the State courts construng these provsons
refect the vew that such e ecutors and admnstrators are free from
the drecton and contro of the probate court whe performng ther
dutes. Indcatve of ths vew s the decson n Roy v. Whtaker
(92 Te ., 34 , 48 S. W., 892), wheren the court stated:
The ndependent e ecutor has authorty, wthout an order of the
court, to se any property of the estate for the payment of debts, whether the
w e presses such power or not. (McDonad v. amben, 78 Te ., 033, 14
S. W., 1042 oward v. ohnson, 09 Te ., 055, 7 S. W., 522.) Lkewse, t has
been hed that whe the e ecutor under such w contnues to dscharge hs
dutes the county court has no ursdcton to sette the accounts between hm
and the hers or devsees. (.Lumpkn v. Smth, 02 Te ., 249.) The county
court has no |ursdcton to set asde to the wdow and chdren the e empted
property, or aowance n eu of t, when the estate s beng admnstered by
an ndependent e ecutor. (Runnes v. Runnes, 27 Te ., 510.) That artce
does not purport to wthdraw the estate from the |ursdcton of the county
court, but permts the testator to commt to hs e ecutor the performance of
a acts n reference to the settement of the estate wthout contro of the
court. The estate remans under ts |ursdcton, the admnstraton Is st
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2 4
pendng, but the court s restraned by the terms of the aw from takng any
acton n regard to the settement of the estate whe the e ecutor apponted
by the w contnues to dscharge hs dutes. The court may e ercse Its
|ursdcton as to other matters, such as to annu a provson of the w, or
to requre the e ecutor to gve bond, and the ke, whe he contnues to act
but durng that tme, wthout acton by the court, the e ecutor, can ad|ust
and pay debts aganst the estate, and for that purpose may se the property
of the estate, can set apart the e empted property, or pay the aowance n
eu thereof to the wdow and chdren of the deceased, and, havng pad the
debts, may dstrbute the estate among the hers or devsees, because these are
acts done by hm n the settement of the estate. Wth reference to such
matters the e ecutor can do whatever the court coud authorze to be done, f
the estate was under ts entre contro. (McDonough v. Cross, 40 Te ., 280.)
The mtaton paced upon the powers of the court operates to confer authorty
upon the e ecutor to do wthout acton of the court those thngs whch t s
prohbted to order. Ths s the measure of the ndependent power conferred
by aw upon the e ecutor, and the e tent to whch the prohbton upon the
court goes. The prohbton upon the power of the court arses out of the
e stence of a trustee to whom the testator has chosen to confde those powers,
and when the trust apses the mtaton upon the e ercse of |udca contro
ceases kewse.
If the estate remans under the contro of the court for genera
purposes after compance wth artce 1995, as we thnk t does, then t Is
consstent wth the pocy of the aw that an Independent e ecutor shoud be
permtted to resgn, and we see no sound reason why the above artce shoud
not be construed to embrace a e ecutors. we thnk the decsons
whch we have cted ceary show that the anguage used has the effect ony
to suspend the power of the court over the e ecutor so far as he s engaged n
the settement of the estate.
In Parks v. no ( 1 Te . Cv. pp., 493, 130 S. W., 203), the
power of an ndependent e ecutor to act was consdered absoute,
the court sayng:
ad the admnstraton upon the estate of W. S. Parks been con-
ducted under the supervson of the probate court and a dstrbuton of the
property been made n the manner dscosed by the agreement and |udgment
here under consderaton, we do not thnk the fnaty of that dstrbuton and
ts ega effect n removng the property from the contro of the e ecutors for
further admnstraton woud be caed n queston. ( enderson v. Lndey,
75 Te ., 185, 12 S. W., 979.) Where the e ecutors are empowered to act nde-
pendenty of the probate court, they may cose the admnstraton, or surrender
a or any porton of the property to the hers or devsees, wthout the formaty
of |udca sancton. When by any course of conduct egay suffcent ths s
done, we are unabe to see why the same ega consequences shoud not foow
as are attached to a |udca dstrbuton made under the drecton of the
probate court.
In a recent decson, Deane v. Drseo (Te . Cv. pp., ebruary 1,
1933, 5 S. W. (2d), 503), refectng the same vew, the court sad:
such e ecutors aone have the power to aow or dsaow cams,
and the probate court has no authorty to approve or dsapprove them and any
acton t mght take upon them woud be fute and of no effect upon ther
vadty, no purpose coud be served by requrng that such cams be fed n
the probate court. If ths vew has not been e pressy promugated by the
authortes, t may we be mped from anaogous hodngs of our courts. Cer-
tany there s no contrary decson. Ctng decsons.
ccordngy, snce such e ecutors or admnstrators are free from
the contro or drecton of the probate court and need not account
to that court, the assets undergong admnstraton are not n the
custody of the court. It foows that resort may be had to the ds-
trant process n such cases and that . C. M. 9991, supra, s not
appcabe.
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13.
Secton 13. I -42-774
T. D.4591
R L S O D R L T LI NS.
Secton 318 (c)2 of the Revsed Statutes, as amended by secton
13 of the Revenue ct of 1928.
Treasury Decson 4275, approved November 13, 1929 0. .
III-2, 1 7 , amended.
- Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
The second paragraph of the reguatons prescrbed n Treasury
Decson 4275, approved November 13, 1929, governng the reease of
edera ta ens upon the furnshng of a bond under the provsons
of secton 318 (c)2 of the Revsed Statutes, as amended, s hereby
amended to read as foows:
The coector may n hs dscreton ssue a certfcate of reease of the ta
Uen f he s furnshed and accepts a bond that s condtoned upon the pay-
ment of the amount assessed (together wth a nterest n respect thereof)
wthn the tme agreed upon In the bond, but not ater than s months pror
to the e praton of the statutory perod for coecton, ncudng any perod
for coecton agreed upon n wrtng by the Commssoner and the ta payer.
The form of any bond so furnshed sha be the standard form ( orm 1131),
entted ond for reease of edera ta en. Such bond sha be e ecuted
by a surety company hodng a certfcate of authorty from the Secretary of
the Treasury as an acceptabe surety on edera bonds, e cept that, when
specfcay authorzed by the Commssoner, such bond may be e ecuted by
a surety or suretes, ndvdua or corporate, other than a surety company.
Gut T. everno,
Commssoner of Interna Revenue.
pproved October 11,1935.
T. . Coodoe,
ctng Secretary of the Treasury.
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5203, rt. 1574.
2
INCOM T RULINGS. P RT I .
R NU CT O 192 ND PRIOR CTS.
TITL IL INCOM T .
P RT L G N R L PRO ISIONS.
S CTION 201. DISTRI UTIONS Y CORPOR TIONS.
rtce 1541: Dvdends.
traordnary cash dvdends pad to Pennsyvana trust. (See
Ct. D. 1011, page 220.)
S CTION 203. R COGNITION O G IN OR LOSS
ROM S L S ND C NG S.
INCOM T R NU CT O 192 D CISION O COURT.
1. Income Gan ob Loss change of Stock fob Stock.
Where the ta payer owned both restrcted nnd unrestrcted
stock n a corporaton of whch she was an empoyee and, as the
resut of a change n the capta structure of the corporaton, she
e changed her pror hodngs for new shares of unrestrcted
stock In the same proportonate amount, such e change dd not
consttute ncome or gan to the ta payer and dd not resut n
a new cost bass for Income ta purposes.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 1225) affrmed.
Unted States Crcut Court of ppeas fob the Thrd Cbcut.
rances ott Cark, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew from the Unted States oard of Ta ppeas.
efore uffnoton, Wooey, and Thompson, Crcut udges.
uffngton, .: Ths s an appea by Mss rances ott Cark from the
oard of Ta ppeas assessment of her Income ta . She was an empoyee
of the ctor Takng Machne Co. and as such was aowed to, and dd,
buy shares of Its stock at 70 per cent of ts book vaue. Stamped on her
certfcate was an agreement that she shoud not se the stock whe she
was n the company s empoy wthout frst offerng t to the company at
70 per cent of ts then book vaue. If the company dd not e ercse such
R NU CT O 192 .
rtce 1574: changes n connecton wth
corporate reorganzatons.
I -32-7 39
Ct. D. 998
March 20, 1035.
OPINION.
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203, rt. 1575.
opton, the share-hodng empoyee was free to se. In addton to such
restrcted stock, Mss Cark bought and hed some unrestrcted stock. In
anuary, 1919, the company made a change n ts set-up, whereby t e changed
Its pror preferred, convertbe preferred, and new common stock for ts od
shares of common stock wherever hed. s a resut thereof, Mss Cark
e changed her pror stock hodngs for new shares, whch, however, had the
same proportonate reaton to the assets of the company as dd ber pror
hodngs. She here contends that ths e change made a new bass for ncome
ta assessment, whe the Ta oard hed t dd not. In support of her vew,
the ta payer contends that when ths stock e change was made and the
company waved a restrctons on stock, ths consttuted a gan because
unrestrcted stock was of more vaue than restrcted stock. ut she dd not
se her stock. She receved no ncome she made no gan and ncome s the
a mportant factor. If, for present purposes, t be assumed that t was a
stock dvdend, that does not hep the ta payer s contenton, for stock dvdends
are not Income gans. ut whatever the stock change of the ctor company
was whether a read|ustment, an e change, a recaptazaton, or a reorganza-
ton the basc eement stands out that It was not a gan, and f t does not
fa wthn the provsons of the Revenue ct of 192 , whch provdes:
No gan or oss sha be recognzed f stock or securtes n a corporaton a
party to a reorganzaton are, n pursuance of the pan of reorganzaton,
e changed soey for stock or securtes h such corporaton or n another corpo-
raton a party to the reorganzaton
assuredy t s n ne and n sprt n accord wth the congressona Intent that
gan or oss sha not be regarded n stock e changes. fter consderaton of
a phases of the case, we fnd no error n the Ta oard s order, and the ta -
payer s appea s dsmssed.
rtck 1575: changes n reorganzatons I -42-7747
for tock or securtes and other property Ct. D. 1022
or money.
( so Sectons 1003 and 1004.)
INCOM T R NU CT OP 192 D CISION O COURT.
1. Gan or Loss Sae and change of Property Reorganzaton.
Where a contract was entered nto as a part of the reorganza-
ton of two corporatons whereby the ta payers agreed to se to
one corporaton the stock they hed In the other n e change for
stock of the frst corporaton and cash, and, as a condton preced-
ent, the purchasng corporaton agreed to buy back from the ta -
payers a certan amount of ts stock, the contract was not dvsbe
and ta abe gan resuted from the transacton, under the prov-
sons of secton 203(d) of the Revenue ct of 1920.
2. oard op Ta ppeam ndng op act auaton of Stock
vdence.
Where the record dscosed that, pursuant to n contract of re-
organzaton provdng for ssuance of new stock at par, a con-
sderabe amount of stock was contracted for before reorganzaton
and more than three-fourths of the authorzed ssue was sod there-
after, and the ta payers ntroduced no evdence to show at what
prce the stock was sod, there was ampe substanta evdence to
warrant the fndng of the oard of Ta ppeas that the far mar-
ket vaue of the stock was not ess than 100 per share, n the
absence of a showng of cear and unmstakabe error.
3. Decson ffrmed.
Decson of oard of Ta ppeas (27 . T. ., 1242) affrmed.
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203, rt. 1575.
2 8
Unted States Crcut Court of ppea|.8 for thk Nnth Crcut.
rst Seatte De ter orton natona ank, and een ng ooe, ecutor
of the state of George ooe, Deceased, pettoners, v. Commssoner of
Interna Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Wbur and Garrecut, Crcut udges, and orcross, Dstrct udge.
pr 22, 1935.
opnon.
Nokcboss, Dstrct udge: Ths petton for revew Invoves an aeged de-
fcency n ncome ta ntranst pettoners n the amount of 5,779. 9 for the
caendar year of 192 . There s no confct n the testmony or other evdence
n the case. Most of the facts are covered by stpuaton. The matera facts
are as foows:
Some tme pror to ebruary 15, 192 , George ooe ded testate, and the
pettoners were apponted and now are the e ecutors of hs estate. Pror to
the death of the testator there were two corporatons each havng the name
. M. Caste Co. One was ocated In Chcago and s herenafter caed the
Chcago corporaton the other was ocated In Seatte and Is herenafter caed
the Seatte corporaton. t the tme of hs death, testator owned 2,913 shares
of the preferred stock of the Seatte corporaton.
s a part of the reorganzaton of the Chcago corporaton a wrtten agree-
ment was entered Into on ebruary 15, 192 , between pettoners, as e ecutors
and trustees under the w of George ooe, deceased, partes of the frst
part, and the sad Chcago corporaton, as party of the second part, under
the terms of whch the Seatte corporaton merged and consodated tsef and
ts assets wth the Chcago corporaton. Pursuant to sad agreement pet-
toners sod and devered to the Chcago corporaton the stock herenbefore
referred to n the Seatte corporaton, beongng to the estate of George ooe,
deceased, and receved n e change therefor certan shares of stock and cash
of the Chcago corporaton.
The paragraphs of the agreement pertnent to the sae n queston are as
foows:
1. The partes of the frst part (the e ecutors) agree to convey, se and
assgn to the party of the second part ( . M. Caste Co. of Chcago) and
the party of the second part agrees to buy, 2,913 shares of the preferred stock
of . M. Caste Co. of Washngton, for 90 per share, sub|ect, however, to a
the other terms of ths agreement.
2. Immedatey upon the consummaton of the sae provded for n para-
graph 1 hereof, the partes of the frst part agree to accept In payment of sad
2,913 shares of the preferred stock of . M. Caste Co. of Washngton
at 90 per share, 2, 21 shares of preferred stock n the party of the second
part of the par vaue of 100 per share, and the sum of 70 n cash.
5. s one of the condtons precedent to the sae and e change of stock
provded for hereunder, the party of the second part sha cause Davd .
Gann, of Chcago, 111., attorney for the party of the second part, or some one n
hs behaf, to purchase from the partes of the frst part for cash at par,
together wth accrued dvdends thereon, 50,000 of the par vaue of the pre-
ferred stock n . M. Caste Co., of Chcago sod to the sad partes of the
frst part under paragraph 2 hereof, sad purchase to be smutaneous wth the
sae and e change provded hereunder.
Ths agreement was carred out, the stock devered and the cash pad.
The ony controversy n ths proceedng s whether or not a ta abe gan
resuted from the above descrbed transacton. The Commssoner found that
there was a net ta abe gan of 50,070 composed of 50,000 receved from
the sae of 500 shares of the preferred stock of . M. Caste Co. of Chcaso
for 50,000, and 70 cash receved upon the e change of sad stocks, whereas
pettoners deny that there was any ta abe gan. The determnaton of the
Commssoner of Interna Revenue was sustaned by the oard of Ta ppeas
n a decson entered pr 27, 1933, whch decson pettoners now brng before
ths court for revew.
The Commssoner of Interna Revenue determned a proft on the transacton
here n queston ony to the e tent of and measured by the tota amount of cash
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203, rt. 1575.
actuay receved by pettoners, namey, 50,070. e used as a bass therefor
the vaue of the stock of the Seatte corporaton as apprased for edera
estate ta purposes, and the par vaue of the stock of the Chcago corporaton
( 100), and asserted a defcency accordngy.
In ther assgnments of error pettoners contend: rst, that the contract
of ebruary 15, 192 , was dvsbe to the e tent that the e change of the pre-
ferred stock of the Seatte corporaton for the preferred stock of the Chcago
corporaton was a dstnct and separabe transacton from the sae of the 500
shares of stock of the Chcago corporaton for 50,000 referred to In paragraph 5
of the agreement herenbefore set forth, and that the oard erred In not so
fndng second, error s predcated on the act of the oard n affrmng the Com-
mssoner s determnaton that the preferred stock of the Chcago corporaton
had a far market vaue at the tme of the sae of at east 100 per share, It
beng the contenton of pettoners that such stock at the tme In queston was
wthout any far market vaue, and therefore, no gan or oss was reazed.
s to ther frst assgnment of error pettoners mantan that under secton
203(b)2 of the Revenue ct of 192 ( 44 Stat., 9, 2 U. S. C. ., 934(b)2), no
gan shoud be recognzed n such an e change of stock for stock pursuant to
a pan of reorganzaton. Such concuson s made dependent upon the premse
that the sad sae of the 500 shares of stock of the Chcago corporaton was a
separabe transacton from the e change of the preferred stocks of the two
corporatons, and that In th respect the terms of the contract were dvsbe.
That porton of the ct above referred to, and upon whch pettoners rey as
beng controng n the crcumstances, s as foows:
(b) (2) No gan or oss sha be recognzed f stock or securtes n a corpora-
ton a party to a reorganzaton are, In pursuance of the pan of reorganzaton,
e changed soey for stock or securtes n such corporaton or n another
corporaton a party to the reorganzaton.
On behaf of the Government t s camed that the transacton Is governed
by secton 203(d) of the same ct (2 U. S. C. ., 934(d)), whch reads:
(d) (1) If an e change woud be wthn the provsons of paragraph (1),
(2), or (4) of subdvson (b) f t were not for the fact that the property
receved n e change conssts not ony of property permtted by such para-
graph to be receved wthout the recognton of gan, but aso of other property
or money, then the gan, f any, to the recpent sha be recognzed, but In an
amount not In e cess of the sum of such money and the far market vaue of
such other property.
It appears, therefore, that f, as contended by the Commssoner, the contract
here In queston s not susceptbe of dvson so as to come wthn secton
203(b) 2 and amounts merey to an e change of stock for stock, t must
necessary fa wthn the provsons of secton 203(d), n whch case the
Commssoner s determnaton of ta defcency must be sustaned, uness he
erred n hs fndng reatve to the market vaue of the sad stock.
In passng upon the queston of whether or not the contract s severabe or
entre, t Is fundamenta that the Intenton of the partes shoud be ooked to,
and that the contract shoud be construed so as to effectuate such Intenton so
far as the bounds of reason and ustce permt. Obvousy, courts can not
possby know or |udge what the partes may have ntended to accompsh but
faed to e pressy provde for, and, therefore, such ntenton must be ascer-
taned by a far constructon of the terms of the contract Itsef. So, where
partes enter Into a wrtten agreement whch embodes and sets forth n fu
a the terms and condtons of the contract, ther ntentons must necessary
be determned from and governed by the anguage they have empoyed n such
wrtng, and from the sub|ect matter of the agreement. To do otherwse woud
be to frustrate the very end for whch peope contract n wrtng.
Thus upon an e amnaton of the contract here n queston we fnd that under
the specfc and unambguous terms thereof, as set forth n paragraph 5, t s
provded that as one of the condtons precedent to the sae anrf e change of
stock provded for hereunder the purchase of the sad 500 shares for 50,000
was to be smutaneous wth the sae and e change provded hereunder.
Such anguage woud seem to ceary evnce that It was the ntenton of pet-
toners that uness they receved the sad 50,000 n cash n addton to 2,121
shares of the Chcago corporaton s stock, they woud not go through wth and
consummate the dea. Moreover, that the obtanng of the 50,000 n cash was
the motvatng cause and prmary purpose of pettoner s entrance nto the
entre transacton s evdenced by the testmony of pettoner s attorney, ames
. ane. Ths wtness, caed by pettoners, testfed, n part, as foows:
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203, rt. 1575.
270
We Inssted upon the provson whch Is In the contract, that after
wo got the stock of . M. Caste Co. of Chcago they woud furnsh a buyer
for It, or buy It themseves, at east 500 shares of the stock at par, In order to
gve us some assurance that we coud sette up the estate and get money that
we then needed. The estate needed money as there were many obgatons to
take care of.
It appears from the stpuaton of facts heretofore referred to that the Chcago
corporaton accordngy agreed to and dd purchase the sad 500 shares of ther
stock for the agreed prce. of the provsons to that end were carred out
at the same tme. The net resut at the concuson of the transacton was that
the pettoners hed 2,121 shares of the Chcago corporaton s stock pus 50,070
n cash, whe the Chcago corporaton obtaned n return therefor 2,913 shares
of the stock n the Seatte corporaton. It Is aso to be noted that It Is con-
ceded by pettoners In ther bref that the sae of the 500 shares of stock
was concuded as a part of the same transacton.
The genera rue of nterpretaton to be apped In decdng whether or not a
gven contract s severabe or entre s we stated n 13 C. ., 5 1, secton 525,
as foows:
s a genera rue t may be sad that a contract s entre when by ts terms,
nature and purpose t contempates and ntends that each and a of ts parts
and the consderaton sha be common to the other and Interdependent.
To the same effect, hodng that prmary the queston whether a contract s
entre or severabe s one of ntenton, see Los ngees Gas, etc., Co. v. ma-
gamated O Co. (15 CaU 77 , 10 P., 55). See aso Commssoner v. Darne,
Inc. ( 0 . (2d), 82) In re cams (223 ed., 400).
Therefore, takng Into consderaton the crcumstances and evdence as they
appear from the record, n the ght of the above authortes we can not but
concude that the sae and e change here n queston consttuted, n effect, one
composte transacton desgned to effect a snge purpose.
Wth reference to pettoner s frst assgnment of error the Government
further contends that regardess of whether or not the contract n queston
s dvsbe, as argued by pettoners, the secton of the Revenue ct of 192
upon whch they rey (203(b)2), supra, has no appcaton to the stuaton n
the case at bar. In ths connecton the foowng statement appears n the
opnon of the oard of Ta ppeas:
Ths contenton (pettoner s), however, overooks the fact that
ths secton of the aw (203(b)2) provdes that no gan sha be recognzed
f te stock or securtes are e changed soey for stock
or securtes, and that n ths case n addton to stock the Chcago corporaton
aso pad to pettoners cash of 70 at the east, whch Is suffcent to take the
transacton out of the statute reed on. In any event, therefore, t appears
that the transacton s governed by secton 203(d) of sad ct
Whe the Government n Its bref has not referred us to any |udca Inter-
pretatons of ths secton of the ct In accord wth ther contenton, nor does t
appear that there are any such cases drecty n pont, we beeve that the
carty of the anguage empoyed n sad secton mts ts appcaton to cases
nvovng reorganzaton of corporatons wheren the stock of one s e changed
soey for the stock of another. Snce admttedy pettoners e changed the
stock of the Seatte corporaton for that of the Chcago corporaton and 70 n
cash, the decson of the oard of Ta ppeas n ths respect must be sus-
taned. owever, havng aready construed the contract n queston as beng
entre rather than dvsbe, and thereby brngng t wthn the provsons of
secton 203(d), ths pont Is not necessary determnatve of the ssues heren
presented, and need not be pursued n vew of our dsposton to treat the
transacton as an entre one.
Moreover, n vew of the prncpe that n appyng Income ta aws, the
substance, and not the form of the transacton, shoud contro, the e change
and sae of stock whch was requred under the whoe contract heren, shoud
be treated as a snge, composte transncton for Income ta purposes, regardess
of the formates foowed. (See S. . Macqueen Co. v. Commssoner, 7 .
(2d), 857, 858 (C. C. . 3) Ct. D. 830, C. . III-1, 2 Tusa Trbune Co.
v. Commssoner, 58 . (2d), 937, 940 (C. C. . 10) Western Maryand Ry. Co.
v. Commssoner, 33 . (2d), 95 (C. C. . 4) Unted States v. Phes, 257 U. S.,
15 , 158 Ct. D. 19, C. , 5, 37 Wess v. Steam, 2 5 U. S., 242, 254 T. D. 3 09,
C. . III-2, 51 .) In deang wth a stuaton not unke the one at bar the
court, n the case of West Te as Refnng Co. v. Commssoner ( 8 . (2d),
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271
203, rt. 1575.
77 (C. C. . 10)), quotng from Prare O a Co. v. Motter ( . (2d),
309, 311 (C. C. . 10) Ct D. 7 7, C. . III-1,183 ), sad:
If a ta payer sought to avod a ta on the profts of such a sae as ths by
askng the Commssoner to gnore the actuates, he woud shorty and propery
be remnded that ta aton s an ntensey practca mutter and that the sub-
stance of the thng done, and not the form t took, must govern.
s we have aready stated, as we see It what pettoners actuay dd, was,
n effect, to e change 2,913 shares of stock n the Seatte corporaton for 2,121
shares, net, of the Chcago corporaton, and 50,070 n cash. Regardess of
the Interpretaton or constructon whch pettoners seek to pace upon ther
contract, n cases such as ths matters of form shoud be dsregarded for those
of substance.
avng determned that secton 203(d) of the Revenue ct of 192 s con-
trong n the stuaton at bar, t now becomes necessary to e amne ts pro-
vsons n order to ascertan to what e tent the property heren Invoved Is
ta abe. The secton provdes that n an e change of property for other prop-
erty or money, the gan, If any, to the recpent sha be recognzed In an
amount not e ceedng the sum of such money and the far market vaue of such
other property. We sha proceed therefore to determne whether or not the
Commssoner and the oard correcty vauated the property enterng nto the
transacton. s heretofore stated, the determnaton of the Commssoner whch
was sustaned by the oard was that the far market vaue of the Chcago
corporaton s preferred stock was not ess than 100 per share at the tme of
the sae n queston. y ther second assgnment of error pettoners attack
such fndng as beng erroneous, ther contenton beng that sad stock was
whoy wthout any far market vaue, and consequenty no gan or oss coud
be reazed from the transacton.
The record dscoses that under the terms of the contract of ebruary 15,
192 , t was provded n the form of a condton precedent that the Chcago
corporaton was to ca n, redeem, or purchase a of the stock of a certan
250,000 ssue whch was at the tme outstandng. fter provdng for the
retrement of ths od stock the contract further provded for the ssuance
by the sad Chcago corporaton of a new preferred stock, such Issue not to
e ceed 1,000,000, and to be the ony preferred stock outstandng. The partes
aso agreed that when ths new stock was Issued t was to be sod for cash
ony and for not ess than par ( 100) that the sad stock sha be cumuatve
and the dvdend rate sha be 7 per cent per annum payabe semannuay,
and that the sad stock sha be preferred as to dvdends and assets n case
of dssouton. The stock whch pettoners receved from the Chcago corpo-
raton In e change for ther stock n the Seatte corporaton, as we as the 500
shares In queston whch the Chcago corporaton bought back, was stock of ths
so-caed new ssue.
The Chcago corporaton guaranteed that the dvdends shoud be prompty
pad In cash, when due, and n addton agreed to redeem or purchase at par
and accrued dvdends a preferred stock dstrbutabe to een ng ooe,
pettoner and egatee under the w of her deceased husband, George ooe,
on or before three (3) years after the e ecuton of ths agreement, t beng
provded, however, that sad stock was not to e ceed an amount n e cess of
fve-s teenths of the remanng stock hed by the e ecutors, pettoners heren.
There beng 2,121 shares of sad stock remanng after the sae of the 500 shares
for 50,000, the sad fve-s teenths whch mght be aotted to the wdow under
the terms of the sad contract woud amount to appro matey 2 shares, and
these the Chcago corporaton agreed to purchase at par ( 100). ddng to ths
fgure the 500 shares agreed to be bought back under the terms of paragraph 5
of the sad agreement, there were 1,1 2 shares contracted for before the stock
was Issued.
It further appears from the record that durng the course of the hearng
the attorney for the pettoners stated that about 80,000 of ths mon doar
stock Issue was Issued after the reorganzaton. Pettoners ntroduced no
evdence to show at what prce ths stock was sod. In the absence of any
such evdence, as to the matter of the far market vaue of ths stock, the
oard was warranted n assumng, as t dd, that sad stock was sod at par
n pursuance of the terms of the agreement heretofore referred to.
Thus, havng 14 2 shares contracted for before the reorganzaton and
about ,800 shares whch were sod thereafter, t appears that over three-
fourths of the whoe authorzed Issue of 1,000,000 were sod at a prce as
great as par ( 100).
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203, rt. 1577.
272
The queston of the vaue of the preferred stock here n controversy Is one
of fact, and the oard s decson affrmng the Commssoner s determnaton,
when supported by any substanta evdence, In the absence of a showng of
cear and unmstakabe error s concusve upon appea. Ths s but
another way of sayng that the decson of the Ta ng oard must preva f
It s not contrary to the ndsputabe character of the evdence, or f the
evdence s egay suffcent to sustan such fndng. The evdence s egay
suffcent to sustan the fndng If there be substanta evdence to support t,
and the record as a whoe does not ceary, convncngy, or even possby,
Indsputaby requre a contrary concuson. (Tracy v. Comms-
soner, 53 . (2d). 575, 570 (C. C. . ) Ct. D. 4 8, C. . I-1, 205 , and
cases cted Phps v. Commssoner, 283 U. S., 589 Ct. D. 350, C. . -,
2 4 Crowe v. Commssoner, 2 . (2d), 51 (C. C. . ) Wams v. Com-
mssoner, 45 . (2d), 1 (C. C. . 5) Od Msson P. Cement Co. v. Comms-
soner, 9 . (2d), 7 (C. C. . 9) merad O Co. v. Commssoner, 72 .
(2d), 81 (C. C. . 10).)
fter revewng the record n ths case we concude that there was ampe
substanta evdence to warrant the oard n affrmng the fndng of the
Commssoner that the far market vaue of the stock In queston was at east
100 per share.
ffrmed.
rtce 1577: Defntons. I -38-7701
Ct. D. 1012
INCOM T R NU CT O 192 D CISION O COURT.
1. Income Dstrbuton of onds Reorganzaton Dvdend.
Where a company purchased a the stock and bonds of another
for cash and promssory notes, and the seng company after pay-
ment of the notes Issued new stock and bonds and devered the
new bonds to the purchasng company upon surrender of the od,
a dstrbuton of the new bonds to the stockhoders of the purchas-
ng company was not the resut of a recaptazaton or reorganza-
ton of the atter, wthn the meanng of secton 203 of the Revenue
ct of 192 , but consttuted a dvdend to the stockhoders n the
amount of the vaue of the bonds as of the date receved.
2. Decson ffbmed.
Decson of the oard of Tar ppeas (28 . T. ., 28) affrmed.
Unted States Crcut Court of ppeas, S th Crcut.
otcard . urns, ecutor of the state of Mrs. mma Page es Newberry,
pettoner, v. Commssoner of Interna Revenue, respondent.
Petton to revew an order of the Unted States oard of Ta ppeas.
efore Moorman, cks, and en, Crcut udges.
pr 12, 1935.
OPINION.
Moorman, Crcut udge: In 1922 the Sandusky Cement Co. acqured a depost
of mestone at Sca, Oho. The ony raroad servng Sca was the Toedo,
ngoa Western Raway Co., whch was wthout adequate factes and
was Insovent. The cement company purchased a the capta stock and bonds
of the raway company for 175,000, payng 25,000 n cash and e ecutng for
the remander fve promssory notes of 30,000 each, payabe n one, two, three,
four, and fve years, respectvey. To secure the payment of the notes the
cement company deposted wth a bank as trustee for the seer the stock and
bonds whch It had purchased. Thereafter t advanced money to the raway
company for the rehabtaton of ts property. Shorty after the payment of
the ast note on September 2 ,1925, the raway company converted ts stock Into
no par vaue shares and ssued 300,000 of par vaue bonds on ts propertes to
refund ts former ssue of bonds hed by the cement company. The new bonds
were devered to the cement company upon ts surrender of the od bonds.
In 192 , and for many years pror thereto, pettoner s decedent was a stock-
hoder of the cement company. On anuary 1, 192 , the cement company
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273
204, rt. 1591.
dstrbuted to ts stockhoders the bonds of the raway company. In the
dstrbuton pettoner s decedent receved bonds of the raway company havng
a far market vaue on that date of 8,910.08. Decedent dd not Incude the
vaue of these bonds n her ncome ta return for 192 . The Commssoner hed
that they consttuted a dvdend n the amount of ther vaue as of the date
receved and determned a defcency accordngy. The oard of Ta ppeas
sustaned the Commssoner. (28 . T. ., 28.) The pettoner contends that
the bonds were dstrbuted as a resut of a reorganzaton of the cement com-
pany n 1922 or n 1925 and dd not consttute ta abe ncome to the decedent
as of the date she receved them.
Secton 203 of the Revenue ct of 1920 (2 U. S. C. ., secton 934) provdes
that f. n pursuance of a pan of reorganzaton there Is dstrbuted to a share-
hoder In a corporaton, a party to the reorganzaton, securtes n another
corporaton, a party to the reorganzaton, wthout the surrender by such
sharehoder of stock n such corporaton, no gan to the dstrbutee from the
recept of such securtes sha be recognzed. It defnes reorganzaton as mean-
ng: ( ) a merger or consodaton (Incudng the acquston by one corpora-
ton 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 (C) a recaptazaton, or (D) a mere change n
dentty, form, or pace of organzaton, however effected.
It was hed n Pneas Ice Co. v. Commssoner (287 U. S., 4 2, 470 Ct. D.
30, C. . II-1, 1 1 ) that the words wthn the parenthess of ths defnton
e pand the meanng of merger or consodaton so as to ncude some
thngs whch partake of the nature of a merger or consodaton but are beyond
the ordnary and commony accepted meanng of those words, but that the
mere purchase for money of the assets of one company by another s beyond
the evdent purpose of the provson, and has no rea sembance to a merger
or consodaton. The opnon approves Cortand Specaty Co. v. Commssoner
( 0 ed. (2d), 937 Ct. D. 8, C. . II-1, 1 4 ). In that case the pettoner
sod the greater part of ts assets for 212,820, the buyer payng 53,070 n
cash and e ecutng ts notes for the baance payabe wthn a year, and t was
hed that the transacton was a sae and not a reorganzaton. Lke rungs
have been made on somewhat smar facts n Commssoner v. Moore (48 ed.
(2d), 52 Ct. D. 407, C. . -2, 233 ) and Corbett v. urnet (50 ed. (2d),
492), and see Gregory v. evcrng ( U. S., , anuary 7, 1935 Ct. D. 911,
C. . I -1, 193 ). oward v. Commssoner (5 ed. (2d), 781 ( O. C. .))
s dstngushabe because there t was e pected from the begnnng that the
stockhoders of the od company woud receve stock n the new company, and
athough a note was gven for the od stock, there was no ntenton to pay the
note In cash, and t was used ony as a means of convertng the stock n the
od company Into stock In the new company. In the case at bar the raway
company and Its stockhoders never receved any stock or bonds of the cement
company. The notes of the cement company gven to the seer of the stock and
bonds of the raway company dd not transfer to such seer a suffcenty
defnte nterest n the affars of the cement company to gve the transacton
a rea sembance to a merger or consodaton. There was a mere purchase
for money of the stock and bonds of the raway company and no reorganzaton
In 1922 wthn the meanng of the statute. The decedent receved the raway
bonds because she was a stockhoder of the cement company and not as a resut
of her ownershp of any Interest n the raway company. The changng of the
par vaue of the stock of the raway company and the refundng of ts bonds
In 1925 was not a recaptazaton or reorganzaton of the cement company.
The order of the oard of Ta ppeas s affrmed.
S CTION 204. SIS OR D T RMINING G IN OR LOSS,
D PL TION, ND D PR CI TION.
rtce 1591: ass for determnng gan or oss from sae.
R NU CT O 1020.
Opnon evdence as to far market vaue of stock. (See Ct. D.
1004, page 217.)
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204, rt. 1003. 274
rtce 1 02: ass for aowance of depeton
and deprecaton.
R NU CTS O 1918, 1921, 1924, ND 1920.
Depeton aowance n the case of an ntercompany transferee
where dscovery made by ntercompany transferor. G. C. M. 1345
(C. . I-2, 154) revoked n part. (See G. C. M. 15215, page 1 2.)
rtce 1 03: Read|ustment of partnershp I -3 -7 81
nterests. Ct. D. 1008
INCOM T R NU CT O 192 D CISION O COURT.
L Gan ob Loss ass Transfer of Partnershp ssets
vdence.
Members of a partnershp whch sod ts producng propertes
and transferred ts remanng assets to a new partnershp com-
posed argey of the same Indvduas, wth ad|usted reatve nter-
ests, for a consderaton whch was not pad In cash but was
entered on the books of the od frm as an account recevabe
and on the new frm s books as an account payabe, were not en-
tted to deduct the dfference between the deprecated cost of the
property and the amount of the consderaton as a partnershp
oss, n the absence of proof that the transacton was a rea sae
n good fath.
2. Decson ffrmkd.
Decson of the oard of Ta ppeas (28 . T. ., 40S) affrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
Lester W. rtz ct a., pettoners, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of Te as).
efore ryan, Sbey, and Waker, Crcut udges.
March 25, 1935.
OPINION.
Sbey, Crcut udge: In the begnnng of the year 192C a Te as partner-
shp caed Staey Wynne then engaged n o producton sod ts producng
propertes at a arge proft to umbe O Refnng Co. Its remanng
undeveoped or unproductve propertes wth toos and equpment and msce-
aneous assets were on pr 1 passed to a new frm then formed composed
of members of the od frm. The dfference In the frms was that . . Staey,
trustee, had nterest n the od frm and none n the new . I. Staey s t
nterest n the od was reduced to n the new, whe . C. Wynne s nterest
n the od frm became n the new and L. W. rtz s was rased to
. . a s nterest remaned unchanged. The transfer of the property was
for a consderaton of 70,0 0 as entered on the books of each frm, but ts
deprecated cost to the od frm was 180,000. The dfference of 110,000 was
camed as a reazed oss by the od frm. The Commssoner dsaowed t
as a partnershp oss but aowed ndvdua deductons to . I. Staey and
. . Staey, trustee, n proporton to the fractona nterests n the partner-
shp renqushed by each. The oard of Ta ppeas refused to nterfere.
(28 . T. ., 408.) S weeks after the decson a moton to reopen the case
for further evdence was made and dened, and ths consodated petton for
revew by a the partners foowed.
The facts above stated are unquestoned. The oard thought t not proven
that the passng by the od frm to the new one of Its resdua property was a
rea sae n good fath In whch the consderaton was actuay to be coected
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275
204, rt. 1 03.
rather than a mere reorganzaton of the partnershp. The peadngs before
the oard presented the matter thus: The aegaton that Staey Wynne sod
ths property to Staey, Wynne Co. at and for the sum of 70,000 was dened,
and kewse dened was the aegaton that the sae was for an adequate con-
sderaton and bona fde and resuted n oss. The aegaton that Staey,
Wynne Co., the purchaser of sad assets, was composed of the foowng
ndvduas, namng them and ther nterests, was admtted but fary con-
strued ths admsson dd not e tend to the reaty and good fath of the sae,
whch were prevousy dened, but ony to the composton of the new frm.
The ssues of fact thus made were covered ony by ths stpuaton: On or
about pr 1, 192 , the partnershp of Staey, Wynne Co. was formed and
the above-mentoned assets owned by Staey Wynne were transferred to the
new partnershp for 70,000. The consderaton of 70,000 was not
pad n cash but was entered on the books of Staey Wynne as an account
recevabe and on the books of Staey, Wynne Co. as an account payabe.
Ta returns were made on the accrua bass. Takng ths to be the whoe
truth, the oard consdered t a mere book transacton and ad|ustment of
partners Interest, the new frm gong forward wth the busness of the od.
We shoud not upset ths fndng of fact uness the oard abused ts dscreton
n refusng to reopen the case for further evdence. We recognze on the one
hand that the oard has dscreton as a quas court touchng the reopenng of
ts proceedngs. ( ankers Pocahontas Coa Co. v. urnet, 287 U. S., 309 Ct. D.
18, C. . II-1, 272 Weer v. Commssoner, 4 ed. (2d), 480 Ct. D. 734,
C. . II-2, 284 Wse Cooper Co. v. Commssoner, 53 ed. (2d), 843
Washburn Wre Co. v. Commssoner, 7 ed. (2d), 59.) nd on the other
hand our power and responsbty on revew e tend to the requrement of
further tra when error of aw, surprse or arbtrary acton makes t proper.
( everng v. Tayor, U. S., Ct. D. 912, O. . I -1, 1 8 Independent
Ice Cod Storage Co. v. Commssoner, 50 ed. (2d), 31 Ct. D. 471, O. .
I-1, 308 Underwood v. Commssoner, 5 ed. (2d), 7.) ere the ssue of
fact was ceary drawn by the peadngs and the evdence about t was agreed
on. It was not agreed that there was a sae, but a transfer of the property,
and that no money was pad but book entres ony were made. The moton to
reopen the case stated no specfc evdence to be offered and no addtona fact
to be proven, but was whoy genera. It was n truth a reargument of the
case on the evdence aready before the oard. We do not now know that the
pettoners have any addtona evdence whch they coud offer. The oard
was not bound to rehear the case on a genera moton of ths sort.
ut on the agreed facts It Is st contended that the transfer of partnershp
nterests from the Staeys to rtz and to Wynne nvovng the retrement of
Staey, trustee, dssoved the od partnershp and necessary made the trans-
acton a rea sae from frm to frm and necesstated the coecton of the
70,000 consderaton. It Is true that ether the retrement of a partner or the
sae or gft of a partner s nterest to a thrd person s sad at common aw and
In Te as to dssove the od partnershp. (20 R. C. L., Partnershp, secton
178 Moore v. Steee, 7 Te ., 435 uess v. Tomnson, 38 S. W., 534 Carro
v. Commssoner, 70 ed. (2d), 80 .) It s otherwse n some other States.
(Cameron v. Commssoner, 5 ed. (2d), 1021 Ct. D. 550, O. . I-2, 19
everng v. rchbad, 70 ed. (2d), 720.) In the common aw vew of a
partnershp the partners are ont owners of the assets, ont debtors for ts
obgatons and agents for one another n the conduct of the busness. There
s a compcated reatonshp among them rather than a separate entty. quty
Incnes to vew the partnershp as a separate busness entty ownng Its proper-
tes and owng Its debts. Ths atter vew obtans argey n the ankruptcy ct
In the Income Ta cts pror to 1918 a partnershp made ts own ta returns
and pad Its own ta es. Snce then t has been requred to compe Its own
return of Its gross Income and deductons as before but the partners aone
owe ta es and each of them returns and pays on hs proporton of the net
Income of the partnershp. They are spoken of as Indvduas carryng on
busness n partnershp. Manfesty for purposes of edera ta aton the
rues for ascertanng the ncome and deductons of partnershps ought not
to vary wth the pecuartes of State aws but shoud be unform throughout
the Unted States. The queston whether a transfer of property by a partner-
shp to Its members or to a number of them assocated n a new partnershp
reazes a gan or a oss to the od frm ought to be answered ake everywhere.
We do not thnk that resut necessary foows from such a transfer even
though t accompanes a technca dssouton of the partnershp. Of course
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205, rt. 1 12.
27
two partnershps havng one or more common members may coe st, carryng
on separate busnesses, and may buy from and se to one another wth the
usua ta consequences. ut when nn e traordnary transacton occurs whch
amounts to a reorganzaton whereby a assets are transferred to a successor
partnershp composed of the same ndvduas It may easy be that there s no
rea converson of the capta. Under the statutes the reorganzaton of a
corporaton, though there be a transfer to a new ega entty, often reazes
no gan or oss. In the present case the od frm had by true saes gotten arge
profts. It had other propertes n whch t had potenta osses. It coud not
reaze these osses so as to reduce the profts e cept by an actua converson
of the property. Ths was not accompshed by a mere apprasa wth appro-
prate book entres, usefu to sette wth the trustee who was gettng out and
perhaps to ad|ust wth other partners who stayed n and were changng ther
reatve nterests. The partners who sod fractona nterests were aowed,
whether rghty or wrongy, a present fractona oss. We do not thnk a rea
sae by the partnershp was proven enttng the partnershp to cam the whoe
as a present partnershp oss. The petton to revew Is dened.
S CTION 205. IN NTORI S.
rtce 1 12: auaton of nventores. I -3 -7 82
Ct. D. 1007
ncome ta revenue act of 1918 decson of cocrt.
auaton of Inventoby ass Reguatons.
n automobe manufacturng company on the accrua bass
whch ncuded automobes of a dscontnued mode n ts nven-
tory at December 31, 1920, at cost, under reguatons permttng
vauaton at cost or market, whchever s ower, s not entted
to obtan a refund by revsng ts Inventory to show the market
prce at whch the cars coud have been sod at December 31,
1920, where none was sod or offered for sae at prces ess than
cost pror to une 10, 1921. rtce 1582 of Reguatons 45 reason-
aby provdes that n such a case the goods sha be vaued at
bona fde seng prces offered durng a perod endng not ater
than 30 days after the nventory date.
Court of Cams of the Unted States.
The Pcrce- rrow Motor Car Co. v. The Unted States.
T une 3, 1935.
opnon.
Ltteton, udge, devered the opnon of the court.
The queston n ths case concerns the vaue at whch certan automobes
nf a dscontnued mode, whch pantff h d on hand at December 31, 1920,
shoud be ncuded n ts nventory of that date.
Durng 1920 and for severa years pror thereto pantff manufactured a cer-
tan type of automobe known as Mode 38. In 1920 It began the manu-
facture of a new mode known as Mode 32 to take the pace of Mode 38,
and n October or eary n November, 1920, t had determned that the od
mode woud be dscontnued. Certan automobes of the new mode were
shown to deaers at a conventon n November, 1920, and at that tme there
was dscusson between the deaers and the pantffs representatves as to
the dsposton of the automobes of the dscontnued mode whch pantff
then had on hand, but no prce was f ed for the od automobes.
Durng the perod, November, 1920, to anuary, 1921, pantff was abe to ds-
pose of seven of the Mode 38 cars at prces substantay In e cess of ther cost
the remanng 100 Mode 38 cars were hed by pantff unt pr 15, 1921,
wthout any reducton n ther st prce. On the ast-mentoned date pantff
sent a crcuar to ts deaers offerng to se the cars of the dscontnued
mode at appro matey ther cost of manufacture. Under ths offer of the
od Mode 3S automobes were sod between pr 15 and une 10, 1921.
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277 205, rt. 1 12.
On the atter date puntff made a further reducton n the prce of the ds-
contnued mode and, as a resut, 91 cars were sod at such reducton n 1921.
Two automobes of the dscontnued mode were dsposed of n 1922 and one
In 1927. In Che fna dsposton of a the od cars pantff sustaned a oss
of about 71,000, the greater porton of whch occurred between une 10 and
December 31, 1921.
Pantff empoyed the accrua method of accountng and rendered ts returns
on that bass. It vaued ts nventory on the bass of cost or market, whch-
ever was ower.
In preparng ts return for 1920 pantff ncuded the automobes of the
dscontnued mode n ts nventory at December SI, 1921, at cost, snce ther
cost, when manufactured, was ess than ther reproducton cost at December
31, 1920. Later, t fed a cam for refund on the ground that t shoud
be aowed to revse ts nventory and ncude such automobes theren at a
vaue ess than ther cost for the stated reason that the market vaue of
these cars at December 81, 1920, was ess than ther cost. Ths cam was
dened and ths sut was tmey nsttuted.
Upon the facts In ths case we thnk pantff s not entted to recover.
Secton 203 of the Revenue ct of 1918, whch was appcabe to the year 1920
provdes that where nventores are permtted to be used n determnng net
Income they sha be upon such bass as the Commssoner, wth the approva
of the Secretary, may prescrbe as conformng as neary as may be to the best
accountng practce n the trade or busness and as most ceary refectng the
Income. Pursuant to ths authorty artce 1582, Reguatons 45, provded
for the vauaton of nventores on the bass of (a) cost or ( ) cost or market,
whchever s ower. These reguatons aso provded that any goods n an
Inventory whch are unsaabe at norma prces or unusabe n the norma way
because of damage, mperfectons, shop wear, changes of stye, odd or broken
ots, or other smar causes shoud be vaued at bona fde seng
prces ess cost of seng whether bass (a) or ( ) s used . ona
fde seng prce means actua offerngs of poods durng a perod endng not
ater than 30 days after nventory date. Pantff manufactured the artces
whch t sod and therefore the market as used n the reguatons means
reproducton cost of the automobes on hand at a gven nventory date. ( ed-
ford Mf, Inc., v. Unted States, 77 C. Cs., 190.) The cost of the automobes
In queston was ess than ther reproducton cost at December 31, 1920. c-
cordngy, the pantff, n preparng ts return for 1920, used the ower prce,
namey, cost, n accordance wth the reguatons. though pantff hed the
automobes n queston and offered them at a prce n e cess of ther cost of
manufacture at December 31, 1920, and unt une, 1921, t now seeks to estab-
sh a market for these cars on the bass of a prce at whch they coud have
been sod at December 31, 1920, ts contenton beng that such market was
ess than the cost of the cars and that ts ncome shoud be reduced to the
e tent of such dfference.
Pantff has aready been gven the beneft of the reguatons n vaung ts
Inventory at cost or market, whchever was ower, but t now asks that a new
knd of market be permtted, . e., a market based on a prce at whch ts
product coud have been sod. reasonabe e cepton has been provded n the
reguatons for the use of a factor other than cost or market under certan
condtons. The condton appcabe n a case such as the one before us s
that where a ta payer has on hand automobes of a dscontnued mode t
may vaue such automobes at a bona fde offerng prce made durng the
perod endng not more than 30 days after the nventory date. The record n
ths case shows that pantff not ony dd not offer the automobes of the
dscontnued mode at a reduced prce wthn 30 days of the nventory date,
but t contnued to hod them at the od seng prce, whch was substantay
above cost, unt pr 15, 1921, three and one-haf months after the nventory
date. The reducton n prce made on pr 15, 1921, appro mated cost, but
It was not unt une, 1921, that reducton n seng prce was made whch
resuted n the sae of the automobes at a prce beow ther cost. In such
crcumstances the statute and the reguatons gve no rght of recovery. The
appcabe reguatons dd not provde a rue of evdence but made a reasonabe
e cepton n favor of those ta payers, who, due to the causes mentoned, ac-
tuay offered ther goods for sae at bona fde seng prces ess than cost
wthn a perod of not more than 30 days after the nventory date, even though
the market was greater than cost on the nventory date. Ths e cepton n
the reguaton was apparenty authorzed for the reason that ta payers gener-
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213(a), rt. 52.
278
ay take ther Inventores on the ast day of the caendar or fsca year and
wthn the month foowng for the purpose of determnng ther fnanca
condton and for the purpose of preparng ther Income ta returns. It w
be ready seen that n thus takng Inventores prces may be reduced for the
reasons specfed In artce 1582. If pantff had been deang n a commodty
generay manufactured and sod n the open market, there mght be |ustf-
caton for the cam that a specfed tem of nventory shoud be vaued on the
bass of the actua market vaue thereof notwthstandng the fact that the
prce at whch t offered the artce was greater than cost f t shoud be shown
that the rea and actua market prce thereof was ess than cost ut we are
not here deang wth such a case. The automobes n queston were manu-
factured ony by pantff. They were not artces whch coud be purchased
n the open market but were unque n the sense that they were soey the
pantff s manufactured product. The market vaue of an artce contempates
a wng seer and a wng buyer. t the nventory date and for some
months thereafter the pantff, as a wng seer, hed the automobes at a
prce substantay In e cess of ther cost and kewse n e cess of the market
for whch It now contends. Whatever mght have been the opnon of the e -
perts n the automobe trade as to the market vaue of pantffs automobes
of the dscontnued mode, pantff tsef, whch aone had the rght to dspose
of them, decned to offer them for sae at a prce beow ther cost unt une,
1921. Under such crcumstances we fnd no bass for usng, for an nventory
bass, a vaue other than cost at December 31, 1920.
Whatever oss pantff sustaned upon the sae of the automobes of the
dscontnued mode durng 1921 was a deducton from gross Income for that
year rather than for 1920.
The petton must be dsmssed. It Is so ordered.
P RT II. INDI IDU LS.
S CTION 213(a). GROSS INCOM D IN D:
INCLUSIONS.
rtce 31: What ncuded n gross ncome.
R NU CT O 1928.
Dvdend pad day after purchase of stock of subsdary by parent
(See Ct. D. 1017, page 307.)
rtce 52: ampes of constructve recept.
R NU CT OP 192 .
Payments on note gven n eu of amony. (See Ct. D. 100 ,
page 192.)
rtce 52: ampes of constructve recept. I -37-7 89
Ct. D. 1009
ncome ta revenue act of 192(5 decson of court.
Income ssgnment Partnershp n Lqudaton.
Where the ta payer, a member of a partnershp whch began to qu-
date n 1920, shorty thereafter conveyed to hs wfe ndvduay and n
trust hs share of the profts to be derved from the qudaton of the
busness, dstrbutons n 192G and 1927 pad to hs wfe In accordance
wth the assgnment consttuted ncome to the ta payer.
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279
213(a), rt. 52.
Unted States Crcut Court of ppeas foe the Second Cbcct.
merson . Rossmoore, pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton to revew an order of the oard of Ta ppeas f ng a defcency In the ta -
payer-g Income ta for the years 1 2 and 1927.

efore L. and, Swan, and Chase, Crcut udges.

pr 1, 1935.
OPINION.
L. and, Crcut udge: The ta payer appeas from an order of the oard
of Ta ppeas f ng a defcency n hs ncome ta for the years 192 and 1927.
The case arses upon precsey the same facts as Rossmoore v. nderson ( 7
ed. (2d), 1009 (C. C. . 2)), e cept that t concerns ater years. It woud be
res |udcata, had the Commssoner seen ft so to pead and t s at best ony
an effort to reargue the same queston. Ordnary we shoud therefore be eon-
tent to affrm by a mere reference to our earer dsposton, but as we dd not
wrte any opnon and the authortes are n some confuson anyway, t seems
better to decare ourseves a tte at arge. Rossmoore, the ta payer, was one
of a frm of three certfed accountants who agreed to dssove on November 1,
1920, after dong busness for ess than a year. The frm was to take up no new
busness but compete ts contracts and coect everythng due or to become due.
The cash on hand, e cept a reserve of 5,000, was to be at once dstrbuted, and
Rossmoore was retaned at hs own e pense to wnd up a pendng busness,
tnder the supervson, however, of the other two. e was to have a saary
of 12000 as qudator It beng e pected apparenty that the wndng up woud
not take more than 14 months. It dd take much onger, so that very sub-
stanta sums were dstrbuted among the partners as ate as 192 and 1927.
ow far these moneys were due at dssouton and how far they were earned
ater does not appear presumaby they were earned ater. Two months after
the dssouton agreement, that Is, on anuary 3, 1921, Rossmoore conveyed to
hs wfe ndvduay one-thrd of the profts and any and a other moneys,
advantages, nterests and benefts to be derved and reazed out of the sad
partnershp busness now n qudaton, e cept the reserve and hs saary. The
other two-thrds he aso conveyed to her upon varous trusts not necessary to set
out. Rossmoore s share of the dstrbutons of 192 and 1927 were pad n ac-
cordance wth the assgnment, one-thrd to hs wfe, two-thrds under the mta-
tons of the trust. e dd not return them as part of hs ncome and the
Commssoner assessed a defcency aganst hm for ths reason. The oard
affrmed ths and he appeaed.
The assgnment made the assgnee as tte a member of the frm as though
t had not been dssoved t made her as tte a drect owner of any nterest
n the frm property t was no dfferent from an assgnment before dssouton.
The opposte mght ndeed be true, If we were to regard the frm as whoy at
an end concevaby t mght aso be true, at east for ta purposes, f upon
dssouton nothng remaned to be done but to coect and dstrbute debts
uncondtonay due. ut ths frm took seven years to qudate, and the
busness contnued and so dd the frm on dssouton the partnershp s not
termnated, but contnues unt the wndng up of the partnershp affars s
competed. (New York Partnershp Law, secton 1.) Ths was the common
aw as weL (Roby v. mercan Centra Insurance Co., 120 N. Y., 510.) Ross-
moore does not ndeed argue that hs wfe became a member of the frm qute
the contrary, hs theory s that hs nterest n t was ke that of a sharehoder
n a company, or a benefcary In a trust t was a rght aganst the frm
entty and assgnabe as such. Once assgned, any ncome arsng out of t was
as tte derved through the assgnor, or ta abe aganst hm, as dvdends upon
transferred shares or payments upon an assgned equtabe nterest. Ths pos-
ton rests upon the premse of secton 52 of the New York partnershp aw
whch decares that a partner s nterest n the partnershp s hs share of the
profts and the surpus. That was true ong before the act was passed ( ank
v. Carroton R. R., 11 Wa., 24) t was the consequence of the eaborate
system of cross-trusts whch the ngsh chanceors had devsed n the eght-
eenth century. ( arrs v. Commssoner, 39 ed. (2d), 54 (C. C. . 2).) ut
our aw has never adopted the cv aw theory of the frm as a |urstc entty
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1213(a), rt. 52.
280
the unform partnershp aw as tte as any other. That statute recognzes
the partners as coowners ( tenants n partnershp ) of the specfc frm
property (secton 51, New York partnershp aw), and whe t s often sad,
and truy, that the frm s treated at tmes as f t were an entty, the doc-
trne has never become domestcated, and has ndeed been at tmes ressted,
when there was consderabe e cuse for ts adopton. ( rancs v. fc etrf,
228 U. S., 95.) The Revenue cts from 1915 forward (38 Stat. L., 1 9) have
consstenty retaned the common-aw vew, treatng a ncome of the frm as
ta abe to the partners, whether dstrbuted or not and gnorng the frm as
a ta payer e cept for purposes of nformaton. Ths s the e panaton of
urnet v. Lennyer (285 U. S., 13 ), and not, as Rossmoore supposes, because
the assgnment was of ony a part of the husband s nterest n the frm. That
decson was avowedy a coroary of Lucas v. ar (281 U. S., I), a case
where the husband gave an nterest n hs future earnngs to hs wfe. Nothng
turned upon the form of the transfer, and everythng upon the fact that the
assgnor remaned In contro of the ncome, snce t was ony through hs con-
tnued efforts that t coud be earned. That s equay true though the as-
sgnor be a partner and have ony an ndrect nterest n the earnngs through
hs share n the profts any future earnngs whch he can assgn are cond-
tona upon hs contnued efforts, and reman n that sense at hs dsposton.
That s the crtca factor the egu scaffodng s of no consequence. t
east t s not, uness a corporaton be nterposed, and then ony because the
statute makes the corporaton the ta payer, and by means of t e pressy n-
suates the sharehoders. It has not so nterposed the frm t has refused
to make t a ta payer.
It must be acknowedged that the cases n the ower courts are not a to
be reconced on the theory we have |ust mentoned. Were t so, the assgnor
woud never be ta abe n cases where the Income was aready earned at the
tme of the assgnment. Of course f It were not ony earned, but aready
pad though not dstrbuted, no queston coud arse t woud be frm ncome
and ta abe to the partners anyway. gan, though not yet pad, the part-
ners woud be ta abe f the Income were earned and the frm kept ts books
on an accrua bass. Ths test we suggested as a possbe e panaton In
Locery v. everng (70 ed. (2d), 713). The cases do not however submt
themseves to such a cassfcaton. It s true that n a v. urnet (54 ed.
(2d), 443 (C. . D. C.)), Neson v. erguson (5 ed. (2d), 121 (C. C. . 3)).
and everng v. Seatrce (72 ed. (2d), 7 (C. . D. C.)), the assgnor was not
ta ed when the Income had been a earned, though t was not pad at the
tme of the assgnment. ut n shop v. Commssoner (54 ed. (2d), 298
(C. C. . 7) Ct. D. 477, C. . I-1, 1 4 ) Parker v. outzahn (5 ed. (2d).
730 (C. C. . 8) Ct. D. 4S9, C. . I-1, 25 ) (at east as to a part of the
ncome) an Meter v. Commssoner ( 1 ed. (2d),817 (CC . 8) (Ct. D. 75,
C. . II-1, 207 ), and Dougherty v. Commssoner ( 3 ed. (2d), 77 (C. C.
9) Ct. D. 721, C . II-2, 180 ), where the facts were the same, the resut
was dfferent. The confct need not however concern us here, for, so far as
we have found, It has been unformy rued that f the ncome has not been
earned, the assgnment w not protect the assgnor. It so happens that here
the assgnor was aso the qudatng partner, who must necessary earn the
Income but we woud not mpy that If ether of the other two had made an
assgnment the resut woud have been dfferent perhaps so, perhaps not
In most cases at any rate a the partners concur n the frm actvtes and
can stop them f they w here for nstance Rossmoore was e pressy made
sub|ect to the others supervson. There may be nstances, though they must
be rare, where one st remans a partner and yet so tes hs hands as not
to share at a n the frm actvtes. That s not the stuaton here, and we
may eave t t t arses.
Order affrmed.
rtce 52: ampes of constructve recept.
R NU CTS OP 1924 ND 192 .
ssgnment of percentage of partnershp earnngs pad to former
partner. (See Ct. D. 1032, page 19 .)
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281 214(a), rt. 112.
rtce 52: ampes of constructve recept.
R NU CT O 102 ND PRIOR R NU CTS.
Treatment of dstrbutons made by budng and oan assoca-
ton. (See G. C. M. 155 5, page 105.)
S CTION 213(b). GROSS INCOM D IN D:
CLUSIONS.
rtce 71: cusons from gross ncome.
R NU CT O 192 .
ward by cty n condemnaton of property and nterest thereon.
(See Ct. D. 1035, page 298.)
rtce 87: Income of States.
R NU CT O 192 .
Income from subessee of schoo ands. (See Ct. D. 933, page 227.)
rtce 88: Compensaton of State offcers and empoyees.
R NU CT O 192 ND PRIOR R NU CTS.
Offcers and empoyees of State Compensaton Insurance und of
Caforna. (See G. C. M. 14952, page 130.)
S CTION 214(a) 1. D DUCTIONS LLOW D INDI-
IDU LS : USIN SS P NS S.
rtce 112: When charges deductbe. I -32-7 40
Ct. D. 999
INCOM T R NU CT O 1918 D CISION O COURT.
Deducton Loss Debt Pad by Note.
The ta payer and another, stockhoders n a qudatng corpora-
ton, n 1913 became |onty obgated to pay certan debts of the
corporaton, the amount of whch was defntey ascertaned n
191 and n that year pad by the ont obgor, who took the ta -
payer s note for hs share of the debt. The ta payer, who was on
the cash recepts and dsbursements bass, pad the note n 1919.
Under these crcumstances, the ta payer s not entted to deducton
for a oss In 1919. The fact that the debt was pad wth borrowed
money dd not have the effect of postponng the deducton unt the
year In whch the note was pad.
47318 3 10
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1214(a) 1, rt. 112.
282
Unted States Ckct|tt Court of ppeas, ghth Ckcut.
/. . Cran and W. . Wson, ecutors of the state of . . Lee Wson, Sr.,
Deceased, pettoners, v. Commssoner of Interna Revenue, respondent.
On petton to revew decson of Unted States oard of Ta ppeas.
efore Woodrouoh and abs, Crcut udges, and Donohoe, Dstrct udge.
March 11, 1935.
OPINIO .
ars, Crcut udge, devered the opnon of the court
The oard of Ta ppeas, hayng sustaned a defcency assessment aganst
pettoners In the sum of 1,042.45, for ncome ta es for the year 1910, the case
comes to ths court on a petton to revew the decson of the oard. It arose
on the foowng smpe and conceded facts:
Pror to 191 , the ta payer, now deceased (and heren represented by appe-
ants who are e ecutors of decedent s estate), |onty wth one Wesson, hs son-
n-aw, became obgated to pay certan debts of the Natona Car dvertsng
Co., of whch decedent and Wesson were arge stockhoders. The Natona Car
dvertsng Co. faed In 1913 and was fnay qudated. In 191 t was
defntey ascertaned that Wesson and decedent (to whom for brevty, as aso
to appeants, we sha refer as the ta payer) were onty abe on ther as-
sumed obgatons for the debts of the Natona Car dvertsng Co., n the
sum of a tte more than 80,000. The ta payer was not possessed of cash
suffcent to pay hs haf of ths 80,000. So, havng pad a sma part n cash,
It was agreed that Wesson shoud pay the whoe of the debt, representng the
oss, whch he dd n 191 , takng the note of the decedent ta payer for the
sum of 40,000.
Ths note was not pad t 1919, for whch year the ta payer, through hs
ega representatves, s here seekng to deduct the sum of 40,000, so pad, from
decedent s ta abe ncome for that year. When the ta payer actuay pad
the note to Wesson, he dd so by drawng the draft of Lee Wson Co, a
trust concern n whch the ta payer was a trustee, on Wson, Ward Co., a
corporaton engaged n busness as cotton factors, of whch ta payer was a
stockhoder and drector. Ths draft drawn n favor of Wesson was honored,
n November, 1919, and Wesson canceed the note and returned It to the
ta payer.
When the ta payer made the draft of Lee Wson Co. on Wson, Ward
Co., he then owed the former more than ,000, on open, runnng account. The
amount of ths draft ncreased the sum owng by the ta payer to Lee Wson
Co., to more than 10 ,000. The 40,000 was ater repad (the record does
not show when, f at a reevant) to Wson, Ward Co., by Lee Wson Co.,
by shpments of cotton. Later (and agan the tme s not shown), but cer-
tany not n the year 1919, the ta payer pad hs account, ncudng the
40,000, to Lee Wson Co.
It s conceded that the ta payer made hs returns and pad ncome ta on
the cash recepts and dsbursements pan. Lkewse, that under the aw then
In force, secton 214(a), Revenue ct, 1918 (40 Stat., 1057), the ta payer was,
upon the undsputed facts, entted to cam a oss of 40,000. The soe ques-
ton s whether he shoud have deducted ths oss n 1913, when the Natona
Car dvertsng Co. faed and was qudated or n 191 , when he made the note
to hs son-n-aw for hs part of the oss or n 1919, when he actuay pad ths
note, by draft to Lee Wson Co., on Wson, Ward Co. or ater, when he
actuay pad hs open, runnng account to Lee Wson Co. The undsputed
facts show that the ta payer knew n 1913 that he was abe and woud have to
pay hs moety of osses sustaned by the faure of the Natona Car dvertsng
Co. The fact of oss was then certan. Touchng whether n that year such
oss became suffcenty defnte n amount as to warrant a book entry s bnd
on the record but not mportant n the vew we are constraned to take of the
case.
ut n the year 191 , the amount of oss sustaned became defntey certan,
and the whoe of t was actuay pad by Wesson. Snce the ta payer dd not
hmsef have on hand enough cash to pay hs haf, he agreed wth Wesson that
the atter shoud advance a of the money n payment of the oss, and the
ta payer woud make to Wesson a note for the ta payer s haf of such oss.
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283
214(a), rt. 112.
In far effect, what the ta payer dd In 191 was to borrow 40,000 n money
wth whch to pay the oss, now here n dspute as to the date of ts accrua
for ta ng purposes. It seems cear, from the facts here and the rued cases,
that the oss occurred n 101 . ( very v. Commssoner, 22 . (2d), T. D.
411 , O. . II-1, 155 Darng v. Commssoner, 49 . (2d), 111.) Dd the
gvng of the note to Wesson have the effect to awfuy postpone deducton of
the oss from ncome t the year n whch the note was pad
The ta payer contends that t dd and, so contendng, rees argey on the case
of ckert v. Commssoner (283 U. S., 140 Ct. D. 325, C. . -, 241 as decsve
In hs favor. In the ckert case, supra, the ta payer there and hs partner
were onty abe to a bank as ndorsers on notes otherwse worthess. They
took up these notes by substtutng therefor ther own note made payabe
drecty to the bank. The ta payer theren then deducted the amount of the note
as a oss aocabe to the year n whch the note was made, though t had not
been pad at a at the tme the amount thereof was deducted from ncome. It
was hed by the Supreme Court that the ta payer then was not entted to
deduct the amount of the note to the bank, because the debt to the bank
acqured by the ta payer as consderaton for hs new note was worthess when
acqured because the ta payer there (as here) was on a cash bass pan of n-
come ta payment because there was presenty no outay of cash, or of
property havng a cash vaue, and because deducton Is not permssbe t
the ta abe year n whch, n such stuaton, the ta payer pays cash. In other
words, what was there done dd not have the effect to decrease the ta payer s
ncome for the year n whch the note was made, and woud have no such
effect t the note was actuay pad In cash.
So, we thnk there are dstngushng dfferences between the stuaton n
the ckert case, supra, and that n the case at bar. ere, the oss was pad
n fu n cash by Wesson and whoy e tngushed there, a mere change from
secondary abty for the debt or oss, to prmary abty, occurred. ere,
after the oss was pad by Wesson, the ta payer owed Wesson and not the
orgna credtor there, the ta payer st owed the orgna credtor for the
oss, havng, as sad, changed the nature of hs obgaton ony n degree. If,
nstead of payng hs obgatons to the credtors of the Natona Car dver-
tsng Co. n cash, as was done, the ta payer here had gven hs note therefor,
much ega comfort woud be deducbe from the ckert case. ut the mo-
ment a oss of the sort here s pad, a oss s ncurred, and no borrowng from
Peter to pay Pau, f a homey saw may be paraphrased, w serve to change
the stuaton. So far as the stuaton among ta payer s endng credtors s
concerned, the debt due to Wesson stood n no better case than dd the debt
due to Lee Wson Co., from whom the ta payer borrowed to pay Wesson.
Moreover, counse ngree, and the decsons of the oard of Ta ppeas
sustan ther agreement, that the fact that a oss s pad n borrowed money
does not have the effect to change the date at whch the oss was sustaned
from the year of the oss to the year n whch the borrowed money was repad.
In the case of eenan v. Commssoner (20 . T. ., 498) t s sad:
That the payments were made wth borrowed money s not matera and
can not have the effect of postponng the deductons unt the years n whch
the borrowed money was repad. To hod otherwse woud n effect permt
ta payers to eect the years n whch e penses mght be deducted from
ncome
To the same effect are the cases of Wets v. Commssoner (13 . T. .,
1284), Crawford v. Commssoner (11 . T. ., 1299), and Perry v. Comms-
soner (28 . T. ., 497).
If the ta payer had hmsef actuay pad n cash hs part of the oss n
191 , t woud hardy be contended that he coud not, n that year, have
charged the sum pad as a proper deducton from hs ncome for that year.
It s dffcut to see how the stuaton was changed merey because he was
forced to borrow money from another wth whch to pay hs part of the oss.
owever, we are not caed on to rue n what year ths oss was propery
deductbe. The queston up for udgment Is whether t was, on the facts con-
ceded, deductbe n the year 1919. We are of opnon that n rung t was
not, the oard of Ta ppeas was correct It resuts that the case shoud
be affrmed.
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214 (ft) 1, rt 112.
284
rtce 112: When charges deductbe. I -41-773
Ct. D. 1019
INCOM T R NU CT O 1921 D CISION O COURT.
1. Deducton Interest ccrua ass stoppe.
corporaton, on the accrua bass, whch camed and was
aowed deducton n ts 1924 return for nterest accrued at De-
cember 31, 1923, on unpad purchase money, s estopped to cam
that the deducton shoud have been aowed n 1923, havng re-
taned the benefts from the aowance of the deducton n 1924
and the statute of mtaton havng e pred before such cam was
made.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 1097) affrmed.
Unted States Coubt of ppeas foe the Dstrct of Coumba.
Newaygo Portand Cement Co., pettoner, v. Guy T. everng, Commssoner
of Interna Revenue.
ppea from the Unted States oard of Ta ppeas.
efore Martn, Chef ustce Robb, an Obsde, tz, and Gro er, ssocate
|ustces.
pr 15, 1935.
opnon.
tz, ssocate ustce: Ths case comes to ths court by stpuaton pur-
suant to secton 1002(d) of the Revenue ct of 192 , upon a petton to revew
an order of the Unted States oard of Ta ppeas fndng a defcency of
8,870 n the pettoner s ncome ta for the year 1923.
The pettoner s a Mchgan corporaton, and on une 2, 1923, agreed to
fnance certan constructon operatons of another corporaton, whose bonds
t bought and mmedatey receved n the amount of 1,500,000 for 1,820,000
to be pad as the work progressed, upon certfcates of constructon by the
engneer.
The bonds bore Interest at 7 per cent, and t was agreed that the pettoner
shoud pay Interest on the unpad purchase money at the same rate.
The arrangement apparenty contempated that as each sum caed for was
pad over, Interest thereon from une 2, 1923, shoud be credted to the bud-
ng company on the pettoner s books, and upon fu payment of the purchase
prce the tota nterest so credted shoud be pad.
Durng 1923 pettoner pad 302,330 of the purchase prce, and accordngy
accrued on ts books 10,20 nterest, whch was deducted n ts ta return
for 1923, pursuant to secton 200(4) and 214(a)2, Revenue ct of 1921 (ch.
134, 42 Statutes, 227).
The pettoner dd not deduct 41,230 for nterest from une 2 to December
31, 1923, on the 1,017, 50 of purchase prce of the bonds remanng due at the
atter date, but n 1924, havng pad n fu for the bonds, t deducted the
aforesad 41,230, pus 17,9 as nterest nccrued for 1924, or 59,197 from
gross ncome for that year.
Whe the record shows a fna defcency found of 8,370, reached through
cacuatons nvovng many tems, we are not concerned wth the arthmetc
but wth the queston as to whether the pettoner Is here entted to the
deducton of 41,230 camed n computng ts ta for 1923.
It s conceded that the pettoner kept Its books and fed Its return upon
the accrua bass, and both sdes rey on Unted tatea v. nderson (209 D. S.,
422 T. D. 3839, C. . -, 179 ) and mercan Natona Co. v. Unted State
(274 U. S., 99 T. D. 4099, C. . -2, 193 ) as supportng ther contentons.
Ths court consdered those cases, and others n other courts, n Natove 4
Co. v. Commssoner (32 ed. (2d), 949 Ct. D. 77, C. . III-2, 295 ) but cer-
tan contngences were nvoved In that case whch were not In the Supreme
Court cases, and are not n ths case.
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285
214(a) 1, rt. 112.
In Unted States v. nderson the court sad: The appeee s true ncome
for the year 191 coud not have been determned wthout deductng from ts
gross ncome for the year the tota costs and e penses attrbutabe to the
producton of that ncome durng the year.
To the same effect are Machne Co. v. Unted States (282 U. S., 375) Con-
tnenta Te Co. v. Unted States (280 U. S., 290 Ct. D. 494, C. . I-1, 2 0 ).
ere the nterest on the bonds was returnabe as ncome, and to the produc-
ton of that ncome nterest on the deferred payments was an attrbutabe
e pense, whe the pettoner knew on December 31, 1923, and thereafter unt
Its return was fed, the e act addtona amount so deductbe for 1923, and
we perceve no substanta dfference between ths case and Mer Lumber
Co. v. Commssoner (39 ed. (2d), 890 Ct. D. 235, C. . I -2, 314 ), where
the Commssoner, the oard, and the court successvey hed that the ta payer
coud not do what here the Commssoner and the oard hed was propery
done, reyng on the authorty of the nderson and mercan Natona Co.
cases.
of whch brngs us to the queston as to whether the pettoner, havng
been aowed the deducton for 1924, can now n effect receve t aso for 1923,
through the cacuatons nvoved n the present case. In ths aspect of the
matter the Commssoner contends that when the ta payer sought and was
owed the deducton for 1924 he thereby made an eecton, whch bnds hm
here or, f not, havng receved the aowance so sought for 1924, he s now
estopped to cam t agan for 1923.
ut In the nderson case the ta payer took a deducton n 1917 whch the
Commssoner contended was ony avaabe n 191 . The resut was a def-
cency for 1917 whch was pad under protest and sued for n the Court of
Cams, and that court, havng decded In favor of the ta payer, was reversed
by the Supreme Court wthout dscussng whether the ta payer thereby ost
the deducton for both years, from whch we can ony concude that the Court
dd not concern Itsef wth consequences, as the Chef ustce recenty remarked
n the god cause cases.
In the mercan Natona tgaton the ta payer camed a deducton for
1917, whch the Commssoner hed to be ony partay avaabe for that year,
whereupon the ta payer pad the dfference under protest and sought recovery
In the dstrct court. That court decded aganst the ta payer, and f the
Supreme Court had not decded that the deducton beonged to 1917 the ta -
payer woud have ost the parta deductons camed for the other years
nvoved.
In Mer dor Lumber Co. v. Commssoner (supra) the court sad:
Secton 234(a)2 of the Revenue ct of 1918 (40 Stat., 1077), the appcabe
statute, provdes for the deducton of nterest on the ta payers ndebtedness
wth certan e ceptons, not pertnent. rtce 111 of Treasury Reguatons 45
provdes that each year s return, both as to gross ncome and deductons, sha
be compete n tsef that e penses, abtes, or defct of one year can not be
used to reduce ncome of a subsequent year that a ta payer makng a return
on an accrua bass has the rght to deduct a authorzed aowances, whether
pad In cash or set up as a abty, and that If he does not wthn any year
pay or accrue any of hs e penses, nterest, ta es, or other charges, and makes
no deducton therefor, he can not deduct from the ncome of the ne t or any
subsequent year any amounts then pad In qudaton of the prevous years
abtes. The reguaton has been carred forward under subsequent Revenue
cts, and the Treasury Decson No. 2433, anaogous to t, has been approved
by the Supreme Court n the case of Unted States v. nderson.
Notwthstandng that these cases, f consdered aone, gve strength to the
pettoner s poston here, we are of opnon that the resut reached by the
oard of Ta ppeas s correct. On anuary 20, 1928, the Commssoner
maed a defcency notce to the pettoner, advsng t of a defcency for the
year 1923. Ths defcency had no reaton to the transacton between pet-
toner and the Mantowoc company In reaton to the bond purchase, but was
concerned soey wth profts from the sae by pettoner n 1923 of certan
mproved property. Wthn the statutory perod pettoner apped to the
oard for a redetermnaton of the assessment.
The ssue rased on ths appea was confned entrey to the rea estate
transacton of whch we have spoken. The matter thus remaned unheard by
the oard of Ta ppeas unt une 2 , 1930, more than two years, and after
the mtatons perod had e pred, and then for the frst tme pettoner
amended the grounds of ts petton by addng the cam for nterest deducton
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214(a)8, rt. 1 9.
28
growng out of the bond purchase transacton between Itsef and Mantowoc
company. In other words, t camed the rght to an aowance of ths deduc-
ton aganst the denquent ta asserted for 1923, whe, at the same tme, re-
taned the benefts accrung to t from havng had the same Item aowed n
1924. The effect of ths, f granted, woud be to estabsh an overpayment n
that year suffcent to defeat the assessment of addtona ta es for the same
year growng out of another transacton. Ths, we thnk, can not be done.
o |ustfy reevng the pettoner from a ta admttedy due, It must brng
Itsef wthn the postve terms of the aw. ut here we have a case n whch
pettoner s abty for the payment of addtona ta es for 1923 Is f ed and
determned, yet whch t seeks to evade on the ground that t was entted to
a credt for that year whch It faed to take then, whe actuay takng t In
another year. Ths case s not dssmar to that of Lews v. Reynods (284
U. S., 281 Ct. D. 443, C. . I-, 130 ), where the ta payer deducted sums
on account of attorney s fees and State nhertance ta es. The Commssoner
audted the return aowed the deducton for fees, but dsaowed t for
nhertance ta es and assessed a defcency. The ta payer pad the defcency
and sued to recover. On the tra the Commssoner defended on the ground
that he had mstakeny permtted a deducton n the fee tem, but that other-
wse the ta payer s abty was greater than the tota sums pad. e coud
not reassess the ta because the perod of mtatons had run, but nssted that
a recovery was not permssbe as the ta payer had not n fact overpad hs ta
concernng whch the Supreme Court sad:
n overpayment must appear before refund s authorzed. though the
statute of mtatons may have barred the assessment and coecton of any
addtona sum, t does not obterate the rght of the Unted States to retan
payments aready receved when they do not e ceed the amount whch mght
have been propery assessed and demanded.
The pettoner n ths case n effect s askng a refund. Its cam s that t
overpad ts ta abty n 1923, and s now askng that Its payment for that
year be credted wth such overpayment, to the end that t may be set off
aganst a cam for addtona ta es subsequenty ascertaned to be due. e-
fore t can take ths poston, t must surrender the benefts whch came to
It by Its own mstake. To retan them for 1924 and at the same tme appy
them to 1923 woud be to e at artfce above reaty. (Gregory v. everng
(S. C), anuary 7, 1935 Ct D. 911, C. . I -1, 193 everng v. Genera
Uttes Co. (C. C. . 4, anuary 8, 1935).)
The decson of the oard of Ta ppeas s affrmed.
S CTION 214(a)4, 5, . D DUCTIONS LLOW D
INDI IDU LS: LOSS S.
rtce 14 : Losses from the sae and repurchase of securtes.
R NU CT OP 192 .
Transacton through controed corporaton. (See Ct. D. 1037,
page 233.)
S CTION 214(a)8. D DUCTIONS LLOW D
INDI IDU LS: D PR CI TION.
rtce 1 9: Chargng off deprecaton. I -45-7785
Ct. D. 1030
INCOM T R NU CT OP 1021 D CISION O COURT.
1. Deducton Deprecaton stoppe Statute of Lmtaton.
Where the ta payers n 1924 sod ther Interest n an o and
gas ease acqured n 1923, makng no cam for deprecaton of the
ease equpment n ther 1923 returns but camng deducton of
the fu orgna cost of the equpment In 1924 returns, whch
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214(a)8, rt. 1 9
deducton was aowed and the ta abty for that year fnay
setted by cosng agreement, they are estopped to make the ncon-
sstent cam that part of the cost of the equpment shoud have
been recovered by a deprecaton deducton n 1923 and the ba-
ance of such cost deducted n 1924 the statute of mtaton on
the 1924 ta havng run when the atter cam was made.
2. Deducton Deprecaton vdence urden of Proof.
Where ta payers camed deducton for deprecaton of ease
equpment and other deprecabe assets upon the unt bass, as
aowed by artce 1 9, Reguatons 2, but made no showng as
to the dates when such equpment and assets were Instaed or
the perods durng whch they were n use, the burden of provng
ther rght to the camed deducton, and the amount thereof,
was not sustaned, snce such evdence was essenta to the deter-
mnaton of the deprecaton, f any, sustaned n the ta abe year.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (28 . T. ., 11) afrmed.
Unted States Crcut Court of ppeas for the fth Crcut.
R. L. Wheeock et a., pettoners, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of Unted States oard of Ta ppeas (dstrct of Te as).
efore ryan, Sbey, and Waker, Crcut udges.
May 9, 1935.
OPINION.
Waker, Crcut udge: y petton for revew the pettoners, husband
and wfe, compan of the dsaowance of a camed deducton from ther
Income n the year 1923 of an amount representng deprecaton on equpment
and appances used by them n that year n ther busness of producng o.
summary of the matera facts, as stpuated and found by the oard
of Ta ppeas, foows: t a tmes matera to the separate pettons for
redetermnaton of Income ta defcences, fed by the pettoners wth the
oard of Ta ppeas, pettoners were husband and wfe, resdng together
and domced n the State of Te as. (Under the aw of Te as the property
and ncome nvoved n the cases beonged to the communty comprsed of
pettoners.) In ugust, 1923, R. D. Wheeock acqured a seven-s teenths
workng nterest n and to an o and gas ease on a descrbed tract of and,
contanng 38 acres, n Navarro County, Te ., pursuant to an agreement whch
provded for tte to the property beng n . L. Smth O Co., Inc., and
that that company was to have fu charge of the operatons of the ease,
and n case of any producton, ppe ne checks to come to that company, and
a bs to be pad by that company, R. L. Wheeock to be charged wth
one-haf of the o runs, and any dfference to be setted prompty. ctng
under that agreement the . L. Smth O Co. proceeded to prospect for o
on sad 38-acre ease, herenafter referred to as the Wheeock-Smth ease.
On October 21, 1923, the . L. Smth O Co. brought n ts frst we on the
Wheeock-Smth ease. Thereafter and before December 31, 1923, the property
was fuy deveoped by the drng thereon of eght addtona wes, a of
whch were competed pror to December 31, 1923. etween October 12, 1923,
and December 31, 1923, the . L. Smth O Co. nstaed n the Wheeock-
Smth ease we equpment, ease equpment, and other deprecabe assets
havng an aggregate cost of 1 7,244.22, whch equpment was used n the
producton of o In 1923. The fu amount of deveopment, operaton, and
equpment costs were captazed on the books of the . L. Smth O Co.,
and, under date of December 31, 1923, the foowng charge was made to the
runnng account of R. L. Wheeock on the books of the . L. Smth O Co.:
Dec. 31, 1923. a qupment Wheeock ease to Dec. 31, 1923, 83, 22.11.
Durng the caendar year 1923 there were produced and sod from pettoners
nterest n the Wheeock-Smth ease, 237,7 .57 barres of o, for whch
pettoners receved through the . L. Smth O Co. wthn the ta abe year
the net sum of 210,940.14. In the computaton of the defcency whch pet-
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214(a)8, rt. 1 9.
288
toners sought to have redetermned, the Commssoner determned that t
was apparent at October 12, 1923, or wthn 30 days thereof, that pettoners
seven-s teenths of the o reserves underyng the Wheeock-Smth ease
totaed 552,037.71 barres, that pettoners capta sum wth respect thereto
recoverabe through depeton was 308,028.28 that there were produced and
sod from pettoners seven-s teenths Interest n the ease wthn the ta abe
year 1923, 219,905.50 barres of o, and that the depeton sustaned as a
resut of the e tracton and sae of sad o was the sum of 122,702.87, com-
puted at the rate of 55.798 cents per barre.
Pettoners records for the year 1923 were kept on a cash recepts and
dsbursements bass, and pettoners returns for that ta abe year were made
on a ke bass.
On ther books and n ther ncome ta returns for the caendar year 1923,
whch returns were fed on March 15, 1924, pettoners camed no deducton
n any amount as and for deprecaton sustaned on ther nvestment n
ease equpment on the Wheeock-Smth ease, nor has the respondent ever
aowed any deducton therefor. Pettoners entre nterest n and to the
Wheeock-Snth ease, ncudng the equpment thereon, was sod by the
pettoners on or about March 18, 1924, for the fum of 2. 0,000. In fng
ther Income ta returns for the caendar year 1924 pettoners, n computng
ther gan from the sae, deducted from the sae prce of the ease and equp-
ment the fu orgna cost of the ease equpment. Upon audt ths com-
putaton was approved by the respondent. Thereafter pettoners ncome ta
abty for the ta abe year 1924 was fnay setted by an agreement, under
date March 11, 1929, e ecuted under the provsons of secton 0 of the
Revenue ct of 1928.
Pettoners net ncome from the Wheeock-Smth ease for 1923, e cusve
of any aowance for deprecaton of ease equpment, was the sum of 197,-
57 . 0, composed of seng prce of o, 210,940.14, ess operatng e penses
of 13,3 3.54.
On ebruary 29, 1928, notces were maed to both pettoners advsng them
of the defcency n the Income ta es of each of them for the year 1923 n the
amount of 1,74 .35. Pettoners orgna pettons for redetermnaton were
fed wth the oard of Ta ppeas on pr 2 , 1928, each of them fng an
amended petton on May 10, 1932. The camed rght of the pettoners to a
deducton for deprecaton of ease equpment on the Wheeock-Smth ease for
1923 was frst rased n the |ust mentoned amended pettons.
ach of those amended pettons contaned the foowng: (c) Durng the
year In queston, the pettoner owned an undvded one-haf ( ) nterest n
the equpment and appances ocated upon the Wheeock-Smth ease above
referred to, and used In the producton of o, and was entted to deduct wth
respect to sad equpment, an aowance for deprecaton n computng hs
Income for that year, but the respondent made no aowance for deprecaton
whatsoever. Pettoner says that the amount nvested n sad equpment
shoud be deprecated on the unt of producton bass that her tota nvest-
ment n sad equpment at the cose of the year 1923 was 83, 22.11 that the
probabe savage vaue of sad equpment was 10 per cent of the amount
thereof, so that the net amount sub|ect to deprecaton was 75,259.90. Pet-
toners share of the recoverabe reserves of o from sad property, as f ed by
the respondent, Is 552,038 barres. Pettoner s therefore entted to use a
deprecaton unt of 0.13 33 per barre, whch apped to hs share of the o
produced, as above set forth, gves a deprecaton aowance of 32,414.72.
y answer to each of the amended pettons the respondent dened that he
erred n fang to aow deprecaton wth respect to sums Invested n o
equpment and used throughout the ta year In the producton of o and
n the aternatve set up that the pettoner s now estopped to assert that
deductbe deprecaton was sustaned n 1923 on sad equpment.
Pursuant to stpuaton the cases were consodated for hearng before the
oard of Ta ppeas, and for revew by ths court. The oard decded some
of the ssues In favor of pettoners, and hed that the pettoners were estopped
to cam deducton for deprecaton of equpment n 1923, and dsaowed that
cam.
The rght to cam a deducton, n determnng ncome ta , s a statutory
prvege. (New Coona Co. v. evernp, 292 U. S., 435 Ct. D. 841, C. .
III-1, 194 Squer v. Commssoner, 8 ed. (2d), 25 Ct. D. 84 , C. .
III-2, 290 .) The ta payer may wave that prvege or by estoppe ose
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214(a)8, rt. 1 9.
the rght to e ercse It. There was abundant support for the concusons that
the pettoners waved the prvege of deductng from ther gross ncomes In
1923 a sum representng deprecaton of equpment on the Wheeock-Smth
ease, and that they became estopped to cam such a deducton. It we
mght have been Inferred that when the pettoners fed ther ncome ta
returns for 1923 on March 15, 1924, and when those returns were prepared for
them, they gave no thought to the matter of deducton for deprecaton of
ease equpment, as was ndcated by Pettoner . L. Wheeock s testmony,
because at that tme they contempated the sae of ther entre nterest n
the Wheeock-Smth ease, Incudng equpment thereon, for 250,000 whch
sae was consummated on or about March 18, 1924 and reazed that t woud
be to ther advantage, n computng, n ther ncome ta returns for the
year 1924, ther gan from the sae, to deduct from the sae prce of the ease
and equpment the fu orgna cost of the ease equpment. y camng that
deducton n ther ncome ta returns for 1924 the pettoners evdenced ther
eecton to recover n fu the cost of the deprecabe equpment by gettng
that deducton aowed, rather than to recover part of that cost by a deducton
for deprecaton of ease equpment from ther gross ncomes n 1923, eavng
ony the amount of the remander of such cost to be deducted from ther gross
Incomes In 1924. The acts of the pettoners n camng In ther ncome ta
returns for 1924 that they were entted to deduct from the sae prce of the
ease and equpment the fu orgna cost of the ease equpment were ncon-
sstent wth ther retanng the rght to recover part of that cost by means of
deductons from ther gross Incomes n 1923 for deprecaton of the same ease
equpment. It s not reasonaby concevabe that the deductons n pettoners
returns for 1924 of the fu orgna cost of the ease equpment woud have
been approved f the respondent had understood or beeved that the pettoners
retaned the nconsstent rght to deduct from ther gross ncome n 1923
amounts representng deprecaton of the same ease equpment. The conduct
of the pettoners ther acts In takng deductons n ther returns for 1924
whch were Inconsstent wth ther havng or retanng the rght to recover part
of ther Investment n ease equpment by deprecaton deductons from ther
1923 gross ncomes, and ther sence, at the tme of the aowance of the
mentoned deductons from ther 1924 gross ncomes, and throughout the pro-
ceedngs before the respondent wth reference to ther ncome ta abty for
the years 1923 and 1924, as to the matter of deductons for deprecaton of
ease equpment warranted, not ony the nference that the respondent was
nfuenced In aowng the deductons taken n pettoners returns for 1924
by the beef that pettoners had waved ther rght to deduct from ther
gross ncome n 1923 amounts for deprecaton for the same ease equpment,
but aso the Inference that pettoners actuay had waved ther rght to
take the ast mentoned deductons. One possessng a rght, and knowng a
the attendant facts, waves that rght by camng and procurng the enforce-
ment of an nconsstent rght and that such waver occurred may be nferred
from hs acquescence or sence when assertng an nconsstent rght, as we
as from hs e press consent or agreement Marne Iron Works v. Wess, 148
ed., 145, 155.) Nothng contaned n the record Indcates that the acton of
the respondent n aowng the deducton of the fu cost of the ease equp-
ment from pettoners gross ncomes n 1924 was modfed n any respect
pror to or at the tme of the e ecuton of the agreement fnay settng pet-
toners ncome ta abty for 1924. In vew of the fact that the matter of
deducton for deprecaton of ease equpment was never mentoned n any of
the proceedngs before the respondent, t can not reasonaby be supposed that
there was any dmnuton of the deductons of the fu orgna cost of the
ease equpment.
The pettoners, by conduct Indcatng ther eecton to wave the rght to
deductons from ther ncomes n 1923 for deprecaton of ease equpment, and
by camng and procurng the aowance of deductons from ther ncomes n
1924 of the fu orgna cost of the ease equpment, ost the rght to deductons
from ther ncomes n 1923 for deprecaton of ease equpment, because when
that rght was frst asserted the rght to dmnsh the aowed deductons from
ther Incomes In 1924 coverng the tota cost of ease equpment was barred.
(Rose v. Grant, 39 ed. (2d), 340 Commssoner v. Moore, 48 ed. (2d), 52
Ct. D. 407, C. . -2, 233 .) It woud be aganst the prncpes of equty and
good conscence to aow the pettoners deductons from ther ncomes n 1923
for deprecaton of ease equpment, when by ther sence as to the e stence of
such a rght they nduced the respondent to beeve that that rght dd not e st
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214(a)9, rt. 21 .
290
or woud not be e ercsed, and the atter rghtfuy actod on that beef, wth the
resut of osng the rght to reduce the aowed deductons from pettoners
gross ncomes In 1024 of the tota orgna co t of the ease equpment. In the
crcumstances dscosed the pettoners were concusvey estopped from camng
the rght to deductons from ther gross ncomes n 1923 for ease equpment
(Stone v. ank of Commerce, 174 U. S., 412 rk v. amton, 102 U. S., 8.)
avng by ther own conduct brought about respondent s aowance of a cam
nconsstent wth the one now assorted, and a change of respondent s poston
whereby the atter s prevented from correctng the error n such aowance
whch woud resut from approvng the deductons now camed, the pettoners
were precuded from enforcng ther ast asserted cams. (Stems v. Unted
States, 291 U. S., 54, CO, 1 Scan v. Seamen , 9 Wa., 254, 274 Unted State v.
Peck, 102 U. S., 4.) It hardy woud be contended that t s consstent wth
the prncpes of equty and good conscence for a ta payer by hs own conduct
gettng the advantage of beng abe to secure a doube recovery of part of the
cost of property acqured and sod by hm.
sde from the questons of waver and estoppe, t does not appear that the
cams asserted were supported by evdence requred by the appcabe statute
and authorzed reguatons thereunder. (Secton 214(a) 10, Revenue ct of
1921, 42 Stat., 227 artces 1 5, 1 9, Treasury Reguatons 2.) Wth reference
to deprecaton of ease equpment n 1923 the evdence went no further than to
show that between October 12,1923, and December 31, 1928, ease equpment and
other deprecabe assets havng a stated aggregate cost were nstaed on the
Wheeock-Smth ease, and were used In the producton of o n that year that
under date December 31, 1923, pettoner, R. L. Wheeock, was charged on the
books of . L. Smth O Co. wth equpment Wheeock ease to December
81, 1923, 83, 22.11, and to e hbt a wrtten schedue of equpment of
Wheeock-Smth ease at December 31,1923, settng out each Item of equpment
the cost thereof, and the tota cost of a the Items. There was no showng as
to the date when the severa Items were nstaed or as to the perods durng
whch those tems severay were n use. The pettoners were camng depreca-
ton upon the unt bass (see artce 1 9, Treasury Reguatons 2), what they
camed beng the rght to deduct, as the amount of deprecaton sustaned
wthn the ta abe year on a gven Item of equpment, the proportonate part
of the cost that the number of barres of o produced from the property after
the Instaaton of such Item bears to the tota number of barres of recoverabe
o underyng ther nterest at the date the tem was Instaed. The dates upon
whch such deprecabe assets were paced n use are data essenta to the deter-
mnaton of the deprecaton, f any, sustaned n the ta abe year. Wthout
such data the determnaton of the amount of aowabe deductons can not
be made as requred by the reguaton. ta payer camng a deducton ds-
aowed by the Commssoner has the burden of provng, not ony that the Com-
mssoner erred, but aso of estabshng hs rght to the deducton camed and
the amount thereof. (OM Mtson PortanS Cement Co. v. everng, 293 U. S-.
289 rCt. D. 903, C. . I -1, 332 everng v. Tayor, 293 U. 8., 07, 515
ret. D. 912, C. . I -1, 1 8 .) To say the east the pettoners dd not carry
the burden of estabshng by requred evdence the amounts of the deductons
aowabe to them for depredaton In 192
The petton Is dened.
S CTION 214(a)9. D DUCTIONS LLOW D INDI-
IDU LS: D PL TION.
rtce 21 : Depeton d|ustments of accounts I -40-772
based on bonus or advanced royaty. Ct. D. 101
ncome ta revenue act of 1921 decson op court.
1. Deducton Depeton pportonment ass onus and Roy-
ates.
Where the cash bonus and e pected royates from certan o
and gas eases e ceeded the far market vaue of the o rghts at
the date on whch tte to the and vested n the ta payer, that
part of the bonus whch bore the same rato to the base vaue of
the property as the bonus bore to the sum of the bonus and
estmated royates was propery apportoned to depeton, In
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291
214(a)9, rt. 21 .
accordance wth the provsons of secton 214(a) 10 of the Revenue
ct of 1921 and artce 215, Reguatons 2, as amended.
2. Depeton Capta Investment ass vdence.
payment made by the ta payer n settement of a controversy
concernng tte to aotted and nvoved n ths sut and to other
ands not so Invoved can not be added to the capta Investment to
be returned as depeton, where the far market vaue of o rghts
was the base used and not cost, and where no evdence was
presented to show what part of the payment shoud be apportoned
to the settement n respect to the aotted and.
8. Decson ffrmed.
Decson of the oard of Ta ppeas (24 . T. ., 244) affrmed.
Unted States Crcut Court of ppeas, Tenth Crcut.
W. O. nk and W. 8. Sprague, ecutors of the Last W and Testament of
Lucnda Ptman, Deceased, pettoners, v. Commssoner of Interna Revenue,
respondent.
On petton to revew the decson of tbe Unted States oard of Ta ppeas, dstrct of
Okahoma.
efore Pmrr.ps, McDermott, and ratton, Crcut udges.
March 2 , 1935.
OPINION.
ratton, Crcut udge, devered the opnon of the court.
Ths proceedng nvoves the ncome ta abty of Lucnda Ptman, a fu-
bood Creek Indan, for the year 1922. The facts were stated n deta on a
former appea and need not be repeated1 here. ( 4 . (2d), 740.) It was there
hed that the ta payer nherted the entre estate to the aotment of her
deceased son that the homestead was e empt from ta aton that the ncome
derved from nta bonus or royates from the eases coverng the surpus
and was sub|ect to ta , not as capta gan, but as ordnary ncome wth
approprate deductons for proper depeton aowances. Upon remand each
party submtted a recomputaton of the ta due. The oard sustaned the
recomputaton of the Commssoner, hodng that the ta abty was ,977.89.
The cause came here to revew that acton. Lucnda Ptman ded pendng
revew and the e ecutors of her estate were substtuted as partes.
The frst queston to whch our attenton s drected concerns the depeton
aowance made In respect to the bonus receved from eases coverng the
surpus and. The son through whom the aotment was Inherted ded
October 14, 1919 therefore, that Is the date on whch Lucnda Ptman ac-
qured the property. n apprasement fed In the probate court f ed the then
reasonabe vaue of the entre aotment at 159,120.35, and that ncuded the
surpus and at 94,25 .28. The oard found that the far market vaue of
the surpus and at the tme of Its acquston was 94,25 .28 and n makng the
recomputaton the Commssoner used that fgure as the capta Investment.
Pettoners compan they say It s too ow and urge that n reachng t the
appraser made certan deductons for antcpated factors whch dd not
mature, namey, nterrupton of operatfon at the e praton of the od enses
and cost of rehabtaton. Lucnda Ptman offered the apprasement n evdence
for the decared purpose of showng the status of the property and Its vaue
at the tme of acquston. Snce she tendered the evdence for that pur-
pose, pettoners are bound by t and can not now queston ts correctness.
The Commssoner then determned that the e pected royates were 21,977.55
and that acton Is not chaenged. The cash bonus was 111,000. The two
aggregate 132,977.55 and the bonus represents 83.4727 per cent of that tota.
The Commssoner apped that per cent to the bonus for depeton, resutng In
78,078.2 . It s that process of apportonment whch Is drawn n queston,
pettoners assertng that the entre bonus represents returned capta and
shoud be so treated.
Secton 214(a) 10, Revenue ct of 1921 (42 Stat., 239), provdes that n
computng net ncome there sha be aowed as a deducton
In the case of mnes, o and gas wes, other natura deposts, and tmber,
a reasonabe aowance for depeton and for deprecaton of Improvements,
accordng to the pecuar condtons In each case, based upon cost Incudng
cost of deveopment not otherwse deducted In the case of eases
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5217, rt. 318.
292
the deductons sha be equtaby apportoned between the essor and
essee
rtce 215, Treasury Reguatons 2, as amended (T. D. 3038 C. . -2,117 ),
reads:
Where a essor receves a bonus n addton to royates, there sha be
aowed us a depeton deducton n respect of the bonus an amount equa to
that proporton of the cost or vaue of the property on the basc date whch
the amount of the bonus bears to the sum of the bonus and the royates
e pected to be receved. Such aowance sha be deducted from the amount
remanng to be recovered by the essor through depeton, and the remander
s recoverabe through depeton deductons on the bass of royates thereafter
receved.
The cash bonus and e pected royates e ceed the far market vaue of the
o rghts at the date on whch tte vested n the ta payer. We thnk the
Commssoner was correct n apportonng to depeton that part of the bonus
whch bears the same rato to the base vaue of the property as the bonus
bears to the sum of the bonus and estmated royates, thus dstrbutng the
proft rataby between bonus and royates. That Is the method f ed by the
reguaton and t was e pressy approved n Murphy O Co. v. urnet (287
U. S., 299 Ct. D. 19, O. . II-1, 231 ). ut pettoners argue that the
method there sustaned no onger obtans that t was modfed n Pamer v.
ender (287 U. S., 551 Ct. D. 41, C. . II-1, 235 ), decded about a month
ater that t was hed n that ease that cash bonus for an o ease s a return
pro tanto of the capta Investment n the o n advance of ts e tracton and
effects a correspondng reducton n the unt depeton aowance upon the
royaty o as t s produced. The court deat there wth the quaty of nterest
whch w support depeton and hed that the statute authorzng the de-
ductons appes to any ta payer who has acqured by Investment an nterest
n the o n pace and obtans ncome from the e tracton of o from whch
hs capta nvestment must be returned regardess of descrptve termnoogy
of that nterest found n the oca aw of the State. That was the domnant
queston presented and decded, and the opnon fas to ndcate an ntenton
to modfy the earer case. Instead, the court cted It wth apparent approva
and ke reference was made to t n errng v. Commssoner (293 U. S., 322).
Manfesty the Murphy case, e pressy sustanng the method of apportonment
apped here, has not been modfed and governs.
The remanng grevance s the refusa to ncude In the capta nvestment
to be returned as depeton a part of the 30,000 pad to Robert L. Ptman, Sr.
No part of that e pendture coud be ncuded for two separate reasons. rst,
the far market vaue of the o rghts was the base used, not cost. When
market vaue s the base fgure, an e pendture made n settement of a con-
troversy concernng the tte can not be added. To pyramd one on the other
woud resut n a dupcaton of vaues. Ne t, even f cost were used as the
capta nvestment, the dspute between Lucnda Ptman and Robert Ptman,
Sr., was not confned to the and consttutng the aotment. It ncuded other
property beongng to ther deceased son. The payment of 30,000 was made n
ad|ustment of the entre dsagreement. The oard dd not fnd what part of
the sum shoud be apportoned to the settement n respect to the aotted and.
Nether the ta payer nor the Commssoner sought to suppy evdence upon
whch to make such an apportonment. In the absence of such evdence, no
part of the amount coud be ncuded n the capta nvestment and thus n-
crease the aowance for depeton. ( ackv e O d Oag Co. v. Commssoner,
0 . (2d), 257.)
or the reasons Indcated, the order of the oard Is affrmed.
S CTION 217. N T INCOM O NONR SID NT
LI N INDI IDU LS.
rtce 318: Interest. I -2 -7570
Ct D. 985
INCOM T R NU CTS O 1924 ND 192 D CISION O COURT.
1. Income Nonresdent en Interest on Tht|st unds.
Interest on trust funds deposted wth commerca houses n the
Unted States, pad to the resdent trustees of a nonresdent aen,
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293
217, rt. 318.
does not come wthn the e cepton provded by secton 217(a) 1( )
of the Revenue cts of 1924 and 192C, where the trustees had
entre contro of the trust funds, ther management and utmate
destnaton.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 895) affrmed.
Unted States Court of ppeas for the Dstrct of Coumba.
nna ondermuh, pettoner, v. Guy T. everng, Commssoner of Interna
Revenue, respondent.
On petton for revew of decson of the Unted States oard of Ta ppeas.
efore Martn. Chef ustce, and Robs, an Ohsde, rrz, and Gboneb,
ssocate ustces.
anuary 14, 1935.
OPINION.
rrz, ssocate ustce: Ths appea presents for revew a decson of the
oard of Ta ppeas sustanng the Commssoner of Interna Revenue In a
determnaton of a defcency n the pettoner s ndvdua ncome ta for
the year 192 .
The pettoner Is a ctzen of Swtzerand, vng n ase, and the wdow
of fred ondermuh, a member of te frm of Wam Isen Co., who
ded n 1920, eavng her 0 per cent of hs arge estate stuated In the Unted
States.
She conveyed that nterest to her two sons, both ctzens of the Unted States
and resdent theren. The sons, In turn, conveyed the property to themseves
as trustees upon certan trusts, ther deeds rectng that the conveyance to
tbem by ther mother was made upon the condton and understandng
that there sha be pad to the sad nna ondermuh- ofTnan durng her fe
the net Income derved from sad moneys and that a of sad moneys be on
depost wth sad Wam Isen Co. of New York at per cent per annum
nterest, wth power, however, to make changes n the nvestment of sad
moneys. In addton to powers of depost, sae, resae, and nvestment,
the trustees, or the survvor, had power of fng a vacancy n the offce
of trustee, whe upon the death of Mme. ondermuh- offman the property
Is to pass to her sons f vng, or to ther appontees by w, or to the persons
entted thereto under the aws of New York n the absence of a w.
Under ths arrangement, by 192 the trust fund In varyng portons had
been deposted wth or oaned to Wam Isen Co. . Isen Co. and
rthur . Rosentha Co., of New York.
These houses are descrbed as factors, brokers, and nvestment bankers,
engaged n many commerca and fnanca actvtes, a beng copartnershps
and a partners theren beng ctzens and resdents of the Unted States.
These houses pad to the trustees durng the years 1924, 1925, and 1928
Income amountng respectvey to 27,000, 27,000, and 37,000, n round fgures,
upon whch the defcences n queston were determned.
No part of these recepts was ncuded n the ncome ta returns of ether
the trustees or the benefcary, on the theory that they consst of Interest pad
by mercan bankers to an aen depostor nether resdng nor dong busness
wthn the Unted States, and therefore e empt from ta under a provson of
the Revenue ct of 192 whch governs the queston.
Subdvson (a)( ) of secton 217 of that ct e cepts from the gross ncome
of a nonresdent aen Interest on deposts wth persons carryng on the
bankng busness pad to persons not engaged n busness wthn the Unted
States and not havng an offce or pace of busness theren.
If t shoud be conceded that these commerca houses were carryng on
the bankng busness n the sense of ths statute, whch s open to much doubt,
st the pettoner does not brng hersef wthn the e cepton she asserts.
or ths Is an actve trust created by the pettoner of her own moton for
her own convenence, wheren she has no contro of the trust funds, ther
management, or ther utmate destnaton, and no contro of the trustees, or
of any vacancy arsng among them.
Such a trustee Is not the mere agent of a fe tenant entted to net Income.
(Tayor v. Davs, 110 U. S., 334.)
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223, rt. 401.
294
These trustees, and not the pettoner, were pad the Interest by the bankers,
f they are bankers.
nd whe the purpose of the statutory e cepton may have been to nduce
aen owners to put deposts n mercan banks, the ct makes no e cepton
n favor of mercan ctzens resdent n the Unted States, even though the
funds nvoved may utmatey pass through ther hands to a nonresdent aen.
nd one camng the beneft of a statutory e cepton must brng hmsef
e pcty wthn t, whe a statute grantng a speca prvege s aways to
be taken most strongy In favor of the pubc. ( ank v. ngs, 4 ret., 5 1
The nghamton rdge, 3 Wa., 75 R. . Co. v. Supervsors, 03 U. S., 595
Corne v. Coyne, 192 U. S., 431 ubbard-Ragsdae Co. v. Dean, 15 . (2d),
410 T. D. 3904, C. . -2, 134 .)
nd n consderng the same secton of the same statute, In another con-
necton, the Supreme Court recenty sad that the genera ob|ect of ths ct
s to put money nto the edera Treasury and there Is manfest n the reach
of ts many provsons an Intenton on the part of Congress to brng about
a generous attanment of that ob|ect by mposng a ta upon pretty much
every sort of ncome sub|ect to the edera power. ( everng v. Stockhoms
nskda ank, No. 10, October term, 1934 decded November 5, 1934 Ct. D.
887, C. . III-2, 299 .)
The decson of the oard of Ta ppeas s affrmed.
S CTION 219. ST T S ND TRUSTS.
rtce 341: states and trusts.
R NU CT O 192 .
Income currenty dstrbutabe for a perod runnng from one ta -
abe year nto the succeedng year, payabe ony to benefcares
vng at the end of the perod. (See G. C. M. 15401, page 242.)
rtce 347: Income of trusts ta abe to grantor.
R NU CT O 192 .
Trust revocabe on December 31 on 0 days wrtten notce. (See
Ct. D. 1027, page 247.)
rtce 347: Income of trusts ta abe to grantor.
R NU CT O 192 .
Trust created by grantor to provde ncome to dvorced wfe n
eu of amony and other nterest n hs property. (See Ct. D. 1041,
page 250.)
S CTION 223. INDI IDU L R TURNS.
rtce 401: Indvdua returns. I -2 -7571
CtD. 984
INCOM T R NU CT O 1924 D CISION O COURT.
L Income ont Return Death of Spouse Dubno Ta abe
Yeae.
The survvng spouse of a decedent who ded on anuary 10,
1924, may not fe a ont return for 1924 under secton 21 , 223,
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295
223, rt. 401.
or 225 of the Revenue ct of 1924 and cam deducton for osses
sustaned by the decedent durng the perod from anuary 1 to
anuary 10, 1924, snce her status at the end of the ta abe year
was that of a snge woman, hayng then no ta abe nterest n or
duty wth respect to the decedent s ncome, whether reazed
before or after hs death.
2. Decson ffbmed.
Decson of the oard of Ta ppeas (29 . T. ., 1037) affrmed.
Unted States Crcut Coubt or ppeas fob the Thbd Cbcut.
atharne . ss, pettoner, v. Commssoner of Interna Revenue,
respondent.
On petton for revew from the Unted States oard of Ta ppeas.
efore uffnoton, Wooey, and Thompson, Crcut udges.
ebruary 20, 1935.
opnon.
Wooet, Crcut udge: Durng the perod anuary 1, 1924, to anuary
10, 1924, Water W. ss sustaned substanta osses over ncome, e cusve
of a oss by an aeged bad debt of 30,000. Upon the atter date, he ded.
On the ground that she had been vng wth Water W. ss, her husband,
n the ta abe year 1924, atharne . ss fed an ncome ta return for
that year, made by her aone yet purportng to be a |ont ncome ta return,
camng deductons for osses sustaned by her husband, avaabe to her
ony n a ont return.
The e ecutor of the decedent fed a separate return for hs estate for the
perod anuary 11, 1924, to September 30, 1924, showng osses n e cess of
gans.
The Commssoner, hodng that the wfe was not entted to fe a |ont
return of her own ncome and that of her deceased husband and thereby poo
osses aganst gans, determned ther ta abe ncome separatey and assessed
aganst the pettoner the defcency ta n queston. rom an order of the
Unted States oard of Ta ppeas sustanng the Commssoner, the matter
comes here for revew on the wfe s petton, rasng, ostensby, two questons:
(1) Whether a survvng spouse, havng ved wth the deceased spouse unt
the death of the atter some tme before the end of the ta abe year, may
fe a |ont return of the ncome of both for the ta abe year.
(2) If the survvng spouse n ths case coud do so, whether the vadty
of a certan deducton as a bad debt aegedy sustaned by the husband n
the ta abe year, whch the Commssoner dsaowed n determnng separatey
the ncome and oss of the husband and wfe, shoud, on remand, be consdered
and decded by the oard of Ta ppeas and the defcency ncome ta com-
paned of be redetermned.
The atter queston arses ony on a fndng, adverse to the acton of the
Commssoner and the rung of the oard, that the pettonng wfe had a
rght to fe a |ont return n the crcumstances.
If she had such a rght, sancton therefor must be found n the appcabe
statute, sectons 210, 223, and 225 of the Revenue ct of 1924 (ch. 234, 43 Stnt.,
253). Secton 223, whch defnes ndvduas who sha make ta returns,
provdes (b) If a husband and wfe vng together, havng a named aggre-
gate net ncome for the ta abe year (1) ach sha make such a (sepa-
rate) return, or (2) The ncome of each sha be ncuded n a snge |ont
return, n whch case the ta sha be computed on the aggregate ncome.
It w be observed that the secton of the statute whch makes provson for
|ont returns (secton 223(b)) s sent as to what may happen when the husband,
as n ths case, des before the end of the ta abe year. It w be observed
aso that the statute does not n words or by mpcaton mpose upon the
survvng wfe the duty to make return of her husband s ta abe ncome or gve
her the rght to make a |ont return. She mantans, however, that there s
no provson n the ct whch woud precude her makng such a return, and
further, asde from ths negatve poston, there s affrmatve authorty for
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8227, rt, 44 .
29
her contenton found In anker Trust Co. v. owers (295 ed., 89 (C. C. .
2) T. D. 3547, C. . I -1, 237 ).
That case, very dstncty, does not decde the queston In ths case. There
the e ecutors of a decedent fed two ta returns: one for the ncome receved
by the decedent the other for Income receved by themseves as e ecutors
durng the caendar year 1921. The queston was essentay one of proper
computaton of ta abe ncome and the ta thereon. In dscussng that ques-
ton, the court used words, apposte to the facts and aw of that case, whch
the pettoner has approprated and apped to her case. They are to the effect
that when a ta payer des durng a ta abe year, the e ecutor Is requred to
fe a return of a ncome the decedent had receved In the ta abe year, and
aso a separate return of ncome receved by the estate n the same ta abe
year, that the returns are not for a perod ess than one year, but are for
the fu caendar year, and that each s entted to the credts aowabe to
separate ta abe enttes for the fu ta abe year.
In comng to ths decson, the court, speakng of the accountng perod pre-
scrbed by the ct there n queston, sad :
The fundamenta scheme of Tte II of the Revenue ct s for a ta upon
the net ncome of the ta payer durng an accountng perod of 12 successve
months. Ths genera accountng perod seems to be a predetermned measure
to be apped to a ta payer as ncome and s not affected by hs death or change
of status wthn the perod. The ta s mposed upon the entre net ncome
for such perod, and the return of such ncome consttutes hs return for the
perod of 12 fu months, even though he may have ved ony a porton thereof.
These words consttute the pettoner s camed authorty for a ont return.
When apped to the matter there n hand, namey, the statutory f aton of
an accountng perod of 12 months, whenever death of the ta payer wthn that
perod shoud occur, the e acton of a ta on a ta abe ncome receved durng
that perod and aowance of credts n the returns of the decedent s ncome and
of the estate s Income as separate enttes for a fu ta abe year, the e pressons
are une ceptonabe yet are not appcabe to the Issue here under revew. Thus
the pettoner Is eft to the statute aone for a rght to fe a ont return. We
fn nothng n the statute that gves her such a rght. On the contrary, t s
cear from secton 225 that the duty of fng a return of ncome of a deceased
spouse, n ths case the husband, devoves upon hs persona representatve,
eavng the nescapabe nference that no such duty devoves upon the survvng
spouse and no such rght s accorded her. To ths concepton of Revenue cts
the Department has ong conformed, frst by consstent practce and ater by
forma reguatons, whch, not beng n confct wth the cts but beng wthn
ther sense, we regard as a vad admnstratve nterpretaton.
Tbe pettoner became a wdow on anuary 10, 1924. er status on December
31, 1924, the end of the ta abe year, was that of a snge woman. avng
then no ta abe Interest n or duty wth respect to her deceased husband s n-
come, whether reazed before or after hs death, she s precuded from fng a
ont return of hs ncome and hers, and from avang hersef of hs osses to
reduce her own ta abe gans.
The order of the oard of Ta ppeas determnng a defcency ta on the
frst queston Invoved Is affrmed.
S CTION 227. TIM ND PL C OR ILING
INDI IDU L, P RTN RS IP, ND
IDUCI RY R TURNS.
rtce 44 : Procedure n case of denquency n fng
return.
R NU CTS OP 1018, 1921, 1024, ND 192 .
Labty of transferee for denquency penates (1) where dece-
dent faed to fe return, (2) where no return fed for estate. (See
G. C. M. 1573 , page 325.)
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297 ( 233, rt. 545.
P RT III. CORPOR TIONS.
S CTION 231. CONDITION L ND OT R
MPTIONS O CORPOR TIONS.
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CT O 1828 ND PRIOR R NU CTS.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
rtce 517: Regous, chartabe, scentfc, I -48-7831
terary, and educatona organzatons and I. T. 2941
communty chests.
R NU CT O 1021.
. R. R. 21 (C. . II-, 155) s modfed n so far as t s ncon-
sstent wth G. C. M. 15778 (see page 118).
rtce 517: Regous, chartabe, scentfc, terary, and
educatona organzatons and communty chests.
R NU CTS O 1921, 1924, ND 192 .
Ordnary trust. S. M. 2 20 (C. . III-2, 221) modfed. (See
G. C. M. 15778, page 118.)
rtce 520: Soca cubs.
R NU CT O 192 ND PRIOR R NU CTS.
Socety organzed to gve concerts and hod soca functons. (See
I. T. 2937, page 123.)
rtce 522: armers or other mutua ha, cycone, casuaty,
or fre nsurance companes or assocatons.
R NU CT O 192 ND PRIOR R NU CTS.
utomobe nsurance company. (See G. C. M. 1574 , page 124.)
S CTION 233. GROSS INCOM O CORPOR TIONS
D IN D.
rtce 545: Sae and retrement of corporate bonds.
R NU CT O 1920 ND PRIOR R NU CTS.
Unamortzed dscount on bonds retred, premums pad upon retre-
ment, and ssuance e penses connected therewth. (See T. D. 4 03,
page 507.)
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234, rt. 5 1.
298
S CTION 234. D DUCTIONS LLOW D CORPOR TIONS.
ncome ta revenue act op 192 decson ok codbt.
1. Deducton Interest on Indebtedness Reducton n Sub-
scrpton Prce of Stock.
Where the ta payer corporaton, on the accrua bass, offered to
Its stockhoders the rght to subscrbe to addtona stock at a
reducton from the subscrpton prce f pad to the company n
advance of the ssuance of the stock, the amount of the reducton n
prce s not deductbe from gross ncome as nterest pad or ac-
crued ou ndebtedness, under the provsons of secton 234(a)2 of
the Revenue ct of 192 , even though so treated on the company s
books. Deductons are ony aowed as provded by statute, and
n securng them a ta payer must brng hmsef ceary wthn the
terms of the statute.
2. Deductons Ordnary and Necessary pense Loss.
Underwrtng commssons or fees pad to bankers, and e -
penses for prntng, etc., ncurred and pad In connecton wth
the sae of an ssue of stock, are not deductbe as ordnary and
necessary e penses n carryng on busness or as a oss sustaned,
under the provsons of secton 234(a) (1) and (4) of the Revenue
ct of 192 .
3. Income: empton Condemnaton ward and Interest.
Where property was taken by the cty of New York n 1919 for
pubc use, but because of tgaton the udgment was not pad
unt 192T, the dfference between the March 1, 1913, vaue of the
property and the amount receved n 1927 was propery ncuded
as ncome for that year. The amount of the award, and nterest
thereon, consttutes ncome wthn the meanng of the s teenth
amendment and Is not e empt from ta aton under the Revenue
ct of 192 .
4. oard of Ta ppeas Determnaton of March 1, 1913,
aue Dena of Moton fob New Tra.
The oard of Ta ppeas dd not err n makng an ndepend-
ent fndng as to the March 1, 1913, vaue of property, where there
was ampe evdence to sustan ts concuson, nor was there error
n denyng a moton for new tra on the ground of newy ds-
covered evdence, where such evdence was purey cumuatve. The
grantng or denyng of a moton for new tra es wthn the sound
dscreton of the tra court, and the same rue appes to dena
of a rehearng by the oard.
5. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 3 8) affrmed.
Unted States Crcut Court of ppeas, ourth Crcut.
The atmore f Oho Raroad Co. and ffated Companes, pettoner, v.
Commssoner of Interna Revenue, respondent.
On petton to revew the decson of the Unted States oard of Ta ppeas.
Northcott, Crcut udge: Ths Is a petton to revew a decson of the
Unted States oard of Ta ppeas nvovng ncome ta s of the pettoner
for the year 1927 n the amount of 502,498.5 . The decson of the oard s
reported n 29 . T. ., 308, and the petton to revew was fed May 8, 1934.
pursuant to the provsons of sectons 1001 and 1003 of the Revenue ct of
rtce 5 1: owabe deductons.
( so Secton 213(b), rtce 74.)
I -47-7822
Ct. D. 1035
efore Parkeb, Northcott, and Soper, Crcut udges.
une 18, 1935.
opnon.
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299
234, rt. 5f.
1928 (ch. 27, 44 Stat., 9), as amended by secton 1001 of the Revenue ct of
1932 (ch. 209, 47 Stat, 1 9).
There s no dspute as to the facts and three man questons are nvoved
n ths appea:
1. Is the amount of the reducton n the subscrpton prce of an ssue of
pettoner s capta stock deductbe from gross ncome as nterest pad on an
ndebtedness of the pettoner sad to have been ncurred by t to the sub-
scrbers to ts stock as a resut of the fact that n accordance wth the sub-
scrpton offer they pad for the stock n advance of ts ssue
2. re underwrtng commssons or e pendtures to bankers for the nsur-
ance of an ssue of capta stock and other e pendtures made by pettoner n
connecton wth the ssuance of ts capta stock deductbe from Its gross
ncome, ether as osses or busness e penses
8. Whether a part of the compensaton receved from the cty of New York
for property condemned for pubc purposes s ta abe as ncome n the year
In whch t s receved, and whether there was any error n the procedure before
the oard n the hearng on the queston of f ng the vaue of the property
as of March 1, 1913
The pettoner s a Maryand corporaton engaged n the busness of operat-
ng a raroad and transportaton system, ether drecty or through whoy
owned subsdares. It has kept ts books on the accrua system of account-
ng n accordance wth the system of accountng prescrbed by the Interstate
Commerce Commsson. It fed a consodated return for the purposes of
ta aton for the year 1927.
s to the frst pont nvoved, the facts are as foows:
On une 9, 1927, pettoner s board of drectors resoved to Issue and se
32,425 shares of ts authorzed but unssued common stock of a par vaue of
100 a share, and to offer to ts common and preferred sharehoders the rght
to subscrbe therefor to the e tent of a certan percentage of ther hodngs at
the prce of 107. 0 a share, payabe as Indcated n a notce to sharehoders.
The sharehoders were advsed of ther subscrpton rghts and were gven the
opton n e ercsng them ether to pay: 10 .83 on or before uy 21, 1927
(whch s the fu subscrpton prce ess a deducton of nterest on the par
vaue at the rate of per cent per annum from uy 21, 1927, to September 1,
1927), when certfcates were to be devered, and the subscrbers coud par-
tcpate n dvdends, or to pay 32.25 on or before uy 21, 1927, and 74. 0 on
December 1, 1927 (whch s the baance of the fu subscrpton prce ess a
deducton of nterest on 30 per cent of the par vaue at the rate of per cent
per annum from uy 21, 1927, to December 1, 1927).
Pettoner s sharehoders purchased 14,925 shares of the Issue. Pettoner
camed the amount credted by t to ts stockhoders, as a resut of havng
receved the subscrpton n advance of the ssuance of stock, as a deducton
from ts gross ncome under secton 234(a)2 of the 192 Revenue ct. The
Commssoner of Interna Revenue dened ths deducton and the oard ap-
proved hs acton, hodng that ths amount was not nterest, even though t
was so treated on the books of the pettoner, and hodng that the money
pettoner receved was not oaned or borrowed, but represented the purchase
prce of stock sod by It to be devered In the future. The oard further hed
that the prce of 107.50 per share was ony nomnay f ed at that amount,
reasonng that the subscrbers coud not have recovered the amount pad as a
debt, but ony f there had been a breach of pettoner s contract that the
offer was a mere formua, whch does not suffce to create ndebtedness that
does not In fact e st, or to transform a dscount In prce nto nterest on n-
debtedness. It s camed on behaf of pettoner that the subscrbers to the
ssue of stock were not stockhoders unt the stock was actuay Issued and
that there was a perod of severa months durng whch the pettoner was n
possesson of and had the rght to use the money thus advanced, upon whch
money t made certan payments whch shoud have been consdered as nterest
on the money thus advanced. Secton 234(a)2, Revenue ct of 192 , provdes
for deducton from gross ncome of a Interest pad or accrued wthn the
ta abe year on ts ndebtedness, and the queston presented s whether, as
a resut of the payment to It of the subscrptons n advance of the ssuance
of the stock as requred by the offer, the pettoner ncurred an ndebtedness
to the subscrbers, and the stated reducton n the prce of stock, pad for n
advance, represents the payment of nterest upon such ndebtedness wthn
the meanng of the statute.
It s we setted that deductons are ony aowed as provded by statute
and that n securng them the ta payer must brng hmsef ceary wthn the
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234, rt. 5 1.
300
terms of the statute. (New Coona Co. v. everng, 292 . S., 435 Ct. D.
841, C. . III-1, 194 urnet v. Thompson O d Gas Co., 283 U. S., 301
Ct. D. 331, C. . -, 390 Wooford Reaty Co. v. Rose, 28 U. S., 319, 32
Ct. D. 493, C. . I-1, 154 Ifed Co. v. ernandez, 292 U. S., 2, Ct D.
819, C. . III-1, 139 .)
We are of the opnon that the pettoner has not brought tsef wthn the
terms of any statute aowng the deducton here camed. The f ng of the
prce at whch the stock coud be bought and the determnng of a certan
percentage of that prce as nterest was a bookkeepng transacton of the
pettoner and there s no substance n the transacton. No recovery of the
amount so pad coud have been had uness the pettoner had breached ts
contract for the devery of the stock, and t was not an actua Indebtedness
ncurred to the subscrbers. mere formuu w not suffce for the purpose
of securng the deducton. (Od Coony R. Co. v. Commnsoner, 284 U. S., 552
Ct D. 45 , C. . I-1, 274 , and enretta Ms v. Commssoner, 52 . (2d),
931.)
The pettoner dd not receve the sum as a oan and t dd not actuay pay
out nterest thereon, or on the par vaue of the stock. We agree wth the dec-
son of the oard of Ta ppeas when It says:
The statute requres that there shoud be an Indebtedness, that there shoud
be Interest upon t and that t shoud be pad or accrued wthn the ta abe
year.
The actons of the Commssoner n dsaowng the deducton and of the
oard n approvng the acton of the Commssoner were correct.
We now come to the consderaton of the second pont nvoved. In connec-
ton wth the sae of the stock ssue mentoned above, the pettoner n the
ta abe year pad underwrtng commssons or fees aggregatng 1,422,95 .25
to two New York bankng houses and ncurred and pad e penses for prntng,
etc., amountng to 17,053.80, and camed these amounts as deductons as
ordnary and necessary e penses of ts busness for the ta abe year. In ts
petton for revew by ths court, t Is camed on behaf of pettoner that the
deducton shoud have been aowed ether as a busness e pense under secton
234(a)1 of the Revenue ct of 192 , or as a oss under secton 234(a)4 of
sad ct.
The pertnent sectons of the Revenue ct of 192 (ch. 27, 44 Stat, 9) are
as foows:
Sec. 234. (a) In computng the net ncome of a corporaton sub|ect to the
ta mposed by secton 230 there sha be aowed as deductons:
(1) the ordnary and necessary e penses pad or ncurred durng the
ta abe year In carryng on any trade or busness, .
(4) Losses sustaned durng the ta abe year and not compensated for by
Insurance or otherwse. (U. S. C. pp., Tte 2 , secton 98 ).
That these e pendtures were not ordnary and necessary e penses Is we
setted and we know of no authorty to the contrary. Smmons Co. v. Com-
mssoner, 33 . (2d), 75 Ct D. 9 , C. . III-2, 317 , certorar dened, 280
U. S., 577, and Cornng Gass Works v. Lucas, 37 . (2d), 798, certorar
dened, 281 U. S., 742.)
We thnk that the prncpes ad down n these cases, of whch we approve,
aso sette concusvey the fact that these e pendtures were not osses. s
was sad n the Smmons Co. case:
Commssons pad for marketng stock smpy dmnsh the net return from
the stock ssue. nancay, they are equvaent to an ssue of stock at a ds-
count from par the par vaue must be carred as a abty wthout an off-
settng equa amount of cash or property.
The Supreme Court sad n the case of everng v. Unon Pacfc Ry. Co.
(293 U. S., 282) :
There s no occason for deducton of commssons from gross ncome at a
ater tme uness the tota amount reazed by the sae of the bonds s ess
than ther par vaue. In that case the dfference aone s the amount to be
amortzed and deducted from gross ncome In the annua returns of the ta -
payer.
In fact the pettoner receved a net premum of 5 per cent on the stock
ssued, and there was no oss when the par vaue s taken as a yardstck by
whch to measure. It Is camed on behaf of the pettoner that the deducton
shoud be aowed because the statutes do not deny capta e pendtures as a
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301
234, rt. 5 1.
deducton, but obvousy the cam for a deducton can not thus be |ustfed.
Ony when there s a cear provson therefor, can any partcuar deducton be
aowed. (New Coona Co. v. everng, 292 U. S., 435.)
We are of the opnon that the decson of the oard n sustanng the
acton of the Commssoner In refusng the deducton was correct.
We now come to the thrd queston. The pettoner owned certan property
stuated aong the north shore of Staten Isand In the State of New York ac-
qured by subsdares of the pettoner pror to March 1, 1913. The cty of
New York condemned ths property for pubc use and pettoner s tte thereto
passed to the cty pursuant to condemnaton on October 11, 1919. Ltgaton
foowed and the Court of ppeas of New York affrmed the udgment of the
ower court on uy 20, 1927, and the |udgment was pad December 10, 1927.
Incuded In the payment was Interest on the |udgment from October 11, 1919,
when the |udgment was rendered, to the date of the payment, December 10,
1927. The Commssoner of Interna Revenue charged the pettoner, n ts
Income for ta abe purposes for the year 1927, the dfference between the vaue
of ths property on March 1, 1913, and the amount receved for the property
n the year 1927, as proft (Secton 204(b), Revenue ct of 192 .) Later
by an amended answer fed before the oard the Commssoner aeged that
the Interest receved shoud be added to pettoner s net ncome for the year
1927. The Commssoner dd not treat the entre amount of the award as
ncome, but ony charged as gross ncome to the pettoner the gan derved.
The oard of Ta ppeas, after hearng testmony, f ed the vaue of the
property as of March 1, 1913, at a somewhat arger amount than that deter-
mned by the Commssoner and approved the acton of the Commssoner In
addng the proft computed, together wth Interest, to the pettoner s gross
Income for the year 1027.
It s frst contended on behaf of the pettoner that a proft thus reazed
from an award of compensaton for the takng of pettoner s property under
the power of emnent doman was not ncome wthn the meanng of the s -
teenth amendment to the Consttuton and the varous Revenue cts, and was,
therefore, not ta abe. We can not agree wth ths contenton. There was
unquestonaby an augmentaton of the pettoner s Income for the year 1927
from the payment to t of an amount n e cess of the vaue of the property
as of March 1, 1913, and such proft s not, as s contended on behaf of the
pettoner, e empt from ta aton as a ta upon the obgaton of the State,
or any potca subdvson thereof. s was sad by the Supreme Court n
WUcuU v. unn (282 U. S., 21 , 225 Ct. D. 280, C. . -, 309 ) :
efore the power of the Congress to ay the e cse ta n queston can be
dened n the vew that t Imposes a burden upon the States borrowng power,
t must appear that the burden s rea, not magnary substanta, not neg-
gbe.
The Crcut Court of ppeas for the fth Crcut sad In uovc v. Unted
States (71 . (2d), 852):
The cty of Shreveport, t s agreed, fuy compensated appeants for
ther property. It coud not be requred to pay more than Its vaue. It was
not affected In the sghtest degree by the payment or nonpayment of ncome
ta es assessed not to t but to appeants. It ost nothng by reason of the
fact that appeants were requred to pay Income ta es, and t woud have
ganed nothng f they had not been requred to pay.
Cases reed upon on behaf of the pettoner are ceary dstngushabe
under the facts here admtted.
It s ne t contended on behaf of the pettoner that the nterest pad on
the prncpa of the award s e empt from ta aton under secton 213(b)4 of
the Revenue ct of 192 . We do not thnk so. gan t Is not a queston of
ta ng an ssue of securtes that woud affect the power of the States, or
ther potca subdvsons, to borrow money, and the e empton contem-
pated by the Revenue ct ceary e tends ony to nterest pad on obgatons
on the fath of whch the State or the potca subdvson has been abe to
borrow money. The nterest s a part of the award Itsef under the aws of
New York. Laws of New York, 1917, chapter 31, provdes, n part, as foows:
In such cases nterest at the ega rate upon the sum or sums to
whch the owners ure |usty entted upon the date of the vestng of tte n
the cty of New York, as aforesad, from sad date to the date of the fna
decree of the court or to the date of the report of the commssoners of est-
mate, as the case may be, sha be awarded by the court or by the conms-
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240, rt. 32.
302
soners, as the case may be, as part of the compensaton to whch such own-
ers are entted.
Ths woud aso seem to be the rue n the absence of statute. (Seaboard
r Lne Ry. v. Unted States, 2 1 U. S., 299 rooks Scanon Corporaton v.
Unted States, 2 5 U. S., 10 Pheps v. Unted States, 274 U. S., 341.)
It s fnay contended on behaf of the pettoner that the gan derved dd
not accrue n the ta abe year when the award was pad. There s no author-
ty hodng that an tem s ta abe n any year pror to that n whch ts
amount can be estmated wth reasonabe certanty. The ncome ta aw s
concerned ony wth reazed osses as wth reazed gans. (Lucas v. mer-
can Code Co., 280 U. S., 445 Ct. D. 1 8, C. . I -1, 314 see aso UncasvOe
Mfg. Co. v. Commssoner, 55 . (2d), 893, certorar dened, 28 U. S., 545.)
It s admtted that n the condemnaton case, the tte to at east a part of
the property was In dspute, and unt the tgaton was fnay determned t
was not possbe to say what amount the pettoner woud reaze as a proft n
the transacton.
The amount of the gan reazed by the pettoner was ceary ta abe and
the nterest was a part of the award and aso ta abe. The decson of the
oard on these questons was ceary rght. queston s rased as to the
amount f ed by the oard as to the vaue of the condemned property as of
March 1, 1913, and t s contended that the vaue as f ed by the oard was
not supported by nny evdence. There was a great dea of opnon evdence
taken. The overwhemng weght of authorty supports the vew that the
oard s not bound to accept opnon testmony, even f uncontradcted, but
an e amnaton of the record shows that there was ampe evdence to sustan
the concuson reached by the oard, whch we thnk was a far and proper
one, and the fact that the e act vaue found by the oard was not mentoned
by any wtness s of no moment. fter hearng the evdence, the oard was
e ercsng ts ndependent |udgment n f ng the vaue and we can fnd no
error In ths respect.
moton was made before the oard for a new tra upon the ground that
there was newy dscovered evdence consstng of the addtona opnon ev-
dence of two wtnesses, but a scrutny of the aeged afterdscovered evdence
eads us to the concuson that t was purey cumuatve and coud not add
enough weght to the opnons gven by the pettoner s wtnesses aready
heard to ustfy a reversa of the fndng of the oard. It s unversay hed
that the grantng or denyng of a moton for a new tra es wthn the sound
dscreton of the tra court, and w not be dsturbed, e cept for an abuse
of such dscreton. (Great tantc d Pacfc Tea Co. v. Chapman, 72 P. (2d),
112.) Nor w a new tra be granted where, as here, the evdence s merey
cumuatve, and t does not appear that a submsson woud n a probabty
change the resut. (Wufsohn v. Russo- satc ank, 11 . (2d), 715 Payton
v. Idea ewery Mfg. Co., 7 . (2d), 113.) These rues appy to dena of a
rehearng by the oard of Ta ppeas. ( ankers Coa Co. v. urnet, 287
U. S., 308 Weer v. Commssoner, 4 . (2d), 480 Ct. D. 734, C. . II-2,
284 .)
The oard of Ta ppeas ceary had the rght to make an ndependent
fndng as to the vaue of the property as of March 1, 1913, from the ev-
dence before t and was not bound by the fndng of the Commssoner as to
the amount.
or the reasons gven above, the decson of the oard on the ponts nvoved
n the petton for revew s affrmed.
ffrmed.
S CTION 240. CONSOLID T D R TURNS O
CORPOR TIONS.
rtce 32: Consodated returns. I -31-7 22
( so Secton 1113, rtce 1351.) Ct. D. 997
ncome ta revenue act of 1918 decson of court.
1. Consodated Returns ssessment greement mong ff-
ates as to ppobtonment of Ta vdence stoppe.
Where a parent corporaton fed a consodated return for 1918
and pad the ta es shown thereon by check of one of ts affates,
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S240, rt. 32.
and the affates fed Informaton returns showng the amount of
ta to be apportoned to each, but ater ether by conduct or by
amended Informaton returns Indcated that no part of the ta was
to be assessed aganst them, and where the parent by varous et-
ters and protests addressed to the Commssoner recognzed as ts
own any ta abty based upon the consodated returns, re-
quested Immedate assessment, and pad by ts own check a def-
cency ta assessed aganst t, a the evdence subsequent to the
orgna nformaton returns showed an agreement among the
affates, as requred by secton 240(a) of the Revenue ct of 1918,
that the parent was to be treated as the ta payer. Under these
crcumstances, and n vew of the fact that the tme wthn whch
assessment may be made aganst the affates has e pred, the
parent corporaton s estopped to recover the defcency ta pad
by t.
2. Sut Cams for Refund Suffcency.
Cams for refund specfyng as grounds an nadequate deduc-
ton for deprecaton, an e cessve reducton of nvested capta
on account of Income and profts ta es for the precedng year, and
that the ta had not been propery assessed, are nsuffcent to sup-
port a sut aegng error n the March 1,1913, vauaton of suphur
reserves n determnng nvested capta.
8. Decson ffrmed.
Decson of the Dstrct Court, Southern Dstrct of New York
(Ct. D. 845, C. . III-2, ed. Supp., 43), affrmed.
Unted States Cbcut Court of ppeas for the Second Crcut.
reeport Te as Co., pantff-appeant, v. rank C. owers, as ecutor of
the state of rank . owers, Deceased, defendant-appeU.ee.
ppea from Unted States Dstrct Court for the Southern Dstrct of New York.
May , 1935.
OPINION.
rom a |udgment for the defendant entered upon a verdct drected by the
court, the pantff appeas. ffrmed.
ugustus N. and, Crcut udge: The pantff whch s the parent of
varous affated corporatons sued: (1) to recover a defcency assessment
of ncome ta es amountng to 1,2 0,4 .18 because t was ad entrey aganst
the parent company, whch had no ncome, nstead of beng apportoned on
the bass of net ncome assgnabe to each of the affates (2) even assumng
that the ncome ta es of the affates were propery ad aganst the parent
company, to recover 347,43 .3 because the ryan Mound propertes beong-
ng to the reeport Suphur Co., a member of the consodated group, were
gven an nsuffcent vaue n determnng the nvested capta of the ta payer.
We can see no mert n the pantffs frst contenton that t s entted to
recover the entre defcency of 1,2 0,4 .18 on the ground that t was assessed
aganst the parent wthout any agreement among the affates to that effect.
The pantff fed a tentatve consodated return on March 15, 1919, on
behaf of tsef and the affates that were ts subsdares and, on une 14,
1919, made a fna consodated return for tsef and them. Ta es were pad
n connecton wth each of these returns by checks of reeport Suphur Co.,
the affate whch had the argest net ncome, drawn to the order of S. M.
Swenson Sons and by them Indorsed to the order of the coector of nterna
revenue. The subsdary corporatons fed nformaton returns statng the
portons of the ta apportoned to those of them earnng ncome. In ebruary,
1920, the subsdares fed amended nformaton returns. The subsdary,
reeport Suphur Co., to whch a ta of 83322.32 was apportoned n ts
orgna nformaton return, fed an amended return n whch t stated that no
ta es were to be assessed aganst t The subsdary, reeport Suphur Trans-
portaton Co., to whch a ta of 5,557.31 was apportoned n ts orgna n-
formaton return, fed an amended return wheren t stated that no ta es
were to be assessed aganst t. The subsdary, reeport Lght Water Ice Co.,
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240, rt. 32.
304
to whch a ta of 2,334.9 was apportoned In Its orgna Informaton return,
fed an amended return wheren t stated that no ta es were to be assessed
aganst t The subsdary, reeport Gas Co., sustaned a net oss durng the
ta abe year, as aso dd the subsdary reeport Townste Co., and each fed
an nformaton return. The former stated that no ta es were apportoned to
t Doubtess, through an nadvertence, the atter company dd not answer the
queston as to the amount of ta es apportoned to t. s It had sustaned a net
oss, no apportonment woud have been key. The subsdary, reeport Term-
na Co., to whch a ta of 5,457.31 was apportoned n ts orgna nformaton
return, seems to have fed no amended return. S. M. Swenson, who had sgned
the amended returns of reeport Suphur Co., and reeport Suphur Transporta-
ton Co. as treasurer, sgned the return of reeport Termna Co. as presdent.
The reeport Termna Co. therefore knew, through Its presdent, that amended
returns of the reeport Suphur Co. and the reeport Suphur Transportaton
Co. had been fed for about 99 per cent of the ncome of the group of affates.
These amended returns stated that no ta es were to be assessed aganst those
subsdares. It s unreasonabe to suppose that reeport Termna Co., whch
was an nconspcuous affate, was to stand In a dfferent poston from that
of the other subsdares.
It s argued by the pantff that there was no rght to assess the whoe
ta aganst t for the reason that the orgna returns showed that the ta es
were apportoned among the affates. ut the amended returns whch we have
set forth were fed pror to the defcency assessment and show an arrangement
that the subsdares were not to pay the ta . Moreover, the checks of the
reeport Suphur Co. pad the ta es upon both the tentatve and fna conso-
dated returns made by the pantff and the atter s own check pad the defcency
ta of 1,27 ,728.43. Moreover, on ebruary 8, 192 , the pantff wrote a etter
to the Commssoner concernng a defcency n the ta es of the reeport
Te as Co. for the caendar year 1918, amountng to 1,2T ,728.43 n whch t
recognzed any ta abty based upon the consodated return as ts own and
requested that the assessment be made mmedatey. On ebruary 28, 1927,
the pantff wrote a etter to the Secretary of the Treasury askng for a refund
n whch t was descrbed as the person who had pad the defcency ta . In
1930 Its presdent fed a cam for refund on behaf of pantff and ts subsd-
ares. That ndcated that the payment was on behaf of a the affates. Lke-
wse the appea to the Commssoner on ebruary 19,1924, descrbed the pantff
as the ta payer. the wrtten evdence subsequent to the orgna nformaton
returns treated the pantff as the ta payer and the Commssoner was gven
every reason to dea wth t as the conceded representatve and obgee of the
group.
The fact that the money for a the ta es pad, Incudng that for the defcency
assessment, was derved drecty or ndrecty from the reeport Suphur Co.
dd not ater the ncdence of the ta obgaton. In spte of some testmony
to the contrary, we thnk there can be no reasonabe doubt that, by agreement,
the ta was to be assessed to the pantff.
Secton 240(a) of the Revenue ct of 1918 provdes that where a ta Is
assessed upon the bass of a consodated return t sha be assessed upon the
respectve affated corporatons n such proportons as may be agreed among
them. Under that secton there was no requrement that the agreement
shoud be In wrtng, nor dd the reguatons then requre that t shoud be n
wrtng, as dd the reguatons under the Revenue ct of 1928. There was
kewse nothng to requre the agreement to accompany the return. So ong
as t preceded the assessment so that t woud be before the Commssoner when
he made the assessment, t woud satsfy the statute. ( mercan Te te
Wooen Co. v. Commssoner, 8 ed. (2d), 820 (C. C. . ) Washburn Wre
Co. v. Commssoner, 7 ed. (2d), 58 (C. C. . 1) Popuar Prce R. Co. v.
Unted States, 33 ed. (2d), 4 4 (C. C. . 7).)
The pantff contends that the ta es on the 1918 ncome shoud have been
apportoned accordng to the net Income of each affate because that mode of
assessng ta es had been used for the 1917 ncome. It s true that where a
consodated return s made for one year the group can not change ts mode of
reportng ncome and go back to ndvdua returns the ne t year uness t
frst obtans the consent of the Commssoner but, where a consodated return
s permssbe, there Is no rue that prevents affates from agreeng among
themseves as to how the ta for any year sha e assessed aganst the respec-
tve affated corporatons. In the present case the tme to assess ta es aganst
the subsdary corporatons has e pred and the Commssoner can ook to the
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305
240, rt. 32.
parent company aone. The pantff takes the poston that t s entted to
recover 1,2 0,4 .18, even though at the tme of payment ta es to that amount
were due from the group as a whoe, on the ground that ths sum was errone-
ousy assessed aganst tsef nstead of beng apportoned among the affates.
We can not nterpret the ntent of the affates n a way so out of accord wth
the deangs between themseves and the Ta ureau, especay when the
effect of pantffs contenton woud be to reeve the entre group of the
addtona ta rrespectve of Its merts. Pror to ebruary 13, 11)2 , when the
Commssoner made the defcency assessment, there was nothng to prevent
the affates from changng ther ntenton to have the ta es apportoned, whch
apparenty e sted when they fed ther orgna returns. y ther amended
returns and by ther subsequent conduct, they evdenced an agreement to have
the whoe ta assessed aganst the pantff, whereupon the atter, wthout
suggestng that t was not the ta payer, pad the addtona ta whch t now
seeks to recover. Under such crcumstances, t can not substantate the cam
that It was not n aw the ta payer and the dstrct court propery dened
recovery on that ground.
The cause of acton to recover 347,43 .3 on the ground that the pantff s
ryan Mound propertes were undervaued n determnng ts nvested capta
must fa because t was supported by no suffcent refundng cam.
The amended compant aeges that the cam for a refund was re|ected
on or about une 3,1930. It s entrey setted that such a cam must precede
the brngng of a sut to recover ta es unawfuy assessed. We, therefore,
have to determne what tems were the sub|ect of the cam thus re|ected.
fter the pantff had fed ts fna return on une 14, 1919, the Ta ureau
audted t and, on anuary 23, 1924, the Commssoner sent a defcency etter
to the pantff. In that etter the vaue of suphur reserves, whch was the
chef bass for the defcency, were f ed at 7,722,217.50. The resut of the
audt was a proposed assessment of an addtona ta of 2,124,341.89.
The pantff ob|ected to the proposed assessment n a communcaton of eb-
ruary 19, 1924, and camed a vauaton for the suphur deposts of 17,220,000
as of March 1, 1913, based on a report of sher Lowre, consutng geoo-
gsts and fue engneers. On une 23, 1925, the Commssoner reduced the
proposed addtona assessment of 2,124,341.89 to 1,27 ,728.43, prncpay by
rasng the vauaton of suphur deposts from 7,722,217.50 to 13,375,857. To
ths assessment the pantff agan ob|ected by etter of uy 1 , 1925 (Defend-
ant s hbt 23), but made no ob|ecton or reference to the vaue of the su-
phur reserves. It ob|ected to the ad|ustment of the nvested capta ony be-
cause of the deducton of ncome and prevous ta es for 1917 whch were sad
to have been ncorrecty computed. On ebruary 8, 192 , the pantff wrote
the Commssoner concernng the defcency n ta es tentatvey assessed at
1,27 ,728.43 by the Commssoner on une 23, 1925, and stated that the cor-
poraton woud not be n a poston to perfect ts protest aganst any of the
ad|ustments made n the net ncome or nvested capta wthn a reasonabe
tme and, therefore, requested that the assessment be made mmedatey, addng
that: If a protest s ater decded upon, t w be based upon new data and
nformaton, whch w be attached to a cam for refund, accompanyng a
request for the reopenng of the case. (Pantff s hbt -.) Thereupon,
the Commssoner assessed the defcency at 1,27 ,728.43, whch the pantff
pad by ts check on ebruary 19, 192 .
On pr 19, 1929, the pantff made a wrtten cam for a refund (Pan-
tff s hbt ) on the Commssoner s form, n whch t stated: mount to
be refunded (or such greater amount as s egay refundabe) 93,990.21.
It concuded by sayng:
Ths refund s camed on account of an nsuffcent deducton for depre-
caton and an nsuffcent amount of nvested capta for the year endng
November 30, 1918. Supportng data and evdence s to be fed wth the Com-
mssoner of Interna Revenue, Washngton, D. C.
On pr 25, 1929, supportng data were fed and t was specfed that:
The bass of ths cam for refund Is:
(a) Deprecaton deductons for the year endng November 30, 1918, of the
pant and equpment of the reeport Suphur Co.
(b) Reducton of consodated Invested capta for the year endng Novem-
ber 30, 1918, on account of Income and profts ta es for the year endng Novem-
ber 30, 1917.
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5240, rt. 32.
30
The supportng data to the foregong cam contaned ob|ectons to the tem
of nvested capta, as ad|usted, on the ground that It was based upon ncor-
rect and too arge deductons for 1917 ta es. They were the same ob|ectons
that had been rased n the etter of uy 1G, 1925, and ke those n that etter
contaned no reference to the vaue of the suphur reserves whch the Com-
mssoner had f ed at 13,375,857 on une 23, 1925.
The presentaton of the cam on pr 19, 1929, and of the supportng data
on pr 25, 1929, was foowed by a conference ou ugust 15, 1929, wth Card-
we, the chef of the Income Ta Unt of the ureau of Interna Revenue, and
Wamson, the senor audtor of the ureau. The ssue whch the ta payer
rased as to the revson of the deducton for 1917 ta es was decded n favor
of the reeport Te as Co. Issue 4 termed Decrease n nvested capta
due to erroneous aowance of pad-n surpus, reated to an tem of 4 5,259.34
representng the cost of the stock of the reeport Suphur Co. whch had been
purchased n 1913 by the reeport Te as Co. That amount was deducted from
the amount formery assessed n order to prevent a dupcaton. The vaue of the
suphur deposts was not dscussed at the conference or nvoved n the ssues
before the representatves of the ureau.
On December 13, 1929, the pantff fed a cam for a refund of the entre
addtona ta of 1,27 ,728.43, whch t had pad by ts check on ebruary
19, 192 , on the ground that the ta had not been propery assessed to t
(Pantff s hbt .) On une 3, 1930, the Commssoner tentatvey re-
|ected the cam for the tota refund of 157 ,728.43 fed December 13, 1929, as
we as the cam for the refund of 93,990.21 fed pr 19, 1929, and sug-
gested certan ad|ustments whch woud aow the ta payer a rebate of
1 ,2 0.25 upon the addtona ta of 1,27 ,728.43 It had pad ebruary 19. 192 .
Nether cam mentoned the suphur deposts and no ob|ecton had been made
to ther vauaton by the Commssoner snce pantff s protest on ebruary
19,1924. (Defendant s hbt 21.) ecause of that protest the Commssoner
had rased the vauaton of the suphur reserves from 7,722,217.50 to 13,375,-
857, though refusng to advance t to 17,220,000, as requested by the ta payer.
rom the tme of that ad|ustment the pantff had not questoned the vaua-
ton of 13,375,857. The Commssoner revsed the addtona ta of 1,27 ,-
728.43 by reducng the ta abty to the e tent of 1 ,200.25, and on uy 7,
1930, both cams were formay re|ected e cept for the parta aowance
of 1 ,2 0.25 whch was refunded to the ta payer by the Treasury.
The refund was prncpay due to an ncrease of nvested capta arrved at
by a smaer deducton for 1917 ta es and for deprecaton of mnera deposts
than had been orgnay made and whch more than offset the tem of 4 5,-
259.34.
On October 2, 1930, the present acton was begun and as the cams for re-
fundng overassessed 1918 ta es then stood there was no cam whch questoned
the vauaton of the suphur reserves at 13,375,857 or apprsed the Comms-
soner of any purpose on the part of the pantff to revve ts od contenton
that the suphur reserves shoud be vaued at 17,220,000. Such a contenton
n respect to the 1918 ta es had ceary been abandoned and the ta payer
had no refundng cam eft e cept that the addtona assessment had not been
propery made aganst the parent company, but shoud have been spread among
te affates n proporton to net ncome. Indeed In ts etter to the ureau on
October 22, 1929, the ta payer protes-ted that the fu vaue of suphur prop-
erty of 13,375,857 was aso aowed as an ncrease to nvested capta
and shoud not be reduced. We can dscover no cam on whch the cause of
acton to recover 347,43 .3 coud be founded and the presentaton of such
a cam was a prerequste to sut. (Unted States v. et d Tarrant Manufac-
turng Co., 283 U. S., 2 9 Ct. D. 33 , C. . -, 431 .)
In Tucker v. e ander (275 U. S., 228 T. D. 3973, C. . I-1, 287 ) Unted
States v. Memphs Cotton OU Co. (288 U. S., 2 Ct. D. 2 , C. . II-1, 307 )
Unted States v. enry Prentss d Co. (288 U. S., 73 Ct. D. G27, C. . II-1,
311 ) Unted States v. actors d nance Co. (288 U. S., 89 Ct. D. 28, C. .
II-1, 315 ) and ems ro. ag Co. v. Unted States (289 U. S., 29
Ct. D. 49, C. . II-1, 338 ), the court was deang wth the rght to amend
cams after the perod to present them had e pred and before re|ecton. It
s qute a dfferent matter to attempt to amend cams after they have been
re|ected and the proceedngs before te Commssoner have been cosed, as was
the stuaton here. mendment after re|ecton s not permssbe. (Unted
States v. Memphs O Co., 288 U. 8., 2, 72 Unted States v. enry Prentss
d Co., 288 T . S., 73, 88.)
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307
5240, rt. 34.
ut the ta payer argey rees on a waver by the Commssoner based on
the agreement of May 28, 1981, between Itsef and the atter. In 1931 there
were pendng before the Commssoner proceedngs for the revson of the
deductons for depeton of the suphur reserves of the reeport Te as Co.
for the years 192 , 1927, and 1928. In order to ad|ust the amount of depe-
ton for these years t was necessary to vaue the suphur deposts on March
1, 1913. On une 12, 1931, the Government engneers reported a vaue of the
deposts as of March 1, 1913, amountng to 17,808,110, whch woud Increase
the od vauaton of 13,375,857 aowed by the Commssoner by 4,432,253 and
entte the pantff to a recovery of 347,43 .3 , f apped to the 1918 ta es.
The report deat wth a vauaton for depeton purposes and had nothng to
do wth the computaton of nvested capta whch woud not fgure n the
pantffs ta es after 1921. If the new vauaton had been used for pror years
It woud have nvoved a read|ustment of the ta abty of the group for
the years pror to 1922. The arger vauaton was ony Intended to appy
to depeton and mght have been contested by the Commssoner f used for
other purposes. The ony protest n respect to ths matter was made on
pr 19, 1930 (Pantff s hbt T), and t In terms reated to the year 1928
and stated that the depeton theretofore aowed had absorbed the suphur
deposts though the ta payer st had substanta remanng reserves.
The pantff regards the foowng cause of the agreement of May 28,
1931, as appyng the new vauaton of the suphur reserves to the 1918 ta es:
Whereas, the Commssoner of Interna Revenue beng desrous of fnay
concudng ths controversy, s unwng to gve hs wrtten approva to the
makng or aowance of the sad revauaton requested n the sad pendng
appcaton of the undersgned ta payer If, notwthstandng such approva and
a revauaton consequent thereto, the sad ta payer woud contnue to demand
or cam any further or other revauaton In the future or on past returns
such as the now pendng 1918 cam for refund on the same or smar grounds.
The foregong recta to the effect that the Commssoner was unwng
to approve the revauaton requested by the reeport Te as Co. If, not-
wthstandng such approva and a revauaton consequent thereto, the sad
ta payer woud contnue to demand or cam any further or other revauaton
In the future or on past returns such as the now pendng 1918 cam for refund
on the same or smar grounds, was nserted n the agreement by Madson
who says he nserted t to te the pantff to the od vauaton for the 1918
ta es. It s dffcut to gve the words pendng 1918 cam any other effect
and amost Impossbe to suppose that the Commssoner meant to reopen the
od vauaton for March 1, 1913, In respect to 1918 ta es and practcay
to confess |udgment upon a cause of acton for 347,43 .3 n any such ndrect
and e traordnary way. Moreover n an acton at aw the compant can not
propery be amended so as to embrace a cause of acton that has rsen snce
the sut was begun. If, on the other hand, the amended compant shoud
be treated as nsttutng a new acton, t woud have to fa because no cam
for overassessment of addtona ta es for 1918 ncome, based on an under-
vauaton of suphur reserves, was ever presented to or re|ected by the Com-
mssoner, as requred by statute. If the makng of the agreement were to
be regarded as the presentaton of a new cam t came too ate, for t was
entered nto more than fve years after the payment of the ta . (2 U. S. C,
secton 10 5.)
udgment affrmed.
rtce 34: Change n ownershp durng I -40-7727
ta abe year. Ct. D. 1017
( so Secton 213(a), rtce 31.)
INCOM T R NU CT OP 192 D CISION O COURT.
1. Deducton Loss Sae of Stock ffated Corporatons
Consodated Retcbn Change of Ownershp Durng Ta -
abe Year.
parent corporaton whch sod the stock of ts subsdary on
December 28, 1925, thus termnatng the affaton, may not deduct
from consodated gross Income for the year 1925 the oss sustaned
upon the sae. The perod remanng after the sae was not
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240, rt. 34.
308
neggbe wthn the meanng of artce 34 of Reguatons 9,
n vew of the e tent and mportance of the transactons occurrng
theren, and, n the absence of evdence to show what part of the
Income beonged to the perods durng and after affaton, the
deducton was propery dsaowed In ts entrety.
2. Deducton Loss Sae or Stock Dvdend.
Where a subsdary corporaton decared a dvdend, payabe to
stockhoders of record on December 19, 1922, before purchase of
the stock by the parent on December 18, 1922, the actua cost to
the purchaser must be reduced by the amount of the dvdend
receved In determnng the amount of oss sustaned upon subse-
quent sae.
3. Decson ffrmed.
Decson of the oard of Ta ppeas (27 . T. ., 1207) affrmed.
Unted States Crcut Court op ppeas for the Seventh Crcut.
8. Sberman t Sons, pettoner, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas.
efore vans, Sparks, and tzhenry, Crcut udges.
March 29, 1035.
OPINION.
tzhenry, Crcut udge: Ths s an appea from a udgment of the Unted
States oard of Ta ppeas sustanng the determnaton of respondent that
an asserted defcency deducted by pettoner on ts return for the year 1925
dd not consttute an aowabe deducton for Income ta purposes. The oss
whch pettoner cams to have sustaned arose out of a sae of Its subsdary s
capta stock.
The facts are stated n the opnon of the oard:
S. Sberman Sons Is an Inos corporaton, wth ts prncpa offce at
Chcago. Wm. . oeke Son Co., Inc., s a Lousana corporaton, wth Its
prncpa offce at New Oreans.
In December, 1922, S. Sberman Sons acqured 740 shares of the tota
of 750 shares of the ssued and outstandng capta stock of the oeke corpora-
ton, and sod the sad stock on December 28, 1925, at an aeged oss. The
two pettoner corporatons fed a consodated Income ta return for 1925,
and deducted from consodated ncome the amount of 349,419.24 as a oss
sustaned on the sae of the subsdary s stock.
The respondent determned that any oss sustaned by S. Sberman
Sons upon the dsposa of the capta stock of ts subsdary was not aowabe
as a deducton from consodated Income for the perod of affaton, but coud
be taken as a deducton ony from the separate ncome of S. Sberman Sons
for the perod subsequent to the termnaton of the affaton. Ths acton
of the respondent resuted In the determnaton of the defcences n con-
troversy.
In addton to the reasons ust stated, upon whch the respondent predcated
hs determnaton of the defcency, respondent contends that the evdence Is
nsuffcent to estabsh the amount of the oss sustaned on the dsposton of
the stock n queston, f any, and, further, that such oss, n any event, shoud
be reduced by the amount of a dvdend decared and pad on the oeke stock
shorty after t was acqured by S. Sberman Sons.
The oard dd not dscuss ether of the ast two ponts mentoned. owever,
our e amnaton of the record shows that the Government never admtted the
e stence of the oss, and we beeve the queston s of suffcent Importance to
mert consderaton upon ths appea.
rtce 31 of Reguatons 9 provdes:
In the case of stock sod between dvdend dates, the entre amount of
the dvdend s Income to the vendee and must be reported n hs gross ncome
when the dvdend becomes due and payabe. The amount advanced by the
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309
240, rt. 34.
vendee to the vendor n contempaton of the ne t dvdend payment s an
nvestment of capta and may not be camed as n deducton from gross
ncome.
ppeant ctes ths reguaton and the cases of Moore v. Commssoner (22
. T. ., 3 ) and Rppe v. Commssoner (12 . T. ., 43S) n support of the
contenton that the dvdend of 450 per cent shoud not be deducted from the
purchase prce under the crcumstances of ths case. The cases are ceary
dstngushabe upon ther facts. In Moore v. Commssoner, supra, a dvdend
of 25 cents a share was decared and pad after pettoner becawe the owner
of the stock. In Rppe v. Commssoner, supra, pettoner purchased certan
shares of stock three days pror to the decaraton of the reguar quartery
dvdend, whch dvdend he e pected woud be decared. The court hed that
when the dvdend was actuay receved by hm, t was ta abe as an ordnary
dvdend.
ut can a corporaton cam a oss of 349,419.24 from the sae of shares of
stock of an affated corporaton under the foowng crcumstances ( )
Purchase for an aeged sum of 424,019.24, on December 18. ( ) efore
purchase a dvdend decared amountng to 450 per cent or a tota of 337,500
payabe to stockhoders of record on December 19. (C) Sae of stock for
74, 00. In determnng the cost of the shares of stock of the affated corpora-
ton to the parent corporaton, the court w ook to what the partes actuay
pad, rather than what they purported to pay. (Commssoner v. Dyer (C. C. .
2), decded anuary 14, 1935 McDonad v. Commssoner, 28 . T. ., 4
Rubay Co. v. Commssoner, 9 . T. ., 133 Robnson v. Commssoner, 59 .
(2d), 1008 Gregory v. evcrng, 05 S. Ct, 2 Ct D. 911, C. . I -1, 193 .)
We can not escape the concuson upon the record here before us, that the actua
cost of the stock, even though we accept pettoner s own fgures for the purchase
prce 424,019.24 must be reduced by 331,2 .
The record shows that the aeged1 purchase of the 74 shares of stock n
oeke Sons Co. was pad for n stock of S. Sberman Sons and a credt
of 75,000. What s beng attempted n ths case s we ustrated by the man
who had 10,000 In a bfod n hs rght hp pocket, who took It out and trans-
ferred the money to hs eft hp pocket, then sod the bfod for a nomna
sum and sought to get a deducton n hs ncome ta return of the dfference
between the vaue of the bfod before the e tracton and the transfer of the
money, and ts vaue afterwards. If the reguatons are susceptbe of a con-
structon to authorze such a transacton, the reguatons shoud be amended.
The pont upon whch the oard rested Its decson Is rnsed by the queston
whether or not a oss on the sae by a parent corporaton of Its subsdary s
stock, whch thereby termnated the affated status, Is deductbe from con-
sodated Income for the perod of affaton The oard hed the deducton
was not aowabe on the authorty of Remngton Rand, Inc., v. Commssoner
(33 . (2d), 77 Ct. D. 149, C. . I -1, 2 8 ) Rggs Natona ank (17 . T. .,
15, affrmed, 57 . (2d), 980).
The aeged oss coud, n no reasonabe vew of the case, be hed to be the
oss of the affated companes. It arose out of a sae by S. Sberman Sons,
whch sae termnated the affaton, and t may not be deducted from the
consodated Income. ( umnum Goods Mfg. Co. v. Commssoner, 5 . (2d),
5 8 oughton 4 Dutton Co. v. Commssoner, 2 . T. ., 52.)
The reguaton upon the sub|ect of whether the pettoner s ta abe year
shoud have been dvded Into two perods reads as foows (Reguatons 9):
rt. 34. Change n otcnershp durng ta abe year. (a) Where corpora-
tons are affated1 at the begnnng of a ta abe year but due to a change n
stock ownershp or contro durng the year the affated status Is termnated,
or ( ) where corporatons are not affated at the begnnng of the ta abe
year but through change of stock.ownershp or contro durng the year become
affated, a fu dscosure of the crcumstances of such changes of stock owner-
shp sha be submtted to the Commssoner. Ordnary n such cases the
parent or prncpa company, under the condtons descrbed n (a) above,
shoud e cude from ts return the ncome and Invested capta of such sub-
sdary or subordnate company from the date of the change of stock owner-
Shp, . In any case In whch the change of consodated status s for a
perod so short as to be neggbe, a consodated return or separate returns
for the entre perod, as the case may be, may be fed In such cases, however,
there shoud accompany the return a compete statement settng forth the
changes In the nffated status occurrng durng the ta abe year.
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245, rt. 81.
310
Pettoner contends that the perod of four days Is a neggbe one and that t,
therefore, propery fed one return for the fu ta abe year. The respondent,
on the contrary, rghty contended that the perod was not neggbe n vew
of the e tent and mportance of the transactons occurrng theren.
The ta payer havng faed to show what part of the Income beonged to the
perod s durng and after affaton, the oard had no way of aocatng ths
tem, and t propery refused the deducton n ts entrety.
ffrmed.
S CTION 245. T S ON INSUR NC
COMP NI S.
rtce 81: Reserve funds. I -52-7875
T. D. 4 15
INCOM T .
Lfe Insurance Companes Deductons Reserve unds IN-
T R ST.
rtce 81 of Reguatons 2, 5, and 9, as amended by Treas-
ury Decson 4231, further amended artce 85 of Reguatons
2, 5, and 9 artces 971 and 975 of Reguatons 74 and 77
and artce 203(a) (8)- of Reguatons 8 amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 81 of Reguatons 2, 5, and 9, as amended by Treas-
ury Decson 4231, approved October 13, 1928 (C. . II-2, 299),
s hereby amended to read as foows:
bt. 81. Reserve funds. Under paragraphs (1) and (2) of secton 245(a),
fe nsurance companes are entted to deduct from gross ncome: (1) Inter-
est whch Is e empted n the case of other ta payers by secton 213(b) (4) and
the reguatons promugated thereunder and (2) 4 per cent of the mean of
the reserve funds specfed n secton 245(a)(2) hed at the begnnng and
end of the ta abe year, wthout any abatement on account of ta -e empt nter-
est (See decson of Unted States Supreme Court In the case of Natona
Lfe Insurance Co. v. Unted, States (277 U. S., 508).) In genera, the reserve
contempated s a sum of money, varousy computed or estmated, whch, wth
accretons from nterest, s set asde (reserved) as a fund wth whch to ma-
ture or qudate, ether by payment or rensurance wth other companes, fu-
ture unaccrued and contngent cams. It must be requred ether by e press
statutory provsons or by rues and reguatons of the nsurance department
of a State, Terrtory, or the Dstrct of Coumba when promugated n the
e ercse of a power conferred by statute, but such requrement, wthout more,
s not concusve for e ampe, It does not ncude reserves requred to be man-
taned to provde for the ordnary runnng e penses of a busness defnte n
amount, and whch must be currenty pad by every company from ts Income
f ts busness s to contnue, such as ta es, saares, rensurance, and unpad
brokerage the reserve or net vaue of rsks rensured n other sovent com-
panes to the e tent of the rensurance reserve for premums pad n advance
annua and deferred dvdends accrued but unsetted pocy cams osses
ncurred but unreported abty on suppementary contracts not nvovng fe
contngences estmated vaue of future premums whch have been waved on
poces after proof of tota and permanent dsabty.
In any case where reserves are camed, suffcent Informaton must be fed
wth the return to enabe the Commssoner to determne the vadty of the
cam. Reference shoud be made to the tem n whch the reserve appears
In the annua statement and to the statute or nsurance department rung
requrng that such reserves be hed. Ony reserves whch are so requred,
whch are pecuar to nsurance companes, and whch are dependent upon
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311
245, rt. 81.
nterest earnngs for ther mantenance, w be consdered. company Is
permtted to make use of the hghest aggregate reserve caed for by any State
or Terrtory or the Dstrct of Coumba n whch t transacts busness, but
the reserve must have been actuay hed.
In the case of fe Insurance companes ssung poces coverng fe, heath,
and accdent nsurance combned n one pocy Issued on the weeky premum
payment pan, contnung for fe and not sub|ect to canceaton, t s requred
that reserve funds thereon be baaed upon recognzed tabes of e perence cover-
ng dsabty benefts of the knd contaned In poces ssued by ths par-
tcuar cass of companes.
rtce 85 of Reguatons 2, 5, and 9 and artce 975 of Regu-
atons 74 are hereby amended by addng the foowng sentence at
the end of the paragraph numbered (3):
If a fe Insurance company pays nterest on the proceeds of fe Insurance
poces eft wth t pursuant to the provsons of suppementary contracts, not
nvovng fe contngences, or smar contracts, t the nterest so pad sha
be aowed as a deducton from gross ncome, e cept that such deducton sha
not be aowed In respect of Interest accrued n any pror ta abe year to the
e tent that the company has had the beneft of a deducton of 4 per cent of the
mean of the company s abty on such contracts, by the ncuson of such
abty n ts reserve funds.
rtce 971 of Reguatons 74 s hereby amended to read as
foows:
bt. 071. Ta -e empt nterest and reserve funds. Under paragraphs (1) and
(2) of secton 203(a), fe nsurance companes are entted to deduct from gross
ncome:
(1) Interest whch s e empted n the case of other ta payers by secton
22(b)(4) and artces 84-88 and
(2) our per cent of the mean of the reserve funds hed at the begnnng
and end of the ta abe year, wthout any abatement on account of ta -e empt
Interest. (See decson of Unted States Supreme Court n the case of Natona
Lfe Insurance Go. v. Unted States (277 U. S., 508).)
In genera, the reserve contempated s a sum of money, varousy computed
or estmated, whch, wth accretons from nterest, Is set asde (reserved) as a
fund wth whch to mature or qudate, ether by payment or rensurance wth
other companes, future unaccrued and contngent cams. It must be requred
ether by e press statutory provsons or by rues and reguatons of the Insur-
ance department of a State, Terrtory, or the Dstrct of Coumba when promu-
gated n the e ercse of a power conferred by statute, but such requrement,
wthout more, s not concusve for e ampe, t does not Incude reserves re-
qured to be mantaned to provde for the ordnary runnng e penses of a
busness defnte n amount, and whch must be currenty pad by every com-
pany from ts Income f ts busness s to contnue, such as ta es, saares,
rensurance, and unpad brokerage the reserve or net vaue of rsks rensured
n other sovent companes to the e tent of the rensurance reserve for
premums pad In advance annua and deferred dvdends accrued but un-
setted pocy cams osses ncurred but unreported abty on suppementary
contracts not nvovng fe contngences estmated vaue of future premums
whch have been waved on poces after proof of tota and permanent
dsabty.
In any case where reserves are camed, suffcent Informaton must be fed
wth the return to enabe the Commssoner to determne the vadty of the
cam. Reference shoud be made to the tem n whch the reserve appears In
the annua statement and to the statute or nsurance department rung re-
qurng that such reserves be hed. Ony reserves whch are so requred, whch
are pecuar to nsurance companes, and whch are dependent upon Interest
earnngs for ther mantenance w be consdered. company s permtted
to make use of the hghest aggregate reserve caed for by any State or Terr-
tory or the Dstrct of Coumba n whch t transacts busness, but the
reserve must have been actuay hed.
In the case of fe nsurance companes ssung poces coverng fe, heath,
and accdent nsurance combned n one pocy Issued on the weeky premum
payment pan, contnung for fe and not sub|ect to canceaton, t s re-
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245, rt. 81.
312
qured that reserve funds thereon be based upon recognzed tabes of e pe-
rence coverng dsabty benefts of the knd contaned n poces ssued
by ths partcuar cass of companes.
rtce 971 of Reguatons 77 s hereby amended to read as
foows:
rt. 971. Ta -e empt nterest and reserve funds. Under paragraphs (1) and
(2) of secton 203 (a), fe nsurance companes are entted to deduct from
gross ncome:
(1) Interest whch Is e empted n the case of other ta payers by secton
22(b)(4) and artces 84-87 and
(2) our per cent of the mean of the reserve funds requred by aw and
hed at the begnnng and end of the ta abe year, e cept that n the case
of any such reserve fund whch s computed at a ower Interest assumpton
rate, the rate of 3 per cent sha be substtuted for 4 per cent.
In genera, the reserve contempated s a sum of money, varousy computed
or estmated, whch, wth accretons from nterest, s set asde (reserved) as
a fund wth whch to mature or qudate, ether by payment or rensurance wth
other companes, future unaccrued and contngent cams. It must be re-
qured ether by e press statutory provsons or by rues and reguatons of the
nsurance department of a State, Terrtory, or the Dstrct of Coumba when
promugated n the e ercse of a power conferred by statute, but such requre-
ment, wthout more, Is not concusve for e ampe, t does not ncude re-
serves requred to be mantaned to provde for the ordnary runnng e penses
of a busness defnte n amount, and whch must be currenty pad by every
company from ts ncome f Its busness s to contnue, such as ta es, saares,
rensurance, and unpad brokerage the reserve or net vaue of rsks rensured
In other sovent companes to the e tent of the rensurance reserve for pre-
mums pad n advance annua and deferred dvdends accrued but unsetted
pocy cams osses ncurred but unreported abty on suppementary con-
tracts not nvovng fe contngences estmated vaue of future premums
whch have been waved on poces after proof of tota and permanent
dsabty.
In any case where reserves are camed, suffcent nformaton must be fed
wth the return to enabe the Commssoner to determne the vadty of the
cam. Reference shoud be made to the tem In whch the reserve appears n
the annua statement and to the statute or nsurance department rung re-
qurng that such reserves be hed. Ony reserves whch are so requred, whch
are pecuar to nsurance companes, and whch are dependent upon uterest
earnngs for ther mantenance w be consdered. company s permtted
to make use of the hghest aggregate reserve caed for by any State or Terr-
tory or the Dstrct of Coumba n whch It transacts busness, but the reserve
must have been actuay hed.
In the case of fe nsurance companes ssung poces coverng fe, heath,
and accdent nsurance combned n one pocy ssued on the weeky premum
payment pan, contnung for fe and not sub|ect to canceaton, It s requred
that reserve funds thereon be based upon recognzed tabes of e perence cover-
ng dsabty benefts of the knd contaned n poces Issued by ths partcuar
cass of companes. The deducton n respect of such reserve funds (not re-
qured by aw) s 3 per cent of the mean of such reserve funds hed at the
begnnng and end of the ta abe year.
rtce 975 of Reguatons 77 s hereby amended by addng the
foowng new paragraph numbered (4) at the end thereof:
(4) If a fe Insurance company pays Interest on the proceeds of fe n-
surance poces eft wth t pursuant to the provsons of suppementary con-
tracts, not nvovng fe contngences, or smar contracts, the Interest so
pad sha be aowed as a deducton from gross ncome, e cept that such
deducton sha not be aowed n respect of nterest accrued In any pror ta abe
year to the e tent that the company has had the beneft of a deducton of 4
per cent or 3 per cent, as the case may be, of the mean of the company s
abty on such contracts, by the Incuson of such abty In ts reserve
funds.
rtce 203(a) (8)- of Reguatons 8 s hereby amended by add-
ng the foowng new paragraph at the end thereof:
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313
257, rt. 1090.
If a fe nsurance company pays Interest on the proceeds of fe nsurance
poces eft wth t pursuant to the provsons of suppementary contracts, not
nvovng fe contngences, or smar contracts, the nterest so pad sha be
aowed as a deducton from gross ncome, e cept that such deducton sha
not be aowed In respect of nterest accrued n any pror ta abe year to the
e tent that the company has had the beneft of a deducton of 4 per cent or 3
per cent, aa the case may be, of the mean of the company s abty on such
contracts, by the ncuson of such abty n ts reserve funds.
Gut T. everno,
Commssoner of Interna Revenue.
pproved December 18, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
P RT I . DMINISTR TI PRO ISIONS.
S CTION 257. R TURNS TO PU LIC R CORDS.
rtce 1090: Inspecton of returns. I -29-7 01
T. D.45 4
mendment to Treasury Decson 4359, as amended by Treasury
Decsons 4378, 4397, 443 , and 4440, to permt nspecton of returns
by the Commttee on grcuture and orestry, Unted States
Senate.
Treasury Department,
Washngton, D. C, une 25, 1935.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 C. . I-2, 305 (beng reguatons pre-
scrbed by the Secretary and approved by the Presdent, appcabe
to the nspecton of returns under the Revenue ct of 1932 and pror
Revenue cts, and ncorporated as part of artce 421 of Income Ta
Reguatons 77), as amended by Treasury Decsons 4378 (C. .
II-2, 219), 4397 (C. . II-2, 220), 443 (C. . III-1, 304),
and 4440 (C. . III-1, 305), s further amended by nsertng be-
tween paragraphs 13(a) and 14 thereof a new paragraph numbered
13(b) readng as foows:
13. (b) Notwthstandng any other provsons of these reguatons, ncome
and e cess-profts ta returns made under the Revenue ct of 1932 on or
before the date of the enactment of the Natona Industra Recovery ct
and under the pror Revenue cts and capta stock ta returns made under
the Natona Industra Recovery ct, may be nspected, by the Commttee on
grcuture and orestry, Unted States Senate, or any duy authorzed sub-
commttee thereof, for the purpose of, and to the e tent necessary n the
nvestgaton of the causes of the rapd decne of the prce of cotton on the
cotton e changes on or about March 11, 1935, whch the commttee or an
anthorzed subcommttee thereof Is authorzed and drected to make by Senate
Resouton 103 (Seventy-fourth Congress, frst sesson), passed March 10, 1935.
The nspecton of returns heren authorzed may be by the commttee or a duy
authorzed subcommttee thereof, actng drecty as a commttee or a subcom-
mttee, or by or through such e amners or agents as the commttee or sub-
commttee may desgnate or appont. Upon wrtten notce by the charman
of the commttee or of the authorzed subcommttee to the Secretary of the
Treasury, gvng the names and addresses of the ta payers whose returns t
s necessary to nspect and the ta abe perods covered by the returns, the
47318 3 11
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2 7, rt. 1090.
314
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, In the offce of the Commssoner of
Interna Revenue. ny nformaton thus obtaned by the commttee or the
subcommttee thereof, whch s reevant or pertnent to the purpose of the
nvestgaton, may be submtted by the commttee or the subcommttee to the
Senate.
. MORG NT U, r.,
Secretary of the Treasury.
pproved uy 9, 1935.
rankn D. Roosevet,
The Whte ome.
CUTI ORI R INSP CTION O INCOM . C SS-PRO ITS, ND C PIT L
STOC T R TURNS.
y vrtue of the authorty vested n me by secton 257(a) of the
Revenue ct of 192G (ch. 27,44 Stat., 9,51) secton 55 of the Revenue
ct of 1928 (ch. 852, 45 Stat., 791, 809) secton 55 of the Revenue
ct of 1932 (ch. 209, 47 Stat., 1 9,189), as amended bv secton 218(h)
of the Natona Industra Recovery ct (ch. 90, 48 Stat.. 195, 209)
and secton 55(a) of the Revenue ct of 1934 (ch. 277, 48 Stat, 80,
98), t s hereby ordered that ncome, e cess-profts, and capta stock
ta returns made under the Revenue ct of 1934, the Natona Indus-
tra Recovery ct, the Revenue ct of 1932, as amended by the
Natona Industra Recovery ct, and the pror Revenue cts sha
be open to nspecton by the Commttee on grcuture and orestry,
Unted States Senate, or any duy authorzed subcommttee thereof,
for the purpose of, and to the e tent necessary n the nvestgaton or
the causes of the rapd decne n the prce of cotton on the cotton
e changes on or about March 11, 1935, whch such commttee or sub-
commttee s authorzed and drected to make by Senate Resouton
103 (Seventy-fourth Congress, frst sesson), passed March 1 , 1935
such nspecton to be n accordance, and upon compance wth the
rues and reguatons prescrbed by the Secretary of the Treasury
and approved by me bearng even date herewth for the nspecton by
that commttee, or an authorzed subcommttee thereof, of ncome and
e cess-profts ta returns made under the Revenue ct of 1932 on or
before the date of the enactment of the Natona Industra Recovery
ct, and under the pror Revenue cts, and capta stock ta returns
made under the Natona Industra Recovery ct.
rankn D. Roosevet.
The Whte ouse,
uy 9,1035.
rtce 1090: Inspecton of returns. I -31-7 34
T. D.4574
mendment to Treasury Decson 4350, as amended by Treasury
Decsons 4378, 4397, 443 , 4440, and 45 4, to permt nspecton of
returns by the Speca Commttee to Investgate Lobbyng ctv-
tes, Unted States Senate.
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315
257, rt. 1090.
Treasury Department,
Washngton, D. C, uy 25,1935.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 C. . I-2, 305 (beng reguatons pre-
scrbed by the Secretary and approved by the Presdent, appcabe
to the nspecton of returns under the Revenue ct of 1932 and pror
Revenue cts, and ncorporated as part of artce 421 of Income Ta
Reguatons 77), as amended by Treasury Decsons 4378 (C. .
II-2, 219), 4397 (C. . II-2, 220), 443 (C. . III-1, 304), 4440
(C. . III-1, 305), and 45 4 page 313, ths uetn s further
amended by nsertng between paragraphs 13(b) and 14 thereof a
new paragraph numbered 13(c) readng as foows:
13. (c) Notwthstandng any other provsons of these reguatons, ncome
and e cess-profts ta returns made under the Revenue ct of 1032 on or before
the date of the enactment of the Natona Industra Recovery ct and under
the pror Revenue cts and capta stock ta returns made under the Natona
Industra Recovery ct and the Revenue ct of 1934, may be nspected by
the Speca Commttee to Investgate Lobbyng ctvtes n connecton wth
the so-caed hodng company b, or any other matter or proposa affectng
egsaton, authorzed by Senate Resouton 1 5 (Seventy-fourth Congress, frst
sesson), passed uy 11, 1935. The nspecton of returns heren authorzed
may be by the commttee or a duy authorzed subcommttee thereof, actng
drecty as a commttee or a subcommttee, or by or through such e amners
or agents as the commttee or subcommttee may desgnate or appont. Upon
wrtten notce of the charman of the commttee or of the authorzed subcom-
mttee 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 cov-
ered by the returns, the Secretary and any offcer or empoyee of the Treasury
Department sha furnsh such commttee or subcommttee wth any data re-
atng 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 reevant or pertnent to the
purpose of the nvestgaton, may be submtted by the commttee or the sub-
commttee to the Senate.
T. . COOLIDG ,
ctng Secretary of the Treasury.
pproved uy 25, 1935.
rankn D. Roosevet,
The Whte ome.
CUTI ORD R INSP CTION O INCOM , C SS-PRO ITS, ND C PIT L
STOC T R TURNS Y T SP CI L COMMITT TO IN STIG T
LO YING CTI ITI S, UNIT D ST T S S N T .
y vrtue of the authorty vested n me by secton 257(a) of the
Revenue ct of 192 (ch. 27, 44 Stat., 9, 51) secton 55 of the Reve-
nue ct of 1928 (ch. 852, 45 Stat., 791, 809) secton 55 of the Reve-
nue ct of 1932 (ch. 209, 47 Stat., 1 9, 189), as amended by secton
218(h) of the Natona Industra Recovery ct (ch. 90, 48 Stat.,
195, 209) secton 55(a) and secton 701(e) of the Revenue ct of
1934 (ch. 277, 48 Stat., 80, 98, 770) and secton 215(e) of the Na-
tona Industra Recovery ct (ch. 90, 48 Stat., 195, 208), t s
hereby ordered that ncome, e cess-profts, and capta stock ta
returns made under the Revenue ct of 1934, the Natona Industra
Recovery ct, the Revenue ct of 1932, as amended by the Natona
G
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257, rt. 1090.
31
Industra Recovery ct, and the pror Revenue cts sha be open
to nspecton by the Speca Commttee to Investgate Lobbyng
ctvtes, Unted States Senate, or any duy authorzed subcom-
mttee thereof, for the purpose of, and to the e tent necessary n
the nvestgaton of obbyng actvtes n connecton wth the so-
caed hodng company b, or any other matter or proposa
affectng egsaton, whch such commttee or subcommttee s au-
thorzed and drected to make by Senate Resouton 1 5 (Seventy-
fourth Congress, frst sesson), passed uy 11, 1935 such nspecton
to be n accordance, and upon compance wth the rues and regua-
tons prescrbed by the Secretary of the Treasury and approved by
me bearng even date herewth for the nspecton by that commttee,
or an authorzed subcommttee thereof, of ncome and e cess-profts
ta returns made under the Revenue ct of 1932 on or before the
date of the enactment of the Natona Industra Recovery ct, and
under the pror Revenue cts, and capta stock ta returns made
under the Natona Industra Recovery ct, and the Revenue ct
of 1934.
rankn D. Roosevet.
The Whte ouse,
uy 2 , 1935.
rtce 1090: Inspecton of returns. -3 -7 84
T. D.4582
Reguatons governng the nspecton of ncome, profts, and
capta stock ta returns by the Commttee on Interstate Commerce,
Unted States Senate.
Treasury Department,
Washngton, D. G.
To Coectors of Interna Revenue and Others Concerned:
Pursuant to the provsons of secton 257(a) of the Revenue ct
of 192 secton 55 of the Revenue ct of 1928 secton 55 of the
Revenue ct of 1932 secton 215(e) of the Natona Industra
Recovery ct and secton 701(e) of the Revenue ct of 1934,
ncome and profts ta returns made under the Revenue ct of
1932 on or before the date of the enactment of the Natona Indus-
tra Recovery ct and under the pror Revenue cts, and capta
stock ta returns made under the Natona Industra Recovery ct
and the Revenue ct of 1934, may be nspected by the Commttee
on Interstate Commerce, Unted States Senate, or any duy author-
zed subcommttee thereof, for the purpose of, and to tre e tent
necessary n the nvestgaton of nterstate raroads and affates
wth respect to fnancng, reorganzatons, mergers, and certan
other matters, whch the commttee or an authorzed subcommttee
thereof s authorzed and drected to make by Senate Resouton 71
(Seventy-fourth Congress, frst sesson), passed May 20, 1935. The
nspecton of returns heren authorzed may be by the commttee or a
duy authorzed subcommttee thereof, actng drecty as a com-
mttee or a subcommttee, or by or through such e amners or agents
as the commttee or subcommttee may desgnate or appont. Upon
G
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317
15257, rt. 1090.
wrtten notce by the charman of the commttee or of the author-
zed subcommttee to the Secretary of the Treasury gvng the names
and addresses of the ta payers whose returns t s necessary to
nspect and the ta abe perods covered by the returns, the Secre-
tary and any offcer or empoyee of the Treasury Department sha
furnsh such commttee or subcommttee wth any data reatng to
or contaned n any such return, or sha make such return avaabe
for nspecton by the commttee or subcommttee or by such e -
amners or agents as the commttee or subcommttee may desgnate
or appont, n the offce of the Commssoner of Interna Revenue.
ny nformaton thus obtaned by the commttee or the subcommttee
thereof, whch s reevant or pertnent to the purpose of the nvest-
gaton, may be submtted by the commttee or the subcommttee to
the Senate.
T. . Coodge,
ctng Secretary of the Treasury.
pproved ugust 23, 1935.
rankn D. Roosevet,
The Whte ouse.
CUTI ORD R INSP CTION O INCOM , PRO ITS. ND C PIT L STOCR
T R TURNS Y T COMMITT ON INT RST T COMM RC , UNIT D
ST T S S N T .
y vrtue of and pursuant to the authorty vested n me by secton
257(a) of the Revenue ct of 192 (44 Stat., 9, 51) secton 55 of the
Revenue ct of 1928 ( 45 Stat., 791, 809) secton 55 of the Revenue
ct of 1932 (47 Stat, 1 9, 189), as amended by secton 218(h) of the
Natona Industra Recovery ct (48 Stat., 195, 209) secton 55(a)
and secton 701(e) of the Revenue ct of 1934 (48 Stat., 80, 98,
770) and secton 215(e) of the Natona Industra Recovery ct
(48 Stat., 195, 208), t s hereby ordered as foows:
Income, profts, and capta stock ta returns made under the
Revenue ct of 1934, the Natona Industra Recovery ct, the
Revenue ct of 1932, as amended by the Natona Industra Recov-
ery ct, and the pror Revenue cts sha be open to nspecton by
the Commttee on Interstate Commerce, Unted States Senate, or any
duy authorzed subcommttee thereof, for the purpose of, and to the
e tent necessary n, the nvestgaton of nterstate raroads and
affates wth respect to fnancng, reorganzatons, mergers, and
certan other matters, whch such commttee or subcommttee s
authorzed and drected to make by Senate Resouton 71 (Seventy-
fourth Congress, frst sesson), agreed to May 20, 1935 such nspec-
ton 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 such
commttee approved by me ths date.
rankn D. Roosevet.
The Whte ouse
ugust 23,1935.
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257, rt. 1090.
318
rtce 1090: Inspecton of returns. I -3 -7 85
T. D. 4583
mendment to Treasury Decson 4359, as amended by Treasury
Decsons 4378, 4397, 443 , 4440, 45 4, and 4574, to change the regu-
atons governng the preparaton and pubcty of wrtten decsons
n respect of overassessments of ncome, profts, estate, or gft ta es
aowed n e cess of 20,000.
Treasury Department,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Treasury Decson 4359 (beng reguatons prescrbed by the Secre-
tary and approved by the Presdent, appcabe to the nspecton of
returns under the Revenue ct of 1932 and pror Revenue cts, or
any such ct as amended, and ncorporated as a part of artce 421
of Income Ta Reguatons 77), as amended by Treasury Decson
4378 (C. . II-2, 219), 4397 (C. . II-2, 220), 443 (C. .
III-1, 304) and 4440 (C. . III-1, 305), 45 4 page 313, ths
uetn , and 4574 page 314, ths uetn , s further amended by
changng paragraph numbered 1 thereof to read as foows:
1 . The Commssoner of Interna Revenue sha cause to be prepared a wrtten
decson In every case In whch an overassessment (whether resutng In a re-
fund, credt, or abatement) of an ncome or profts, or estate, or gft ta s
aowed, n e cess of 20,000, and such decson sha be consdered a pubc
record and sha be open to pubc nspecton, durng reguar hours of busness,
n the offce of the Commssoner of Interna Revenue or such offce as be may
desgnate. It sha gve the amount of the overassessment and sha Incude a
bref summary of the reevant facts and a ctaton of the authortes appcabe
thereto. The term overassessment as used In ths paragraph covers ony
such aowances as are n substance overassessments. It does not refer (1) to
an aowance of a |udgment cam (2) to a refund, credt, or abatement aowed
as a resut of a decson (n the nstant case) of a court or of the oard of Ta
ppeas whch has become fna and s avaabe for pubc nspecton, (3) to the
reducton of an assessment aganst an estate because of credts aowed for pay-
ments made to a State or Terrtory or the Dstrct of Coumba, or (4) to the
satsfacton of the assessed amount whether or not n the form of an over-
assessment, as for nstance, dupcate assessments representng the same abty
made aganst a transferor and one or more transferees, or aganst each member
of an affated group of corporatons or aganst a person under more than one
name, or aganst a person because of errors as to descrpton or amount. Under
no crcumstances sha the provsons of ths paragraph be construed as makng
any return, or any part thereof, open to Inspecton, or as authorzng the source
of any ncome, gans, or profts, or the specfc transactons resutng In osses or
e pendtures, to be made pubc nor sha any of the nformaton contaned n
any return or reatng thereto be made pubc e cept n accordance wth, and
to the e tent necessary n carryng out, these reguatons.
. MORG NT U, r.,
Secretary of the Treasury.
pproved ugust 29,1935.
rankn D. Roosevet,
The Whte ouse.
CUTI ORD R PR P R TION ND PU LICITY O WRITT N D CISIONS
IN R Sr CT O O R SS SSM NTS O INCOM , PRO ITS, ST T . ND GUT
T S LLOW D IN C SS O 20.000.
y vrtue of and pursuant to the authorty vested n me bv secton
257(a) of Tte II of the Revenue ct of 192 (ch. 27, 44 Stat., 9,
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319
270, rt. 1204.
51) secton 55 of Tte I of the Revenue ct of 1928 (ch. 852, 45
Stat., 791, 809) secton 55 of Tte I of the Revenue ct of 1932
(ch. 209, 47 Stat., 1 9, 189), as amended by secton 218(h) of the
Natona Industra Recovery ct (ch. 90, 48 Stat., 195. 209) and
secton 55(a) of Tte I of the Revenue ct of 1934 (ch. 277, 48 Stat..
80, 98), t s hereby ordered that wrtten decsons n respect of
overassessments of ncome, profts, estate, and gft ta es aowed n
e cess of 20,000 sha be prepared and sha be open to pubc nspec-
ton n accordance wth the reguatons prescrbed by the Secretary
The Whte ouse,
ugust 9, 1935.
P RT . P YM NT, COLL CTION, ND R UND O T
ND P N LTI S.
S CTION 270. D T ON W IC T S LL
P ID.
INCOM T R NU CT O 182 D CISION OP COURT.
Dstrant Lfe Insurance Poces Incdents of Ownershp
State Statute.
Insurance poces ssued upon the fe of the ta payer and whch
reserved to the nsured the rght to change the benefcares, to
borrow thereon, to surrender, or to forfet them, are sub|ect to
sezure and sae under warrants of dstrant for coecton of unpad
ta es. Such ega ncdents of ownershp are assets of rea vaue
and consttute the nsured the owner of the poces durng hs
fetme, the nterest of the benefcares beng contngent ony.
State statute whch provdes that the benefcary of such a pocy
sha be entted to the proceeds aganst credtors does not affect
the power of the edera Government to dstran aganst the
nsured.
Unted States Dstrct Court, Dstrct of Coorado.
No. 104 7. Margaret R. Cannon, pettoner, v. Raph Nchoas, as Coector of
Interna Revenue, defendant.
No. 104 8. . rown Cannon, pettoner, v. Raph Nchoas, as Coector of
Interna Revenue, defendant.
Stubs, Dstrct udge: Two pettons fed n ths court seek to quash war-
rants of dstrant ssued by the coector of nterna revenue for the dstrct of
Coorado for the coecton of unpad ncome ta assessment for the year 1928,
aganst one . rown Cannon, and under whch he has eved upon and adver-
tsed for sae certan nsurance poces taken out by sad Cannon on hs fe.
Margaret R. Cannon, benefcary under a pocy ssued by the Capto Lfe Insur-
ance Co. on the fe of sad Cannon, as nsured, s pettoner n No. 104 7.
. rown Cannon, as the nsured n a Traveers Insurance Co. annuty con-
rtcue 1204: Coecton of ta by dstrant.
I -31-7 23
Ct. D. 99
pr 1 , 1935.
OPINION.
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270, rt. 1204.
320
tract payabe to hm darng hs fe, hs e ecutors, admnstrators, or assgns,
benefcares, s pettoner n No. 104 8. The correctness of the assessment can
not be, and s not questoned n these proceedngs. y agreement the two cases
were argued and submtted together.
The poces reserve to the Insured the rght to change the benefcares, and
he has kewse the rght to borrow thereon, to surrender and coect ther cash
surrender vaue, or forfet them by nonpayment of premums. The contenton
made s that the poces In queston are the property of the benefcares and
not sub|ect to sezure and sae under warrants of dstraDt drected aganst
the nsured. Ths s so, t s argued, because of a Coorado statute (Sesson
Laws Coorado, 1929, ch. 113, page 408), the matera part of whch provdes:
If a pocy of nsurance, whether heretofore or hereafter ssued, s effected
by any person on hs own fe or on another fe, n favor of a person other than
hmsef, or, e cept n cases of transfer wth ntent to defraud credtors, f a
pocy of fe nsurance s assgned or n any way made payabe to any such
person, the awfu benefcary or assgnee thereof, other than the Insured or the
person so effectng suc nsurance, or hs e ecutors or admnstrators, sha be
entted to ts proceeds and avas aganst the credtors and representatves of
the nsured and of the person effectng the same, whether or not the rght to
change the benefcary s reserved or permtted, and whether or not the pocy s
made payabe to the person whose fe s nsured If the benefcary or assgnee
sha predecease such person.
Chase Natona ank v. Unted States (278 U. S., 327 Ct. D. 40, C. . TII-1,
3081) concerns a ta on the transfer of the net estate of decedents under the
Revenue ct of 1921. The Supreme Court hed the ta vad aganst the estate
of a decedent who had procured poces on hs fe payabe to others, reservng
to hmsef the rght to change the benefcares, and upon whch he pad the
premums. The Court used ths anguage, whch s pertnent n the nstant
case (page 335):
power n the decedent to surrender and cance the poces, to pedge them
as securty for oans and the power to dspose of them and ther proceeds for
hs own beneft durng hs fe whch sub|ects them to the contro of a bank-
ruptcy court for the beneft of hs credtors s by no means the east
substanta of the ega ncdents of ownershp.
In the nstant case the nsured retaned these ncdents of ownershp. They
are assets of rea vaue and consttute the Insured the owner of the poces
durng hs fetme, a concuson that, accordng to Chase Natona ank v.
Unted States, supra, s not affected by the fact that the proceeds of the poces
upon the death of the nsured are not pad by the decedent. urthermore the
Interest of the benefcary at the present tme s not vested but contngent ony,
and sub|ect to be dvested, at any tme before death, by the nsured. ths,
couped wth the fact that the benefcary has pad no consderaton, forces
the concuson that she has no standng n ths controversy whe the Insured
s vng.
The power of the edera Government to ta s practcay unmted, and
of course can not be affected by a State e empton statute, the enactment of
whch presupposes that the nsured has a property nterest under the poces
that otherwse woud be sub|ect to cams of credtors. So uness ths State
statute creates a rue of property n favor of the benefcary, the pettoner
must fa.
In MoOurk v. ye (D. C. . D. Pa.), decded November 28, 1934, not off-
cay reported, under a statute of Pennsyvana substantay the same as here,
the queston was whether a pocy of Insurance havng a cash surrender vaue,
wth the rght to change the benefcary reserved, was sub|ect to dstrant for
payment of nsured s ncome ta . Lkewse the queston was whether the stat-
ute was an e empton statute or estabshed a rue of property. The court hed
that under the aws of Pennsyvana the moneys n queston are the property
of the benefcary and not sub|ect to any e ecuton process aganst the husband,
and not sub|ect to dstrant or e ecuton process aganst the Insured.
I can not foow the reasonng of that case, as t woud seem such a statute
became operatve ony when the benefcary s nterest In the property became
absoute through death, and not whe merey contngent. Certany such a
statute can not affect the rght of the nsured to change the benefcary, and
from that vew t does not affect ownershp, but merey affords protecton
aganst credtors. Therefore, unt adopted or recognzed by Congress, It s
Inappcabe to proceedngs such as we have here.
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321 277 and 278, rt. 1271.
case n pont, and whch seems to have been correcty decded, n Mc evy
et at, v. Commssoner of Interna Revenue, decded by the Unted States oard
of Ta ppeas, Docket No. 73320, promugated anuary 31, 1935, n whch t
Is hed the commuted vaue of amount recevabe by the benefcares under
fe Insurance poces whch the nsured had unt death the rght to surrender
and the rght to borrow, were part of the nsured s gross estate.
The pettons to quash the warrants of dstrant shoud be dened and
e ceptons aowed. It s so ordered.
S CTIONS 277 ND 278. P RIOD O LIMIT TION UPON
SS SSM NT ND COLL CTION O T .
rtce 1271: Perod of mtaton upon assess- I -30-7 10
ment of ta . Ct. D. 994
INCOM ND PRO ITS T R NU CTS O 1017 ND 1918 D CISION O
COURT.
Wavers adty Lmtaton.
Wavers of the statute of mtaton upon assessment and
coecton of ta es for the fsca year endng March 31, 1918, for
whch year orgna and addtona returns had been fed, were
vad athough e ecuted more than fve years after the fng of
the orgna return, where they were requested and e ecuted In
the beef that the statutory perod began to run from the fng
of the addtona return. There was no msrepresentaton at-
tended by nequtabe conduct on the part of the Commssoner,
and the ta payer was not so un|usty treated as to render the
wavers nvad on the ground of mutua mstake of aw or fact,
or Ignorance of ts rghts under the aw, snce t was n truth
Indebted to the Unted States for the ta es Invoved and was fuy
acquanted wth a the reevant facts.
Unted States Crcut Court of ppeas, ourth Crcut.
Cfton Manufacturng Co., appeant, v. Unted States of merca, appeee.
ppea from the Dstrct Court of the Unted States for the Western Dstrct of South
Carona, at Greenve.
pr 2, 1935.
OPINION.
Soper, Crcut udge: Cfton Manufacturng Co., a South Carona cor-
poraton, brought an acton n the dstrct court under secton 24(20) of the
udca Code, as amended by the ct of ebruary 24, 1925 (43 Stat., 972,
28 U. S. C. ., 41(20)), for the refund of ncome and proft ta es for the
fsca year endng March 31, 1918, contendng that the assessment and co-
ecton of the ta es, when made, were barred by the statute of mtatons.
The ta payer, n ts b of compant, prayed that certan ta wavers, e e-
cuted by ts offcers after the perod of mtatons had e pred, be decared
vod upon the ground that they had been obtaned through fase representa-
tons and mutua mstake. The dstrct |udge hed (3 ed. Supp., 508) that
the assessment and coecton of the ta es were not barred, and that the
wavers were vad. Ths court (70 . (2d), 102) affrmed the decree of the
dstrct court wth regard to the perod of mtatons, foowng the de-
csons of the Nnth Crcut n Zeerbach Co. v. cverng ( 9 . (2d), 852) and
Natona Paper Products Co. v. evcrng ( 9 . (2d), 857) but the Supreme
Court (293 U. S., 172, 183, 18 Ct D. 889, C. . III-2, 341 Ct. D. 891, C. .
III-2, 347 ) reversed the decrees n these cases and remanded the pendng
case to ths court n order that the queston of the vadty of the wavers
mght be determned.
The ta payer fed ts return on May 27,1918, under the Revenue ct of 1917,
for the fsca year endng March 31, 1918, showng a ta abty of 171,002.90.
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55277 and 278, rt. 1271.
322
The Revenue ct of 1918 (40 Stat., 1057) became a aw on ebruary 24, 1919,
wth retroactve provsons as of anuary 1, 1918 and thereafter, to wt, on
pr 29, 1919, the ta payer ted an addtona return for the same perod
showng an addtona ta abty of 50, 38.75, whch was duy pad. On
May 25, 192 , another assessment was made, settng forth an addtona def-
cency amountng, wth nterest, to 38,488.07, whch the ta payer pad under
protest on October 15,192 . Ths ast mentoned assessment, the Supreme Court
sad, was eved after the e praton of the 5-year perod of mtatons, pro-
vded by secton 250(d) of the ct of 1918, hodng that the perod shoud be
computed from May 28, 1918, the date of the frst return, and not from pr
29, 1919, the dute of the addtona return. On September 24, 192 , after the
e praton of the perod of mtatons as determned by the Supreme Court, the
coector of nterna revenue demanded the payment of 130,777.27, beng the
amount, wth nterest, of an assessment made n May, 1921, and the ta payer
pad ths sum under protest on October 15, 192 . Wth reference to a arge part
of the sum so pad, a cam n abatement was fed In uy, 1921. It s agreed
that the fng of ths cam n abatement precudes a recovery of so much of
the ta es as was covered by the cam, and that f the ta payer s entted to
recover at a n ths case, the |udgment shoud be for 57,2 5.7 , wth nterest
from October 15, 192 .
On une 25, 1923, more than fve years after the frst return, the ta payer
e ecuted a waver effectve for one year from date, wheren t consented to a
determnaton, assessment, and coecton of the ta es for the year 1918, under
secton 250(d) of the Revenue ct of 1921 (42 Stat., 227). Thereafter, other
wavers were e ecuted on anuary 19, 1924, December 4, 1924, and November
18, 1925, at whch tme the Revenue ct of 1924 ( 43 Stat, 253) was In effect,
contanng smar provsons as to wavers n sectons 277(a)3 and 278(c).
The ta payer contends that under these facts, the wavers were wthout
vadty. It s not dsputed that at the tme they were e ecuted both the offcers
of the ta payer and the Commssoner were under the mpresson that the
statutory perod of mtatons had not e pred, and that otherwse the wavers
woud nether have been requested nor gven. The frst waver was gven n
response to a etter of the Commssoner of une 21, 1923, whch, referrng to a
proposed addtona assessment for the year 1918, requested that the form of
waver ncosed be e ecuted and returned, n order that the Interests of the
Unted States mght not be |eopardzed pendng the consderaton of a bref of
the ta payer fed on March 5, 1923. It Is contended that ths etter nvoved
the msrepresentaton, on the part of the Unted States, that the perod of
mtatons had not e pred, whereby the ta payer was msed, and e ecuted the
wavers under a mstake of aw or, f ths vew Is not tenabe, that the wavers
were e ecuted under a mutua mstake n respect to the ta payer s antecedent
and e stng ega rghts and fnay, that the wavers were gven n gnorance
of the rght sad to have been waved. If any of these grounds can be sustaned,
t s argued that the wavers were nvad and shoud be canceed.
We are unabe to reach the concuson that the statements n the Comms-
soner s etter amounted to such a msrepresentaton as to entte the ta payer
to canceaton. The ta payer rees on the statement of the rue ad down n
Pomeroy s quty ursprudence, secton 847, and In WI ston on Contracts,
secton 1591, to the genera effect that where a mstake of one party as to the
ega effect of a transacton Is nduced, procured, aded or accompaned by n-
equtabe conduct of the other party, even though no fraud or decepton s n-
tended, equtabe reef w be granted. In the pendng case, the request of the
Commssoner, that the frst waver be e ecuted n order that the nterests of the
Government mght not be pre|udced pendng the consderaton of the ta payer s
bref, mped that the perod of mtatons had not then e pred but ths etter
was nnocenty wrtten, for not ony the ta payer, but aso the offcas of the
Government, were under the beef that an assessment and coecton of the
ta coud st egay be made. The etter dd not contan any ncorrect state-
ment as to the tme when the return was fed, or as to any other fact enter-
ng nto a cacuaton of the perod of mtaton. The ta payer had precsey
the same knowedge of a the reevant facts as the Government tsef and there
was no crcumstance, such as a ack of knowedge on the part of the ta payer
as to the fng date of the return, eadng t to rey on the Government s
request as an asserton that the perod of mtatons had not e pred. The case
of Panther Rubber Manufacturng Co. v. Commssoner (45 . (2d), 314), upon
whch the ta payer rees, turns on such a fact
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323 277 and 278, rt. 1271.
It s setted beyond possbty of dspute that a waver gven under secton
250(d) of the Revenue ct of 1921 s not nvad merey because t was e ecuted
after the e praton of the perod of mtatons. (Stange v. Unted States,
282 D. ., 270 Ct. D. 274, C. . -, 414 urnet v. Raway qupment Co.,
282 U. S., 295, 209 Ct. D. 27 , C. . -, 323 rown d Sons v. urnet,
282 U. S., 283, 287 Ct D. 279, C. . -, 274 McDonne v. Unted States,
288 U. S., 420 Ct. D. 54, C. . II-1, 294 everng v. Newport Co., 291
U. S., 485, 488 Ct. D. 804, C. . III-1, 318 .) The wavers n the pendng
case were therefore not neffectua smpy because they were e ecuted too ate.
Moreover, the beef, on the part of the Commssoner, that the perod ran from
the fng of the suppementa rather than from the fng of the orgna return,
was not unreasonabe. In vew of the dversty of opnon amongst the courts
themseves when the queston reached them, the fth, S th, and ghth Cr-
cuts entertanng one opnon, and the ourth and Nnth Crcuts another.
(See Zeerbach v. Unted States, 293 U. S., 172, 17 .) The Commssoner was
guty of no nequtabe or unfar conduct n requestng the waver on the
contrary, t was entrey proper for hm to request and obtan t n the absence
of a fna determnaton that the coecton of the defcency was barred. ( urnet
v. Raway qupment Co., 282 U. S., 295, 303.)
ence the suggeston that there was msrepresentaton, attended by nequ-
tabe conduct on the part of the Commssoner, must fa but the ta payer fur-
ther contends that f ths vew s taken, the transacton was entered Into under
a mutua mstake of aw, gvng ground for equtabe reef, snce the prvate
e stng ega rghts of the ta payer were concerned. The dffcuty of deang
wth the effect of a mstake of aw s thus summarzed n Wston on Contracts,
secton 1581:
There s no porton of the aw of mstake more troubesome than that
reatng to mstake of aw. It s mpossbe to coordnate the cases so as to
produce satsfactory resuts, because the rue tsef dstngushng mstake of
aw from mstake of fact s founded on no sound prncpe. Ignorance of aw
does not e cuse one who has voated a prohbton of the aw from the pena-
tes that the aw mposes. Ths s a necessary rue not ony of the aw of
crmes and torts, but t s generay true aso that a contract forbdden by
tew, or a contract to do an act forbdden by aw, s none the ess unenforceabe
because the partes were Ignorant of the aw or made a mstake n regard
to t, though ths prncpe s not wthout e cepton. Such a rue Is necessary
to enforce the orders of socety but the ony bearng that t has on the
reformaton or rescsson of contracts, or the recovery of payments made under
a mstake s when the contract or payment s tanted wth egaty.
ut the n|ustce of some of the resuts produced thereby (1. e., by the rue
that a mstake of aw affords no ground for reef), has ed to an ncreasng
number of e ceptons whch have to a consderabe e tent destroyed the rue,
and often make t dffcut to determne n what cases It may st be thought
appcabe. The ony way apparent for the aw on the sub|ect to obtan un-
formty and certanty s by the gradua broadenng of these e ceptons unt
they so far coaesce that courts w centure to put mstakes of aw and of
fact on the same footng.
Such an e cepton, for nstance, has been frmy estabshed n the rue that
a mstake as to the meanng of an nstrument whch the partes have e ecuted
Is ground for reformaton, athough the Interpretaton or constructon of a
contract s a queston of aw. (Phppne Sugar do. Co. v. Ph. 1st, 247 U. S.,
38 , 389 Wston on Contracts, secton 1585 Pomeroy, quty ursprudence,
845.) It s dffcut to see any reasonabe dstncton between the bass for ths
rue and that for whch the ta payer here contends, namey, that where partes
enter nto a transacton under a mutua mstake of aw as to ther prvate
rghts, reef from In|ustce caused thereby w be granted for, n the atter
case, t may often occur that e cept for the mstake, the transacton woud
not have been undertaken at a. The Supreme Court Itsef has at east sug-
gested that where the mstake reates to the e stng ega rghts, nterests
and reaton of the partes, resutng from antecedent transactons, t may under
proper crcumstances, be ground for canceaton of nstruments whch they
have e ecuted. Chcago do. Ry. Co. v. Des Mones do. Ry., 254 T . S., 19 , 218.)
s to a mstake of ths sort, Wston says, Contracts, secton 1589:
n e cepton has been made to the rue denyng reef for mstake of aw
governng a stuaton pror to the bargan, where the mstake reates to the
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85277 and 278, rt. 1271.
324
prvate rghts of the partes as dstngushed from a mstake as to the genera
aw. Lord Westbury, In a eadng ngsh case, took ths dstncton. It Is
ad, Ignoranta urs haud e cusat but n that ma m, the word |us s
used n the sense of denotng genera aw, the ordnary aw of the country.
ut when the word |us Is used n the sense of denotng a prvate rght, that
ma m has no appcaton. Prvate rght of ownershp s a matter of fact t
may be the resut aso of matter of aw but If partes contract under a mutua
mstake and msapprehenson as to ther reatve and respectve rghts, the
resut s, that that agreement s abe to be set asde as havng proceeded upon
a common mstake.
The ony mert of ths dstncton between prvate rght and genera aw
Is that t enabes a court of equty to gve reef n a ma|orty of cases where
the partes to a transacton assumed as a bass for t a certan ega stuaton.
most aways such an assumpton Is based on a rue of aw affectng the rea-
tve rghts of the partes. Ther mstake may be Ignorance of a most funda-
menta prncpe of genera aw, but f the effect of that genera rue s to
vary ther prvate rghts, they come wthn the e cepton.
See aso Pomeroy, quty ursprudence, secton 849. or cases n whch
ths e cepton to the genera rue as to mstakes of aw has been apped, see
the cases In the notes to the te ts cted, and partcuary Reggo v. Warner
(207 Mass., 525, 535) Renard v. Cark (91 Mch., 1, 3) State v. Paup (8 rk.,
129) Stoecke v. Rosenhem (87 tL, 1008) aker v. Massey (50 Iowa, 399)
urton v. aden (108 a., 51) Cncnnat I. d W. R. Co. v. Indanapos Unon
Ry. Co. (3 . (2d), 323) akemore v. akenwre (19 y. L. R., 1 19).
It w be observed, however, from an e amnaton of the cases that n a
of them reef was based upon some substanta n|ustce whch otherwse woud
have occurred, as n the surrender of a vauabe Interest, wthout compensaton,
or the payment of money wthout consderaton and t may be fary sad
that at the heart of the rue whch permts equtabe reef from the resuts
of a mstake of aw or of fact, Is found the fundamenta prncpe of equty
that no one sha be aowed to enrch hmsef un|usty at the e pense of
another or, as It has been put n ngand, reef from mstakes of aw w
be granted If there Is any equtabe ground that makes t, under the partcuar
facts of the case, nequtabe that the partes who receve the money shoud
retan t. (Wston on Contracts, secton 1582.) The rea queston then n
the pendng case s whether such In|ustce woud resut from the Govern-
ment s retenton of the money pad by the ta payer as woud ustfy the
canceaton of the wavers. In our opnon, the answer shoud be n the nega-
tve. It s of great sgnfcance that the ta payer was n truth ndebted to
the Unted States for ta es n the amount whch t pad. If t shoud be
reeved from ths payment, It woud be merey because of the faure of the
Unted States to press ts cam wth the promptness consdered reasonabe
by Congress. Thus the stuaton dffers wdey from the decded cases n whch
a faure to rescnd a transacton woud have entaed an un|ust enrchment
of the party aganst whom reef was sought. Some weght may be gven to the
crcumstance that on March 5, 1928, wthn the perod of mtatons, the ta -
payer fed a bref and requested a reconsderaton of ts case, an acton that
may have contrbuted to the faure of the Government to proceed more
prompty. It Is true that the Commssoner s request for a waver dd not
come unt after the perod had e pred, but proceedngs to coect the ta
may we have been taken wthn the statutory perod had the deay occasoned
by the fng of the ta payer s bref not taken pace.
The Supreme Court has not ooked wth favor upon the efforts of ta -
payers to rescnd wavers fed after the e praton of the perod of m-
tatons. In a of the cases herenbefore cted, n whch the vadty of such
wavers was sustaned, t s probabe that both partes were under the m-
presson that the perod had not e pred when the wavers were e ecuted.
Ths seems to be qute cear n the case of urnet v. Raway qupment Co.
(282 U. S., 295, 303). mongst the reasons gven by the ta payer for the
nvadty of the waver there under consderaton, was that It had been
secured by duress. The Commssoner was of the opnon that the perod
had not e pred, and suggested a waver so as to make unnecessary the mpos-
ton of a |eopardy assessment. though the perod of mtatons had n
fact e pred, the court hed that a waver gven under such crcumstances
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325
280, rt. 1291.
was not nvad. The decson does not e pressy show whether the ta payer
was aso of the opnon that the perod of mtatons had not e pred when
the waver was gven but ts vgorous defense of the case ndcates that It
shared the opnon of the Commssoner. Ths case aone seems to be a
suffcent answer to the ta payer s argument heren that the representaton
that the perod of mtatons had not e pred, to be gathered from the Com-
mssoner s request for a waver, was ground for the canceaton of the
waver. The case aso shows that n the opnon of the court, the crcum-
stances dd not dscose that the ta payer had been un|usty treated so as to
make the waver Inoperatve and to ths e tent, supports the vew we now
hod n the pendng case that no such n|ustce to the ta payer has been
proved as woud warrant the canceaton of the wavers on the ground of a
mutua mstake of aw.
nay, there s no bass for the ta payer s contenton that wthout the
nterventon of equty, the wavers were nvad at aw because they were gven
n gnorance of the rght to whch the wavers reated. s we have ponted
out, the ta payer was fuy acquanted wth a the reevant facts, and t
must be assumed that he was cognzant of hs rghts under the aw. It s
ony when crcumstances of the knd herenbefore descrbed are found, that
gnorance of the aw may be taken Into account. The entre dscusson by
the ta payer of the prncpes underyng reef n equty from the conse-
quences of a mstake of aw woud otherwse have been unnecessary.
The |udgment of the dstrct court s affrmed.
S CTION 280. CL IMS G INST TR NS-
RR D SS TS.
rtce 1291: Cams n cases of transferred I -48-7832
assets. G. C. M. 1573
( so Secton 227, rtce 44 .)
R NU CTS O 1918, 1921, 1924, ND 192 .
transferee Is not abe for the denquency penaty where a
decedent faed to fe a return. transferee s abe, however,
for the denquency penaty ncurred by an admnstrator, now
deceased, who faed to fe returns for the estate n process of
admnstraton, such denquency beng that of the estate.
dvce s requested reatve to the asserton of transferee abty,
ncudng 25 per cent penates under secton 317 , Revsed Statutes,
as amended, aganst , former wfe and benefcary of , now de-
ceased, who was admnstrator and benefcary of the estate of C,
deceased.
It appears that C, who ded n the year 1923, faed to make and
fe an ncome ta return for the year 1919. The admnstrator and
benefcary of C s estate, , who ded n 1927, faed to make and
fe ncome ta returns for C and hs estate for the years 1923, 1924,
and 1925. Returns showng defcences n ta es for the years n
queston were prepared by a deputy coector and the ureau added
to the ta es 25 per cent of the amounts as penates for faure to
make and fe returns, as requred by secton 317 , Revsed Statutes.
No penaty was added for the year 1919. 0-day etter was ssued
to , former wfe and benefcary of (admnstrator and benefc-
ary of the estate of C), as transferee, proposng defcences for the
years n queston and penates for years other than 1919 under the
provsons of sectons 280(a) of the Revenue ct of 192 and 317 ,
Revsed Statutes.
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284, rt. 1307.2
32
The queston s whether the 25 per cent denquency penates for
faure to fe returns may be asserted aganst as transferee under
secton 280(a) of the Revenue ct of 192 n vew of G. C. M. 91 2
(C. . -, 2 3), n whch t was hed that nether the estate of a
decedent nor the egatees under hs w are abe for the den-
quency penaty on account of the decedent s faure to fe a return.
The 25 per cent penates provded by secton 317 , Revsed
Statutes, have ong been hed not to survve the decedent whose acts
gave rse to such penates. (See L. O. 1091, C. . 1-1, 422, whch
ctes 17 Op. tty. Gen., 435 Thomas v. Lynch, 2 9 ed., 995 G. C.
M. 91 2, supra.) or the year 1919 t was the duty of the admn-
strator of the estate of C to dscharge any ta es due for that year.
ad the Unted States fed a cam wth the admnstrator for that
ta , t woud not have been entted to recover the denquency
penaty, whch ded wth the decedent. Secton 280 of the Revenue
ct of 192 does not enarge the abty to whch a transferee may
be sub|ected to an amount greater than that whch mght have been
asserted aganst the transferor. Therefore, s not abe for the
denquency penaty for the year 1919.
Wth respect to the years 1923, 1924, and 1925, the stuaton s
dfferent. s to those years, , as admnstrator of the estate of
C, faed to fe returns for the estate n the process of admnstra-
ton. Ths denquency was the denquency of the estate and was
merey the representatve of the estate. The death or remova of
the representatve w not reeve the prncpa ta payer from
penates to whch t may be sub|ected by reason of the omssons
of the representatve. ad the penates Tbeen assessed pror to the
death of the admnstrator, they woud have been assessed aganst
as admnstrator. The assessments not beng aganst personay,
they woud not have abated at hs death but woud have been con-
tnung cams aganst hs successor as admnstrator of the estate
of C. Therefore, the cam for ta es aganst the estate of C for the
years 1923, 1924, and 1925 ncuded the 25 per cent penaty. Snce
s transferee of the estate and s abe for the tota ta es and
addtons to ta es due therefrom, she s abe for the fu amount of
ta es, penates, and nterest whch are owng by the estate.
rthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 284. CR DITS ND R UNDS.
rtce 1307: Credtng of accounts of coectors n cases
of assessments aganst severa persons coverng same
abty.
R NU CT O 192 .
Reguatons 9 amended by addng a new artce. (See T. D. 4581,
page 150.)
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327 1113, rt. 135L
TITL . O RD O T PP LS.
S CTIONS 1003 ND 1004. URISDICTION.
Sectons 1003 and 1004.
revenue act op 1920.
ndng of fact by the oard of Ta ppeas. (See Ct. D. 1022,
page 2 7.)
TITL L G N R L DMINISTR TI PRO ISIONS.
S CTION 1113. LIMIT TIONS UPON SUITS ND
PROC DINGS Y T T P Y R.
rtce 1351: Suts for recovery of ta es erroneousy
coected.
R NU CT OP 1918.
Grounds of cams for refund other than bass of sut. (See Ct. D.
997, page 302.)
rtce 1351: Suts for recovery of ta es I -37-7 90
erroneousy coected. Ct. D. 1010
INCOM ND C SS PRO ITS T R IS D ST TUT S D CISION OP
COURT.
Sut Cams fob Refund Statute of Lmtaton.
Where, after re|ecton of cams for refund whch nvoved severa
Issues, the ta payer fed an appea wth the oard of Ta ppeas
coverng the same years and Invovng one of the ssues presented n
the cams (the others havng been wthdrawn), and the oard de-
cded the ssue n favor of the ta payer, the subsequent acton n
recomputng the ta and makng payment of overassessments was
not a reopenng and reconsderaton of the cams nor a second re|ec-
ton thereof, but was merey a compance wth the decson of the
oard, and sut brought more than two years after the cams were
defntey re|ected and more than fve years after payment of the
ta es n sut (as provded by secton 322 , Revsed Statutes, as
amended) was barred by the statute of mtaton.
Court of Cams of the Unted States.
C. . ovey Co., a Corporaton, v. The Unted States.
une 3, 1935.
opnon.
Gbeen, udge, devered the opnon of the court.
Ths s a sut for refund of ncome and e cess-profts ta pad for the fsca
years endng anuary 31, 1918, 1919, and 1920. Cams for refund were fed
ebruary 1, 1924, for each of these years aegng n substance, among other
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1113, rt. 13 1.
328
thngs, that the Commssoner had faed to propery compute pantffs nvested
capta n that pantff was not aowed anythng for good w and aso that ts
capta had been mpropery reduced by e cessve deductons for deprecaton.
On May 24, 1924, pantff fed an appea to the Commssoner on the varous
ponts of ts ta abty for the years 1917 to 1920, ncusve, n whch the
pantff stated that t wthdrew a ponts at ssue e cept that of good wL
On December , 1924, the Commssoner re|ected pantff s cam for refund for
1919, and on May 13, 1925, by a statement n a so-caed 0-day defcency etter
pantff s cams for refund for the other years In controversy were re|ected.
On uy 11, 1925, pantff fed an appea wth the oard of Ta ppeas from
the Commssoner s decson re|ectng the cams for refund aegng that the
Commssoner erred n hs computaton of nvested capta by refusng to aow
any vaue for good w and on une 22, 192 , the oard hed that the pantff
was entted to have the amount of 200,000 ncuded In ts nvested capta for
good w pad n for stock. s a resut of the decson of the oard of Ta
ppeas, the Commssoner made changes n the amount of nvested capta of
pantff as theretofore f ed by hm and for each of the fsca years 1918, 1919,
and 1920, ncuded n hs cacuaton the Item of 200,000 for good w. avng
recomputed the ta es of these years on ths bass, the Commssoner sgned cer-
tfcates of overassessment for each of the fsca years 1918, 1919, and 1920. On
ebruary 24, 1927, the Commssoner sgned a schedue of refunds and credts
n whch the amounts of the overassessments wth nterest thereon were sted
as refundabe. The amount so sted wth nterest was subsequenty pad to
pantff.
The petton n ths case was fed December 11, 1928, whch s more than two
years after pantff s cams for refund were defntey re|ected and more than
fve years after any of the ta es n sut were pad. It s therefore contended by
defendant that pantff s acton s barred. The pantff contends, on the other
hand, that when In 1927, as a resut of the decson of the oard of Ta ppeas,
the Commssoner made a certfcate of overassessment for each of the years n
controversy, the refund cams were reopened and reconsdered, and that conse-
quenty the pantff s acton was begun In tme.
We have heretofore hed that where an appcaton for reconsderaton s
pendng and the Commssoner makes a parta aowance In the ascertanment
of whch he necessary revews the whoe cam, ths consttutes a reconsdera-
ton of the cam for refund. ut In the case now before us there was no
appcaton for reconsderaton pendng as pantff had specfcay wthdrawn
a ob|ectons aganst the ta es assessed e cept as nvoved n the vaue of the
good w whch t camed shoud have been Incuded n Its nvested capta and
as to whch t had taken an appea to the oard of Ta ppeas. What the
Commssoner dd was not a reconsderaton of the cam for refund, t was
merey a compance wth the decson of the oard of Ta ppeas and a
correcton of the error whch he had made In computng pantff s ta . The
correcton was not the resut of any reconsderaton, t was merey a mathemat-
ca computaton n accordance wth the decson of the oard and we do not
thnk t consttuted a reopenng of the cam.
Nor do we thnk t consttuted a second re|ecton of any part of the cam.
In the case of mercan Safety Razor Corporaton v. Unted States (79 C. CIs.,
141), the pantff had fed a cam for refund whch had been re|ected. There-
upon t fed an appcaton to reopen the cam and took an appea to the oard
of Ta ppeas. The oard of Ta ppeas decded n pantff s favor, and
after ts decson the Commssoner took acton whch the court found to be n
effect a reconsderaton of the whoe cam and aowed the cam In part n
accordance wth the decson of the oard. In the case ast cted we hed that
the statute of mtatons dd not begn to run unt the cam was re|ected on
reconsderaton. It w be observed that ths decson was based on the facts
n the case whch were qute dfferent from those n the case at bar. Whether
there s a reconsderaton and a second re|ecton of the cam must depend on
the crcumstances of the case. (Cf. Mutua Chemca Co. v. Unted States,
78 C. CIs.. 4.) In the nstant case we do not thnk the facts found show
any reconsderaton and concude that pantff s case s barred by the statute
of mtatons.
What we have sad above makes t unnecessary for ns to pass on the conten-
ton of defendant that pantff has faed to show by a preponderance of the
evdence that the Commssoner made any e cessve deductons from nvested
capta for deprecaton n computng the ta es for the years nvoved.
It foows that pantff s petton must be dsmssed, and t s so ordered.
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MISC LL N OUS T S
TITL III. ST T T . (192 )
S CTION 302.
Reguatons 70(1929), rtce 15: Transfers I -49-784
durng fe. Ct. D. 1042
ST T T R NU CT O 192 D CISION O SUPR M COURT.
1. Gboss state Transfer n Trust Reservaton hy Settor of
Power, n Con|uncton wth ant Person, to ter, mend,
or Revoke.
Where the decedent n 1930 created a trust estate, reservng
to hersef the Income for fe, and reservng the rght, wth the
wrtten consent of the trustee and one of the benefcares, to
modfy, ater, or revoke the trust nstrument, the vaue of the
corpus was propery ncuded n the decedent s gross estate under
the provsons of secton 302(d) of the Revenue ct of 192 .
2. Consttutonaty of Statute.
Secton 302(d) of the Revenue ct of 192 , reenactng secton
302(d) of the Revenue ct of 1924, s not arbtrary and unreason-
abe n prescrbng that f, subsequent to the passage of the ct,
the settor of a trust reserved to hmsef, onty wth any person,
the rght to revoke or ater the trust nstrument, the transacton
shoud be deemed to be testamentary n character. Congress may
adopt a measure reasonaby cacuated to prevent avodance of
a ta .
Supreme Court of thk Unted States.
No. 10. Chty T. everng, Commssoner of Interna Revenue, pettoner, v.
Cty ank armers Trust Co., Trustee.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Secoud Crcut.
November 11, 1935.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
The Revenue ct of 192 , secton 302(d),1 provdes:
The vaue of the gross estate of the decedent sha be determned by
ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe, or ntangbe, wherever stuated

(d) To the e tent of any Interest theren of whch the decedent has at
any tme made a transfer, by trust or otherwse, where the en|oyment thereof
Ch. 27. 44 Stat., 0, 70 U. S. C. pp Tte 2 , secton 1094.
(329)
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Regs. 70, rt. 15.
330
was sub|ect at the date of hs death to any change through the e ercse of a
power, ether by the decedent aone or In con|uncton wth any person, to ater,
amend, or revoke, .
The questons for decson are whether the secton requres ncuson n the
gross estate of the vaue of the corpus of a trust estabshed In 1930 where
the creator reserved a power to revoke or modfy, to be e ercsed onty wth
a benefcary and the trustee and whether, If such vaue s to be ncuded
In the gross estate, the secton offends the ffth amendment.
y a wrtng dated ebruary 21, 1930, Gertrude edman ames, a non-
resdent ctzen, transferred securtes to the respondent as trustee, the trust
to ast durng the ves of her two daughters or the survvor of them. The
ncome was to be pad to her unt her death, or unt the termnaton of the
trust, whchever shoud frst occur. fter her death, her husband survvng,
the Income was to be pad to hm. If he dd not outve her, or upon hs
death, the ncome was to be dstrbuted amongst ther ssue per strpes. t
the termnaton of the trust the corpus was to be devered to the husband,
f he were ave f not, to the settor, If vng, or, f she were dead, to the
benefcares at that tme entted to receve the ncome f there were none
such, to the hers at aw of the husband. The trust was Irrevocabe save
that the settor reserved the rght to modfy, ater or revoke t, n whoe or
In part, or to change any benefca nterest, any such revocaton or ateraton
to be effected wth the wrtten consent of the trustee and her husband or,
f the husband were dead, of the trustee and her brother. If they coud not
agree the decson of the husband or of the brother, as the case mght be,
was to be fna. Samue ames, the husband, survved the grantor, whose
death occurred before the termnaton of the trust, and he s n recept of the
ncome.
The pettoner Incuded the vaue of the corpus of the trust n Mrs. ames
gross estate and determned a defcency of ta . The oard of Ta ppeas
reversed, hodng that secton 302(d) dd not appy The Crcut Court of
ppeas affrmed the oard s decson. We granted the wrt of certorar
because the decson beow confcts wth that n another crcut.4 We hod
that the secton covers ths case and as so apped s vad.
The Crcut Court of ppeas thought our decson n Renecke v. Northern
Trust Co. (278 U. S., 339 T. D. 42 1, C. . III-1, 305 )requred the anguage
of the ct to be construed as tantamount to In con|uncton wth any person
not a benefcary. So mted t Is nappcabe to the trust n queston.
The Renecke case nvoved secton 402(c) of the Revenue ct of 1921 (sub-
stantay secton 302(c) of the Revenue ct of 192 ) whch drected the Incu-
son n the gross estate of a property To the e tent of any nterest theren
of whch the decedent has at any tme made a transfer, or wth respect to
whch he has at any tme created a trust. In contempaton of or Intended to
take effect In possesson or en|oyment at or after hs death . It was
hed that a gft beyond the power of the grantor to ater, amend or revoke
coud hot be sad to take effect n possesson or en|oyment at or after hs
death. Conversey, one whch he aone hed the power to revoke or modfy
came wthn the secton, snce, at hs death, substanta nterests passed from
hs contro and were for the frst tme confrmed n others. The case Invoved
nothng more than a determnaton whether the transfers were compete when
made. If they were the statute dd not reach them. ere we have a dfferent
probem, for secton 302(d) of the 192 ct on ts face embraces Mrs. ames
transfer, athough compete when made and thereafter beyond her own unfet-
tered contro.
The respondent says that the secton ought to be construed n the ght of
the anaogous secton 219(g). The atter, part of the ncome ta tte. Is
Where the grantor of a trust has, at any tme durng the ta abe year, ether
aone or n con|uncton wth any person not a benefcary of the trust, the power
29 . T. ., 1141.
74 . (2d), 242.
Commssoner v. Straws (77 . (2d), 401).
Compare Whte v. Poor (75 . (2d), 35 (No. 3 of ths term Ct. D. 1044, page 335.
ths uetn )) and everng v. emhoz (75 . (2d). 24 (No. 14 of ths term (Ct.
D. 1043, page 332, ths uetn)) Lt . Commssoner (72 . (2d), 551) Commssoner
v. Stevens (C. C. . 3, September 17, 1935) (Commerce Cearng ouse edera Ta
Servce, page 10425).
Ch. 130, 42 Stat., 227.
Ch. 27, 44 Stat., 9, 34 U. S. C. pp., Tte 2 , secton 9 0.
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331
Regs. 70, rt. 15.
to revest In hmsef tte to any part of the corpus of the trust, then the n-
come of such part of the trust for such ta abe year sha be ncuded n com-
putng the net ncome of the grantor. The two sectons have a cognate pur-
pose but they e hbt marked dfferences of substance. The one speaks of a
power to be e ercsed wth one not a benefcary the other of a power to be
e ercsed wth any person. The one refers to a power to revest the corpus n
the donor the other has no such mtaton. It s true, the report of the
Ways and Means Commttee on secton 302(d) sad ths provson s In
accord wth the prncpe of secton 219(g) of the b whch ta es to the
grantor the ncome of a revocabe trust. ut to credt the asserton that
the dfference n phraseoogy s wthout sgnfcance and n both sectons Con-
gress meant to e press the same thought, woud be to dsregard the cear ntent
of the phrase any person empoyed In secton 302 (d). We are not at berty
to construe anguage so pan as to need no constructon,10 or to refer to com-
mttee reports where there can be no doubt of the meanng of the words used.
The secton appes to ths transfer.
We are ne t tod that f the ct means what t says t ta es a transfer as
one rakng effect at death though made pror to death and compete when
made that to do ths s arbtrary and deprves the ta payer of property
wthout due process.
The secton was frst ntroduced nto the Revenue ct of 1924, and reenacted
n that of 192 . Mrs. ames created her trust n 1930. She was, therefore,
upon notce of the aw s command, and there can be no cam that the statute
s retroactve n ts appcaton to her transfer.
The nqury s whether t s arbtrary and unreasonabe to prescrbe for the
future that, as respects the estate ta , a transfer, compete when made, sha
be deemed compete ony at the transferor s death, f he reserves power to
revoke or ater e ercsabe |onty wth another.
The respondent nssts that a power to reca an absoute and compete gft
ony wth the consent of the donee s n truth no power at a that n such
case the so-caed e ercse of the power s equvaent to a new gft from the
donee to the donor. nd so t s camed that the statute arbtrary decares
that to e st whch n fact and aw s none stent. The poston s untenabe.
The purpose of Congress n addng cause (d) to the secton as t stood n an
earer ct was to prevent avodance of the ta by the devce of |onng wth
the grantor n the e ercse of the power of revocaton some one whom he be-
eved woud compy wth hs wshes. Congress may we have thought that a
benefcary who was of the grantor s mmedate famy mght be amenabe to
persuason or be nduced to consent to a revocaton In consderaton of other
e pected benefts from the grantor s estate. Congress may adopt a measure
reasonaby cacuated to prevent avodance of a ta . The test of vadty n
respect of due process of aw Is whether the means adopted s approprate to
the end. egsatve decaraton that a status of the ta payer s creaton
sha, n the appcaton of the ta , be deemed the equvaent of another status
fang normay wthn the scope of the ta ng power, f reasonaby requste
to prevent evason, does not take property wthout due process. ut f the
means are unnecessary or napproprate to the proposed end, are unreasonaby
harsh or oppressve, when vewed n the ght of the e pected beneft, or arb-
trary gnore recognzed rghts to en|oy or to convey ndvdua property, the
guarantee of due process s Infrnged.
Iustratons are not ackng of cases fang on ether sde of the ne.
Congress may requre that property transferred n contempaton of death,
athough the transfer s so remote n tme as not to compy wth the requre-
ments of a gft causa morts, sha nevertheess be treated as part of the
estate for purposes of ta aton: ths for the preventon of evason and the
gvng of practca effect to the e ercse of admtted power. Ths Is true
despte the fact that the statutory prescrpton embraces gfts nter vvos whch
are n fact fuy e ecuted, rrevocabe and can not be defeated.1
Compare Porter v. Commssoner (288 U. S., 43 ).
. R. No. 179, SI ty-cgbt Congress, frst sesson, pace 28.
amton v. Rathbone (175 U. S., 414, 419) Thompson v. Unted States (24 U. S.,
547, 551).
Wbur v. Unted States (284 U. S., 231, 237).
Mchos v. Coodge (274 U. S.. 531. 542 T. D. 4072, C. . I-2. 351 ) Mken v.
Unted States (288 0. S.. 15. 20 Ct. D. 820. C. . -, 472 ) Unted States v. Wes
(283 U. S.. 102, 11 fCt. D. 340, C. . -, 475 ).
Unted States v. wes (supra).
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Regs. 70, rt. 15.
332
though property receved by gft from another Is capta n the hands of
the donee the gan upon a sae may be measured by the cost to the donor
rather than the vaue at the tme of acquston by the donee.
It s competent for Congress, n order to avod the evason of ta , to decare
that when one has paced hs property n trust sub|ect to a rght of revocaton n
hmsef and another who Is not the benefcary he sha, nevertheess, be deemed
to contro the property n such sense that the ncome therefrom sha be
treated as hs ncome for the evyng of a ta . So aso where an rrevocabe
trust s estabshed to pay for nsurance on the settor s fe, to coect the pocy
upon hs death, and to hod or appy the proceeds for the beneft of hs de-
pendents, Congress may decare the ncome of the trust fund ta abe to the
settor as part of hs own ncome.1
In the nstances cted the power to evy an e cse upon the testamentary
transfers or to ta Income was conceded. To effectuate the e ercse of ths
admtted power and to prevent evason Congress was hed to have acted reason-
aby n ncudng wthn the sweep of the statute a status or an act not normay
wthn ts reach.
There are, however, mts to the power of Congress to create a fcttous
status under the guse of supposed necessty. Thus t has been hed that an
act creatng a concusve presumpton that a gft made wthn two years pror to
death was made by the donor In contempaton of death, and requrng the vaue
of the gft to be ncuded n computng the estate of the decedent sub|ect to
transfer ta , s so grossy unreasonabe as to voate the ae process cause of
the ffth amendment. In the same category fas a statute seekng to ta the
separate ncome of a wfe as Income of her husband.
In vew of the evdent purpose of Congress we fnd nothng unreasonabe or
arbtrary n the provsons of secton 302(d) of the Revenue ct of 192 as
apped n the crcumstances of ths case. It was approprate for Congress to
prescrbe that f, subsequent to the passage of that ct, the creator of a trust
estate saw ft to reserve to hmsef onty wth any other person the power of
revocaton or ateraton, the transacton shoud be deemed to be testamentary n
character, that Is, treated for the purposes of the aw as Intended to take effect
n possesson or en|oyment at the death of the settor.
The |udgment s reversed.
Mr. ustce an Devantbr, Mr. ustce McReynods, Mr. ustce Suther-
and, and Mr. ustce uteb are of opnon that the |udgment shoud be
affrmed.
Reguatons 70(1929), rtce 15: Transfers I -49-7847
durng fe. Ct. D. 1043
ST T T R NU CT O 192 D CISION O SUPR M COURT.
1, Gross state Transfer n Trust Reservaton of Power, by
Decedent one or n Con|uncton wth ant Person, to
ter, mend, or Revoke.
The decedent and members of her famy n 1918 e ecuted a trust
nstrument under the terms of whch she was to receve, for her
fe, dvdends upon the stock whch she contrbuted to the trust
estate, wth power by w to appont the stock so contrbuted,
whch power she e ercsed by a bequest of a her property to her
husband. The trust Instrument provded for termnaton of the
trust upon the occurrence of certan events, one of whch was the
e ecuton of a wrtten nstrument by a the benefcares, other
than testamentary appontees, decarng the trust term at an end.
Such a provson s not the equvaent of the reservaton of a
power, by decedent aone or n con|uncton wth any person, to a-
ter, amend, or revoke, wthn the meanng of secton 302(d) of
Taft v. owers ( U. S., 470, 483 Ct. D. 49, C. . III-1, 22 ).
Renecke v. SmUh (2.10 II. S.. 172, 177).
urnet v. We (580 U. S., 70).
ener v. Donnan (285 U. S., 312 Ct. D. 478, C. . I-1, 324 ). Compar
Schesnger v. Wsconsn (270 U. S., 230).
oeper v. Ta Commtton (284 U. S., 20 ).
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333
Regs. 70, rt. 15.
the Revenue ct of 192 , and the decedent s nterest In the corpus
of the trust may not be ncuded n her gross estate.
2. Retroactve ppcaton of Statute.
Where a trust estate was created In 1918, wth no power re-
served by whch the decedent aone mght revoke, ater, or amend
the trust Instrument, the transfer was compete when the trust
was created, and the appcaton of secton 302(d) of the Revenue
ct of 1928 woud be retroactve and In voaton of the ffth
amendment to the Consttuton.
Supreme Court of the Unted States.
No. 14. Guy T. everng, Commssoner of Interna Revenue, pettoner, v.
Wademar R. etnhoe.
On wrt of certorar to the Unted States Court of ppeas for the Dstrct of Coumba.
November 11, 1935.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
Ths case, ke No. 10 Ct. D. 1042, page 329, ths uetn , arses under
secton 302(d) of the Revenue ct of 192 . The respondent s admnstrator
and soe benefcary of the estate of hs wfe, Irene C. emhoz. In 1918
she, her father and mother and her brothers and ssters |oned n an n-
denture conveyng to a trustee a of the shares of stock n the Patrck
Cudahy amy Co. er contrbuton was 999 shares, the dvdends from whch
the trustee was to receve, and pay, ess e penses, to Mrs. emhoz for fe,
remander to her appontee by w and remander to her ssue and n event
she or any other subscrber shoud de wthout Issue the net dvdends on the
stock devered to the trustee by such decedent were to be pad to the
survvng subscrbers or ther ssue vng at the tme of dstrbuton propor-
tonatey by rght of representaton.
The paragraph of the ndenture reatve to the termnaton of the trust s:
fth: The term of the prmary trust hereby created sha end (1) upon
the death of the ast survvng grandchd of Patrck and nna M. Cudahy,
they beng then deceased, or (2) upon devery to the sad trustee of a wrtten
nstrument sgned by a of the then benefcares, other than testamentary
appontees, decarng sad trust term at an end, or (3) upon devery to sad
trustee of a copy (certfed by the presdent or secretary of the Patrck
Cudahy amy Co. and under ts corporate sea) of a resouton adopted by
unanmous vote of the board of drectors of sad corporaton decarng sad
trust term at an end, whereupon and n ether of sad events the sad trustee
sha dstrbute the capta stock of sad the Patrck Cudahy amy Co. to
the benefcares then entted to receve the net dvdends thereof other than
testamentary appontees e ceptng the shares to the dvdends upon whch such
testamentary appontees are entted, whch sha be hed by sad trustee as
herenbefore provded.
The term of the prmary trust hereby created sha aso termnate upon the
dssouton of sad the Patrck Cudahy amy Co. n the manner and for
any of the causes provded by aw, whereupon the trustee sha dstrbute a
the proceeds and assets by It receved upon the qudaton of sad corporaton
to the benefcares other than testamentary appontees then entted to receve
net dvdends or ncome n the proporton n whch they are severay entted,
e ceptng the proceeds and (or) assets of shares to the net dvdends or ncome
upon whch testamentary appontees are entted, whch sha contnue to be
hed n trust as herenbefore provded.
The term of the prmary trust hereby created sha aso termnate upon
the e tncton of ssue of the sad Patrck and nna M. Cudahy, they beng
then deceased, whereupon the sad trustee sha convey and transfer the stock
of sad the Patrck Cudahy amy Co. to the Wsconsn Trust Co. as trustee, to
have and to hod the same upon the trusts and for the uses and purposes em-
braced n a certan resouton or decaraton of trust adopted by the board of
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Regs. 70, rt. 15.
334
drectors of the Wsconsn Trust Co. May 24, 1915, estabshng a certan com-
munty trust known as the Mwaukee oundaton for admnstraton and ds-
trbuton as n sad trust decaraton prescrbed and defned, sub|ect, however,
to any e stng vad testamentary appontments made by subscrbers hereto
as herenbefore provded.
Irene C. emhoz eft a w bequeathng a her property to respondent.
The Supreme Court of Wsconsn hed ths a vad e ercse of her power of
appontment under the trust deed. The pettoner determned that the vaue
cf the 999 shares shoud be ncuded n her gross estate. The oard of Ta
ppeas reversed ths determnaton.1 The Unted States Court of ppeas for
the Dstrct of Coumba, to whch an appea was taken pursuant to stpuaton
for hearng by that court, affrmed the oard. We granted certorar.
What s sad n No. 10 shows that the transfer was compete when the trust
was created n 1918. The features whch dfferentate ths case are the absence
of a reserved power of revocaton or ateraton and the retroactve operaton
of the ct. ther requres a decson that the corpus of the trust may not be
ncuded n the gross estate.
The words of secton 302(d) are, where the en|oyment (of the transfer)
was sub|ect at the date of hs death to any change through the e ercse of a
power, ether by the decedent aone or In con|uncton wth any person, to ater,
amend, or revoke . The agreement under consderaton contans no
such power as that descrbed. Lke every we drawn nstrument t embodes
provsons for the termnaton of the trust. n e amnaton of paragraph ffth
shows that these were, n the man, such as any farsghted settor woud empoy.
Snce the benefcares were the ssue of Patrck and nna Cudahy t was nat-
ura to provde that upon the e tncton of ssue the trust shoud termnate
and the prncpa be turned over to a secondary chartabe trust. Inasmuch as
the corpus comprsed ony the shares of a corporaton there was nothng out
of the ordnary n requrng that the trust termnate upon dssouton of the
company and that the proceeds of qudaton be dstrbuted amongst the then
benefcares. It was not unnatura to drect that the trust shoud end f the
managers of the company shoud unanmousy so decde. nd termnaton upon
the death of the ast survvng grandchd of Patrck and nna Cudahy, they
beng then deceased, s certany not unusua.
The pettoner, however, ptches upon the ony remanng event of termna-
ton, assertng t to be the equvaent of a power to revoke, or to amend, to be
e ercsed by the settor wth others. Ths Is found In the cause provdng that
the devery to the trustee of a wrtng sgned by a the then benefcares (other
than testamentary appontees) decarng such purpose, sha be effectve to end
the trust. e ponts out that such a wrtng mght have been e ecuted by
Mrs. emhoz and her cobenefcares whe she was ave, wth the effect of
revestng n her the shares whch she had devered nto the trust. Ths argu-
ment overooks the essenta dfference between a power to revoke, ater or
amend, and a condton whch the aw Imposes. The genera rue Is that a
partes n nterest may termnate the trust The cause n queston added
nothng to the rghts whch the aw conferred. Congress can not ta as a trans-
fer ntended to take effect n possesson or en|oyment at the death of the settor
a trust created n a State whose aw permts a the benefcares to termnate
the trust.
nother and more serous ob|ecton to the appcaton of secton 302(d) In the
present nstance s Its retroactve operaton. The transfer was compete at the
tme of the creaton of the trust. There remaned no Interest n the grantor.
She reserved no power In hersef aone to revoke, to ater or to amend. Under
the Revenue ct then n force the transfer was not ta abe as ntended to take
effect n possesson or n en|oyment at her death. (Renecke v. Northern Trust
Co., 278 U. S., 339 T. D. 4281, C. . III-1, 305 .) If secton 302(d) of the
ct of 192 coud fary be consdered as ntended to appy n the nstant case
ts operaton woud voate the ffth amendment (Nchos v. Coodge, 274 U. S.,
531 T. D. 4072, O. . I-2, 351 .)
The |udgment s affrmed.
Mr. ustce randes, Mr. ustce Stone, and Mr. ustce Cabdozo concur In
the resut on the ground ast stated n the opnon.
1 28 . T. ., 1 5.
75 . (2d), 245.
Restatement of the aw of trusts, sectons 33T, 338. We are referred to no authorty
to the contrary In Wsconsn, the pace of the transacton.
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335
egs. 70, rt. 15.
Reguaton: 70(1929), rtce 15: Transfers
durng fe.
I -49-7848
Ct. D. 1044
estate ta revent|e act op 192 decson of supreme court.
1. Gross state Transfer n Trust Reservaton of Power by
Decedent, one or n Con|uncton wth any Person, to
ter, mend, or Revoke.
The decedent In 1919 conveyed property to hersef, her son, and
a dsnterested person, as trustees, the decaraton of trust provd-
ng for the payment of one haf the net ncome to her durng her
fe and the other haf unt her death, and after that event the
whoe, In equa shares to such of her chdren as shoud be vng
at the tme of each payment, and to the appontees of any deceased
chd, and, In defaut of appontment, to the vng ssue of a de-
ceased chd. The decaraton further provded for the termnaton
of the trust at any tme by the trustees. No power was reserved
by the settor to modfy the terms of the trust, and the power to
termnate was never e ercsed. In 1920 the settor resgned as
trustee and her daughter w s apponted, upon whose resgnaton
n 1921 the settor was apponted by wrtten nomnaton of the
other trustees and wth the approva of a the benefcares, and she
contnued as trustee unt her death, n 1931. Under these crcum-
stances, the power to termnate the trust was acqured by the set-
tor soey by vrtue of the acton of the other trustees and the
benefcares and not by vrtue of any power reserved to hersef as
settor n the orgna decaraton of trust, and secton 302(d) of
the Revenue ct of 192 has no appcaton.
2. Retroactve ppcaton of Statute.
Where a trust estate was created n 1919, wth no power reserved
by whch the decedent aone mght ater, amend, or revoke the
trust nstrument, the transfer was compete when the trust was
created, and the appcaton of secton 302(d) of the Revenue ct
of 192 woud voate the due process cause of the ffth amend-
ment to the Consttuton.
No. 3 . Thomas W. Whte, former Coector of Interna Revenue, pettoner, v.
Mary deade Poor et a., Survvng ecutors.
On wrt of certorar to the Unted States Crcut Court of ppeas for the rst Crcut.
Mr. ustce Roberts devered the opnon of the Court.
Ths case presents questons smar to those In evcrng v. emhos, No. 14
Ct D. 1043, page 332, ths uetn .
In 1919 deade . Sargent conveyed property to three trustees, who were
hersef, rthur . Sargent, her son, and a thrd person not connected wth the
famy. Contemporaneousy the trustees e ecuted a decaraton of trust by the
terms of whch they were to pay one haf the net Income to Mrs. Sargent durng
her fe and the other haf unt her death, and after that event the whoe, In
equa shares, to such of her three chdren as shoud be vng at the tme of
each payment, and to the appontees of any deceased chd, and n defaut of
appontment, to the vng ssue of a deceased chd. The trust was to termnate
upon the death of the ast survvor of the settor and her three chdren, and
thereupon the corpus was to be dvded In specfed shares amongst the ssue,
ne t of kn, or appontees of the chdren. ach chd was gven a genera power
of appontment by w over one-thrd of the prncpa. Mrs. Sargent ded
anuary 22, 1931, eavng her three chdren to survve her. er w was
probated and the respondents are her e ecutors. The decaraton of trust con-
tans a power to termnate, n these words:
Ths trust may be termnated at any tme ether as to the whoe or as to
any part of the property hed n trust hereunder, by the person or persons who
Supreme Court of the Unted States.
November 11, 1935.
OPINION.
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Regs. 70, rt. 15.
33
sha then be trustees hereunder, such termnaton to be evdenced by a wrtten
decaraton sgned, seaed and acknowedged by them and duy recorded n the
regstry of deeds for the county of Suffok, settng forth specfcay the property
as to whch such termnaton Is to take effect, and n that event the trusts
decared hereunder sha as to such property be at an end and such property
sha be pad over and conveyed, free and dscharged of a trusts, to the sad
deade . Sargent, If she be then vng, and f she be not then vng one
share sha be pad over and conveyed to each of her chdren who sha then
be vng, and a ke share sha be pad over and conveyed to the appontees by
w of each of her chdren who sha then have ded makng such appontment,
or fang such appontment, to the ssue of such deceased chd then vng,
such Issue takng by rght of representaton.
No power was reserved by Mrs. Sargent to modfy the terms of the trust, and
the rected power was never e ercsed.
The agreement drected that f any trustee shoud de, resgn or be unabe to
act, a successor shoud be apponted by the survvng trustees by a wrtten In-
strument approved by the then vng chdren of Mrs. Sargent. In 1920 the
settor resgned as trustee and a daughter was apponted to f the vacancy.
fter servng for one year she resgned and Mrs. Sargent was apponted to f
the vacancy thus occasoned and contnued as a trustee unt her death. The
decedent s son, who was a trustee, had a vested nterest In an undvded share
of the ncome and a power to appont by w hs share of the ncome and one-
thrd of the corpus.
The Commssoner of Interna Revenue rued that the vaue of the trust
prncpa shoud be Incuded n the gross estate. The respondents pad the
ta under protest and fed a cam for refund, whch the Commssoner re-
|ected. They brought sut In the dstrct court, whch hed the transfer dd
not come wthn secton 302(c) of the Revenue ct of 192 , as one made n
contempaton of death, and was not ta abe under secton 302(d).1 The
court aso rued that to Impose an e cse ta on the transfer by a statute
enacted after the transfer was compete woud consttute a takng of property
wthout due process n voaton of the ffth amendment.
The pettoner appeaed from a |udgment n favor of the respondents, and
the Crcut Court of ppeas affrmed, hodng that the power n queston was
not a power to ater, amend or revoke wthn the meanng of secton 302(d).
s n No. 14, the decaraton of trust In ths case, techncay speakng,
contaned no power to revoke, amend or ater the trust. What the Instrument
dd was to make t possbe for the trustees actng |onty to termnate the
trust at any tme. The pettoner nssts that as Mrs. Sargent was one of
the trustees named n the decaraton the power to termnate, whch he vews
as the equvaent of a power to ater, amend or revoke, was, strcty speakng,
odged n the settor and two other persons. e says, therefore, that these
facts make the transacton ta abe under secton 302(d). The respondents
repy that f the secton be strcty construed t appes ony to a transfer
where the en|oyment thereof s sub|ect to a power to ater, amend or revoke
and that the nstant transfer was sub|ect to no such power, but to a power
to termnate. The crcumstances about to be mentoned render t unnecessary
to consder ether contenton.
Mrs. Sargent resgned as a trustee n 1920 and was succeeded by her
daughter, one of the benefcares. When, a year ater, the daughter resgned
a new trustee coud be apponted ony by the wrtten nomnaton of the two
remanng trustees wth the approva of a the benefcares of the trust
y such concerted acton Mrs. Sargent was aga n apponted a trustee. She
then acqured any power for the future to partcpate n a termnaton of the
trust soey by vrtue of the acton of the other trustees and the benefcares
and not n any sense by vrtue of any power reserved to hersef as settor n
the orgna decaraton of trust. We thnk, therefore, that nether techncay
nor n substance does the power to termnate as t e sted from 1921 to the (ate
of Mrs. Sargent s death fa wthn secton 302(d).
What has been sad n No. 14 requres a rung that the secton, f hed to
appy to ths transfer, offends the due process cause of the ffth amendment.
|udgment affrmed.
Mr. ustce kandes, Mr. ustce Stonk, and Mr. ustce Cabdozo concur
In the resut
1 R . Supp.. 993.
75 . (2d), 33.
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337
Regs. 70, rt. 15.
Reguatons 70(1929), rtce 15. Transfers
durng fe.
I -49-7848
C.D. 1044
ST T T NU CT O 1920 D CISION O SUr M COURT.
1. Gross state Transfer n Trust Transfer Intended to Take
ffect n Possesson or n|oyment at or fter Death
Possbty of Reverter.
The decedent n 1921 created separate trusts for the beneft of
hs four chdren, namng hmsef as trustee, the net ncome to
be pad n desgnated amounts to the benefcares. ach trust
nstrument provded that f the benefcary shoud predecease the
decedent, the trust property shoud revert to the grantor to be
hs mmedatey and absoutey, and that f the decedent prede-
ceased the benefcary the property shoud Immedatey and abso-
utey become the benefcary s, and n ether such case the trust
shoud then cease. The decedent ded n 1928, the benefcares sur-
vvng. The mere possbty of a reverter dd not stamp the trans-
fer as one ntended to take effect n possesson or en|oyment at or
after the decedent s death, wthn the meanng of secton 302(c) of
the Revenue ct of 192 .
2. Gross state Transfer n Trust Transfer Made n Con-
tempaton of Death.
The decedent, at the age of 7 , seven years before hts death,
created trusts for the beneft of hs chdren, beng then n e ceent
heath, attendng reguary to hs busness, and unnfuenced by
the thought of death. Upon the facts n the record (there beng
a confct n the fndngs of the ower courts), whch facts show
ony that the decedent s motves n creatng the trusts were to
make the chdren ndependent and to avod the hgh ncome surta ,
the transfers were not made n contempaton of death wthn
the meanng of secton 302(c) of the Revenue ct of 192 .
Lous . ecker, Coector of Interna Revenue, pettoner, v. St. Lous Unon
Trust Co. and Wam dwn Guy, ecutors of the state of Wam vans
Guy, Deceased.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
Mr. ustce Sutherand devered the opnon of the Court.
The decedent n 1921 e ecuted separate decaratons of trust n favor of
each of hs four chdren, conveyng to hmsef as trustee certan securtes.
e ded In 1928, at whch tme the entre trust estate conveyed by the four
trusts amounted to neary a mon doars, whch amount was Incuded by
the Commssoner of Interna Revenue as a part of the gross estate of the
decedent and an addtona estate ta assessed accordngy. The e ecutors,
havng pad the addtona ta , brought ths acton n a edera dstrct court
sttng In Mssour to recover the amount The dstrct court dened recovery
upon the grounds that the transfer effected by each decaraton of trust was
made n contempaton of death and that t was ntended to take effect n
possesson or en|oyment at or after decedent s death.
The court of appeas, after a very fu revew of the facts and authortes,
reversed the |udgment. (7 . (2d), 851.) The case s here on certorar.
The decaratons of trust were n dentca terms. y each the grantor
decared that he hed In trust for the person named certan property whch
was descrbed. copy of one of them s set forth In the opnon of the court
beow. The trust nstrument gave the trustee usua dscretonary power wth
respect to sae of the trust property, renvestment of proceeds, coecton of
Supreme Court of the Unted States.
November 11, 1935.
opnon.
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Regs. 70, rt. 15.
338
rents. Income and profts, payment of ta es and e penses Incdent to the
care, preservaton and management of the property and provded that he
shoud pay to the benefcary an aowance of 300 a month, whch mght be
ncreased or decreased from tme to tme In hs dscreton. Income not
dstrbuted was to be added to the prncpa. The fna cause of the decara-
ton provded:
. (a) If the sad benefcary shoud de before my death, then ths trnst
estate sha thereupon revert to me and become mne mmedatey and abso-
utey, or (b) If I shoud de before her death, then ths property sha there-
upon become hers mmedatey and absoutey and be turned over to her and
n ether case ths trust sha cease.
The Government presents for our determnaton two questons whether,
under the provsons of secton 302(c), Revenue ct of 192 , a transfer of
the property under each of the nstruments here nvoved, (1) was ntended to
take effect n possesson or en|oyment at or after the death of the grantor
(2) was made n contempaton of death.
rst. The frst of these questons s setted by our decson |ust rendered n
the case of evcrng v. St. Lous Unon Trust Co. ct a. Ct. D. 1047, page 339,
ths uetn . y the decaraton of trust here under revew, the ega tte,
possesson and contro of the trust estate passed rrevocaby from the grantor
as an ndvdua to hmsef as trustee. The effect Is no dfferent than f the
trustee had been another person. (Cf. Renccke v. Trust Co., 278 U. S., 339, 34
T. D. 42 1, C. . III-1, 305 .) y the fna paragraph of the decaraton,
quoted above, the grantor does not retan any nterest n the property, but,
recognzng the competeness of the transfer, he provdes that the property
sha revert to hm n case the benefcary sha predecease hm. The provson
that the trust estate sha revert n case of the predecease of the benefcary
removes any doubt as to the competeness of the transfer, f otherwse there
woud be any. The queston, therefore, s whether the mere possbty of a
reverter stamps the transfer as one Intended to take effect In possesson or
en|oyment at or after the death of the grantor. The decson |ust rendered
answers ths queston n the negatve.
Second. The transfer to the trustee was compete and became effectve when
made, seven years before the death of the decedent. The factor whch brngs
a Rft nter vvos wthn the reach of secton 302(c) wth respect to transfers
made n contempaton of death s to be found n the transferor s motve.
(Unted States v. Wes, 283 U. S., 102, 117 Ct D. 340, C. . -, 475 .)
Death must be contempated, that s, the motve whch nduces the trans-
fer must be of the sort whch eads to testamentary dsposton. The
queston, necessary, s as to the state of mnd of the donor. If t
s the thought of death, as a controng motve promptng the dsposton of
property, that affords the test, t foows that the statute does not embrace gfts
nter vvos whch sprng from a dfferent motve. (Page 118.) The opnon
proceeds to gve ustratons of those motves whch have reference to fe
rather than to death as, for e ampe, the desre to be reeved of respons-
bty to have chdren ndependenty estabshed wth competences of ther
own. In each case the crcumstances are to be scrutnzed n order to dscover
the domnant motve of the donor In the ght of hs body and menta
condton. (Page 119.)
In the present case the dstrct court found that the motve of decedent was
to decrease hs ncome ta by dstrbutng a porton of hs property among
the four trusts and, at the same tme, to make provson for the dstrbuton
of the property to hs chdren at decedent s death, and concuded therefrom
that the transfer was made n contempaton of death. The crcut court of
appeas reached the opposte concuson. It found on the evdence that the
decedent, n makng the trusts, was actuated by two motves (1) to make
hs chdren Independeut (2) to avod hgh surta es on hs ncome and that
both of these motves were assocated wth fe. vdence that the decedent
was n any way nfuenced n what he dd by the thought of death, that court
sad, was entrey ackng.
It Is true that the decedent at the tme of makng the trusts was 7 years of
age. ut the evdence shows ceary that he was In e ceent heath, attendng
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339
Regs. 8, rt. 15.
reguary to busness, apparenty was not ookng forward n any way to hs
death, came of a very ong-ved famy, e pected to ve we beyond the age
of 90, and n fact ved seven years after makng the trusts. The benefcares
were a past 21 years of age, and the record shows ony that the grantor s ob-
|ects were to make them aowances n order to get rd of the nusance of
treatng them as chdren, make them ndependent so they woud know what
they were to get each year, and, as he had ampe ncome of hs own, to avod
the hgh surta and make each of hs chdren pay a ta on the ndependent
ncome receved.
We are unabe to fnd anythng n the record whch confcts wth the state-
ment of the court beow that evdence that decedent was In any way nfuenced
by the thought of death was whoy ackng. The Government argues that the
fndng of the tra court n respect of the matter s the same as that of the
Commssoner, and that ths crcumstance gves addtona weght to that
court s fndng. Our attenton has not been caed to anythng n the record
whch shows that the Commssoner s determnaton rested upon such a fnd-
ng. The petton aeges that the reason whch brought about the Comms-
soner s determnaton was that the transfer was one whch dd not take
effect n possesson or en|oyment unt at or after the death of the decedent,
and that he so advsed the respondents by etters. The answer affrmatvey
aeges that the Commssoner s reasons were that there had been no transfer
of such property durng the fetme of the decedent that such property was
transferred at and as a resut of the death of the decedent and that such
transfer was ntended to take effect at or after the death of the decedent,
and that the Commssoner advsed respondents accordngy. We are unabe
to fnd anythng In the record whch ustfes the concuson that the Comms-
soner specfday determned that the transfers were made n contempaton
of death, or, Indeed, that there was any evdence before hm on that sub|ect.
In ths state of the record t can not be sad that the fndng of the tra
court In ths regard obtans any support from the determnaton of the Com-
mssoner. The stuaton smpy s that the fndngs of the ower courts upon
the matter are In confct and a carefu e amnaton of the evdence contaned
In the record convnces us that the fndng of the tra court was erroneous,
and we so hod.
udgment affrmed.
estate ta revenue act op 1924 decson of st|pbeme court.
Gross state Transfer n Trust Transfer Intended to Take
ffect n Possesson or n|oyment at or fter Death
Possbty of Reverter.
The decedent severa years pror to hs death created a trust, the
net ncome from whch was to be pad to hs daughter for her fe,
wth remander over to persons named. The trust nstrument pro-
vded for termnaton of the trust at the dscreton of the trustee,
whereupon the estate was to revert to the grantor, and aso pro-
vded for termnaton of the trust and reverson of the trust prop-
erty to the grantor f the daughter shoud predecease hm. The
decedent retaned no power to ater or revoke, and at hs death
nether of the contngences mentoned had taken pace. The mere
possbty of a reverter dd not render the transfer to the trustee
one ntended to take effect n possesson or en|oyment at or after
the decedent s death, wthn the meanng of secton 302(c) of the
evenue ct of 1024.
Reguatons 8(1924), rtce 15: Transfers
durng fe.
I -50-785
Ct. D. 104
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Regs. 8, rt. 15.
340
SUP M COC T O T UNIT D ST T S.
Ouy T. evervg, Commssoner of Interna Revenue, pettoner, v. t. Lous
Unon Trust Co., as Successor Trustee to Lberty Centra Trust Co., as Soe
Resduary Legatee and Dstrbutee of the mercan state of Wam .
Orthwen, Deceased, et a.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
November 11, 1935.
OPINION.
Mr. ustce Sutherand devered the opnon of the Court
The decedent, severa years pror to hs death, transferred to a trustee cer-
tan securtes n trust, to be hed, mnnaged and dsposed of as an actve trust,
the net ncome thereof to be pad to the decedent s daughter durng her fe,
wth remander over to the persons named. The trustee was gven dscretonary
power to termnate the trust whenever the trustee mght deem t wse to do so,
whereupon the estate was to revert to the grantor. The ndenture contaned a
further provson that f the daughter predecease the grantor, the trust sha
termnate and the trust estate be transferred, pad over and devered to the
grantor, to be hs absoutey. It s ths atter provson whch gves rse to the
queston we are caed upon to consder. y the terms of the ndenture, the
grantor rected that t was hs ntenton to make for the beneft of hs daughter
an absoute and rrevocabe gft and settement of the property so
that the grantor sha durng the fe of hs sad daughter have no further
Indvdua or benefca nterest theren. The grant was fna and absoute n
terms, and beyond the power of the grantor to revoke or ater. t the death
of the grantor, nether of the contngences upon whch the trust estate woud
revert to the grantor had taken pace.
The Commssoner assessed a defcency ta aganst the estate upon the vew
that the grantor, havng reserved the rght to a revestment In hm of the trust
property, tte to whch he had conveyed, upon the happenng of ether of the
contngences mentoned, the transfer to the trustee was one ntended to take
effect n possesson or en|oyment at or after hs death wthn the meanng of
secton 302(c), Revenue ct of 1024 (ch. 234, 43 Stat, 253, 304.)1
The oard of Ta ppeas decded aganst the Commssoner s vew (28
. T. ., 107), and ts hodng was uphed by the court beow. (75 . (2d),
41 .)
The substantve provson of the ct whch mposes the ta s secton 301(a)
and by that provson the ta Is ad upon the transfer of the net estate of
every decedent dyng after the enactment of ths ct. The event whch gves
rse to the ta s the death of the decedent, wth the resutng transfer of hs
estate ether by w or the aw reatng to ntestacy. When, therefore, secton
302(c) ncudes wthn the purvew of secton 301(a) a transfer nfer vvos
ntended to take effect In possesson or en|oyment at or after hs death, t
does so upon the theory that such a transfer n effect s testamentary that Is
to say, a substtute for ether a dsposton by w or a passng n vrtue of
ntestacy.
ut such a transfer, not so made, embodes a transacton begun and com-
peted whoy by and between the vng, ta abe as a gft ( romey v.
McCaughn, 280 U. S., 124 Ct D. 140, C. . III-2, 392 ), but obvousy not
sub|ect to any form of death duty, snce t bears no reaton whatever to
death. The generatng source of such a gft s to be found n the facts
of fe and not In the crcumstance of death. nd the death afterwards of the
donor n no way changes the stuaton that s to say, the death does not resut
n a shftng, or n the competon of a shftng, to the donee of any economc
beneft of property, whch s the sub|ect of a death ta (Chase Natona ank
v. Unted States, 278 U. S., 327, 338 Ct. D. 40, C. . III-1, 308 : Renecte v.
Northern Trust Co., 278 U. S., 339, 34 T. D. 42 1, C. . III-1, 305 Safon-
sta v. SatonstaU, 27 U. S., 2 0, 271) nor does the death In such case brng
Secton 302 provdes that there sha be Incuded In the gross estate the vaue of a
property
(c) To the e tent of any nterest theren of whch the decedent has at any tme made
a transfer, or wth respect to whch he has at any tme created a trust, n contempaton
of or ntended to take effect In possesson or en|oyment at or after hs death, .
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341
Regs. 8, rt. 15.
Into beng, or rpen for the donee or unyone ese, so far as the gft s concerned,
any property rght or nterest whch can be the sub|ect of any form of death
ta . (Compare Tyer v. Unted States, 281 U. S., 497, 508 Ct. D. 190, C. .
I -1, 38S .) Compete ownershp of the gft, together wth a ts ncdents,
bas passed durng the fe of both douor and donee, and no nterest of any
knd remans to pass to one or cease n the other n consequence of the death
whch happen afterwards. Itacs added. ( encr v. Donnan, 285 U. S.,
312, 322-323 Ct. D. 473, C. . I-1, 324 .)
The property brought nto the estate by subdvson 302(c) for the purpose
of the ta s, as sad by ths court n Rcnecke v. Trust Co. (278 U. S., 339,
348)
ether property transferred n contempaton of death or property
passng out of the contro, possesson or en|oyment of the decedent at hs
death. In the ght of the genera purpose of the statute and the
anguage of secton 301(a) e pcty mposng the ta on net estates of
decedents, we thnk t at east doubtfu whether the trusts or Interests n a
trust ntended to be reached by the phrase n secton 302(c) to take effect
In possesson or en|oyment at or after hs death, ncude any others than
those passng from the possesson, en|oyment or contro of the donor at hs
death and so ta abe as transfers at death under secton 301(a) . That
doubt must be resoved n favor of the ta payer. Itacs added.
If, therefore, no nterest In the property nvoved In a gven case pass from
the possesson, en|oyment or contro of the donor at hs death, there s no
Interest wth respect to whch the decedent has created a trust ntended to
take effect n possesson or en|oyment at or after hs death. The grantor here,
by the trust nstrument, eft n hmsef no power to resume ownershp, pos-
sesson or en|oyment e cept upon a contngency n the nature of a condton
subsequent, the occurrence of whch was entrey fortutous so far as any
contro, desgn or voton on hs part was concerned. fter the e ecuton of
the trust he hed no rght n the trust estate whch n any sense was the
sub|ect of testamentary dsposton. s death passed no nterest to any of
the benefcares of the trust, and enarged none beyond what was conveyed
by the ndenture. s death smpy put an end to what, at best, was a mere
possbty of a reverter by e tngushng t that s to say, by convertng what
was merey possbe nto an utter mpossbty. Ths s we stated by the
court beow (75 . (2d), at page 418) :
It was ony n the case of the happenng of certan contngences over
whch he had no contro that the property woud revert to hm. One of these
contngences was the death of hs daughter pror to hs death, whe the trust
st contnued and the second was a termnaton by the trustee of the trust
durng the fetme of the grantor. Nether of these contngences occurred,
and there was, durng the decedent s fetme, nothng more than a possbty
that ether woud occur. In no proper sense was there an enargement of the
Interests of the benefcares of the trust resutng from the death of the
decedent. That event merey changed the possbty that the propery woud
revert nto an mpossbty.
It Is not, n reason, possbe to fnd n the crcumstances anythng whch
suggests that the death of the grantor, whenever t mght happen, woud effect
any change, or was ntended to effect any change, In the e tent or quaty of
the estates conveyed n trust. The ony death whch coud have had any such
effect was that of the daughter, the grantee and that event dd not take pace.
In that connecton see Matter of arstow (230 N. Y. pp. Dv., 371, 372-
373, affrmed 25 N. Y., 47). There the donor transferred rrevocaby eertnn
property to a trustee to be hed In trust for the beneft of two daughters, wth
the condton that upon the death of both, the fund then n the hands of the
trustee was to be transferred back to the donor f then vng. The donor
ded eavng her daughters st vng. The court hed that the transfer took
pace when the deed of trust was e ecuted and not when the donor ded.
Mrs. arstow coud do nothng to change the effect of the deed. The corpus
was beyond her contro, e cept for the happenng of the contngency that she
mght survve the two fe tenants, and then she woud have been revested
wth the corpus. The rghts of the benefcares dd not depend upon the death
of the donor. The term of the trust was not measured by the fe of the donor,
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egs. 70, rt. 25.
342
but by the ves of her two daughters. They had an nterest n prncpa and
ncome, provded one or both survved the donor. They took a vested estate
sub|ect to beng dvested f the donor survved both daughters. If we are to
vew the sequence of events n the order of the actua rather than the pos-
sbe (Matter of Schmdapp, 23 N. Y., 278, 28 ), then we have not ony a
rght, but are bound to concude that because Mrs. arstow ded before the
termnaton of the trust whch she created, the transfer took pace when the
deed was e ecuted, and not when she ded. There was the contngency that
she mght survve her daughters, but that dd not depend upon any affrmatve
or votona act of the donor.
We thnk t unnecessary further to revew the decsons whch support our
concuson. In addton to those aready cted, the foowng are n pont:
May v. ener (281 U. S., 238, 243 Ct. D. 18 , C. . I-, 382 ) Coodge v.
Long (282 U. S., 582) McCormdck v. urnet (283 U. S., 784), reversng the
Crcut Court of ppeas for the Seventh Crcut (43 P. (2d), 277), and n effect
affrmng the oard of Ta ppeas (13 . T. ., 423, 437) everng v. Duke
(23 . T. ., 1104, 1113), affrmed, 02 . (2d), 1057, and affrmed by an equay
dvded court In 290 U. S., 591 everng v. Waace (27 . T. ., 902, 910,
913), affrmed, 71 . (2d), 1002, certorar dened, 293 U. S., 00 St. Lous
Unon Trust Co. v. ecker (70 . (2d), 851 Ct. D. S55, C. . III-2, 375 ).
The case of en v. Unted States (2S3 U. S., 231 Ct. D. 333, C. . -,
4 2 ), whch s strongy reed upon by the Government, does not support ts
poston. There the grantor, 15 months pror to ha wfe s death, conveyed to
hs wfe by deed a fe estate n certan ands. ut In the event that she
survved the grantor and In that case ony she was to take the ands In
fee smpe. The effect of ths deed, we hed, was that ony a fe estate was
vested, the remander beng retaned by the grantor and whether that shoud
ever become vested In the grantee depended upon the condton precedent that
the grantor de durng the fe of the grantee. The grantor havng ded frst,
hs death ceary effected a transmsson of the arger estate to the grantee.
ut here the grantor parted wth the tte and a benefca nterest n the
property, retanng no rght wth respect to It whch woud pass to anyone
as a resut of hs death. Unke the en case, where the death was the
generatng source of the tte, here, as the court beow sad, the trust nstru-
ment and not the death was the generatng source. The death dd not transmt
the possbty, but destroyed t.
udgment affrmed.
ST T T R NU CT O 192 D CISION OP COURT.
1. Gboss state Lfe Insurance Reservaton of Rght to
Change enefcary Poces Taken Out Pror to nact-
ment of 1918 ct Premums Pad from Communty Income.
Where the decedent, a resdent of Lousana, who ded n 1928,
had taken out fe Insurance poces made payabe to hs wfe, and
had retaned the rght, to the date of hs death, to change the bene-
fcary, the entre proceeds of the poces, n e cess of the 40,000
e empton, were propery ncuded In the decedent s gross estate
under the provsons of secton 302 (g) and (h) of the Revenue
ct of 192 , notwthstandng the fact that a the poces, e cept
one, were taken out pror to the enactment of the Revenue ct of
1918 and that the premums were pad out of communty ncome.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 53) affrmed.
3. Certorar Dened.
Petton for certorar dened October 14, 1935.
Reguatons 70(192 ), rtce 25: Ta abe
nsurance.
I -51-78 7
Ct D. 1050
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343
Regs. 70, rt. 25.
U-Nttd States Crcut Coukt of ppeas for the fth Crcut.
acob . Newman and sa Schwartz Newman, ecutors of the state of
dgar Newman, Deceased, pettoners, v. Commssoner of Interna Revenue,
respondent.
Petton for revew of decson of the Unted States oard of Ta ppeas (dstrct of
Lousana).
efore ryan, Sbey, and utcheson, Crcut udges.
March 28, 1935.
OPINION.
t|tcheson, Crcut udge: n appea from the decson of the oard of
Ta ppeas (29 . T. ., 3), ths case nvoves a defcency n estate ta es
mposed under the Revenue ct of 192 , on account of fe Insurance poces
dgar Newman had taken out n favor of hs wfe, sa Schwartz Newman, as
benefcary. The oard made fndngs of fact n substance as foows:
The pettoners are the duy quafed e ecutors of the estate of dgar
Newman, who ded n New Oreans March 9, 1928, and whose estate was ad-
mnstered n the Cv Dstrct Court for the Parsh of Oreans, State of
Lousana. t the tme of hs death there were n e stence 15 fe nsurance
poces on the decedent s fe aggregatng 17 ,551.13 and a death beneft from
the Pottery, Gass, and rass Saesmen s ssocaton of merca n the amount
of 300. the poces were taken out pror to the enactment of the Revenue
ct of 1918, e cept one n the amount of 5,327.45 whch was taken out on
December 28, 1923.
ach of the poces was made payabe to sa Schwartz Newman, wfe of
the decedent, and contaned the foowng cause n regard to the decedent s
rght to change the benefcary:
Sub|ect to the rghts of any assgnee, the nsured may from tme to tme,
whe ths pocy Is n force, desgnate a new benefcary by fng a wrtten
notce thereof at the home offce of the company, accompaned by ths pocy
for ndorsement. Such change sha take effect on the ndorsement of the same
on ths pocy by the company, and not before. Shoud there be no benefcary
vng at the tme ths pocy becomes a cam by death, the proceeds thereof
sha be pad to the e ecutors, admnstrators, or assgns of the nsured.
The decedent at no tme ever changed the benefcary n any of the poces
above mentoned.
The premums on a the poces were pad out of communty ncome from
the communty that e sted between the decedent and hs wfe, sa Schwartz
Newman.
In the audt of the edera estate ta return, the Commssoner ncuded
a the proceeds of the poces n e cess of 40,000, on the aggregate amount
of 13 ,851.13 n the gross estate, pursuant to secton 302(g) of the Revenue
ct of 192 , nfra.
The case arses under secton 302 of the Revenue ct of 192 (44 Stat.,
9, secton 1094, T . S. C. ., Tte 2 ). These are the appcabe portons of
the ct:
Sec. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or ntangbe, wherever stuated .
(g) To the e tent of the amount recevabe by the e ecutor as Insurance
under poces taken out by the decedent upon hs own fe and to the e tent
of the e cess over 40,000 of the amount recevabe by a other benefcares
as nsurance under poces taken out by the decedent upon hs own fe.
(h) cept as otherwse specfcay provded theren subdvsons (b), (c),
(d), (e), (f), and (g) of ths secton sha appy to the transfers, trusts,
estates, nterests, rghts, powers, and renqushment of powers, as severay
enumerated and descrbed theren, whether made, created, arsng, e stng,
e ercsed, or renqushed before or after the enactment of ths ct (U. S. C.
pp., Tte 2 , secton 1094.)
Secton 301 of the same ct (secton 1092, U. S. C. ., Tte 2 ) s In part
as foows:
ta equa to the sum of the foowng percentages of the vaue of the
net estate (determned as provded n secton 1095 of ths tte) s hereby
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Regs. 70, rt. 25.
Imposed upon the transfer of the net estate of every decedent dvng after
ebruary 2 , 192 .
Treasury Reguatons 70, artce 25, provdes, Insurance s deemed to be
taken out by the decedent n a cases where he pays a the premums drecty
or ndrecty, whether or not he makes the appcaton. On the other hand,
the nsurance Is not deemed to be taken out by the decedent, even though the
appcaton s made by hm, where a the premums are actuay pad by
the benefcary. Where party pad by both, the nsurance w be deemed to
have been taken out by the nsured n the proporton that the premums
pad bear to the tota amount. Whe artce 28, auaton of nsurance,
provdes, the amount to be returned where the pocy s payabe to or for
the beneft of the estate Is the amount recevabe. Where the proceeds are
payabe to a benefcary, and a premums were pad by the decedent, the
amount to be sted on Schedue C of the return s the fu amount recev-
abe. Where ony a porton of the premums was pad by the decedent, the
amount to be sted Is n proporton to the premums the decedent pad.
The oard sustaned the Commssoner s acton. In a carefuy wrtten
opnon t gave ts reasons for dong so. We agree wth the opnon. ecause
we do, appeants cam here, the same the oard re|ected, that none of the
proceeds, or at most, ony haf of them shoud be Incuded, w not be greaty
dscussed. We sha content ourseves wth pontng out wheren they fa.
nd frst, of the cam that none of the proceeds may be counted n the
gross estate. Ths cam, founded on the erroneous dea that the ta s on the
proceeds themseves, e pands nto three contentons: (1) That snce under
Lousana aws poces taken out by the husband on hs own fe, namng
the wfe as benefcary, are her separate property, ther proceeds form no
part of hs estate. (2) It Is not a proper constructon of the ta ng ct to
gve t retroactve appcaton to poces taken out, as these were, pror to the
Revenue ct of 1918, the frst to ta such amounts recevabe. (3) If so con-
strued, t meets and fas under consttutona ob|ectons. We can not at
a agree. The ta s not upon the proceeds of the poces t s not upon
the Interest to whch the benefcary succeeded at death, but upon the rght
of dsposton and contro the nsured had at death. There was no gft here
nter vvos. The decedent possessed, unt hs death, the fu rght to change
the benefcary. The ta rests on ths fact. The thng ta ed s the trans-
msson of property from the dead to the vng. ( encr v. Donnan, 285
U. S., 322 Ct. D. 473, C. . I-1, 324. ) Ta aws of ths nature n a
countres rest n ther essence upon the prncpe that death s the generatng
source from whch the partcuar ta ng power takes ts beng, and that t s
the power to transmt, or the transmsson from the dead to the vng on
whch such ta es are more mmedatey rested. It Is te power to
transmt, or the transmsson or recept of property by death whch s the
sub|ect eved upon by a death dutes. In other words, the pubc contrbuton
whch death dutes e act s predcated upon the resuts of death, on property.
( nowton v. Moore, 178 U. S., 41 ener v. Donnan, supra.)
of the cases n whch these death dutes have been e amned, some
nvovng fe nsurance,1 some trusts (Renecke v. Northern Trust Co.,
278 U. S., 339 T. D. 42 1, O. . III-1, 305 Porter v. Commssoner, 2SS
U. S., 438) some dower (Scott v. Commssoner, 9 ed (2d), 444) some
ont tenancy (Ownn v. Commssoner, 289 U. S., 224) and some tenancy by
the entrety,2 have whether denyng or affrmng the vadty of the ta , hewed
to the same ne. Where death fnay dssoves an nterest n, sts the power
of dsposton as to, or s the fna act of transmsson of property, and the
statute embraces the property, death dutes have been sustaned, wthout regard
to when the uncompeted gft was ntated.
Where the property s e cuded by the terms of the statute (Crooks v.
arreson, 282 U. S., 55 Ct. D. 271, C. . -, 4 9 ), or whore the generatng
Chase Natona ank v. Unted State (278 U. S., 327 Ct. D. 40, C . III-1. 30S )
Levy state v. Commssoner (05 ed. (2d). 412) : Scott v. Commssoner ( 9 ed. (2d),
444) Cook v. Commssoner ( ed. (2d), 095) I ebes v. Commssoner ( 3 ed. (2d),
872) Sampson v. Unted States (1 ed. Sup., 95).
Tyer v. Unted States (281 17. S., 498 Ct. D. 90, C. . I -1, 383 ) Phps v. Dme
Trust (284 U. S., 1 0 Ct. D. 42 , C. . -2, 420 ) : Thrd Natona ank v. Whte (287
U. S., 577) : Lang v. Commssoner (289 U. S., 110) Levy state v. Commssoner ( 5
ed. (2d), 412).
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345
Regs. 70, rt. 25.
source of the gft s to be found In the facts of fe, and not In the crcum-
stance of death. ( ener v. Donnan, supra Coodge v. Long, 282 U. S., 582),
the vadty of the ta has been dened. No Supreme Court case, e cept the
rck case (2 8 U. S., 238), and no case In a crcut court of appeas, has
serousy rased any queston as to the power of Congress to make the ta
appy to uncompeted gfts, ke these poces, reservng as they do, the
rght to change the benefcary, because they had ther Incepton before 1918.
e cept that case, Impedy or e pressy affrm the power. If the broad
anguage of secton 301, ct of 192 , Tte 2 , 1092, supra, that the ta s
mposed upon the transfer of the net estate of any decedent dyng after
ebruary 2 , 192 , and of sub. (g), secton 1094, supra, need support for the
e tenson of the power to the poces n queston, sub. (h), secton 1094,
gvng genera appcat on to secton (g) suppes t ppeant ctes no
authortatve decsons n support of her vew that the secton does not n
terms appy to these poces. There Is ampe authorty that t does. ( ener
v. Orandn, 44 ed. (2d), 141 Ct, D. 241, C. . I -2, 430 58 ed. (2d),
1082 Leoes v. Comntssoner, 3 ed. (2d), 870, and authortes cted n
note 1, supra.)
Its second pont, that the ta shoud be measured not upon the whoe, but
upon one-haf of the proceeds, rests upon the same erroneous assumpton and
Is answered n the same way. St basng upon the Idea that the ta
Is on the proceeds themseves, that what s ta ed Is what woud have been
the property of the estate, but for the gft to the benefcary, the argument
Is pressed that had the decedent changed the poces to hs estate, the pro-
ceeds woud have been communty property, and ony one-haf woud have
beonged to hs estate. The argument then proceeds that s nce n no event
coud the decedent s estate have owned more than one-haf, n no event coud
more than one-haf of the proceeds be taken as a measure of the ta .
Ths noton that the death ta s on, and Is therefore mted to the vaue
of what passed from the decedent as property at hs death, was thoroughy
e poded n the cases Invovng |ont tenances and tenances by the entrety
(note 2, supra). In the Tyer case, though by the setted course of State
decson nothng passed n tenances by the entrety from one spouse to the
other at death, t was hed that the vaue of tenancy by the entrety was
propery ncuded n the gross estate, and that death dutes measured by that
vaue, were vady e acted. In the Gwnn case the same thng was hed
of a Caforna |ont tenancy. Snce then, It s not property, but the effect
of death on the contro and dsposton of property, whch Is the sub|ect of
the ta . It Is therefore mmatera here, that as s undoubtedy the case, the
proceeds of Insurance poces payabe to the estate of a decedent, taken out
durng the e stence of the communty, though e empt from debts, are the
communty s and ony one-haf of them beongs to the estate of the decedent.
(Successon of rvne, 12 So., 223 Successon of LeDanc, 142 La., 27 state
of Carro v. Commssoner, 29 . T. ., 11 Successon of uddg, 108 La., 40 .)
ppeants wth great confdence, press the further argument that the case
presented s, wthn artces 25 and 28, Treasury Reguatons, a case of the
payment of premums In part by the benefcary and n part by the decedent.
They say ths resuts from the operaton n Lousana of the communty prop-
erty system. That under Its operaton, as stpuated, the premums the hus-
band pad must be regarded as pad wth communty funds and therefore one-
haf by the nsured, and one-haf by hs benefcary. That ths beng so, It must
be hed that, wthn the meanng of the reguatons, the benefcary pad one-
haf of the premums, and the decedent ony one-haf. That ths contenton Is
more ogcay than egay sound, we thnk a tte refecton w show. We
thnk t may we be doubted whether these reguatons woud be vad f so
construed. They were adopted under a statute whch does not n terms
authorze any dmnuton on account of communty payment of premums, but
on the contrary, In pan terms requres that a over 40,000 of the proceeds
Lousana Revsed Cv Code, 1070 artce 2399, artce 2403 as amended by act S,
cts of Lousana, 1902, page 95 artce 2403, artce 2404 as amended by act 8 , Lou-
sana cts, 192 , page 13 .
47318 3 12
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Regs. 70, rt. 19.
34
of poces taken out by the nsured In favor of the benefcary, be ncuded In
hs gross estate. In ths vew, t may we be doubted whether the reguatons
If so construed, woud not be beyond admnstratve power. The ony author-
ty conferred, or whch coud be conferred, by the statute s to make reguatons
to carry out the purposes of the ct, not to amend t. (Mter v. Unted
States, . S , March 4, 1935.)
We rase the queston, however, not to decde, but to reserve t. or we
thnk, n the ght of the setted aw as to these premum payments, that there
Is no bass for the cam that they fa wthn the reguatons Invoked. That
aw s that when, durng the e stence of the communty, a husband, as here,
takes out a pocy payabe to hs wfe as benefcary, but wth the rght reserved
to change, and pays the premums out of the communty, though the proceeds
at hs death become her separate property (Successon of Desforges, 135 La.,
50 Nusen v. erndon, 17G La., 1098 Szeer v. Szeer, 170 La., 127 Dougas
v. qutabe, 150 La., 519), the transacton s regarded as a gft by the husband
to the wfe, and the estate of nether s regarded as havng pad the premums
so as to be entted to rembursement on account of ther payment. ( ey r.
ey, 131 La., 1023 Successon of ofenschen, 29 La. nn., 711 Martn v.
Mc ester, 94 Te ., 5 7 Whtese v. N. W. Lfe Ins. Co., 221 S. W., 575.)
In the ght of ths rue of aw, It woud be a straned constructon creatng
an unwarranted ack of unformty, and rasng grave doubts as to ther
vadty, whch woud gve to these reguatons the meanng contended for.
We thnk It our duty to avod such constructon.
We thnk t pan that the statute In queston mposes a death ta , not upon
the proceeds of Insurance poces, the property of the estate, nor upon the
proceeds of nsurance poces whch but for the gft to the benefcary, woud
be owned by the decedent, but upon the cessaton, wth hs death, of the contro
he had over the poces, so that hs death vested n the benefcary a setted rght
whch she dd not have before. That It was wthn the power of Congress to
mpose such death duty on the fu amount of the Insurance procured by the
husband for the beneft of the wfe, but wth the rght reserved to change the
benefcary so t coud not be fnay hers unt hs death, we have no doubt
Nor have we any that the statute was wrtten to, and as wrtten does, mpose
that ta .
ffrmed.
Reguatons 70 (1929), rtce 19: Power to I -52-787
change en|oyment. Ct. D. 1052
ST T T R NU CT O 102ft D CISION OP COURT.
1. Gboss state Transfers n Trust Genera Power of p-
pontment ercsed by W.
The decedent was the fe benefcary under three trust agree-
ments, two e ecuted by hmsef and one by hs mother, each contan-
ng the provson that upon hs death the trust corpus shoud go
to the hers of hs body, or, f there were no such hers, to whom-
ever he mght drect by w, or, n the absence of hers of the body
and of testamentary dsposton, then to hs hers at aw. ghts
reserved by the donors to modfy or revoke the trusts were never
e ercsed. Decedent by w bequeathed a of hs property, con-
sstng prncpay of the trust estates, to hs mother, and ded wth-
out ssue survvng. Under these facts, the vaue of the trust prop-
erty was Incudbe n the decedent s gross estate under the prov-
sons of secton 302(f) of the Revenue ct of 192 , snce the de-
cedent at the tme of hs death had a genera power of appontment
over the property, the power was e ercsed by hs w, and the
property passed by vrtue of such e ercse.
2. Decson ffrmed.
Decson of the oard of Ta ppeas (29 . T. ., 957) affrmed.
3. Certorar Dened.
Petton for certorar dened October 14, 1935.
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347
Regs. 70, rt. 19.
Unted States Crcut Court of ppeau| for the Nnth Crcut
ate Uerton ohnztone, as ecutr of the state of erton ohnstone,
Deceased, pettoner, v. Commssoner of Interna Revenue, respondent.
Upon petton to revew an order of the Unted States oard of Ta ppeas.
efore Whbur and Garrecht, Crcut udges, and Cavanah, Dstrct udge.
March 4, 1035.
OPINION.
Wbur, Crcut udge: Pettoner seeks a revew of the order of the oard
of Ta ppeas sustanng the determnaton of the Commssoner of Interna
Revenue of a defcency of 12,881.81 n the edera estate ta on the estate of
erton ohnstone, deceased, of whch pettoner s e ecutr .
The facts are not dsputed and can be summarzed as foows:
The pettoner s the e ecutr of erton ohnstone, deceased, etters testa-
mentary havng been duy ssued to her on ugust 19, 1929, by the Superor
Court of the State of Caforna n and for the County of Los ngees.
erton ohnstone, the decedent, was a resdent of Pasadena, Caf. On une
8,1929, he was ked as the resut of an accdent. t the tme of hs death he
was about 28 years of age and unmarred. e eft as hs hers at aw ugo R.
ohnstone, hs father, and ate erton ohnstone, hs mother, who s the
pettoner heren. e aso eft a brother, anderburgh ohnstone.
The decedent eft a w dated December 13, 1928, whch was duy admtted
to probate by the Superor Court of the State of Caforna n and for the County
of Los ngees. y ths w he gave and bequeathed a hs property to hs
mother ate erton ohnstone and nomnated her as hs e ecutr .
On or about September 11, 1923, the decedent, as donor, made, e ecuted and
devered a certan agreement to Robert erton, as trustee, whereby the de-
cedent transferred and assgned to the trustee certan propertes theren descrbed
to be hed by the trustee for the beneft of the donor and for the purposes and
wth the powers and condtons theren set forth. The trust so created w be
desgnated as trust herenafter. The trust nstrument provded that the
ncome arsng from sad trust fund, or such part thereof as the trustee deemed
advsabe, coud be pad by the trustee to the donor as the benefcary under the
trust, n such amounts, and, If, as and when the trustee deemed t advsabe to
pay the same to the benefcary. The trust Instrument further provded as
foows:
Upon the death of the sad benefcary, erton ohnstone, a of the prop-
erty then hed pursuant to ths trust sha go to the hers of the body of the
donor In equa parts, or f there be no hers, then to such person or persons
or corporaton as the sad donor may have drected by hs ast w and testa-
ment or, In the absence of any her or hers of the body of the donor and of
any such testamentary dsposton, then to the hers at aw of the donor accord-
ng to the aws of descent of the State of Inos n effect at the tme of the
death of the donor.
On or about the 21st of anuary, 192 , the decedent made, e ecuted and de-
vered a certan other trust nstrument whereby he transferred and conveyed
to Robert erton and Mchae Phaen certan property theren descrbed to
be hed by them n trust for the beneft of the decedent upon the terms and
condtons theren specfed. The trust thereby created w be referred to
herenafter as trust . The trust nstrument provded, among other thngs,
that the net ncome shoud be used, so far as In the |udgment of sad trustees
seemed wse, n the Improvement of the trust property and n the payment to
the donor for and durng hs natura fe of an annuty In quartery Insta-
ments. Ths trust nstrument provded further that
Upon my death, the sad property and trust fund, prncpa and any ac-
cumuated ncome, sha go, be transferred, assgned and devered to the hers
of my body, f any. In equa parts f none, then to such person, persons, cor-
poraton or corporatons as I may desgnate In my ast w and testament, or
If I sha have no hers of my body and no w, then to my hers accordng to
the aws of descent of the State of Inos. Ths conveyance and
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Regs. 70, rt. 18.
348
agreement may be modfed from tme to tme or rescnded as I and the then
actng trustees or trustee may In wrtng agree.
On the 18th day of March, 192 , ate erton ohnstone, the decedent s
mother, as grantor, made, e ecuted and devered a certan trust Instrument
whereby she granted, assgned, and transferred to the rst Trust Savngs
ank of Chcago, 111., as trustee, certan property theren descrbed to be hed
n trust for the beneft of the decedent upon the terms and condtons theren
set forth. The trust created by ths nstrument w be referred to herenafter
as trust C. The trust nstrument provded, among other thngs, that the
sum of 300 shoud be pad each month to the decedent, and n the event that
the net ncome for any one year, n the soe |udgment of the trustee, shoud
not be suffcent to provde for the payment, then the trustee was empowered
to pay one-twefth of the estmated net ncome for the year to sad decedent
each month. Ths trust agreement aso provded as foows:
Upon the death of the sad erton ohnstone, the trustee s drected to
pay the entre prncpa of and a une pended net ncome from the trust
property to the hers of the body of the sad erton ohnstone n equa parts,
per strpes, or If there be no such her or hers, then to such person or persons
or corporaton as the sad erton ohnstone may have drected by hs ast
w and testament or, n the absence of any her or hers of the body of sad
erton ohnstone and of any such testamentary dsposton, then to the hers
at aw of the sad erton ohnstone, other than hs father, ugo Rchards
ohnstone, accordng to the aws of descent of the State of Inos In effect at
the tme of hs death.
The grantor reserves the rght and sha have the power at any tme by
an nstrument n wrtng sgned by her and devered to the trustee durng
her fetme to modfy, ater and amend, but not to revoke, ths nstrument
ether n whoe or In part provded, however, that the dutes, powers and a-
btes of the trustee sha not be substantay changed wthout ts wrtten
consent, and provded further that the grantor sha have no rght to revest
n hersef any rght, tte or Interest In or to any part of the ncome or
prncpa of the trust property.
In the estate ta return the pettoner reported for ta aton the vaue of
the corpus of trust . She dd not report for estate ta purposes the vaue
of ether of the other trusts. The Commssoner ncuded In the gross estate
the vaue of the corpus of each of three trusts and ths acton of the Com-
mssoner was sustaned by the oard of Ta ppeas. Pettoner contends
that t was error to ncude n the gross estate the vaue of the corpus of any
of the three trusts.
The ta upon trust C was determned by the Commssoner under sec-
ton 302(f) of the Revenue ct of 192 , whch provdes for the ta aton of
estates as foows:
Sec. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or per-
sona, tangbe or ntangbe, wherever stuated.
(f) To the e tent of any property passng under a genera power of ap-
pontment e ercsed by the decedent (1) by w, or (2) by deed e ecuted In
contempaton of, or Intended to take effect In possesson or en|oyment at or
after, hs death, e cept n case of a bona fde sae for an adequate and
fu consderaton In money or money s worth .
If secton 302(f) s appcabe to the corpus of trust C, t s equay
appcabe to the property covered by trusts and , snce the w of
the decedent was an e ercse of the power of appontment contaned In each
of the three trust agreements, If It was an e ercse of the power of appont-
ment contaned In any one of them.
The Supreme Court of the Unted States has recenty consdered subdvson
(f) of ths secton of the Revenue ct of 192 n everng v. Grnne. de-
cded ebruary 4, 1935 Ct D. 923, C. . I -1, 387 , and t s there stated:
The cruca words are property passng under a genera power of appont-
ment e ercsed by the decedent by w. nayss of ths cause dscoses
three dstnct requstes (1) the e stence of a genera power of nppontment
(2) an e ercse of that power by the decedent by w and (3) the passng
of the property n vrtue of such e ercse.
Pettoner contends that the power of appontment gven to the decedent n
the trust agreement heren Invoved was not a genera power of appontment
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349
Regs. 70, rt. 19.
wthn the meanng of the above-quoted secton of the Revenue ct because
hs effectve e ercse of such power by w was condtona upon hs beng
wthout hers or an her of hs body at the tme of hs death, and aso that
the power was not e ercsed by the decedent.
power of appontment s genera when t s e ercsabe n favor of any
person the donee may seect, and speca or mted when t s e ercsabe
ony n favor of persons or a cass of persons desgnated n the nstrument
creatng the power. ( dety-Phadepha Trust Co. v. McCaughn, 34 . (2d),
00 T. D. 4239, C. . II-2, 373 Whtock-Rose v. McCaughn, 21 . (2d),
1 4 Lee v. Commssoner, 57 . (2d), 399.) In Lee v. Commssoner, supra,
t s sad:
Moreover, accordng to the weght of authorty, a power of appontment
by w aone s genera when, as n ths case, It does not restrct the
donee to the appontment of any partcuar person or cass of persons, but
eaves hm free to appont such benefcares as he may desre.
In Whtock-Rose v. McCaughn, supra, the court stated:
The power whch the Congress had n mnd, and whch t caed
genera, was a power whch coud be e ercsed by ether w or deed, and
dd not have to ncude both. decedent coud seect ether method, by w
or deed, by whch a power coud be e ercsed by a donee. ther method,
f the donee of the power s not restrcted as to appontees, comped wth the
statute, and the power Is genera.
Whe t s true that the decedent coud not have e ercsed the power f he
had eft ssue survvng ths fact does not change a genera power nto a
speca power. (See ohnson v. Gushng, 15 N. ., 298.) The contngency whch
woud have prevented hs e ercse of the power dd not happen, and decedent
was entted to e ercse the genera power of appontment gven hm n the
severa trust agreements.
In trust the decedent had reserved power In hmsef, wth the consent
of the trustee, to modfy or rescnd the trust and n trust C there was a
reserved power n the donor, durng her fetme, to ater or modfy the trust
agreement, but not to revoke the same. These reserved powers, f e ercsed,
mght aso have prevented the e ercse by the decedent of the genera power of
appontment by w. owever, these reserved powers were not e ercsed and
at the tme of hs death the decedent was entted to e ercse the genera power
of appontment under the terms of the trust agreements. In trust C, athough
the decedent, the donee of the power, predeceased the donor, the power of the
donor to ater or modfy the trust agreement termnated wth the death
of the decedent at whch tme the trust, under the terms of the trust agree-
ment, termnated. Thus at the tme of hs death the decedent had a genera
power of appontment over the property here nvoved.
Pettoner aso contends that the decedent dd not e ercse the powers of
appontment. The decedent was a resdent of Caforna at the tme of hs
death and hs estate was probated here. t the tme trust was estab-
shed, the donor, decedent, was domced n Inos as was hs mother, the
donor n trust C, at the tme trust C was created. t the tme trust
was estabshed by the decedent he was a resdent of Caforna but
the property conveyed to the trustees who were domced n Inos, was a
ocated n Inos and has snce remaned there as s aso true of the property
conveyed by the trust deeds whch estabshed trusts and C. Under
these crcumstances the queston of whether decedent e ercsed by hs w
the powers of appontment gven hm In the three trust agreements Is to be
determned by the aw of the State of Inos. (Od Coony Trust Co. of os-
ton v. Commssoner of Interna Revenue, 73 . (2d), 970 see aso v.
Carter, 47 . (2d), 8 9.)
Under the aw of Inos the queston Is one of the ntenton of the decedent
and f there was an ntenton to e ercse the powers of appontment by hs
w, whether that ntenton s manfested drecty or Indrecty, postvey or
by mpcaton, such ntenton w contro. In Merchant s Loan d Trust Co. v.
Patterson (308 111., 519, 139 N. ., 912, 918), the Supreme Court of Inos
stated as foows:
Technca anguage n a w s no more necessary to the e ercse of a power
than to the makng of a devse. In ether case the ntenton of the testator,
If It can be ascertaned, w be gven effect, however nforma may be the
anguage n whch t s e pressed. In unk v. ggcston (92 111., 515, 34 m.
Rep., 13 ), the rues ad down n many ngsh cases n regard to the ascertan-
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Regs. 70, rt. 24.
350
ment of the ntenton of the donee of a power to act under the power, as we as
Sugden s revew of these cases n hs work on Powers, are dscussed, and t s
stated that the fundamenta prncpe deduebe from the cases s that there
shoud be a certan ascertanment of the ntenton of the donee of the power to
act under the power, und that three casses of cases arose n whch t was
demonstrated to an absoute mora certanty there was an ntenton to e ecute
the power, and these were, where there was a reference to the power, or to the
sub|ect or property covered by the power, or where the nstrument woud be
noperatve wthout the ad of the power, and that by the weght of ngsh
authorty there coud be no e ecuton of the power by a testator uness the
case fe In one of these three casses. It was further sad that ths rue s ato-
gether subordnate and secondary n ts character, and f the crcumstances In-
dcated ceary the ntenton of the donee to work by the power the rue must
gve way, and the prmary and fundamenta rue, whch requres ony that the
ntenton be made cear and manfest, woud preva. In agge v. Itet (1
Story, 420, ed. Cns. No. 1,479), cted In unk v. ggeston, supra, t IS sad:
The man pont s, to arrve at the ntenton and ob|ect of the donee of
the power n the nstrument of e ecuton, and, that beng once ascertaned, effect
s gven to t accordngy. If the donee of the power ntends to
e ecute and the mode be, n other respects, une ceptonabe, that ntenton, how-
ever manfested, whether drecty or ndrecty, postvey or by |ust mpca-
ton, w make the e ecuton vad and operatve. I agree, that the ntenton
to e ecute the power must be apparent and cear, so that the transacton s not
fary susceptbe of any other nterpretaton. If t be doubtfu under a the
crcumstances, then that doubt w prevent t from beng deemed an e ecuton of
the power. the authortes agree, that t Is not necessary, that the nten-
ton to e ecute the power shoud appear by e press terms or rectas n the
Instrument. It s suffcent, that t shoud appear by words, acts, or deeds,
demonstratng the ntenton.
The rue thus announced was adopted by the Supreme Court of the Unted
States n Lec v. Smpson (134 U. S., 572, 10 Sup. Ct, 31, 33 L. d., 1038).
The pertnent provson of the w of the decedent s as foows: my
property I gve bequeath to my beoved ate erton ohnstone, Chcago, 111.
y ths provson the decedent obvousy ntended to dspose of a the property
over whch he had the power of testamentary dsposton. The property n
the three trust estates heren nvoved consttuted substantay a of the prop-
erty over whch the decedent had the power of testamentary dsposton. The
vaue of the property of the decedent not covered by the three trusts amounted
to ony about one-eghteth of the vaue of the trust property. ad the power
of appontment not been e ercsed, under the terms of the trust nstruments the
property n the two trust estates estabshed by the decedent, trusts and
, woud have gone to hs hers at aw of whch hs father was one. It Is
manfest from the terms of the w construed wth reference to the crcum-
stances under whch t was wrtten, that the decedent ntended to gve the trust
property to hs mother aone, and that hs ntenton was to e ercse the powers
of appontment gven hm n the three trust agreements.
No ssue was rased n the case at bar as to whether the property here n-
voved passed by vrtue of the e ercse of the power, that s under the w, as
dstngushed from the questons herenabove consdered and so we need not
dscuss that queston. ( everng v. rnne, supra.)
We concude that the decedent had a genera power of appontment by w as
to the property here nvoved that the decedent e ercsed ths power of appont-
ment by hs w and that the property passed by vrtue of such e ercse of the
power. Therefore, the vaue of such property was correcty Incuded n the
decedent s gross estate under secton 302(f) of the Revenue ct of 1920.
Order affrmed.
Reguatons 70(1929), rtce 24: Genera rue. I -51-78
Ct. D. 1049
estate ta revenue act of 102 decson of court.
1. Gross state) Nonresdent Decedent Poweb of ppont-
ment Stock n Domestc Corporatons.
Where a nonresdent decedent e ercsed a genera power of ap-
pontment gven to her by her husband s w by drectng that her
testamentary bequests take effect out of her one-eghth share In a
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351
Regs. 70, rt. 24.
trust fund, composed n part of shares of stock n domestc cor-
poratons, and out of her prvate estate, as a bended fund, the
benefca nterest of the decedent In her share of the trust fund
passed to her appontees at her death, and the vaue thereof was
propery ncuded n her gross estate for purposes of the edera
estate ta , under the provsons of sectons 302(f) and 303(d)
of the Revenue ct of 192 , athough a the persons nvoved n
the transacton were ctzens and resdents of a foregn country.
2. Decson Reversed.
Decson of the oard of Ta ppeas (30 . T. ., 70) reversed.
3. Certorar Dened.
Petton for certorar dened October 14, 1935.
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. Davd arcay Nevus,
respondent.
Petton to revew a decson of the Unted States oard of Ta ppeas.
efore L. and, Swan, and uoustus N. and, Crcut udges.
March 18, 1935.
OPINION.
Ths proceedng nvoves an aeged defcency In estate ta es of a nonresdent
aen who ded In 1930. The Commssoner seeks revew of an order deter-
mnng no defcency but an overpayment Order reversed.
Swan, Crcut udge: Charotte ane ones, a resdent and ctzen of ngand,
ded testate on September 29, 1930. In 1917 er husband had created a testa-
mentary trust under whch she was to receve the net ncome of a one-eghth
share of the trust durng her fe, and was gven power to dspose of sad
one-eghth share by her w. In defaut of testamentary appontment by her,
the trustees were to pay over sad share to the setter s grandchdren. y
her w, duy probated n ngand, Mrs. ones e ercsed the power of appont-
ment and drected that the bequests contaned |n her w take effect out of
the sad one-eghth share and out of my prvate estate as a bended fund.
t the date of her death, the trust estate was composed In part of shares of
stock n mercan corporatons, the certfcates for whch were hed by the
trustees n ngand. of the persons nvoved n the transacton the creator
of the trust and donor of the power, the trustees, the donee of the power, and
the appontees n whose favor It was e ercsed were ctzens and resdents of
ngand. The queston for decson s whether the Commssoner of Interna
Revenue can egay ncude n Mrs. ones gross estate, for purposes of the
edera estate ta , one-eghth of the vaue of the above-mentoned stock. The
oard of Ta ppeas answered ths queston In the negatve.
The reevant provsons of the Revenue ct of 192 (44 Stat, 70, 72) read
as foow :
Seo. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or Intangbe, wherever stuated

(f) To the e tent of any property passng under a genera power of ap-
pontment e ercsed by the decedent (1) by w, .
Seo. 303. or the purpose of the ta the vaue of the net estate sha be
determned

(d) or the purpose of ths tte, stock n a domestc corporaton owned
and hed by a nonresdent decedent sha be deemed property wthn the Unted
States, .
fter the decson of urnet v. rooks (288 U. S., 378 Ct. D. 48, C. . II-1,
3 2 ), no doubt can e st as to the power of the Unted States to evy a ta
upon the transfer of shares of stock n a domestc corporaton. The Unted
States has |ursdcton to ta when It can ay hod of ether the obgor or the
obgee of a chose n acton. In the case of shares of stock, the corporaton s
the obgor. In the case at bar the obgee of the chose n acton was not the
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Regs. 70, rt. 24.
352
decedent but the trustees. What was transferred by the decedent s e ercse of
her power of appontment was the equtabe Interest In an undvded share of
the chose In acton. It s wthn the power of a soveregn havng ursdcton
over the obgor to put condtons on the enforcement of a chose n acton when
the equtabe nterest In a part thereof has been transferred no ess than when
the whoe ega tte has been assgned. ence the queston becomes one of
the meanng of the statute whether t e presses an ntenton to evy the
ta camed by the Commssoner.
The respondent contends that secton 303(d) decares that foregn-hed stock
n a domestc corporaton s to be deemed to have a ta abe stus n the
Unted States ony when owned and hed by a nonresdent decedent and
that the stock n queston was owned and hed by the ngsh trustees, not by
the decedent. ut the Revenue ct ncudes wthn the ta abe estate not ony
(1) property owned by the decedent, but aso (2) property owned by others
over whch the decedent has a genera testamentary power of appontment. In
our opnon secton 303(d) s an admontory decaraton of |ursdcton to ta
stock owned by a nonresdent decedent, and not a mtaton upon ta aton
under secton 302(f) of a property, to the e tent that |ursdcton e sts,
passng under a genera power of appontment e ercsed by w. Such has
apparenty been the admnstratve nterpretaton of secton 303(d) snce t
Is provded n artce CO of Reguatons 70 that stock of a corporaton or
assocaton created or organzed In the Unted States consttutes property
havng a stus n the Unted States. Therefore we regard the fact that the
stock was owned and hed by trustees as mmatera, e cept n so far as t
may affect the queston whether the stock passed under the power, wthn
the meanng of secton 302(f).
The respondent contends that It dd not that the decedent e ercsed the
power by a w whch gave bequests from her ndvdua property and the
proceeds of the power as a bended fund that the ony rghts whch passed to
her e ecutors as appontees under the power were rghts n personam aganst
the trustees to requre an accountng and receve a one-eghth porton of the
trust fund, whch mght not, so far as appears, ncude n the property actuay
turned over by the trustees any of the stock n the mercan corporatons.
storcay t may be accurate to thnk of equtabe nterests n property as
merey rghts n personam aganst the hoder of the ega tte. (See Perry,
Trusts, seventh edton, secton 13.) ut t s most unkey that the framers
of a ta statute ntended to carry any such nce dstncton nto ther egsa-
ton. qutabe nterests are so common and so vauabe that t s ncredbe
that they shoud be e cuded from ta aton. The naked ega tte of a
trustee durng the contnuance of the trust has no pecunary vaue. ad Mrs.
ones had a power to appont the entre equtabe nterest n and ocated
wthn the Unted States, t coud scarcey be doubted that ths shoud be
deemed property passng under a power of appontment wthn the meanng
of secton 302(f). The case seems to us no ess cear when the e ercse of
the power shfts the benefca nterest n stock of a domestc corporaton.
dety-Phadepha Trust Co. v. McCaughn (34 . (2d), 00 (C. C. . 3)
T. D. 4239, C. . II-2, 373 , certorar dened, 280 U. S., 02) strongy
supports ths vew, though n that case the donee of the power was a resdent.
(See aso Od Coony Trust Co. v. Commssoner, 73 . (2d), 970 (C. C. . 1)
aekburne v. roc-n, 43 . (2d), 320 (C. C. . 3).) ames v. Unted States
( 3 Ct. CI., 379 Ct. D. 175, C. . I -1, 241 ) s not to the contrary. There the
nonresdent decedent had no benefca nterest n any specfc shares, but
merey the obgaton of the rtsh Treasury to pay the vaue of the stock
deposted upon surrender of the treasury warrants. The opnon ntmated
that an opposte resut woud have been reached had the decedent been the
cestue of a trust.
Whether the trustees had the power to change ther nvestments after Mrs.
ones denth or to turn over to her e ecutors other property n eu of stock n
the mercan corporatons we regard as mmatera. The benefca Interest n
an undvded one-eghth of the stock passed to her appontees at. her death.
The chance that they mght not receve one-eghth of the specfc shares s
no more than that whch attends whenever a egatee takes hs egacy sub|ect
to the power of the e ecutor or trustee to se the property n ad of convenent
admnstraton.
In our opnon the Commssoner was correct n ncudng n the decedent s
gross estate one-eghth of the vaue of the stock, and the decson of the oard
must be reversed. It s so ordered.
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353
Regs. 80, rt. 50.
S CTION 303.
Reguatons 80, rtce 50: Stus of property. I -45-7787
G. C. M. 15773
The vaue of a nonresdent aen decedent s Interest n a mort-
gage bond of a domestc corporaton s Incudbe n hs gross estate
for edera estate ta purposes even though the corporaton car-
res on no part of ts reguar busness n the Unted States, does
not own any property stuated theren whch gves any vaue to
ts securtes, and the bond s not physcay n the Unted States
at the tme of decedent s death.
n opnon s requested whether the nterest of a nonresdent
aen decedent n a mortgage bond of a domestc corporaton whch
carres on no part of ts reguar busness n the Unted States and
does not own any property stuated theren whch gves any vaue
to ts securtes, the mortgage bond not beng physcay n the
Unted States at the tme of decedent s death, consttutes property
stuated wthn the Unted States wthn the meanng of secton
803(d) of the Revenue ct of 192 and artce 50 of Reguatons 80.
Secton 303(d) of the Revenue ct of 192 provdes as foows:
or the purpose of ths tte, stock n a domestc corporaton
owned and hed by a nonresdent decedent sha be deemed property wthn
the Unted States, and any property of whch the decedent has made a
transfer, by trust or otherwse, wthn the meanng of subdvson (c) or (d)
of secton 302, sha be deemed to be stuated n the Unted States, f so
stuated ether at the tme of the transfer, or at the tme of the decedent s
death.
rtce 50 of Reguatons 80 reads n part as foows:
Stus of p-operty. Rea estate and tangbe persona property are
stuated n the Unted States f physcay theren. Certfcates of stock,
bonds, bs, notes, and other wrtten evdences of ntangbe property whch
are treated as beng the property tsef are property stuated n the Unted
States If physcay stuated theren.
cept as provded n secton 303(e) ntangbe persona property has a
stus wthn the Unted States If consstng of a property rght ssung from
or enforceabe aganst a corporaton (pubc or prvate) organzed In the
Unted States or a person who Is a resdent of the Unted States. s e ampes,
the foowng may be gven: Corporate stock ssued by such a corporaton, or
a smpe debt, bond, note, or other chose n acton for whch such a corpora-
ton or Indvdua s abe.
Pror to the decson n urnet v. rooks (288 U. S., 378 (1933)),
there had been consderabe doubt regardng the consttutona power
of Congress to mpose ta es upon domestc credts of nonresdent de-
cedents where such ta woud resut n nternatona mutpe ta a-
ton. In that case t was hed that a ta mposed by Congress upon
securtes n both domestc and foregn corporatons owned by a non-
resdent decedent, and whch were physcay present n ths country
at the tme of death, was not voatve of the ffth amendment to
the Consttuton. Nothng was e pressy sad n the decson wth
reference to the consttutona power of Congress to ta domestc
credts where the securtes representng the credts were not phys-
cay present n the Unted States at the tme of death. The hodng
of the court was confned to the facts of the case. It s beeved,
however, that the underyng theory and the necessary mpcatons
of that case e tend beyond the mts of the actua decson and
recognze the consttutona power of Congress to ay a ta upon the
devouton of credts of nonresdent decedents ether because (1) the
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Regs. 80, rt. 50.
354
securtes representng the credts are physcay present n the
Unted States at the tme of death (as n the case of bonds or stock
certfcates n foregn corporatons, whch were nvoved n the
rooks case), or (2) the debtor s egay domced n the Unted
States at the tme of death, no matter where the bonds or stock certf-
cates may be ocated. In other words, f the credts can be regarded
as havng a stus n the Unted States, ether because the bonds or
stock certfcates are physcay present or because the debtor s dom-
ced here, Congress has the power to ta the devouton of those
credts, and any mutpe ta aton whch may resut therefrom s ob-
|ectonabe ony as a matter of nternatona economcs and may be
remeded through nternatona agreements as ndcated by Chef us-
tce ughes n the rooks case. That the economc soundness of such
ta aton may be questonabe does not restrct the consttutona
power of Congress to ay the ta . (See Sanchez v. owers, 70 ed.
(2d), 715. See aso ackstone v. Mer, 188 U. S., 189 De Ganay
v. Lederer 250 U. S., 37 : odgett v. Sverman, 277 U. S., 1 The
armers Loan Trust Co. v. Mnnesota, 280 U. S., 204, n whch
cases there s refected the recognton of a ta abe stus for bonds
n |ursdctons other than that wheren the bonds are physcay
ocated or wheren the obgee s domced, e cept n so far as con-
sttutona restrctons upon State ta aton of ntangbes may be
regarded as a restrcton upon that prncpe, for purposes of State
ta aton ony.)
rtce 50, Reguatons 80, was drafted n the ght of the dec-
son n the rooks case, supra, ncorporatng the theory and mpca-
tons of that decson as we as the actua hodng theren and con-
strung the Revenue ct of 192 , as amended, and the correspondng
provsons of earer Revenue cts, to e press an ntenton on the part
of Congress to ta as a part of a decedent s estate a domestc credts
as propery havng a stus wthn the Unted States.
The queston s rased whether the provsons of artce 50 of
Reguatons 80 refect a correct nterpretaton of the pertnent pro-
vsons of the Revenue cts of 192 and 1932. In other words, dd
Congress actuay ay a ta on the devouton of domestc credts
where the bonds were not physcay present n the Unted States
at the date of death
smar queston was before the court n the rooks case, supra.
In the course of the opnon, Chef ustce ughes sad:
rst. The frst queston Is one of egsatve Intenton. In the case of a
nonresdent of the Unted States, that part of the gross estate was to be
returned and vaued whch at the tme of hs death s stuated In the Unted
States. In nterpretng ths cause, regard must be had to the purpose In
vew. The Congress was e ercsng ts ta ng power. Defnng the sub|ect
of ts e ercse, the Congress resorted to a genera descrpton referrng to
the stus of the property. The statute made no dstncton between tangbe
and ntangbe property. It dd not e cept Intangbes. It dd not e cept
securtes. Save as stated, t dd not e cept debts due to a nonresdent from
resdent debtors. s to tangbes and Intangbes ake, It made the test one of
stus, and we thnk t s cear that the reference s to property whch, accordng
to accepted prncpes, coud be deemed to have a stus In ths country for the
purpose of the e erton of the edera power of ta aton. gan, so far
as the ntenton of the Congress Is concerned, we thnk that the prncpes
thus Impedy nvoked by the statute were the prncpes theretofore decared
and then hed. It Is qute nadmssbe to assume that the Congress e ertng
edera power was egsatng n dsregard of e stng doctrne, or to vew
ts ntenton n the ght of decsons as to State power whch were not
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355
Regs. 80, rt. 50.
rendered unt severa years ater. The argument Is pressed that the reference
to stus must, as to ntangbes, be taken to ncorporate the prncpe of
moba sequtmtur personam and thus, for e ampe, thnt the bonds here In
queston though physcay n New York shoud be regarded as stuated n
Cuba where decedent resded. ut the Congress dd not enact a ma m.
When the statute was passed t was we estabshed that the ta ng power
coud reach such securtes n the vew that they had a stus where they
were physcay ocated. s securtes thus actuay present n ths country
were regarded as havng a stus here for the purpose of ta aton, we are
unabe to say that the Congress n ts broad descrpton, embracng a property
stuated n the Unted States, ntended to e cude such securtes from the
gross estate to be returned and vaued.
The test s, therefore, whether the credt nvoved n the nstant
case s property whch, accordng to accepted prncpes, may be
deemed to have a stus n ths country for the purpose of the edera
estate ta . In the rooks case t was decded that the securtes
themseves were such property and that the credts whch they
represented were aso such property, no matter where the obgor or
obgee was domced. It mght, therefore, seem nconsstent to
hod that credts have a stus for purposes of edera ta aton at
the pace where the obgor s domced, f that happens to be other
than the pace where the bonds are physcay ocated, but t s |ust
as consstent as to regard the credts as havng a stus where the bonds
are ocated, athough the obgee s resdent and domced esewhere.
The hodng n the rooks case (that credts may have a stus n
a country where nether obgor nor obgee s resdent) s certany
broad enough to |ustfy the concuson that credts may have a stus
where the obgor s domced.
Those decsons of the Unted States Supreme Court deang wth
State ta aton of ntangbes, and most commentators, have agreed
that f ony one |ursdcton has power to ta ntangbes, the |urs-
dcton n whch the obgee s domced has that power. (See 47
arvard Law Revew, 307, and authortes cted theren.) The re|ec-
ton of that vew, for purposes of edera ta aton, n the rooks cnse
makes nevtabe the concuson that ntangbes have a stus n
any |ursdcton whch can e ercse an effectve ega contro over
them. So far as credts are concerned, there are three such |ursdc-
tons that of the obgor s domce, that of the obgee s domce,
and that wheren the bonds are physcay ocated. Ths, t s beeved,
s the rea sgnfcance of the statement n the rooks decson that the
bonds there n queston coud, for purposes of ta aton, be regarded as
ncorporatng the credts n other words, that the bonds coud be
regarded as the property. Therefore, t s concuded that n mposng
a ta upon the transmsson at death of that part of the estate of a
nonresdent decedent whch at the tme of death s stuated n the
Unted States, Congress dd ncude as a part of such estate those
credts havng a stus n ths country by reason of the fact that the
debtor s domced here.
In vew of the foregong, t s the opnon of ths offce that the
decedent s nterest n the mortgage bond of the domestc corporaton
referred to above consttutes property stuated n the Unted States
wthn the meanng of the aw and reguatons above quoted and as
such s ncudbe n the decedent s gross estate.
rthuk . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
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Regs. 8, rt. 10.
35
TITL III. P RT L ST T T . (1924)
Reguatons 8, rtce 10: Character of I -39-7718
nterests ncuded. Ct. D. 1014
estate ta revenue act of 1924 decson of court.
1. Gross state Rea state: Teust bopebty qutabe Con-
verson.
Where decedent and others conveyed to trustees ther undvded
nterests n certan rea estate stuated n the Dstrct of Coumba
and n Mssour, wth specfc drectons and no dscreton e cept
to se and dstrbute the proceeds among the benefcares, one of
whom was the decedent, and wth no reservaton of power over the
acton of the trustees or contro over the rea estate, the doctrne of
equtabe converson appes and the decedent s nterest theren
was persona property and ta abe under the provsons of secton
802(a) of the Revenue ct of 1924.
2. Gross state Rea state n the Dstrct of Coumba.
Rea estate stuate n the Dstrct of Coumba s, under certan
crcumstances, sub|ect to the payment of e penses of admnstra-
ton, and s therefore sub|ect to edera estate ta under the pro-
vsons of secton 302(a) of the Revenue ct of 1924.
Unted States Crcut Court of ppeas, ourth Crcut.
Gaen L. Tat, Coector of Interna Revenue for the Dstrct of Maryand, ap-
peant, v. Wam . Dante, ecutor of Lee utchns, Deceased, appeee.
ppea from the Dstrct Court of the Unted States for the Dstrct of Maryand, at
atmore.
une 3, 1935.
OPINION.
Northcott, Crcut udge: Ths s an appea from a |udgment of the Ds-
trct Court of the Unted States for the Dstrct of Maryand, at atmore,
n favor of appeee, pantff beow (heren referred to as pantff), aganst
appeant, defendant beow (heren referred to as defendant), n the amount
of 3 ,302.85. When the cause came on for tra, by agreement of counse,
t was submtted to the |udge, sttng wthout a |ury. The |udge found for
the pantff and entered |udgment from whch acton ths appea was brought
Lee utchns, heren referred to as decedent, ded testate on November 5,
1924, and at the tme of hs death was a resdent of the Dstrct of Coumba.
The pantff s the survvng e ecutor under hs w. The decedent s father,
Stson utchns, upon hs death n the year 1912, eft by w, among other
propertes, certan parces of rea estate ocnted n the Dstrct of Coumba and
n the State of Mssour. The w of Stson utchns was contested, and
tgaton e tendng over a perod of 12 years foowed. controverses re-
gardng the estate of Stson utchns were fnay setted among the camants
by the e ecuton of an agreement n the year 1924, and pursuant to ths agree-
ment the decedent acqured an undvded one-fourth nterest n the rea estate
eft by Stson utchns. fter the e ecuton of the agreement of 1924, de-
cedent, Lee utchns, and the other partes to sad agreement, e ecuted a
deed of conveyance whereby ther undvded nterest n the rea estate stuated
n the Dstrct of Coumba and n the State of Mssour was conveyed to three
trustees upon the condtons of the trust set forth n the deed of conveyance.
The deed creatng the trust, after descrbng the propertes conveyed, contaned,
among others, the foowng provsons:
7. The sad trustees sha proceed, wth a reasonabe speed, consstent
wth prudent management and avodance of oss, to se a of sad rea estate
nd to dstrbute the net proceeds of such saes to and among the sad Rose
eeng utchns, Mdred Rogers Penn, Water S. utchns and Lee utchns,
ther respectve hers, assgns and devsees, n equa one-fourth parts, and In
the e ercse of suc power of sae, the trustees may, wth the consent, n
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357
Regs. 8, rt. 10.
wrtng, of a the above-named four benefcares, se and convey to any one
of them, any part of sad rea estate, at the vauaton agreed upon by sad
partes, wthout payment therefor, chargng such vaue aganst the one-fourth
dstrbutve share of the grantee thereof, In the whoe of sad rea estate.
The deed aso authorzed the trustees to ease, to mortgage, to pay ta es
and nsurance, to make repars and to operate and preserve the propertes and
drected the trustees to dstrbute quartery the net Income.
There were three trustees, one of whom was seected by one benefcary,
another by a second benefcary and the thrd by decedent and the other bene-
fcary actng together. Under the deed of trust, the benefcary or benefcares
who apponted a trustee had the rght to f a vacancy n the offce of that par-
tcuar trustee as we as the rght to remove such trustee and appont a new
one. of the acts of trustees requred for ther vadty the concurrence
theren by a of the trustees. The compensaton of each trustee was requred
to be pad by the benefcary or benefcares whom he represented, and not
out of the trust estate.
When the decedent ded the trustees st hed unsod a consderabe part
of the rea estate covered by the trust, and the decedent s Interests n sad
property was Incuded n the edera estate ta return fed on behaf of
the decedent s estate as a part of the gross estate upon whch ta shoud be
pad, and the ta was pad. Subsequenty the e ecutors of the decedent fed
a cam for a refund of that part of the ta based upon the ncuson of the
decedent s nterest under the deed of trust, camng that sad nterest was
rea estate and not sub|ect to the ta . Ths cam was re|ected by the coector
of nterna revenue, and thereafter ths sut was brought
Two questons are Invoved: (1) Was the nterest of decedent, Lee utchns,
n the property under the trust rea estate or persona property (2) If the
nterest hed by decedent was rea estate, was that porton of It stuated n
the Dstrct of Coumba sub|ect to a edera estate ta , t beng conceded
that rea estate stuate n the State of Mssour was not so sub|ect The
pertnent statutes nvoved are:
Revenue ct of 1924 (ch. 234, 43 Stat, 253):
Sec. 302. The vaue of the gross estate of the decedent sha be determned
by ncudng the vaue at the tme of hs death of a property, rea or persona,
tangbe or Intangbe, wherever stuated
(a) To the e tent of the Interest theren of the decedent at the tme of
hs death whch after hs death s sub|ect to the payment of the charges
aganst hs estate and the e penses of ts admnstraton and s sub|ect to
dstrbuton as part of hs estate
(U. S. 0., Tte 2 , secton 1094.)
The Treasury reguatons promugated under the Revenue ct of 1924 provde
as foows:
et. 10. Character of nterests ncuded. It Is desgned by the foregong
provsons of the statute that there sha be Incuded n the gross estate the
vaue of a property of the decedent whether rea or persona, tangbe or
ntangbe, the benefca ownershp of whch was In the decedent n hs fetme,
and whch, upon hs death, formed hs estate.
The test whch determnes whether the vaue of a gven Interest s to be so
ncuded, pursuant to the foregong provsons of the statute, s that stated
theren whch requres that the property, after death, sha be sub|ect to: (1)
Payment of the charges aganst the estate (2) payment of the e penses of
admnstraton and (3) dstrbuton as a part of the estate.
The pertnent aw for the Dstrct of Coumba Is found In secton 239, Tte
29, Code of Law for the Dstrct of Coumba, and Is as foows:
Sec. 239. Sae of rea estate to satsfy debts and egaces. If the sad pro-
bate court sha be satsfed, upon a report of the audtor, that t s necessary
to se sad rea estate, or part thereof, t sha authorze the same, or so much
thereof as may be necessary for the payment of the debts or egaces, or both,
to be sod by the e ecutor or admnstrator, on such terms as the court may d-
rect. ny surpus of the proceeds of such sae, after payment of debts and
egaces and costs of admnstraton, sha be deemed rea estate, and sha he
dstrbuted among the hers and devsees as the rght may appear. (March 3,
1901, 31 Stat., 1214, ch. 854. secton 148.)
If the nterest hed by decedent, at the tme of hs death, n the property
covered by the trust conveyance was rea estate and stuate n a ursdcton
where rea estate Is not sub|ect to the e penses of the admnstraton of dece-
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Regs. 8, rt. 10.
358
dent s estate, t was not ta abe. If the nterest hed was persona property,
It was ta abe, wherever stuated. In consderng the queston as to the char-
acter of the nterest hed by decedent n the trust estate, we have frst to con-
sder the terms of the Instrument creatng the trust. The authortes seem un-
formy n accord n hodng that t s essenta that where rea estate s treated
as havng been, by the appcaton of the doctrne of equtabe converson, con-
verted nto persona property, the conveyance settng up the trust must contan
a cear and mperatve drecton for converson. There must be an e presson
In some form of an absoute ntenton that the and sha be sod and turned
nto money, and nothng must be eft to the opton, dscreton or choce of the
trustees or those paced n contro of the trust. ( R. 0. L., 10 5 13 C. ., 852.)
The doctrne of equtabe converson s generay appcabe when and s
drected by a w, or other nstrument, to be converted nto money for a par-
tcuar purpose. ( R. C. L., 1074.) To change the character of the property
from reaty to personaty the drecton to convert must be postve and e -
pct, and the grantor n the nstrument settng up the trust must retan no
contro over the trustees as to what dsposton sha be made of the property.
( R. C. L., 1075 13 C. ., 857.) When the property passes by force of con-
tract, t s generay hed n the Unted States that the converson operates
from the e ecuton of the contract ( R. C. L., 1088 see aso 13 C. ., 857. )
In the case of nderson v. WUon (289 U. S., 20 Ct D. 50, C. . II-1,
253 ), the court sad:
Under the aw of New York what passed to these e ecutors was the tte
to the fee. y the w of ths testator a hs property, rea and persona
(wth e ceptons not now matera) was to be converted nto money. The fve
sons and daughters among whom the money was to be dvded had no nterest
In the and, asde from a rght n equty to compe the performance of the
trust. (Rea Property Law of New York, par. 100 Schenck v. arnes, 15
N. Y., 31 , 321 50 N. ., 0 7 Meenky v. een, 233 N. Y., 19, 23 134 N. .,
822.) What was gven to them was the money forthcomng from a sae.
(Deafcd v. arow, Sasbury v. Sade, Webntravub v. Sege, supra.) Ther
Interest n the corpus was that and nothng more.
In consderng the conveyance to the trustees and appyng the prncpes
above set out, we unhestatngy reach the concuson that the nterest hed by
the decedent was persona property and not reaty. The conveyance to the
trustee specfcay drected the sae of the rea estate conveyed and eft nothng
to the dscreton or |udgment of the trustees, ony mtng ther power by
drecton to proceed wth a reasonabe speed, consstent wth prudent man-
agement and avodance of oss. Whe t s true that the grantors n the
deed of conveyance dd reserve the rght to remove the trustees apponted by
them, respectvey, and appont others, yet there was no reservaton whatever
of power over the acton of the trustees or contro over the rea estate con-
veyed. It was to be sod and the proceeds dstrbuted. reservaton of
power over the remova and appontment of the trustees was In no sense a
reservaton of any contro over the property conveyed the new trustees, f
od ones were removed and new ones apponted, had no dscreton, e cept to
se, and such a reservaton woud not n any sense so quafy the conveyance
of the tte as to prevent the converson at the tme of the e ecuton of the
deed from rea estate nto persona property. It s aso true that the partes
to the deed reserved the rght to purchase, but ths agan was no such reserva-
ton of tte as woud defeat the converson. The rght to purchase was a rght
that anyone woud have.
1 or decsons dscussng ths queston and estabshng these prncpes see the foow-
ng : Gven v. ton (95 D. 8., 591) West rgna. Pup t Paper Co. v. Mer (17
ed.. 284) Wams v. Wams ( 1 . (2d), 2o7. certorar dened, 2S8 D. S., 12)
arett v. O (221 ed., 47 , 482. affrmed n 224 ed., 927) State of West rgna v.
mercan aptst ome Msson Socety (9 W. a., 447) O. . rown ankng Co.
v. Stockton (107 y., 492) Chrstopher v. Mungen ( 1 a., 513) Cons v. Comas
1 0 v., 325) Darrow v. Cakns (154 N. Y., 503) Weed v. ogc (85 Conn.. 490)
mf/ft v. Smth (174 111., 52) Greenand v. Wadde (110 N. Y., 234) Sears v. Scranton
Trust Co. (228 Pa., 128) : Scsher v. Swsher (157 a., 55) o v. o (250 111.. 384)
Whees v. Wheess (92 Tenn., 293) Rockand-Rockport Lme Co. v. Leary (203 N. Y.,
4 9) : rown v. etcher (235 U. S. 589) en v. Commssoner (49 . (2d), 71 . cer-
torar dened, 284 U. S., 55) Schaefcr v. owers (50 . (2d), 89, certorar dened. 284
O. ., 88) cf. Safe Depost C T. Co. v. rgna (280 U. 8.. 83) : nchor Reaty f In-
vestment Co. v. ecker (3 ed. Supp., 22. affrmed, 71 . (2d), 355) aas v. oman
(143 Ore., 141) Marbe Co. v. Merchants ank (15 Ca. pp., 347, 351) : oughton v.
Pacfc Southwest T. 8. ank (111 Ca. pp., 09) Lynch v. Cunnngham (131 Ca.
pp., 104) kton ec. Co. v. Perkns (145 Maryand, 224, appea dsmssed, 2 U. a,
85, certorar dened, 2 . 8., 02) Ganah v. Ganah (323 Mo., 20) Lynn v. Gep-
hart (27 Md., 547).
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359
Regs. 37, rt. 59.
The case of Lynn v. Gephart (27 Md., 547), reed upon on behaf of the
appeee and cted by the |udge beow In hs opnon s ceary not controng
under the facts here. In the Lynn case the grantors n the deed retaned an
equtabe nterest n the rea estate sod as we as compete authorty to
drect the trustees. No such retenton of power s found here. The case of
Ganah v. anah (323 Mo., 020), aso reed upon on behaf of the appeee, s
aso dstngushabe. In that case the court hed that the w dd not e pressy
drect the e ecutors to se. ere there was an e press drecton to the trustees
to se.
avng reached the concuson above set out that the nterest hed by the
pantff s decedent was personaty, t s scarcey necessary to dscuss the
second queston, but t may not be mproper to state that we have reached
the concuson that the aws of the Dstrct of Coumba are dfferent from
the statutes of Maryand and rgna n that under certan crcumstances
rea estate stuated n the Dstrct of Coumba s sub|ect to the payment of
the e penses of admnstraton. It woud, therefore, foow that that part of
the estate stuated n the Dstrct of Coumba woud be sub|ect to the edera
estate ta , even though It shoud be hed to be rea estate. dscusson of
ths queston wth respect to the statutes of Maryand and rgna w be
found n our decsons n Tat v. Safe Depost Trust Co. of atmore (70
. (2d), 79), Unted States v. Wco (decded November 19, 1934).
or the reasons gven above, the |udgment of the court beow s reversed
and the cause remanded for further proceedngs n accordance wth ths
opnon.
Reversed.
TITL I . ST T T . (1918)
S CTION 403.
Reguatons 37, rtce 59: Manner of makng I -30-7 11
deducton. Ct. D. 995
ST T T R NU CT O 1818 D CISION O COURT.
Gbobs state Nonresdent Property ed by en Property
Custodan Deductons Consttutonaty or Statute.
Where a nonresdent decedent, who ded n Germany on March 8,
1919, owned property stuated n the Unted States whch was
sezed and subsequenty sod by the en Property Custodan, act-
ng under the Tradng wth the nemy ct of 1917 (whch made
such a nonresdent an enemy, athough an mercan ctzen), the
estate was ta abe even though the property was hed by the en
Property Custodan, and the amount of deductons for unpad mort-
gages and admnstraton e penses, camed by the decedent s estate
In the fu amount thereof, was propery mted to 10 per cent of
the vaue of the gross estate stuated n the Unted States at the
date of death, under the provsons of secton 403(b) 1 of the Reve-
nue ct of 1918. That secton Is not unconsttutona n denyng to
nonresdents the fu deductons aowed to resdents.
Court of Cams op the Unted States.
Lothar W. aber, as ecutor of the Last W and Testament of enny aber,
Deceased, v. The Unted States.
pr 8, 1935.
opnon.
ooth, Chef ustce, devered the opnon of the court.
The pantff s the e ecutor of the estate of enny aber, deceased. In ths
sut recovery of a udgment for 7, 53.45 Is sought, sad sum beng the amount
of an estate ta pad under protest by the en Property Custodan to the
Commssoner of Interna Revenue on pr 18, 1925. No |ursdctona ssue
s nvoved.
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Regs. 37, rt. 50.
3 0
enny aber, pantff s testatr , was resdng at Sten, near Nurnberg,
avara, Germany, at the tme of her death on March 8, 1919. She was a non-
resdent ctzen of the Unted States. On the date of her death she owned two
parces of rea estate n the cty of New York, of the apprased vaue of 320,000,
encumbered by mortgages for 173,35 .92, and had on depost an open accouut
of 80,945.47 wth the nn of berhard aber, of New York.
Pror to her demse, a of the decedent s property n New York was sezed
by the en Property Custodan, actng under the Tradng wth the nemy ct,
and subsequenty on December 23, 1924, the Custodan sod and conveyed the
reaty. It s conceded that wth the e cepton of a few nsgnfcant and prac-
tcay vaueess artces of personaty, the above consttuted the entre estate of
decedent wthn the Unted States.
The record dscoses no attack upon the egaty of the proceedngs nvov-
ng the takng over of the testatr s property by the Custodan, admttng that
under the provsons of the Tradng wth the nemy ct testatr s resdence
n a country wth whch the Unted States was at war defned her status as
that of an enemy. In 1921 the pantff, as e ecutor of the estate of enny
aber, fed an estate ta return n the offces of the Commssoner of Interna
Revenue n Washngton and the coector of the second dstrct n New York.
In ths return pantff deducted 50,000 and the fu amount of the mortgages
on the reaty from the vaue of the gross estate, returnng an estate ta a-
bty of 1,733.32. Subsequenty n 1924, n an amended return pantff
camed addtona deductons of the cost of admnstraton, reducng the ta
abty to 1,341.93.
On pr 10, 1925, the en Property Custodan pad to the Unted States
n eved estate ta upon ths estate of 7, 53.45. The computaton of the ta
was as foows: Rea property, 320,000 accrued rentas, 4,38 .28 cash,
13,209. 7 tota gross estate, 337,595.95. The Commssoner determned that
admnstraton e penses of 18 .95, added to 173,35 .92, the vaue of the mort-
gages on the reaty, produced a sum In e cess of 10 per cent of the vaue of that
part of decedent s gross estate whch on the date of her death was stuated
n the Unted States, and that the gross estate wherever stuated dd not e ceed
ten tmes the vaue of that part of her gross estate stuated n the Unted
States, and aowed as a deducton 10 per cent of the gross estate, . e.,
33,759. 0, determnng a net ta abe estate of 303,83 .35 and an estate ta of
7, 53.45, whch was pad under protest
tmey cam for refund was fed by pantff and dened by the Comms-
soner. The pantff assas the vadty of the ta upon two grounds: rst,
It Is argued that on the date of the death of pantff s testatr she was not
the owner nor n the possesson of any estate In the Unted States, tte and
possesson beng n the en Property Custodan, and therefore the estate of the
decedent was not ta abe under the Revenue cts n force at the tme.
Ne t t s contended that secton 403(b) of the Revenue ct of 191S (40
Stat., 1098), appcabe n ths case, s unconsttutona as to nonresdent ct-
zens of the Unted States, because t voates rtce I , secton 2(1) of the
Consttuton, the artce cted readng as foows:
The ctzens of each State sha be entted to a prveges and mmuntes
of ctzens n the severa States.
The gravamen of the compant Is that mtaton of deducton aowances to
nonresdent ctzens Is arbtrary and dscrmnatory, denyng to nonresdent
decedents substanta deductons from the gross estate aowed to resdents.
Pantff In the bref approaches and argues the ssues of the case as though
they were res Integra. The asserton made Is that as to enemy aens the
courts have sustaned the consttutonaty of the ta ng cts, but not so as to
an mercan ctzen made an enemy by the Tradng wth the nemy ct. The
enemy status of enny aber n war tmes, so far as her property n the
Unted States was concerned, was precsey the same as though she had been
an aen enemy. The rght of sezure, sae, and management of property wthn
the Unted States apped wth the same vgor and n the same manner to both
enemes ake. Congress provded that the word enemy n the ct ncuded
any ndvdua resdent wthn the terrtory of any na-
ton wth whch the Unted States s at war. Congress desgnedy empoyed
the words Indvdua resdent, and obvousy ths comprehended a ctzen of
the Unted States as we as an aen.
Secton 403(b) of the Revenue ct of 1918 s as foows:
Sec. 403. That for the purpose of the ta the vaue of the net estate sha
be determned
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3 1
Regs. 37, rt. 59.
(b) In the case of a nonresdent, by deductng from the vaue of that part
of hs gross estate whch at the tme of hs death s stuated n the Unted
States
(1) That proporton of the deductons specfed n paragraph (1) of sub-
dvson (a) of ths secton whch the vaue of such part bears to the vaue
of hs entre gross estate, wherever stuated, but In no case sha the amount
bo deducted e ceed 10 per centum of the vaue of that part of hs gross estate
whch at the tme of hs death s stuated n the Unted States. (40 Stat.,
1098.)
Secton 24 of the Tradng wth the nemy ct of 1917 (40 Stat., 411), as
amended by the Wnsow ct of March 4,1923 (42 Stat., 1511), reads as foows:
Sec. 24. The en Property Custodan s authorzed to pay a ta es
(ncudng speca assessments), heretofore or hereafter awfuy assessed
by any body potc aganst any money or other property hed by hm or by
the Treasurer of the Unted States under ths ct, and to pay the necessary
e penses ncurred by hm or by any depostary for hm n securng the poses-
son, coecton, or contro of any such money or other property, or n pro-
tectng or admnsterng the same. Such ta es and e penses sha be pad out
of the money or other property aganst whch such ta es are assessed or n
respect of whch such e penses are ncurred, or (If such money or other
property s nsuffcent) out of any other money or property hed for the
same person, notwthstandng the fact that a cam may have been fed
or sut nsttuted under ths ct
The Settement of War Cams ct of 1928 (45 Stat, 254), n secton 18 (b)
and (e), provdes as foows:
Sec. 18. Secton 24 of the Tradng wth the nemy ct, as amended, s
amended by nsertng (a) after the secton number and by addng at the
end of such secton new subsectons to read as foows:
(b) In the case of ncome, war-profts, e cess-profts, or estate ta es
mposed by any ct of Congress, the amount thereof sha, under reguatons
prescrbed by the Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, be computed n the same manner (e cept as here-
nafter In ths secton provded) as though the money or other property had
not been sezed by or pad to the en Property Custodan, and sha be
pad, as far as practcabe, In accordance wth subsecton (a) of ths secton.
Pendng fna determnaton of the ta abty the en Property Custodan
s authorzed to return, n accordance wth the provsons of ths ct,
money or other property n any trust n such amounts as may be deter-
mned, under reguatons prescrbed by the Commssoner of Interna Revenue
wth the approva of the Secretary of the Treasury, to be consstent wth
the prompt payment of the fu amount of the nterna-revenue ta es.
(e) In case of any nterna-revenue ta Imposed n respect of property
conveyed, transferred, assgned, devered, or pad to the en Property
Custodan, or sezed by hm, and mposed n respect of any perod (n the
ta abe year 1917 or any succeedng ta abe year) durng whch such prop-
erty was hed by hm or by the Treasurer of the Unted States, no Interest
or cv penaty sha be assessed upon, coected from, or pad by or on behaf
of, the ta payer nor sha any nterest be credted or pad to the ta payer
n respect of any credt or refund aowed or made n respect of such ta .
The Crcut Court of ppeas for the ourth Crcut decded the dentca
questons now Inssted upon by pantff, wth the one e cepton that the
nantff n Chemsche abrk on eyden ktenaeseschaft et a, v. Tat
( 4 ed. (2d), 295, certorar dened, 290 U. S., 48) Ct D. 5 0, 0. . I-2,
218 , was admttedy an aen enemy. The anguage of the opnon s apropos
and we quote the foowng e cerpt therefrom:
The contenton of the appeant s that the case s prmary a ta case
and that the deducton was mpropery made because the German corporaton
was not the owner of any property or the recpent of any ncome n the
Unted States n the year 1919, and that therefore no Income ta coud be
awfuy assessed aganst t It s sad that the statutes whch authorzed
the en Property Custodan to pay a ta es awfuy assessed aganst the
property hed by hm have no appcaton to such a case because the tte to
the property had become vested n the Unted States and was not sub|ect to
awfu assessment and that the Settement of War Cams ct, n so far
as It drects that the gan from a sae of the property sha be sub|ect to
Income ta , Is unconsttutona because the s teenth amendment merey gave
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Regs. 48, rt. .
3 2
Con press power to evy and coect ta es on ncomes, and no Income was re-
ceved by the appeant In the Unted States n the year of the sae.
Ths argument oses sght of the broad power of the Government to seze
and approprate enemy propertes wthout any compensaton to the owners.
(Unted States v. Chemca oundaton, 272 U. S., 1, 47 S. Ct., 1, 71 L. d,
131.) Congress had the undoubted rght to confscate such property competey
or to mpose any condton ess onerous as t saw ft and so t was we
wthn the scope of ts authorty when t measured the deducton by the
sze of the burden whch t paced upon the property of ts own ctzens n
the form of ta aton. ven f we assume that the German corporaton had
ost a tte to the property and had no Income therefrom n the year 1919,
In the sense In whch the term s used n the ncome ta aw, st the deduc-
ton made by the en Property Custodan was awfu, for It carred nto
effect the obvous purpose of the statutes whch Congress had the power to
enact
There are many other cases cted n the brefs of counse. To refer to and
dscuss them woud, we thnk, serve no usefu purpose. Congress Is not
obged to grant deductons from gross to ascertan net ncome, and we thnk
It s ong snce setted that a aw appcabe ake to a persons n the same
cass and crcumstances s not to be regarded as arbtrary and caprcous.
( urnet v. Thompson O d Gas Co., 283 U. S., 301 Ct. D. 331, C. . -4,
890 .)
The petton w be dsmssed. It s so ordered.
TITL I - CIS T S. (1934)
S CTION 02 /|. PROC SSING T ON C RT IN OILS.
Reguatons 48, rtce 1: Defntons. T -7737
S.T.820
Pam o resdue contanng 10 per cent or more of substan-
tay a the essenta components of the orgna pam o s a
combnaton or m ture of pam o sub|ect to ta under secton
02 of the Revenue ct of 1934.
dvce s requested whether certan pam o resdue s a com-
bnaton or m ture of pam o wthn the meanng of secton 02
of the Revenue ct of 1934.
That ct mposes a ta upon the frst domestc processng of cer-
tan os, ncudng pam o. It provdes n part that
or the purposes of ths secton the term frst domestc process-
ng means the frst use n the Unted States, n the manufacture or produc-
ton of an artce ntended for sae, of the artce wth respect to whch the
ta s mposed, but does not ncude the use of pam o n the manufacture
of tn pate.
Pam o used n the manufacture of tn pate s afterwards sod
as pam o resdue for other uses. chemca anayss of the
product n the present case shows that t contans 10 per cent or
more of substantay a the essenta components of the orgna
pam o. Pam o or any combnaton or m ture contanng a
substanta quantty of such o wth respect to whch there has been
no prevous frst domestc processng s sub|ect to the ta mposed
by secton 02y2 of the Revenue ct of 1934. rtce 1(g) of Regu-
atons 48 defnes combnaton or m ture as an artce n the
formaton of whch any of the os have been bended, con|oned,
unted, adm ed, combned, amagamated, emboded, or merged,
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Regs. 49, rte. 18 and 24.
ether by chemca or mechanca means, wth or wthout the pres-
ence of any other substance, and whch retans a substanta porton
(10 per cent or more) of substantay a the essenta components
of any of the o or os enterng nto such combnaton or m ture.
It s hed that the pam o resdue n ths case s a combna-
ton or m ture of pam o as defned n artce 1(g) of Regua-
tons 48 snce t contans 10 per cent or more of substantay a the
essenta components of the orgna pam o. s such t s sub|ect
to ta under secton 02 2 of the Revenue ct of 1934 when used
n the Unted States on or after May 10, 1934, 11.40 a. m., eastern
standard tme, n the manufacture or producton of an artce
ntended for sae.
S CTIONS 04 ND 05 O T R NU CT O 1934, S M ND D
Y S CTION 407 O T R NU CT O 1935.
Reguatons 49, rtces 18 and 24: Rates and I -42-7749
bass of ta . T. D. 4590
Producers ta on crude petroeum, ta on refnng of crude pe-
troeum, and ta on gasone produced or recovered from natura
gas Sectons 04 and 05 of the Revenue ct of 1934, as amended
by secton 407 of the Revenue ct of 1935, approved ugust 30,
1935. rtces 18 and 24 of Reguatons 49, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 49 (approved ugust 24, 1934) are hereby amended
by nsertng mmedatey after the quotatons from
(a) Secton 04 of the Revenue ct of 1934 whch precedes
artce 10,
(5) Secton 04 of the Revenue ct of 1934 whch precedes
artce 17, and
(c) Secton 05 of the Revenue ct of 1934 whch precedes
artce 20
the foowng provson:
Secton 407 of the Revenue ct of 1985 (approved ugust 30, 1035).
ffectve on the 1st day of the frst caendar month foowng the
date of the enactment of ths ct, sectons 04 and 05 of the Revenue
ct of 1934 (reatng to ta es on producton and refnng of crude
petroeum) are amended by strkng out of 1 cent per barre
wherever appearng theren and Insertng n eu thereof Ms 3f 1
cent per barre.
In conformty wth the provsons of secton 407 of the Revenue
ct of 1935, artces 18 and 24 of Reguatons 49 (approved ugust
24, 1934) are amended to read as foows:
bt. 18. Rate and bass of ta . The ta Imposed upon the sae of crude
petroeum by the producer thereof s at the rate of one-tenth of 1 cent per
barre from une 9, 1934, to ugust 31, 1935, both dates ncusve. On and
after September 1, 1935, the ta s at the rate of one twenty-ffth of 1 cent per
barre. ( or defnton of the term sae, see artce 10.)
rt. 24. Rate and oass of ta . The ta mposed (1) upon the refnng or
processng In the Unted States of crude petroeum, and (2) upon the produc-
ton or recovery n the Unted States of gasone from natura gas, s at the
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Regs. 4 , rt. 1.
3 4
rate of one-tenth of 1 cent per barre from une 9, 1934, to ugust 31, 1935,
both dates ncusve. On and after September 1, 1935, the ta s at the rate of
one twenty-ffth of 1 cent per barre.
Gut T. everng,
Commssoner of Interna Revenue.
pproved October 10, 1935.
T. . CoOLIDG ,
ctng Secretary.
S CTION 05. T ON R INING O CRUD P TROL UM.
Reguatons 49, rtce 22: Scope and measure IY-32-7 41
of ta . S. T. 817
d|ustments for e panson, contracton, and osses shoud not be
made n computng ta es under secton 05 of the Revenue ct of
1934 on gasone produced or recovered from natura gas.
dvce s requested whether, n computng the ta under secton
05 of the Revenue ct of 1934 wth respect to gasone produced
or recovered from natura gas, ad|ustments shoud be made for e -
panson or contracton due to temperature or for osses resutng
from handng.
Secton 05 of the Revenue ct of 1934 reads n part as foows:
(a) There Is hereby mposed (2) on gasone produced or recovered
n the Unted States from natura gas a ta of one-tenth of 1 cent per barre of
42 gaons, to be pad by the person producng or recoverng such gasone.
rtce 22 of Reguatons 49 provdes that the ta mposed by
secton 05, wth respect to gasone produced or recovered n the
Unted States from natura gas, attaches to the number of barres
of gasone actuay produced or recovered from natura gas re-
gardess of the method or process by whch produced or recovered.
The ta mposed by secton 05 of the Revenue ct of 1934 dffers
from the ta mposed by secton 17 of the Revenue ct of 1932,
as amended, the atter beng based upon the amount of gasone
actuay sod by the mporter or producer thereof whe the ta
under secton 05 attaches at the tme of the producton or recovery
of the gasone to the number of barres of gasone actuay produced
or recovered. Consequenty, no ad|ustments for e panson or con-
tracton due to temperature or for osses from handng occurrng
subsequent to the producton or recovery of the gasone from
natura gas shoud be made n computng the ta under secton 05
of the Revenue ct of 1934.
TITL I . M NU CTUR RS CIS T S. (1932)
Reguatons 4 , rtce 1: ffectve perod. I -31-7 25
T. D. 4573
cse ta es on saes by the manufacturer Tte I of the
Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct, and further amended by Pubc Resou-
ton No. 3 , Seventy-fourth Congress, approved une 28, 1935.
rtce 1 of Reguatons 4 , amended.
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Regs. 4 , rt. 22.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte I of the Revenue ct of 1932, as amended by secton 212 of
the Natona Industra Recovery ct, was further amended by
Pubc Resouton No. 3 , Seventy-fourth Congress, approved une
28,1935, whch reads, n part, as foows:
That Tte I , as amended, and Parts I, II, III, and I of Tte , as
amended, of the Revenue ct of 1932, are further amended by strkng out
1035 wherever appearng theren, and Insertng In eu thereof 1937.
In conformty wth the provsons of aw quoted above, the second
aragraph of artce 1 of Reguatons 4 , as amended by Treasury
ecson 4380, approved ugust 9, 1933 C. . II-2, 344 , s
further amended to read as foows:
No such sae, ease, or use after une 30, 1937 (or after uy 31, 1937, In
the case of artces ta abe under sectons 02 and 0 , reatng to the ta
oa tres and nner tubes und automobes, etc.), Is ta abe under the tte.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 24, 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
S CTION 03. TOIL T PR P R TIONS, TC
Reguatons 4 , rtce 22: Scope of ta . I -29-7 02
( so Secton 19, rtce 10.) S. T. 815
Meanng of the words coverngs and contaners used In secton
19(a) of the Revenue ct of 1932 as apped to toet preparatons.
S. T. 559 (C. . I-2, 459) modfed.
Inqury s made reatve to the meanng of the words coverngs
and contaners used n secton 19(a) of the Revenue ct of 1932
as apped to toet preparatons.
Secton 03 of the Revenue ct of 1932 mposes a ta of 10 per
cent upon the prce for whch toet preparatons are sod by the
manufacturer, producer, or mporter. Secton 19(a) of that ct
provdes n part as foows:
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 con-
taners of whatever nature, and any charge ncdent to pacng the artce n
condton packed ready for shpment, .
Wth respect to whether certan cgarette cases, vanty cases, etc.,
of consderabe vaue, whch contaned a sma quantty of rouge
and/or face powder, were contaners wthn the meanng of
secton 19(a) of the Revenue ct of 1932, t was hed1 n S. T. 559
(C . I-2, 459) that
The mere fact that a sma quantty of cosmetcs of neggbe vaue Is paced
In a vauabe case does not warrant the concuson that the atter Is a con-
taner wthn the meanng of secton 019. The ony rea consderaton for the
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Regs. 4 , rt. 22.
3
prce pad s the vaue of the case and not the comparatvey neggbe vaae
of the cosmetc whch s ncuded to dspay or set-off the case. Therefore, such
cases are not contaners for the cosmetcs, wthn the meanng of secton 19.
The contaners consdered n S. T. 559 were prmary contaners
for cgarettes, or for artces usuay carred n vanty cases, such as
a comb, mrror, na fe, con purse, etc. The addton of a space for
cosmetcs was merey ncdenta. The concuson reached n that
rung was based upon the comparatve vaues of the contaner and
the toet preparaton theren. Secton 19(a) specfcay provdes,
however, that any charge for coverngs and contaners of whatever
nature sha be ncuded n determnng the sae prce of any artce
covered by Tte I of the Revenue ct of 1932. There s no au-
thorty n the aw for e cudng the charge for a contaner n deter-
mnng the sae prce merey because of ts hgher vaue as compared
to the vaue of the toet preparaton contaned theren. case or
compact, no matter how eaborate, whch serves no usefu purpose
other than a coverng for, or contaner of, a toet preparaton, s
obvousy a coverng or contaner wthn the meanng of secton
19(a). owever, such an artce whch s prmary desgned for
another purpose but ncdentay contans a sma quantty of a toet
preparaton s not a coverng or contaner of cosmetcs wthn the
meanng of secton 19(a). The foregong constructon of the
statute s consstent not ony wth the generapurpose of the ct to
ta u ures but aso wth the ntent of secton 19(a).
In vew of the foregong, S. T. 559 (C. . I-2,459) s modfed to
hod that the domnant or prmary purpose of the contaner, rather
than the comparatve vaues of the contaner and the toet prepara-
tons theren, consttutes the test of ta abty under the aw.
Reguatons 4 , rtce 22: Scope of ta . I -34-7 4
S. T.818
Ta abty of saes of permanent wave soutons. S. T. 488
(C. . I-2, 457) modfed.
The queston s presented whether permanent wave soutons sod
or used by the manufacturer are sub|ect to the ta mposed by secton
03 of the Revenue ct of 1932.
The ta mposed by that secton attaches to the sae by the manu-
facture producer, or mporter of certan enumerated artces and
any smar substance, artce, or preparaton whch s used or ap-
ped, or ntended to be used or apped, for toet purposes. Secton
22 aso mposes a ta on the use of such artces by the manufac-
turer, producer, or mporter.
In gvng spra waves the permanent wave souton s usuay
apped ony to the wave pads, whe n gvng other waves, such as
n the croqugnoe method, the souton s apped to the har drecty
and/or to the wave pads. The queston presented s whether such
permanent wave soutons are ta abe.
It was hed n S. T. 488 (C. . I-2, 457), wth respect to per-
manent wave soutons apped to pads whch n turn were apped
to the har and heated by wave machnes, thereby mpartng perma-
nent waves to the har, that
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3 7
Regs. 4 , rt. 25.
The permanent wave pads used as accessores to permanent wave machnes
and the accompanyng permanent wave souton are not ta abe under secton
03 of the Revenue ct of 1932. owever, substances or preparatons apped
drecty to the har n producng fnger waves or wave sets are ta abe
under the aw when sod by the manufacturer, producer, or mporter.
If an artce s used or apped, or ntended to be used or apped,
for toet purposes, t s ta abe. permanent wave souton whch
s used or apped, or ntended to be used or apped, to the har s
a toet preparaton wthn the meanng of the statute. Snce the
permanent wave soutons n queston are apped, or are ntended
to be apped, drecty to the har, or to both the har and the wave
pads, n gvng permanent waves, t s hed that such soutons are
toet preparatons wthn the meanng of secton 03 and are sub|ect
to the ta mposed by that secton. The fact that n some cases the
permanent wave souton s apped ony to the wave pads does not
e cude the souton from the ta .
S. T. 488, supra, s modfed to accord wth the concuson reached
heren.
S CTION 04 O T R NU CT O 1932, ND S CTION 08 O
T R NU CT O 1934. URS.
Regu a tons 4 , rtce 25: Repars. I -42-7748
S. T. 821
Ta abty wth respect to fur used n whoesae and reta
repar |obs.
dvce s requested reatve to the proper method of determnng
ta abty under secton 04 of the Revenue ct of 1932 and sec-
ton 08 of the Revenue ct of 1934 wth respect to fur used n whoe-
sae and reta repar |obs.
Under the provsons of secton 04 of the Revenue ct of 1932
and secton 08 of the Revenue ct of 1934, a ta of 10 per cent of
the sae prce s mposed upon the sae on or after May 11, 1934, for
75 or more, by the manufacturer, producer, or mporter of artces
made of fur on the hde or pet, or of whch such fur s the com-
ponent matera of chef vaue.
rtce 25 of Reguatons 4 , as amended by Treasury Decson
4449 (C. . III-2, 402), provdes n part as foows:
where new fur s supped the ta attaches to the sae of such new
fur. The prce pad for the repar |ob w be presumed to be the prce for
whch such fur s sod uness the abor and new fur are bed as separate
tems. Where the prce attrbutabe to the new fur s shown as a separate
tem on the nvoce furnshed to the customer, the ta w attach to the sae
prce of the new fur ony. New fur furnshed n repar |obs competed or
devered pror to May 11,1934, Is sub|ect to ta regardess of the prce charged
for such fur. No ta w attach to new fur furnshed n repar |obs com-
peted on and after May 11, 1934, where the prce charged for such fur s ess
than 75.
In whoesae fur repar |obs, that s, where fur repar work s done
for reta furrers, the ta attaches to the amount shown on the n-
voce as the sae prce of the fur, f 75 or more. Where the sae
prce of the fur s not shown as a separate tem, the ta attaches to
the entre amount of the nvoce, f 75 or more.
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Regs. 4 , rt. 41.
3 8
In a reta fur repar |ob, that s, where a repar |ob s performed
by a reparer drecty for the consumer, the ta s computed upon
the far market prce of the fur. Seventy-fve per cent of the amount
charged the consumer for the |ob w be consdered to be the far
market prce of the fur. or e ampe, where the sae prce of the
fur used n a reta fur repar |ob s not nvoced as a separate tem,
the nvoce showng a ump sum, the ta on the fur w be com-
puted upon the bass of 75 per cent of the ump sum shown n the
nvoce. Where the sae prce of the fur s nvoced as a separate
tem, the ta w be computed upon the bass of 75 per cent of the
reta sae prce of the fur as beng fary representatve of the
manufacturer s sae prce. In ether case, no ta attaches f the
whoesae far market prce of the fur s shown by the nvoce to be
ess than 75. The foregong s generay appcabe to reta fur
repar |obs, e cept that n ocates west of the Rocky Mountans
the far market prce of the fur used n a reta fur repar |ob w
be consdered to oe 70 per cent of the reta sae prce.
records substantatng the sae prce upon whch the ta s
computed and the far market prce of the fur must be retaned unt
the correct ta abty has been determned by the ureau.
S CTION 0 . UTOMO IL S, TG
Reguatons 4 , rtce 41: Defnton of parts I -47-7823
or accessores. S. T. 824
Ta abty of the sae or use of parts or accessores measured
and cut from raw or buk matera.
Inqury s made concernng the appcaton of secton 0 (c) of
the Revenue ct of 1932 to the sae or use of automobe parts or
accessores measured and cut by automobe whoesaers and |ob-
bers from raw or buk matera.
That ct mposes a ta upon automobe parts and accessores
sod by the manufacturer, producer, or mporter. rtce 41 of
Reguatons 4 provdes n part as foows:
The term parts and accessores sha be understood to embrace a such
parts and accessores as have reached such a stage of manufacture that they
consttute artces commony or commercay known as parts and accessores
regardess of the fact that fttng operatons may be requred n connecton
wth nstaaton. The term sha not be understood to embrace raw materas
used n the manufacture of such artces.
Some artces whch are commony or commercay known as
automobe parts or accessores may be ready produced from mate-
ra customary sod from a ro of such matera at a specfed prce
per foot. |obber or deaer frequenty buys matera, not sub|ect
to ta , and by cuttng or processng the matera to the requred
ength or sze produces a part or accessory. In decdng whether
the transacton s ta abe, the ureau has drawn a dstncton be-
tween an mmedate repar |ob and a sae for future use. If the
part or accessory s cut or produced from engths or ros of matera
for mmedate use by a reparman n a repar |ob on whch he s
then workng, the sae thereof by the |obber or deaer to the repar-
man s deemed to be a sae of matera not sub|ect to ta . If, how-
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Regs. 4 . rt. 4
ever, the |obber or deaer transforms engths or ros of matera
nto parts or accessores and paces the fnshed artces n stock
for future use or dsposton, he thereby becomes the manufacturer
of such artces wthn the meanng of the ct, and hs subsequent
sae or use thereof s ta abe under secton 0 (c) of the Revenue
ct of 1932.
S CTION 07. R DIO R C I ING S TS, TC.
Reguatons 4 , rtce 4 : Phonograph I -44-7774
records. S.T.823
ectrca transcrptons used for broadcastng purposes and
moton-pcture records of the sound-on-dsk type are not ta abe
as records for phonographs.
S. T. 550 (C. . I-2, 477) s revoked and S. T. 51 (C. .
II-1, 399) s modfed.
Inqury s made whether eectrca transcrptons used for broad-
castng purposes and moton-pcture records of the sound-on-dsk
type are sub|ect to ta as records for phonographs under secton
07 of the Revenue ct of 1932, whch mposes a ta on certan
artces (ncudng records for phonographs ) sod by the manu-
facturer, producer, or mporter.
In S. T. 550 t was hed that eectrca transcrptons used by
broadcastng systems are records for phonographs and ta abe as
such under the aw and n S. T. 51 the concuson was reached that
moton-pcture records of the sound-on-dsk type aso come wthn
the genera cass of records for phonographs. Reconsderaton of
those decsons s requested.
t the tme secton 07 was enacted the word phonograph had
acqured a defnte meanng both n the mnds of the pubc and n
|udca decsons and t s to be assumed that Congress had that
meanng n mnd and used the word n that sense when t enacted
ths provson. s was stated n e|mer v. Unted States (195 U. S.,
100), It s a we-setted rue of constructon that anguage used
n a statute whch has a setted and we-known meanng, sanctoned
by |udca decson, s presumed to be used n that sense by the egs-
atve body.
ccordng to the ncycopeda rtannca the phonograph s an
nstrument for reproducng sound by transmttng to the ar the
mechanca vbratons of a styus n contact wth a snuous groove n
a movng record. Less specfcay, the term desgnates any nstru-
ment for the recordng or subsequent reproducton of sound. Con-
gress n mposng a ta on records for phonographs coud not have
had n mnd ths genera defnton of the word phonograph. If
such were the case, a records embodyng the prncpe o the phono-
graph woud be ta abe, ncudng moton-pcture records of the
sound-on-dsk type, records made by poce departments n gather-
ng evdence, records of pubc statements for use n the event of a
be or sander sut, and many more uses to whch the phonographc
prncpe of sound recordaton and reproducton s put. Techncay,
the machnes whch record sound as we as those whch reproduce t
are phonographs, but from a consderaton of the anguage of secton
07, t s evdent that Congress had n mnd ony the machnes whch
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Regs. 44(1934), rt. 30.
370
reproduce the sound. Such a machne has a revovng turntabe, a
sound-arm hodng a daphragm n whch s fastened a neede or
|ewe, and a sound-bo or horn. The word phonograph, accord-
ng to ts ordnary meanng as we as ts technca meanng, does not
ncude the equpment used n broadcastng studos, but refers to those
nstruments whch, pror to the advent of the rado, were e tensvey
used n homes to reproduce sound mechancay from records desgned
for use on such nstruments, . e., ordnary phonograph records, or
to use the anguage of the ct, records for phonographs.
There s strong and ampe |udca authorty for the vew that for
the purposes of the e cse ta the ureau shoud ascertan the com-
merca sgnfcance of the words records for phonographs and
construe them accordngy. ( mercan Net Twne Co. v. Worth-
ngton, 141 U. S., 4 8 Sonn v. Magone, 159 U. S., 417 Phadepha
Storage attery Co. v. Lederer, 21 ed. (2d), 320.) rom evdence
submtted t s obvous that n the ndustry concerned a very defnte
dstncton s made between phonograph records and eectrca tran-
scrptons and that the atter are not commercay known as records
for phonographs.
The phrase records for phonographs used n the ct aso nd-
cates that use s the crteron. In other words, not a records are
ta abe but ony those for phonographs. The courts have frequenty
had occason to determne ta questons whch turn on the use of the
artce to be ta ed. ong ne of cases has consstenty hed that
where use s the crteron, the chef use of an artce, not the e cusve
use, contros. The eadng case on ths pont s Magone v. Wederer
(159 U. S., 555). ppyng ths prncpe to the present nqury,
t s cear that the chef use of phonograph records or records for
phonographs s n connecton wth those nstruments whch are
techncay, commony, and commercay known as phonographs and
the fact that phonograph records are aso used for broadcastng
purposes does not change the nature of ther chef use.
In vew of the foregong, t s hed that eectrca transcrptons for
broadcastng purposes and moton-pcture records of the sound-on-
dsk type are not records for phonographs wthn the meanng
of secton 07 of the evenue ct of 1932 and are not sub|ect to ta
under that secton. Those records whch are commony and commer-
cay known as phonograph records, even though they are frequenty
payed over the rado, are nevertheess records for phonographs
and are ta abe as such.
S. T. 550 (C. . I-2, 477) s revoked and S. T. 51 (C. . II-1,
399) s modfed to accord wth the vews e pressed heren.
S CTION 17, S M ND D Y S CTIONS 211(a) ND 217 (a) ND (b)
O T N TION L INDUSTRI L R CO RY CT, ND S CTION
03 (b) ND (c) O T R NU CT O 1934. G SOLIN .
Reguatons 44 (1934), rtce 30: Use of terms. I -45-7788
( so Secton 20, as amended, and rtce 20.) G. C. M. 15 1
Ta abty of ubrcatng o used as matera n the producton
of a product sod as a motor fue.
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371
Regs. 44(1934), rt. 30.
dvce s requested whether ubrcatng o s used as matera
n the manufacture or producton of, or as a component part of,
gasone wthn the meanng of secton 20(1) of the Revenue ct
of 1932, as amended by secton 4(a) of the ct of une 1 , 1933
(Pubc, No. 73, Seventy-thrd Congress), when such o s m ed
wth gasone n the rato of about 1 part of ubrcatng o to about
99 parts of gasone and the resutng m ture s sod as a motor fue.
Secton 17 of the Revenue ct of 1932, as amended by sectons
211(a) and 217 (a) and (b) of the Natona Industra Recovery
ct and secton 03 (b) and (c) of the Revenue ct of 1934, mposes
a ta of 1 cent a gaon on the sae or use of gasone by the producer
or mporter. Secton 01 (c) of the Revenue ct of 1932 mposes
a ta of 4 cents a gaon on ubrcatng o sod n the Unted States
by the manufacturer or producer.
Secton 20 of the Revenue ct of 1932, as amended by secton
4(a) of the ct of une 1 , 1933 (Pubc, No. 73, Seventy-thrd
Congress), provdes n part:
Under reguatons prescrbed by the Commssoner wth the approva of the
Secretary, no ta under ths tte sha be mposed wth respect to the sae of
any artce
(1) for use by the vendee as matera n the manufacture or producton of,
or as a component part of, an artce enumerated n ths tte
(2) for resae by the vendee for such use by hs vendee, f such artce s
n due course so resod

or the purposes of ths tte the manufacturer or producer to whom an artce
s sod under paragraph (1) or resod under paragraph (2) sha be consdered
the manufacturer or producer of such artce.
Secton 22 of the Revenue ct of 1932 provdes n part:
If
(1) any person manufactures, produces, or mports an artce and
uses t (otherwse than as matera n the manufacture or producton of, or as
a component part of, another artce to be manufactured or produced by
hm whch w be ta abe under ths tte or sod free of ta by vrtue of
secton 20, reatng to sae of artces for further manufacture)

he sha be abe for ta under ths tte n the same manner as f such artce
was sod by hm, .
It s the opnon of ths offce that when a sma percentage of
ubrcatng o s m ed wth a motor fue and the resutng m ture
s gasone, as defned n secton 17 of the Revenue ct of 1932,
as amended, and n artce 30 of Reguatons 44(1934), the ubr-
catng o n such a m ture s used as a component part of such gaso-
ne wthn the meanng of secton 20 of the Revenue ct of 1932,
as amended. ccordngy, a producer of gasone may purchase
ubrcatng o ta -free for use n the producton of gasone as
defned n the aw and reguatons. Where the producer of the
Sasone aso produces the ubrcatng o whch s used n the pro-
ucton of the gasone, under the provsons of secton 22 of the
Revenue ct of 1932 such a producer of gasone may use the u-
brcatng o produced by hm n the producton of such gasone
wthout ncurrng abty for the ta on such use, sub|ect, however,
to the provsons of artces 20 to 23, ncusve, of Reguatons
44(1934), reatng to the ta abty of artces purchased ta -free
for further manufacture but not so used. Ths opnon appes ony
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Regs. 44(1934), rt. 24.
372
to m tures whch are gasone as defned n the aw and regu-
atons and does not ncude m tures of ubrcatng o and gasone
sod for use or used as a combnaton motor fue and ubrcant for
outboard motors.
rthuk . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 20 O T R NU CT O 1932, S M ND D Y T
CT O UN 1 , 1933 (PU LIC, NO. 73, S NTY-T IRD CON-
GR SS). T - R S L S.
Reguatons 44(1934), rtce 24: Saes to I -2 -7572
States or potca subdvsons thereof and S. T. 814
to the Unted States.
( so rtce 17, Reguatons 4 , as amended.)
The attempt to rescnd a competed ta abe sae and to sub-
sttute therefor a sae e empt under secton 20 of the Revenue
ct of 1932, as amended, hed neffectua.
Inqury s made whether a sae of artces ta abe under Tte I
of the Revenue ct of 1932, as amended, made under the crcum-
stances stated heren, s e empt under the provsons of secton 20
of the Revenue ct of 1932, as amended by the ct of une 1 , 1933
(Pubc, No. 73, Seventy-thrd Congress), effectve uy 1, 1933.
Secton 20, as amended, provdes n part as foows:
Under reguatons prescrbed by the Commssoner wth the approva of th :
Secretary, no ta under ths tte sha be mposed wth respect to the sae of
any artce
(3) for resae by the vendee to a State or potca subdvson thereof for use
n the e ercse of an essenta governmenta functon, f such artce s n due
course so resod.
manufacturer of certan artces enumerated n Tte I of
the Revenue ct of 1932, as amended, sod such artces after uy 1,
1933, to a dstrbutor, who n turn resod the artces to a deaer.
The deaer sod the artces to a potca subdvson of a State
for use n the e ercse of essenta governmenta functons. Ths
transacton was not e empt under the terms of the aw, the sae
not havng been made to the potca subdvson by the manu-
facturer or hs vendee. Wth a vew to securng e empton the
dstrbutor ssued a credt memorandum to the deaer n respect of
the artces sod and then bed the potca subdvson drect for
the agreed prce of the artces n an endeavor to change the com-
peted transacton between the deaer and the potca subdvson
to an e empt sae to that subdvson by the dstrbutor. Payment
was made drecty to the dstrbutor by the potca subdvson.
It s hed that the sae by the deaer and not the sae by the ds-
trbutor was the sae to the potca subdvson. That sae was
a competed transacton and was not affected by the attempted
rescsson. There beng more than one ntervenng sae between the
manufacturer abe for the ta and the potca subdvson, the
terms of secton 20 of the Revenue ct of 1932, as amended, are
not appcabe.
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373
Regs. 44(1934), rt. 24.
Reguatons 44(1934), rtce 2: ffectve I -31-7 24
perod. T. D. 4572
cse ta es on saes by the manufacturer Tte I of the
Revenue ct of 1932, amended by secton 212 of the Natona In-
dustra Recovery ct, and secton 1 of the ct approved une 1 ,
1983 (Pubc, No. 73, Seventy-thrd Congress), and further amended
by Pubc Resouton No. 8 , Seventy-fourth Congress, approved
une 28, 1935. rtce 2 of Reguatons 44 (revsed September,
1934) amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte I of the Revenue ct of 1932, as amended by secton 212
of the Natona Industra Recovery ct, and secton 1 of the ct
approved une 1 , 1933 (Pubc, No. 73, Seventy-thrd Congress),
was further amended by Pubc Resouton No. 3 , Seventy-fourth
Congress, approved une 28, 1935, whch reads, n part, as foows:
That Tte I , as amended, and Parts I, II, III, and I of Tte , as
amended, of the Revenue ct of 1932, are further amended by strkng out
1935 wherever appearng theren, and Insertng n eu thereof 1937.
Secton 1001(a), as amended, of the Revenue ct of 1932, and secton 2, as
amended, of the ct entted n ct to e tend the gasone ta for one
year, approved une 1 , 1933, are further amended by strkng out
1935 wherever appearng theren, and Insertng n eu thereof 1937.
In conformty wth the provsons of aw quoted above, artce 2 of
Reguatons 44 (revsed September, 1934) s amended to read as
foows:
et. 2. ffectve perod. The ta s Imposed upon any sae, ease, or use, on
or after une 21, 1932, and before uy 1, 1937, of gasone, ubrcatng o,
brewer s wort, certan mat products, certan grape products, or matches by the
manufacturer or other person abe for ta under the provsons of secton 23
(see artce 5), rrespectve of when the artce was manufactured, produced, or
Imported.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 24, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 44(1934) rtce 24: Saes to I -4 -780
States or potca subdvsons thereof and T. D. 4 04
to the Unted States.
cse ta es on saes by the manufacturer. Tte I of the
Revenue ct of 1932, amended by the Natona Industra Recovery
ct, the ct of une 1 , 1933 (Pubc, No. 73, Seventy-thrd Con-
gress), Pubc Resouton No. 3 , Seventy-fourth Congress, and
further amended by secton 401 of the Revenue ct of 1935.
rtces 24, 28, 33, 34, 43, and 84 of Reguatons 44 (revsed
September, 1934), amended.
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Regs. 44(1934), rt. 24.
374
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 44 (revsed September, 1934) are amended to gve
effect to the provsons of secton 401 of the Revenue ct of 1935.
Precedng artce 24 there sha be nserted the foowng:
Secton 20 of the Revenue ct of 1932, as ubtheb mended
(effectve October 1,1935), by Secton 401 of the Revenue ct
of 1935.
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths tte sha be Imposed wth respect
to the sae of any artce

(3) for the e cusve use of the Unted States, any State, Terrtory
of the Unted States, or any potca subdvson of the foregong, or
the Dstrct of Coumba.

Pursuant to the foregong provsons of aw, artce 24 of Regua-
tons 44 s amended to read as foows:
rt. 24. Saes to States or potca subdvsons thereof and to the Unted
States. Durng the perod from une 21, 1932, to une 30, 1933, both dates
ncusve, a saes of ta abe artces by the manufacturer to States or pot-
ca subdvsons thereof, other than drect saes by the manufacturer for use
n the e ercse of essenta governmenta functons, are ta abe.
Durng the perod from uy 1, 1933, to September 30, 1935, both dates ncu-
sve, no ta attaches f the artce s sod by the manufacturer drect, or for
resae by the vendee drect, to a State of the Unted States, or potca subdv-
son of such State, for use n the e ercse of an essenta governmenta functon.
rtces sod by the manufacturer durng such perod, whether drect to or for
resae drect to a State or potca subdvson thereof, for use n the e ercse of
any functon other than one essentay governmenta, are ta abe. If there s
more than one ntermedate sae between the manufacturer abe for the ta and
the State or potca subdvson thereof purchasng for use In the e ercse of an
essenta governmenta functon, the e empton does not appy.
Durng the perod from une 21,1932, to September 30,1935, ncusve, saes to
the Unted States, the Dstrct of Coumba or a Terrtory or possesson of the
Unted States, are ta abe, e cept saes for shpment to possessons of the Unted
States (see artce 27) and saes to the Unted States for use as fue sup-
pes, shps stores, sea stores, or egtmate equpment on vesses of war (see
artce 28).
On and after October 1, 1935, no ta attaches f the artce Is sod by the
manufacturer drect to the Unted States, any State, Terrtory of the Unted
States, or any potca subdvson of the foregong, or the Dstrct of Coumba,
for Its e cusve use, provded the e empt character of the sae Is estabshed as
requred by these reguatons.
On and after October 1, 1935, no sae may be made ta -free by the manufac-
turer to a deaer for resae to the Unted States, any State, Terrtory of the
Unted States, or any potca subdvson of the foregong, or the Dstrct of
Coumba, even though t Is known at the tme of the sae that the artce w be
so resod. owever, where any deaer reses a ta -pad artce on or after
October 1, 1935, to any of the governmenta unts named above for ts e cusve
use, the manufacturer who pad the ta to the Unted States on hs sae of the
artce In queston may secure a refund or credt n accordance wth the prov-
sons of artce 84, as amended.
To estabsh the rght to e empton from ta where the sae of an artce
Is made by the manufacturer on or after October 1, 1935, drect to the Unted
States, any State, Terrtory of the Unted States, or any potca subdvson
of the foregong, or the Dstrct of Coumba, for Its e cusve use, t s neces-
sary that (1) the manufacturer have defnte knowedge pror to or at the tme
of sae, that the artce In queston Is purchased for such use, and (2) he
obtan from an authorzed offcer of the Unted States, State, Terrtory of the
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375
Regs. 44(1934), rt. 24.
Unted States, potca subdvson, or Dstrct of Coumba, as the case may
be, and retan In hs possesson a propery e ecuted e empton certfcate n
the form prescrbed by ths artce.
Where the certfcate s obtaned subsequent to the sae but pror to the
tme the manufacturer s requred to fe a return coverng ta es due for the
month durng whch the sae was made he shoud Incude the ta on such sae
In hs return for that month, n the tem Tota ta due, but may deduct an
amount equvaent to the ta appcabe to such sae and pay the net ta
resutng, makng approprate e panaton ether on the face of the return
or on a rder attached thereto. If the certfcate s not so obtaned, the manu-
facturer must ncude the ta on such sae n hs return for the month In
whch the sae was made. owever, f the certfcate s ater obtaned a
cam for refund of ta pad may be fed on orm 843, or a credt taken upon
a subsequent return, but such acton must be taken wthn the 4-year perod
of mtaton prescrbed by secton 3228, Unted States Revsed Statutes, as
amended.
The certfcate requred by ths artce must Incude an agreement that f
the artces covered thereby are used otherwse than for the e cusve use
of the Unted States, the State, Terrtory, potca subdvson, or the Dstrct
of Coumba, as the case may be, or f any of such artces are resod to em-
poyees or others, a responsbe offcer of the Unted States, State, Terrtory,
or potca subdvson, or the Dstrct of Coumba, as the case may be, w
report such fact to the manufacturer. The ta appcabe to the sae of such
artces sha be Incuded by the manufacturer In hs return for the month
durng whch such report Is receved by hm.
The certfcate requred by ths artce sha be n substantay the foow-
ng form:
MPTION C RTI IC T .
( or use by Unted States, States, Terrtores, or potca subdvsons thereof, or tbe
Dstrct of Coumba.)
, 193-
(Date.)
The undersgned hereby certfes that he s
of and that he s
(Tte of offcer.) (Unted States, State, Terrtory, or
potca subdvson, or Dstrct of
Coumba.)
authorzed to e ecute ths certfcate and that the artce or artces specfed In
the accompanyng order or on the reverse sde hereof, are purchased from
for the e cusve use of of
(Name of company.) (Governmenta unt.)
(Unted States, State, Terrtory, or potca subdvson, or Dstrct of Coumba.)
It Is understood that the e empton from ta In the case of saes of artces
under ths e empton certfcate to the Unted States, State, etc., s mted to
the sae of artces purchased for ther e cusve use, and It Is agreed that f
artces purchased ta -free under ths e empton certfcate are used other-
wse or are sod to empoyees or others, such fact must be reported to the
manufacturer of the artce or artces covered by ths certfcate. It s
aso understood that the frauduent use of ths certfcate to secure e empton
w sub|ect the undersgned and a guty partes to a fne of not more than
10,000, or to mprsonment for not more than fve years, or both, together wth
costs of prosecuton.
(Sgnature.)
(Tte of offcer.)
If t s Impractcabe to furnsh a separate certfcate for each order or con-
tract, a certfcate coverng a orders between gven dates (such perod not
to e ceed a caendar month) w be acceptabe. Such certfcates and proper
records of nvoces, orders, etc., reatve to ta -free saes must be retaned
as provded n artce 82. If, upon nspecton, It s dscovered that a manu-
facturer s records wth respect to any sae camed to be ta -free do not con-
tan a proper certfcate, as outned above, wth supportng nvoces and such
other evdence as may be necessary to estabsh the e empt character of the
sae, ta sha be payabe by the manufacturer on such sae.
The artces covered by the e empton certfcate must be fuy dentfed as
to nature, quautty, and date of sae,

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Regs. 44(1934), rt. 28.
37
Reguatons 44(1934), rtce 28: empton of I -4 -7807
certan suppes for certan vesses. T. D. 4 04

rtce 28 of Reguatons 44 s amended to read as foows:
rt. 28. empton of certan suppes for certan vesses. Durng the
perod from uy 1, 1933, to November 11, 1935, both dates Incusve, no ta
attaches to the sae by the manufacturer of an artce covered by these regu-
atons where such artce s sod for use or for resae for use as fue suppes,
shps stores, sea stores, or egtmate equpment on (1) vesses of war of the
Unted States or of any foregn naton, (2) vesses empoyed n the fsheres or
n the whang busness, (3) vesses actuay engaged n foregn trade, (4)
vesses actuay engaged n trade between the tantc and Pacfc ports of the
Unted States, or (5) vesses actuay engaged n trade between the Unted
States and any of Its possessons.
On and after November 12, 1935, no ta attaches f the artce s sod by the
manufacturer drect for use as fue suppes, shps stores, sea stores, or egt-
mate equpment for the types of vesses enumerated n ths artce, provded
the e empt character of the sae s estabshed as requred by these reguatons.
On and after November 12, 1935, no sae may be made ta -free to a deaer
for resae for use as fue suppes, shps stores, sea stores, or egtmate equp-
ment for the types of vesses enumerated, even though t Is known at the
tme of the sae that the artce w be so resod. owever, where any deaer
reses a ta -pad artce on or after October 1, 1935, for such use the manu-
facturer who pad the ta to the Unted States on hs sae of the artce n
queston may secure a refund or credt In accordance wth the provsons of
artce 84, as amended.
Ta -free saes under ths artce must be restrcted to the artces specfed
n these reguatons whch normay form a part of the suppes, stores, or
equpment for the knds of vesses enumerated. The e empton does not appy
to artces whch are for resae to passengers and members of the crew for
consumpton or use otherwse than durng the voyage of a vesse, or to those
artces whch are to be transported for the use of others, or to those whch
are to be used n any manner other than as specfed n ths artce. rtces
may not be sod by the manufacturer ta -free drect to passengers or crew but
ony to the owner, offcer, charterer, or authorzed agent of the vesse for the use
specfed.
The terms fue suppes, shps stores, egtmate equpment ncude
a artces, materas, suppes, and equpment necessary for the navgaton,
propuson, and upkeep of vesses.
The term sea stores ncudes any artce purchased for use or consump-
ton by the passengers or crew, or both, of a vesse upon ts voyage.
The term vesse Incudes every descrpton of watercraft or other con-
trvance used, or capabe of beng used, as a means of transportaton on
water, e cept that t does not ncude any type of arcraft.
The term trade ncudes the transportaton of persons or property for hre
and the makng of the necessary preparatons for such transportaton.
The e empton from ta provded for under ths artce s not appcabe
to vesses engaged n trade between domestc ports on the Pacfc Ocean, or
between domestc ports on the tantc Ocean and Guf of Me co, or engaged
n trade on the nand waterways of the Unted States. If a vesse s actuay
engaged n a voyage from a port n the Unted States to a foregn port or to
a port n one of the possessons of the Unted States, or between tantc and
Pacfc ports of the Unted States, the e empton from the ta s not destroyed
because the vesse stops at an ntermedate port of ca In the Unted States
as a part of that voyage to the utmate destnaton.
The e empton provded n the case of artces sod for the prescrbed use
on vesses empoyed n the fsheres or In the whang busness s mted to
artces sod by the manufacturer for such use on vesses whe empoyed, and
to the e tent empoyed, e cusvey In the fsheres or In the whang busness.
To estabsh the rght to e empton from the ta on the sae of an artce
y the manufacturer drect for use as fue suppes, etc., on the types of vesses
enumerated above, t s necessary that (1) the manufacturer have defnte
knowedge pror to or at the tme of sae that the artce In queston was
purchased for such use, and (2) he obtan from the owner, offcer, charterer,
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377 Regs. 44(1934), rt. 28.
or authorzed agent of the vesse and retan n hs possesson a propery
e ecuted e empton certfcate n the form prescrbed by ths artce.
Where the certfcate s obtaned subsequent to the sae but pror to the
tme the manufacturer s requred to fe a return coverng ta es due for the
month durng whch the sae was made, he shoud ncude the ta on such
sae n hs return for that month, n the tem Tota ta due, but may
deduct an amount equvaent to the ta appcabe to such sae and pay the
net ta resutng, makng approprate e panaton ether on the face of the
return or on a rder attached thereto. If the certfcate s not so obtaned,
the manufacturer must ncude the ta on such sae n hs return for the
month n whch the sae was made. owever, f the certfcate s ater obr
taned a cam for refund of ta pad may be fed on orm 843, or a credt
taken upon a subsequent return, but such acton must be taken wthn the 4-
year perod of mtaton prescrbed by secton 3228, Unted States Revsed Stat-
utes, as amended.
The certfcate requred by ths artce must ncude an agreement that f
the artces covered thereby are dsposed of, or used, otherwse than as fue
suppes, shps stores, sea stores, or egtmate equpment on the types of
vesses enumerated, the person who sgned the certfcate w report such
fact to the manufacturer. The ta appcabe to the sae of such artces sha
be Incuded by the manufacturer n hs return for the month durng whch
such report s receved by hr|.
The foowng form of e empton certfcate w be acceptabe for the pur-
poses of ths artce and must be adhered to n substance:
MPTION C RTI IC T .
( or use by purchasers of artces for use as fue suppes, shps stores, sea stores, or
egtmate equpment on certan vesses. Secton 30 of the Revenue ct of 1932)
ODateT
The undersgned purchaser hereby certfes that he s
of
(Owner, offcer, charterer or an authorzed agent.) (Name of company and vesse.)
and that the artce or artces specfed
n the accompanyng order, or as specfed beow or on the reverse sde hereof,
w be used ony for fue suppes, shps stores, sea stores, or egtmate equp-
ment on a vesse beongng to one of the foowng casses enumerated n secton
30 of the Revenue ct of 1932:
(Check cass to whch vesse beongs.)
(1) esses engaged In foregn trade,
(2) esses engaged n trade between the tantc and Pacfc ports of
the Unted States,
(3) esses engaged In trade between the Unted States and any of ts
possessons,
(4) esses empoyed n the fsheres or whang busness,
(5) esses of war of the Unted States or a foregn naton.
The undersgned understands that f the artce s used for any purpose
other than as stated n ths certfcate, or s resod or otherwse dsposed of, he
must report such fact to the manufacturer. It s understood that ths certf-
cate may not be used n purchasng artces ta -free for use as fue suppes,
etc., for any type of arcraft or peasure vesse. It s aso understood that the
frauduent use of ths certfcate to secure e empton w sub|ect the under-
sgned and a guty partes to a penaty equvaent to the amount of ta due
on the sae of the artce and to a fne of not more than 10,000, or to Imprson-
ment for not more than fve years, or both, together wth costs of prosecuton.
The undersgned aso undertsands that he must be prepared to estabsh by
satsfactory evdence the purpose for whch the artce was use .
(Name.)
( ddress.)
If t s mpractcabe to furnsh a separate certfcate for each order or con-
tract, a certfcate coverng a orders between gven dates (such perod not
47318 3 13
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Regs. 44(1934), rt. 33.
378
to e ceed a caendar month) w be acceptabe. Such certfcates and proper
records of nvoces, orders, etc, reatve to ta -free saes most be retaned as
provded n artce 82. If, upon Inspecton, It s dscovered that a manu-
facturer s records wth respect to any sae camed to be ta -free do not con-
tan a proper certfcate, as outned above, wth supportng nvoces and such
other evdence as may be necessary to estabsh the e empt character of the
sae, ta sha be payabe by the manufacturer on such sae.
The artces covered by the e empton certfcate must be fuy dentfed as to
nature, quantty, and date of sae.
When artces covered by these reguatons are sod durng the perod from
uy 1, 1983, to November 11, 1935, both dates ncusve, for devery to nava
depots of the Unted States Navy Instead of drect to desgnated vesses, e -
empton may be estabshed by securng the e empton certfcate outned n
ths artce from an authorzed offcer of the Unted States Navy.

Reguatons 44(1934). rtce 33: Saks of I -4 -7808
benzo, benzene, naphtha, or other ta abe T. D. 4 04
quds to nonmotor fue users.

rtce 33 of Reguatons 44 s amended by nsertng n eu of
paragraphs 2 and 3, the paragraphs readng as foows :
Durng the perod from une 9, 1934, to November 11, 1935, both dates ncu-
sve, no ta attaches to the sae of benzo, benzene, naphtha, or any other
qud specfed n paragraph ( ) of artce 30 whch does not fa wthn
the range of the propertes of products commony or commercay known or
sod as gasone, as descrbed n paragraph ( ) of artce 30, whch s sod for
use (a) otherwse than as fue for the propuson of motor vehces, motor boats,
or arpanes, and ( ) otherwse than n the manufacture or producton of such
fue.
To estabsh the rght to e empton from ta on saes durng the above
perod of benzo, benzene, naphtha, or other ta abe qud sod drect to users,
for use (a) otherwse than as a fue for the propuson of motor vehces, motor
boats, or arpanes, and ( ) otherwse than n the manufacture or producton
of such a fue, t s necessary that the producer obtan from the vendee, pror
to or at the tme of sae, and retan n hs possesson an e empton certfcate
as herenafter provded n ths artce.
On and after November 12, 1935, no ta attaches to benzo, benzene, naphtha,
or any other qud specfed n paragraph ( ) of artce 30 (whch does not fa
wthn the range of the propertes of products commony or commercay
known or sod as gasone, as descrbed n paragraph ( ) of artce 30) sod
by the manufacturer drect for use (a) otherwse than as fue for the pro-
puson of motor vehces, motor boats, or arpanes, and ( ) otherwse than
n the manufacture or producton of such fue.
To estabsh the rght to e empton from ta where the sae of the product
s made by the manufacturer on or after November 12, 1935, drect to a pur-
chaser for use (a) otherwse than as a fue for the propuson of motor veh-
ces, motor boats, or arpanes and ( ) otherwse than n the manufacture or
producton of such fue t s necessary that (1) the manufacturer have def-
nte knowedge pror to or at the tme of sae that the product n queston s
purchased for such use and (2) he obtan from the purchaser and retan n
bs possesson a propery e ecuted e empton certfcate n the form prescrbed
by ths artce.
Where the certfcate s obtaned subsequent to the sae but pror to the tme
the manufacturer Is requred to fe a return coverng ta es due for the month
durng whch the sae was made, he shoud ncude the ta on such sae n hs
return for that month, n the tem Tota ta due, but may deduct an amount
equvaent to the ta appcabe to such sae and pay the net ta resutng, mak-
ng approprate e panaton ether on the face of the return or on a rder
attached thereto. If the certfcate s not so obtaned, the manufacturer must
ncude the ta on such sae n hs return for the month In whch the sae was
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379 Regs. 44(1934), rt. 43.
made. owever, If the certfcate s ater obtaned a cam for refund of ta
pad may be fed on orm 843, or a credt taken upon a subsequent return but
such acton must be taken wthn the 4-year perod of mtaton prescrbed
by secton 3228, Unted States Revsed Statutes, as amended. The artces cov-
ered by the e empton certfcate must be fuy dentfed as to nature, quantty,
and date of sae.
Reguatons 44 (1934), rtce 34: Saes of I G-7809
benzo, benzene, naphtha, or other ta abe T. D. 4 04
quds for resae for nonmotor fue uses.
rtce 34 of Reguatons 44 s amended by nsertng n eu of the
frst paragraph, a paragraph readng as foows:
enzo, benzene, naphtha, or any other qud wthn the scope of paragraph
( ) of artce 30 may be sod (durng the perod from une 17, 1933, to Novem-
ber 11, 1935, both dates ncusve, n the case of benzo, and durng the perod
from une 9, 1934, to November 11, 1935, both dates ncusve, n the case of ben-
zene, naphtha, or other such quds) ta -free for resae for use (a) otherwse
than as a fue for the propuson of motor vehces, motor boats, or arpanes,
and ( ) otherwse than n the manufacture or producton of such a fue.
rtce 34 of Reguatons 44 s amended by addng at the end
thereof a paragraph readng as foows:
On and after November 12, 1935, no sae of benzo, benzene, naphtha, or other
qud wthn the scope of paragraph ( ) of artce 30 may be made ta -free
by the producer to a deaer for resae for nonmotor fue uses, even though t s
known at the tme of the sae that the product w be so resod. owever, where
any deaer reses a ta -pad product for nonmotor fue uses on and after October
1, 1935, the producer who pad the ta to the Unted States on hs sae of the
product may secure a refund or credt n accordance wth the provsons of
artce 84, as amended.

Reguatons 44 (1934), rtce 43: Saes of o I -4 -7810
for nonubrcatng uses. T. D. 4 04
rtce 43 of Reguatons 44 s amended to read as foows:
rt. 43. Saes of o for nonubrcatng uses. Durng the perod from une
21, 1932, to November 11, 1935, both dates Incusve, no ta attaches to the
sae of an o, havng both ubrcatng and nonubrcatng uses, by the manu-
facturer drect or for resae for nonubrcatng purposes, provded t s put
nto a channe of consumpton or dstrbuton for a use other than that of
ubrcaton and the manufacturer obtans from the purchaser pror to or at
the tme of the sae and retans n hs possesson a certfcate to the effect
that the o w be (1) used by the purchaser for a stated purpose other than
that of ubrcaton or (2) resod by hm ony to a person who n turn furnshes
a smar certfcate.
On and after November 12, 1935, no ta attaches f the o s sod by the
manufacturer drect for nonubrcatng uses by he purchaser. No sae of
o may be made ta -free by the manufacturer on and after November 12,
1935, to a deaer for resae for nonubrcatng uses even though t s known
at the tme of the sae that the o w be so resod. owever, where any
deaer reses a ta -pad o for nonubrcatng uses, on or after October 1,
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Regs. 44(1934), rt. 43. 380
1935. the manufacturer who pad the ta to the Unted States on hs sae
of the o, may secure a refund or credt In accordance wth the provsons of
artce 84, as amended.
To estabsh the rght to e empton from ta wth respect to ubrcatng
o sod by the manufacturer drect for nonubrcatng purposes, t s necessary
that (1) the manufacturer have defnte knowedge, pror to or at the tme
of sae that the product n queston s purchased for such purposes, and (2)
he obtan from the purchaser and retan In hs possesson a propery e ecuted
e empton certfcate n the form prescrbed by ths artce.
Where the certfcate Is obtaned subsequent to the sae but pror to the
tme the manufacturer s requred to fe a return coverng ta es due for
the month durng whch the sae was made, he shoud Incude the ta on such
sae n hs return for that month, n the tem Tota ta due, but may deduct
an amount equvaent to the ta appcabe to such sae and pay the net ta
resutng, makng approprate e panaton ether on the face of the return or
on a rder attached thereto. If the certfcate Is not so obtaned, the manu-
facturer must ncude the ta on such sae n hs return for the month In
whch the sae was made. owever, f the certfcate Is ater obtaned a cam
for refund of ta pad may be fed on orm 843, or a credt taken upon a subse-
quent return but such acton must be taken wthn the 4-year perod of mta-
ton prescrbed by secton 3228, Unted States Revsed Statutes, as amended.
The certfcate requred by ths artce must ncude an agreement that f
the o s dsposed of, or used otherwse than for the nonubrcatng purpose
for whch purchased, the person who sgned the e empton certfcate w
report such fact to the manufacturer. The ta appcabe to the sae of
such product sha be Incuded by the manufacturer n hs return for the
month durng whch such report Is receved by hm.
The foowng s a form of e empton certfcate whch w be acceptabe
for purposes of ths artce and must be adhered to In substance:
MPTION C RTI IC T .
( or use by purchasers of o for nonubrcatng purposes.)
, 193.
(Date.)
The undersgned purchaser hereby certfes that he s a
(State busness and artce or artces manufactured.)
and that the o covered by the accompanyng order or as specfed on the
reverse sde hereof, w not be used or resod for ubrcaton but w be used
by hm for the foowng purposes:
The undersgned understands that f the o s used for any purpose other
than as stated n ths certfcate, or s resod or otherwse dsposed of, he must
report such fact to the manufacturer, otherwse the prvege of purchasng
ta -free may be canceed that he w, f a bonded and regstered manufac-
turer of ubrcatng o, be abe for the ta upon hs sae of such o, and that
whether or not a bonded and regstered manufacturer, he w, for frauduent
use of the certfcate to secure e empton, be sub|ect to a penaty equvaent to
the amount of ta due on the sae of the o and to a fne of not more than
10,000, or mprsonment for not more than fve years, or both, together wth
the costs of prosecuton. The undersgned aso understands that he must be
prepared to estabsh by competent evdence the purpose for whch such o
was used.
(Name.)
( ddress.)
If It s mpractcabe to furnsh a separate certfcate for each order or con-
tract, a certfcate coverng a orders between gven dates (such perod not to
e ceed a caendar month) w be acceptabe. Such certfcates and proper
records of Invoces, orders, etc., reatve to ta -free saes sha be retaned as
provded n artce 82. If, upon nspecton, t s dscovered that a manufac-
turer s records wth respect to any sae camed to be ta -free do not contan
a proper certfcate, as outned above, wth supportng nvoces and such other
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381 Regs. 44(1934), rt. 84.
evdence as may be necessary to estabsh the e empt character of the sae,
the ta sha be payabe by the manufacturer on such sae.
The artces covered by the e empton certfcate must be fuy Identfed as
to the nature, quantty, and date of sae.

Reguatons 44(1934), rtce 84: Credts and I -4 -7811
refunds. T.D.4 04

Precedng artce 84 there sha be nserted the foowng:
Secton 401(b) op the Revenue ct op 1935.
Secton 21(a)(3) of the Revenue ct of 1932, as amended, Is
amended to read as foows:
(3) to a manufacturer, producer, or mporter, n the amount of ta
pad by hm under ths tte wth respect to the sae of any artce to
any vendee, f the manufacturer, producer, or mporter has n hs
possesson such evdence as the reguatons may prescrbe that on or
after the 1st day of the second month foowng the date of the enact-
ment of the Revenue ct of 1935
( ) such artce was, by any person
(1) resod for the e cusve use of the Unted States, any State,
Terrtory of the Unted States, or any potca subdvson of the fore-
gong, or the Dstrct of Coumba
(I) used or resod for use as fue suppes, shp s stores, sea stores,
or egtmate equpment on vesses of war of the Unted States or of
any foregn naton, vesses empoyed In the fsheres or In 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
() n the case of products embraced n paragraph (2) of secton
17(c), as amended, used or resod for use otherwse than as fue for
the propuson of motor vehces, motor boats, or arpanes, and other-
wse than n the producton of such fue: Provded, however, That no
credt or refund sha be aowed or made under ths paragraph n the
case of saes or uses of products commony or commercay known or
sod as gasone, ncudng casnghead and natura gasone
(Iv) n the case of ubrcatng os, used or resod for nonubrcatng
purposes.
( ) The manufacturer, producer, or mporter has repad or agreed
to repay the amount of such ta to the utmate vendor or has obtaned
the consent of the utmate vendor to the aowance of the credt or
refund.

rtce 84 of Reguatons 44 s amended by the emnaton of
paragraphs 4, 5, and and the substtuton therefor of the foowng:
Where artces covered by these reguatons are sod by the manufacturer
ta -pad to a deaer who reses and devers such artces drect to a State
or potca subdvson thereof durng the perod from uy 1, 1933, to Sep-
tember 30, 1935, both dates ncusve, for use n the e ercse of an essenta
governmenta functon, the manufacturer who pad the ta on such artces may
be aowed a refund or may take credt aganst the ta shown to be due upon
any subsequent monthy return, In the amount of ta pad by hm wth respect
to the sae of any such artce to the deaer, provded the manufacturer has n
hs possesson evdence showng that ( ) such artce has durng such perod,
been devered by the deaer drect to a State or potca subdvson thereof
for use n the e ercse of an essenta governmenta functon and ( ) the
manufacturer has repad or agreed to repay the amount of such ta to the
deaer or has obtaned the consent of the deaer to the aowance of the
credt or refund. The cam for refund or credt must be supported by an
affdavt of the manufacturer showng (1) the name and address of each
deaer (2) the amount of ta aowabe to each deaer (3) the date the
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Regs. 44(1934), rt. 84.
382
ta was pad to the Unted States In each case and (4) whether the manu-
facturer has repad or agreed to repay the amount of such ta to the deaer.
The affdavt of the manufacturer must aso show that he has n hs posses-
son, sub|ect to e amnaton by Interna-revenue offcers, a sworn statement
from each deaer nvoved (or f the amount of the ta nvoved n any deaer s
credt or refund s 10 or ess, hs statement may be sgned or acknowedged
before two wtnesses Instead of under oath) statng (a) whether the artces
on whch the ta was pad have been resod and devered durng the perod
from uy 1, 1933, to September 30, 1935, both dates ncusve, by hm drect
to a State or a potca subdvson thereof for use n the e ercse of an
essenta governmenta functon ( ) the State or potca subdvson thereof
to whch the saes were made (c) the nature of the governmenta functon,
1. e., the knd of actvtes for whch purchased and ( t) that the deaer has
consented to the aowance of the credt or refund where the manufacturer has
nether repad nor agreed to repay the amount of such ta to the deaer.
The credt or refund provsons of the precedng paragraph appy ony where
there s not more than one Intermedate sae between the manufacturer abe
for the ta and the State or potca subdvson thereof. Where a ta abe
artce Is sod by a manufacturer to a dstrbutor for resae to a deaer, for re-
sae by hm durng the perod from uy 1, 1933, to September 30, 1935, both
dates Incusve, to a State or potca subdvson thereof, the credt or refund
provsons provded above do not appy.
credt or refund of ta pad on any artce whch Is sod durng the perod
from uy 1, 1933, to September 30, 1935, both dates Incusve, to the types of
vesses enumerated n artce 28 may not be made uness t can be shown that the
sae by the manufacturer of the artce was actuay made for use as fue sup-
pes, shps stores, sea stores, or egtmate equpment on such vesses.
In the case of a sae of a ta abe artce by a manufacturer to a deaer, where
tte passes through one or more persons n a chan of saes from the manufac-
turer to a consumer, and such artce Is, on and after October 1, 1935, used, or
resod for a purpose or use specfed n secton 21(a)(3)( ) the manufac-
turer who pad the ta to the Unted States may be aowed a refund or may
take credt aganst the ta shown to be due upon any subsequent monthy return
In the amount of ta pad by hm wth respect to the sae of such artce, pro-
vded he can estabsh by satsfactory evdence (1) that such artce has been
used, or resod, for one of the uses specfed n such secton, (2) the name and
address of the utmate vendor, (3) the name and address of the consumer, and
the use made or to be made of such artce, (4) the date the ta on hs sae of
such artce was pad to the Unted States, and (5) that he has repad or agreed
to repay the amount of such ta to the utmate vendor, or has obtaned the con-
sent of the utmate vendor to the aowance of the credt or refund.
The evdence requred n (1), (2), and (3) of the precedng paragraph may
be estabshed by the manufacturer securng from the utmate vendor (a) the
orgna e empton certfcate obtaned by such utmate vendor from the con-
sumer, or ( ) a sworn statement by the utmate vendor that he has obtaned
from the consumer and has n hs possesson such an e empton certfcate. The
consent of the utmate vendor requred by (5) of the precedng paragraph may
be ndorsed on the certfcate or made a part of the sworn statement
Where a sworn statement s furnshed by the utmate vendor n eu of the
orgna e empton certfcate, the utmate vendor must ncorporate theren a
statement to the effect that the certfcate and supportng data (1) are retaned
by hm, (2) w be preserved for a perod of four years, and (3) w upon
request be forwarded to the manufacturer at any tme wthn the perod for
use In estabshng to the satsfacton of nterna-revenue offcers that a refund
or credt s |usty due.
The e empton certfcates requred by ths artce sha be n a form substan-
tay the same as those requred n the case of saes by manufacturers drect
to users.
Where ta -pad artces are used by a consumer on and after October 1, 1935,
for one or more of the purposes specfed above, the utmate vendor may secure
from such consumer, n eu of the e empton certfcate, a sworn statement con-
tanng fu and compete nformaton as to the date of the purchase of the
artce, from whom purchased, the quantty and nature of the artces, the pur-
pose for whch used, the amount of ta nvoved, and that the consumer has
not heretofore e ecuted any other affdavt of use concernng such artca The
sworn statement referred to may be furnshed to the manufacturer by the ut-
mate vendor as evdence to support the manufacturer s cam for credt or re-
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383
Regs. 4 , rt. 17.
fund, or the Informaton appearng theren may bo ncorporated n the affdavt
whch the utmate vendor fes wth the manufacturer who pad the ta to the
Government on the sae of the artces.
The affdavt of the utmate vendor must be made n substantay the foow-
ng form:
ID IT O ULTIM T NDOR.
, beng duy sworn, deposes and says: that he s
(Name of ndvdua.)
the . of the or s hmsef the utmate
(Tte.) (Name of company.)
vendor of the artces specfed beow or on the reverse sde hereof:
That the artces specfed beow were purchased by hm ta -pad and resod
for use by hs vendee for the nonta abe purposes ndcated and not for resae.
That he has In hs possesson a of the e empton certfcates, propery e e-
cuted, requred by the aw and reguatons, to cover the sae of the artces spec-
fed heren.
That the certfcates and supportng data (1) are retaned by hm, (2) w
be preserved for a perod of four years, and (3) w, upon request, be forwarded
to the manufacturer any tme wthn the perod for use n estabshng to the
satsfacton of nterna-revenue offcers that a refund or credt s usty due.
That he hereby consents to the aowance of a credt or refund to the
n the amount of the
(Name and address of manufacturer.)
ta pad by such manufacturer wth respect to the sae of such artce and that
he has not heretofore gven hs consent to the aowance of a credt or refund
to any other manufacturer and has not made appcaton for a refund or credt
of such edera ta from any other source.
The undersgned understands that the frauduent use of ths affdavt to secure
credt or refund w sub|ect hm and a guty partes to a fne of not more
than fO.OOO, or to mprsonment of not more than 10 years, or both, under
secton 35 of the Crmna Code of the Unted States, ns amended by ct of
Congress approved une 18, 1034 (Pubc, No. 394, Seventy-thrd Congress).
(Name.)
( ddress.)
Subscrbed and sworn to before me ths day of , 19 .
endor s nvoce
rtces.
Date of
resae.
uantty.
Purpose
or use.
Ta
camed.
Where the amount of ta nvoved n any transacton s 10 or ess, any
statement heren requred may be sgned before two wtnesses nstead of under
oath.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 12, 1935.
osephne Roche,
ctng Secretary.
Reguatons 4 , rtce 17: Saes to States I -4 -7812
or potca subdvsons thereof and to the T. D. 4 05
Unted States.
cse ta es on saes by the manufacturer. Tte I of the
Revenue ct of 1032, amended by the Natona Industra Recovery
ct, the ct of une 1 , 1033 (Pubc, No. 73, Seventy-thrd Con-
gress), Pubc Resouton No. 3 , Seventy-fourth Congress, and
further amended by secton 401 of the Revenue ct of 1935.
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Regs. 4 , rt. 17.
384
rtces 17, 71. and 7 of Reguatons 4 , as amended by Treas-
ury Decsons 4398 C. . 1I-2, 337 , 4413 C. . II-2, 341 , 4427
C. . III-1, 389 , and 4387 C. . II-2, 347 , amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 4 are amended to gve effect to the provsons of sec-
ton 401 of the Revenue ct of 1935.
Precedng artce 17 there sha be nserted the foowng:
Secton 20 of the Revenue ct of 1932, as urther mended (ef-
fectve October 1, 1935) by Secton 401 of the Revenue ct of
1935.
Under reguatons prescrbed by the Commssoner wth the approva
of the Secretary, no ta under ths tte sha be mposed wth respect
to the sae of any artce

(3) for the e cusve use of the unted States, any State, Terrtory
of the Unted States, or any potca subdvson of the foregong, or
the Dstrct of Coumba.

Pursuant to the foregong provsons of aw, artce 17 of Regua-
tons 4 as amended by Treasury Decson 4398, approved October 24,
1933, s further amended to read as foows:
rt. 17. aes to States or potca subdvsons thereof and to the Unted
States Durng the perod from une 21, 1932, to une 30, 1933, both dates n-
cusve, a saes of ta abe artces by the manufacturer to States or potca
subdvsons thereof, other than drect saes by the manufacturer for use n the
e ercse of essenta governmenta functons, are ta abe.
Durng the perod from uy 1, 1933, to September 30, 1935, both dates ncu-
sve, no ta attaches If the artce s sod by the manufacturer drect, or for
resae by the vendee drect, to a State of the Unted States, or potca subdv-
son of such State, for use n the e ercse of an essenta governmenta functon.
rtces sod by the manufacturer durng such perod, whether drect to or for
resae drect to a State or potca subdvson thereof, for use n the e ercse
of any functon other than one essentay governmenta, are ta abe. If there
s more than one ntermedate sae between the manufacturer abe for the ta
and the State or potca subdvson thereof purchasng for use n the e ercse
of an essenta governmenta functon, the e empton does not appy.
Durng the perod from une 21, 1932, to September 30, 1935, both dates n-
cusve, saes to the Unted States, the Dstrct of Coumba, or a Terrtory or
possesson of the Unted States, are ta abe, e cept saes for shpment to posses-
sons of the Unted States (see artce 18), saes to the Unted States for use as
fue suppes, shps stores, sea stores, or egtmate equpment on vesses of war
(see Treasury Decson 4387), and saes of artces ta abe under secton 10,
reatng to the ta on frearms, etc. (see artce 59).
On and after October 1, 1935, no ta attaches f the artce s sod by the
manufacturer drect to the Unted States, any State, Terrtory of the Unted
States, or any potca subdvson of the foregong, or the Dstrct of Coumba,
for ts e cusve use, provded the e empt character of the sae s estabshed as
requred by these reguatons.
On and after October 1, 1935, no sae may be made ta -free by the manufac-
turer to a deaer for resae to the Unted States, any State, Terrtory of the
Unted States, or any potca subdvson of the foregong, or the Dstrct of
Coumba, even though t s known at the tme of the sae that the artce w
be so resod. owever, where any deaer reses a ta -pad artce on or after
October 1, 1935, to any of the governmenta unts named above for ts e cusve
use, the manufacturer who pad the ta to the Unted States on hs sae of the
artce n queston may secure a refund or credt n accordance wth the
provsons of artce 71, as amended.
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385
Regs. 4 , rt. 17.
To estabsh the rght to e empton from ta where the sae of an artce
Is made by the manufacturer on or after October 1, 1935, drect to the Unted
States, any State, Terrtory of the Unted States, or any potca subdvson
of the foregong, or the Dstrct of Coumba, for ts e cusve use, t s neces-
sary that (1) the manufacturer have defnte knowedge pror to or at the
tme of sae, that the artce In queston s purchased for such use, and (2) he
obtan from an authorzed offcer of the Unted States, State, Terrtory of the
Unted States, potca subdvson, or Dstrct of Coumba, as the case may
be, and retan n hs posesson a propery e ecuted e empton certfcate In the
form prescrbed by ths artce.
Where the certfcate s obtaned subsequent to the sae but pror to the tme
the manufacturer s requred to fe a return coverng ta es due for the month
durng whch the sae was made he shoud Incude the ta on such sae n hs
return for that month, In the tem Tota ta due, but may deduct an amount
equvaent to the ta appcabe to such sae and pay the net ta resutng,
makng approprate e panaton ether on the face of the return or on a rder
attached thereto. If the certfcate Is not so obtaned, the manufacturer must
Incude the ta on such sae n hs return for the month n whch the sae
was made. owever, f the certfcate Is ater obtaned a cam for refund of
ta pad may be fed on orm 843, or a credt taken upon a subsequent return,
but such acton must be taken wthn the 4-year perod of mtaton prescrbed
by secton 3228, Unted States Revsed Statutes, as amended.
The certfcate requred by ts artce must ncude an agreement that f
the artces covered thereby are used otherwse than for the e cusve use of
the Unted States, the State, Terrtory, potca subdvson, or the Dstrct
of Coumba, as the case may be, or f any of such artces are resod to
empoyees or others, a responsbe offcer of the Unted States, State, Terrtory,
or potca subdvson, or the Dstrct of Coumba, as the case may be, w
report such fact to the manufacturer. The ta appcabe to the sae of such
artces sha be ncuded by the manufacturer n hs return for the month
durng whch such report s receved by hm.
The certfcate requred by ths artce sha be n substantay the foowng
form:
MPTION C RTI IC T .
( or use by Unted States, States, Terrtores, or potca subdvsons thereof, or the
DUtrct of Coumba.)
, 193
(Date.)
The undersgned hereby certfes that he s of
(Tte of offcer.)
(Unted States, State, Terrtory, or potca subdvson, or Dstrct of Coumba.) and that he s authorzed to e ecute ths cer-
tfcate and that the artce or artces specfed n the accompanyng order or
on the reverse sde hereof, are purchased from for
(Name of company.)
the e cusve use of of
(Governmenta unt.)
(Unted States, State, Terrtory, or potca subdvson, or Dstrct of Coumba.)
It s understood that the e empton from ta n the case of saes of artces
nnder ths e empton certfcate to the Unted States, States, etc., s mted
to the sae of artces purchased for ther e cusve use, and t s agreed that
If artces purchased ta -free under ths e empton certfcate are used other-
wse or are sod t empoyees or others, such fact must be reported to the
manufacturer of the artce or artces covered by ths certfcate. It Is
aso understood that the frauduent use of ths certfcate to secure e empton
w sub|ect the undersgned and a guty partes to a fne of not more than
10,000, or to mprsonment for not more than fve years, or both, together
wth costs of prosecuton.
(Sgnature.)
(Tte of offcer.)
If t Is mpractcabe to furnsh a separate certfcate for each order or
contract, a certfcate coverng a orders between gven dates (such perod
not to e ceed a caendar month) w be acceptabe. Such certfcates and
proper records of nvoces, orders, etc., reatve to ta -free saes must be
retaned as provded n artce 9. If, upon nspecton, t s dscovered that a
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Regs. 4 , rt. 71.
38
manufacturer s records wth respect to any sae camed to be ta -free do not
contan a proper certfcate, as outned above, wth supportng nvoces and
such other evdence as may be necessary to estabsh the e empt character of
the sae, ta sha be payabe by the manufacturer on such sae.
The artces covered by the e empton certfcate must be fuy dentfed as to
nature, quantty, and date of sae.

Reguatons 4 , rtce 71: Credts and 1Y-4 -7814
refunds. T. D. 4 05
Precedng artce 71, there sha be nserted the foowng:
Secton 401(b) of the Revenue ct of 1935.
Secton 21(a)(3) of the Revenue ct of 1932, as amended, s
amended to read as foows:
(3) to a manufacturer, producer, or mporter, n the amount of ta
pad by hm under ths tte wth respect to the sae of any artce
to any vendee, f the manufacturer, producer, or mporter has n hs
possesson such evdence as the reguatons may prescrbe that on or
after the 1st day of the second month foowng the date of the enact-
ment of the Revenue ct of 1935
( ) such artce was, by any person
(1) resod for the e cusve use of the Unted States, any State,
Terrtory of the Unted States, or any potca subdvson of the fore-
gong, or the Dstrct of Coumba
() used or resod for use as fue suppes, shp s 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

( ) The manufacturer, producer, or mporter has repad or agreed
to repay the amount of such ta to the utmate vendor or has obtaned
the consent of the utmate vendor to the aowance of the credt or
refund.
rtce 71, as amended by Treasury Decsons 4413, approved De-
cember ,1933, and 4427, approved pr 10,1934, s further amended
to read as foows:
Where artces covered by these reguatons are sod by the manufacturer
ta -pad to a deaer who reses and devers such artces drect to a State or
potca subdvson thereof durng the perod from uy 1, 1933, to September
30, 1935, both dates ncusve, for use In the e ercse of an essenta govern-
menta functon, the manufacturer who pad the ta on such artces may be
aowed a refund or may take credt aganst the ta shown to be due upon any
subsequent monthy return, n the amount of ta pad by hm wth respect to
the sae of any such artce to the deaer, provded the manufacturer has In
hs possesson evdence showng that ( ) such artce has durng such perod
been devered by the deaer drect to a State or potca subdvson thereof
for use n the e ercse of an essenta governmenta functon and ( ) the
manufacturer has repad or agreed to repay the amount of such ta to the
deaer or has obtaned the consent of the deaer to the aowance of the credt
or refund. The cam for refund or credt must be supported by an affdavt
of the manufacturer showng (1) the name and address of each deaer (2) the
amount of ta aowabe to each deaer (3) the date the ta was pad to the
Unted States n each case and (4) whether the manufacturer has repad or
agreed to repay the amount of such ta to the deaer. The affdavt of the
manufacturer must aso show that he has In hs possesson, sub|ect to e amna-
ton by Interna-revenue offcers, a sworn statement from each deaer nvoved
(or f the amount of the ta Invoved n any deaer s credt or refund s 10 or
ess, hs statement may be sgned or acknowedged before two wtnesses nstead
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387
Regs. 4 , rt. 71.
of under oath) statng (a) whether the artces on whch the ta was pad
have been resod and devered durng the perod from uy 1, 1933, to Septem-
ber 30, 1935, both dates ncusve, by hm drect to a State or a potca sub-
dvson thereof for use n the e ercse of an essenta governmenta functon
( ) the State or potca subdvson thereof to whch the saes were made
(c) the nature of the governmenta functon, . e., the knd of actvtes for
whch purchased and (d) that the deaer has consented to the aowance of
the credt or refund where the manufacturer has nether repad nor agreed to
repay the amount of such ta to the deaer.
The credt or refund provsons of the precedng paragraph appy ony where
there Is not more than one ntermedate sae between the manufacturer abe
for the ta and the State or potca subdvson thereof. Where a ta abe
artce s sod by a manufacturer to a dstrbutor for resae to a deaer for
resae by hm durng the perod from uy 1, 1933, to September 30, 1935, both
dates ncusve, to a State or potca subdvson thereof, the credt or refund
provsons provded above do not appy.
credt or refund of ta pad on any artce whch s sod durng the perod
from uy 1, 1933, to September 30, 1935, both dates ncusve, to the types of
vesses enumerated n artce 7 may not be made uness t can be shown
that the sae by the manufacturer of the artce was actuay made for use as
fue suppes, shps stores, sea stores, or egtmate equpment on such vesses.
In the case of a sae of a ta abe artce by a manufacturer to a deaer,
where tte passes through one or more persons n a chan of saes from the
manufacturer to a consumer, and such artce s, on and after October 1, 1935,
used, or resod for a purpose or use specfed n secton 21(a)(3)( ) the
manufacturer who pad the ta to the Unted States may be aowed a refund
or may take credt aganst the ta shown to be due upon any subsequent
monthy return n the amount of ta pad by hm wth respect to the sae of
such artce, provded he can estabsh by satsfactory evdence (1) that such
artce has been used, or resod, for one of the uses specfed n such secton,
(2) the name and address of the utmate vendor, (3) the name and address
of the consumer, and the use made or to be made of such artce, (4) the date
the ta on hs sae of such artce was pad to the Unted States, and (5) that
he has repad or agreed to repay the amount of such ta to the utmate vendor,
or has obtaned the consent of the utmate vendor to the aowance of the
credt or refund.
The evdence requred n (1), (2), and (3) of the precedng paragraph may
be estabshed by the manufacturer securng from the utmate vendor (a)
the orgna e empton certfcate obtaned by such utmate vendor from the
consumer, or (b) a sworn statement by the utmate vendor that he has obtaned
from the consumer and has n hs possesson such an e empton certfcate.
The consent of the utmate vendor requred by (5) of the precedng paragraph
may be ndorsed on the certfcate or made a part of the sworn statement.
Where a sworn statement Is furnshed by the utmate vendor n eu of the
orgna e empton certfcate, the utmate vendor must ncorporate theren a
statement to the effect that the certfcate and supportng data (1) are re-
taned by hm, (2) w be preserved for a perod of four years, and (3) w,
upon request, be forwarded to the manufacturer at any tme wthn the perod
for use n estabshng to the satsfacton of nterna-revenue offcers that a
refund or credt Is usty due.
The e empton certfcates requred by ths artce sha be n a form sub-
stantay the same as those requred n the case of saes by the manufacturers
drect to users.
Where ta -pad artces are used by a consumer on and after October 1,
1935, for one or more of the purposes specfed above, the utmate vendor
may secure from such consumer, n eu of the e empton certfcate, a sworn
statement contanng fu and compete nformaton as to the date of the
purchase of the artce, from whom purchased, the quantty and nature of
the artces, the purpose for whch used, the amount of ta nvoved, and that
the consumer has not heretofore e ecuted any other affdavt of use concern-
ng such artce. The sworn statement referred to may be furnshed to the
manufacturer by the utmate vendor as evdence to support the manufactur-
er s cam for credt or refund, or the nformaton appearng theren may
be ncorporated n the affdavt whch the utmate vendor fes wth the
manufacturer who pad the ta to the Government on the sae of the artces.
The affdavt of the utmate vendor must be made n substantay the
foowng form:
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Regs. 4 , rt. 7 .
388
ID IT O ULTIM 11 NDOR.
, , beng duy sworn, deposes
(Name of Indvdua.)
and says: that he s the of the
(Tte.) (Name of company.)
or s hmsef the utmate vendor of the artces specfed beow or on the
reverse sde hereof:
That the artces specfed beow were purchased by hm ta -pad and resod
for use by hs vendee for the nonta abe purposes Indcated and not for resae.
That he has n hs possesson, a of the e empton certfcates, propery
e ecuted, requred by the aw and reguatons, to cover the sae of the artces
specfed heren.
That the certfcates and supportng data (1) are retaned by hm, (2)
w be preserved for a perod of four years, and (3) w, upon request, be
forwarded to the manufacturer any tme wthn the perod for use In estab-
shng to the satsfacton of nterna-revenue offcers that a refund or credt
s |usty due.
That he hereby consents to the aowance of a credt or refund to the
(Name and address of manufacturer.)
n the amount of the ta pad by such manufacturer wth respect to the
sae of such artce and that he has not heretofore gven hs consent to the
aowance of a credt or refund to any other manufacturer and has not made
appcaton for a refund or credt of such edera ta from any other source.
The undersgned understands that the frauduent use of ths affdavt to
secure credt or refund w sub|ect hm and a guty partes to a fne of not
more than 10,000, or to Imprsonment of not more than 10 years, or both,
under secton 35 of the Crmna Code of the Unted States, as amended by ct
of Congress approved une 18, 1934 (Pubc, No. 394, Seventy-thrd Congress).
(Name.)
( ddress.)
Subscrbed and sworn to before me ths day of , 19
endor s Invoce.
rtces.
Date ot
resae.
uantty.
Purpose
or use.
ared
Where the amount of ta Invoved In any transacton Is 10 or ess, any
statement heren requred may be sgned before two wtnesses nstead of
under oath.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 12, 1935.
osf hne Roche,
ctng Secretary.
Reou-atons 4 , rtce 7 2: empton of I -4 -7813
certan suppes for vesses. T. D. 4 05

rtce 7 of Reguatons 4 , as added by Treasury Decson
4387, approved September 2, 1933, s amended to read as foows:
rt. 7 . empton of certan suppes for certan vesses. Durng the
perod from uy 1, 1933, to November 11, 1935, both dates ncusve, no ta
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389
Regs. 4 , rt. 7 -
attaches to the sae by the manufacturer of an artce covered by these regu-
atons where such artce Is sod for use or for resae for use as fue suppes,
shps stores, sea stores, or egtmate equpment on (1) vesses of war of the
Unted States or of any foregn naton, (2) vesses empoyed n the fsheres or
n the whang busness, (3) vesses actuay engaged n foregn trade, (4)
vesses actuay engaged n trade between the tantc and Pacfc ports of the
Unted States, or (5) vesses actuay engaged n trade between the Unted
States and any of ts possessons.
On and after November 12, 1935, no ta attaches, f the artce s sod by the
manufacturer drect for use as fue suppes, shps stores, sea stores, or egt-
mate equpment for the types of vesses enumerated n ths artce, provded
the e empt character of the sae Is estabshed as requred by these reguatons.
On and after November 12, 1935, no sae may be made ta -free to a deaer
fcr resae for use as fue suppes, shps stores, sea stores, or egtmate equp-
ment for the types of vesses enumerated, even though t s known at the
tme of the sae that the artce w be so resod. owever, where any dener
reses a ta -pad artce on or after October 1, 1935, for such use the manu-
facturer who pad the ta to the Unted States on hs sae of the artce n
queston may secure a refund or credt n accordance wth the provsons of
artce 71, as amended.
Ta -free saes under ths artce must be restrcted to the nrtces specfed
n these reguatons whch normay form a part of the suppes, stores, or
equpment for the knds of vesses enumerated. The e empton does not appy
to artces whch are for resae to passengers and members of the crew for
consumpton or use otherwse than durng the voyage of a vesse, or to those
artces whch are to be transported for the use of others, or to those whch
re to be used n any manner other than as specfed n ths artce. rtces
may not be sod by the manufacturer ta -free drect to passengers or crew
but ony to the owner, offcer, charterer, or authorzed agent of the vesse for
the use specfed.
The terms fue suppes, shps stores, egtmate equpment ncude
a artces, materas, suppes, and equpment necessary for the navgaton,
propuson, and upkeep of vesses.
The term sea stores Incudes any artce purchased for use or consump-
ton by the passengers or crew, or both, of a vesse upon ts voyage.
The term vesse Incudes every descrpton of watercrnft or other con-
trvance used, or capabe of beng used, as a means of transportaton on
water, e cept that t does not Incude any type of arcraft.
The term trade ncudes the transportaton of persons or property for hre
and the makng of the necessary preparatons for such transportaton.
The e empton from ta provded for under ths artce s not appcabe
to vesses engaged In trade between domestc ports on the Pacfc Ocean, or
between domestc ports on the tantc Ocean and Guf of Me co, or engaged
n trade on the nand waterways of the Unted States. If a vesse s actuay
engaged n a voyage from a port n the Unted States to n foregn port or to
a port n one of the possessons of the Unted States, or between tantc and
Pacfc ports of the Unted States, the e empton from the ta s not destroyed
because the vesse stops at an ntermedate port of ca n the Unted States
as a part of that voyage to the utmate destnaton.
The e empton provded n the case of artces sod for the prescrbed use
on vesses empoyed n the fsheres or n the whang busness s mted to
artces sod by the manufacturer for such use on vesses whe empoyed, and
to the e tent empoyed, e cusvey n the fsheres or n the whang busness.
To estabsh the rght to e empton from the ta on the sae of an artce
by the manufacturer drect for use as fue suppes, etc., on the types of vesses
enumerated above, t s necessary that (1) the manufacturer have defnte
knowedge pror to or at the tme of sae that the artce n queston was
purchased for such use, and (2) he obtan from the owner, offcer, charterer,
or authorzed agent of the vesse and retan n hs possesson a propery
e ecuted e empton certfcate n the form prescrbed by ths artce.
Where the certfcate s obtaned subsequent to the sae but pror to the
tme the manufacturer s requred to fe a return coverng ta es dte for the
month durng whch the sae was made, he shoud Incude the ta on such
sae n hs return for that month, n the tem Tota ta due, but may
deduct an amount equvaent to the ta appcabe to such sae and pay the
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Regs. 4 , rt. 7 #.
390
net ta resutng, makng approprate e panaton ether on the face of the
return or on a rder attached thereto. If, the certfcate s not so obtaned,
the manufacturer must Incude the ta on such sae n hs return for the
month n whch the sae was made. owever, f the certfcate s ater ob-
taned a cam for refund of ta pad may be fed on orm 843, or a credt
taken upon a subsequent return, but such acton must be taken wthn the
4-year perod of mtaton prescrbed by secton 3228, Unted States Revsed
Statutes, as amended.
The certfcate requred by ths artce must ncude an agreement that f
the artces covered thereby are dsposed of, or used, otherwse than as fue
suppes, shps stores, sea stores, or egtmate equpment on the types of
vesses enumerated, the person who sgned the certfcate w report such
fact to the manufacturer. The ta appcabe to the sae of such artces sha
be ncuded by the manufacturer n hs return for the month durng whch
such report s receved by hm.
The foowng form of e empton certfcate w be acceptabe for the pur-
poses of ts artce and must be adhered to n substance:
MPTION C RTI IC T .
( or use by purchasers of artces for use as fue suppes, shps stores, sea stores, or
egtmate equpment on certan vesses. Secton 30 of the Revenue ct of 1932.)
_ 193
(Date.)
The undersgned purchaser hereby certfes that he s the_
of
(Owner, offcer, charterer or an authorzed agent.) (Name of company and vesse.)
and that the artce or artces specfed n the accompanyng order, or as spec-
fed beow or on the reverse sde hereof, w be used ony for fue suppes,
shps stores, sea stores or egtmate equpment on a vesse beongng to one
of the foowng casses enumerated n secton 30 of the evenue ct of 1932:
(Check cass to whch vesse beongs.)
(1) esses engaged n foregn trade,
(2) esses engaged n trade between the tantc and Pacfc ports of
the Unted States,
(3) esses engaged n trade between the Unted States and any of ts
possessons,
(4) esses empoyed n the fsheres or whang busness,
(5) esses of war of the Unted States or a foregn naton.
The undersgned understands that f the artce s used for any purpose
ocher than as stated n ths certfcate, or s resod or otherwse dsposed of, he
must report such fact to the manufacturer. It s understood that ths certf-
cate may not be used n purchasng artces ta -free for use as fue suppes,
etc.. for any type of arcraft or peasure vesse. It s aso understood that the
frauduent use of ths certfcate to secure e empton w sub|ect the under-
sgned and a guty partes to a penaty equvaent to the amount of ta due
on the sae of the artce and to a fne of not more than 10,000, or to mprson-
ment for not more than fve years, or both, together wth costs of prosecuton.
The undersgned aso understands that he must be prepared to estabsh by
satsfactory evdence the purpose for whch the artce was used.
(Name.)
( ddress.)
If t s mpractcabe to furnsh a separate certfcate for each order or
contract, a certfcate coverng a orders between gven dates (such perod
not to e ceed a caendar month) w be acceptabe. Such certfcates and
proper records of nvoces, orders, etc., reatve to ta -free saes must be
retaned as provded n artce 9. If, upon Inspecton, t s dscovered that a
manufacturer s records wth respect to any sae camed to be ta -free do not
contan a proper certfcate, as outned above, wth supportng nvoces ana
such other evdence as may be necessary to estabsh the e empt character of
the sae, ta sha be payabe by the manufacturer on such sae.
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391
Regs. 42, rts. I, 8, 25, 39.
The artces covered by the e empton certfcate must be fuy dentfed aa
to nature, quantty, and date of sae.
When artces covered by these reguatons are sod durng the perod from
uy 1, 1033, to November 11, 1935, both dates ncusve, for devery to nava
depots of the Unted States Navy nstead of drect to desgnated vesses, e emp-
ton may be estabshed by securng the e empton certfcate outned n tha
artce from an authorzed offcer of the Unted States Navy.

TITL S I ND . M NU CTUR RS CIS T S
ND MISC LL N OUS T S. (1932)
Reguatons 42, rtces 1, 8, 25, 39: ffectve I -31-7 27
perod. T. D. 4570
Ta on teegraph, teephone, rado and cabe factes, transpor-
taton of o by ppe ne, and eectrca energy Ttes I and
of the Revenue ct of 1932, amended by secton 212 of the Natona
Industra Recovery ct, secton of the ct approved une 1 ,
1933 (Pubc, No. 73, Seventy-thrd Congress), and further amended
by Pubc Resouton No. 3 , Seventy-fourth Congress, approved
une 28,1935. rtces 1, 8, 25, and 39 of Reguatons 42, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Ttes I and of the Revenue ct of 1932, as amended by sec-
ton 212 of the Natona Industra Recovery ct (approved une
1 , 1933), were further amended by Pubc Resouton No. 3 , Sev-
enty-fourth Congress, approved une 28, 1935, whch reads, n part,
as foows:
That Tte I , as amended, and Parts I, II, III, and I of Tte , as amended,
of the Revenue ct of 1932, are further amended by strkng out 1935 wher-
ever appearng theren, and nsertng n eu thereof 1937.
In conformty wth the provsons of aw quoted above, artces
1, 8, and 25 of Reguatons 42, as amended by Treasury Decson 4382,
approved ugust 9,1933 C. . II-2, 3 4 , and artce 39 of Regu-
atons 42, as amended by Treasury Decson 4393, approved Septem-
ber 20,1933 C. . II-2, 322 , are further amended as foows:
btce 1. ffectve perod. The ta s Imposed upon payments for the trans-
msson by teegraph, teephone, cabe, or rado of dspatches, messages, and con-
versatons, orgnatng n the Unted States on or after une 21, 1932, and
before uy 1, 1937, regardess of the date of payment.
rt. 8. ffectve perod. The ta mposed under secton 701 (a)2 attaches to
the amount pad on or after une 21, 1932, for any eased wre or takng cr-
cut speca servce furnshed on or after une 21, 1932, and before uy 1,
1937. If the rendton of the servce occurs wthn the effectve perod of the
aw the ta attaches thereto even though the payment therefor s made on or
after uy 1, 1937.
rt. 25. ffectve perod. The ta mposed under secton 731 appes to
a transportaton of crude petroeum and qud products thereof by ppe
ne where the movement begns on or after une 21, 1932, and before uy 1,
1937, e cept that the ta under secton 731 (a)1 s mposed ony when payment
for the transportaton Is made on or after une 21, 1932. In the case of any
such transportaton by ppe ne where the movement orgnates pror to uy 1,
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Regs. 43, rt. 57.
392
1937, and ends on or after that date, the ta attaches to the entre amount
charged for the transportaton, athough pad on or after uy 1, 1937.
bt. 39. ffectve perod. The ta appes to eectrca energy god on or
after September 1, 1933, and before uy 1, 1937.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 24, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury.
TITL . MISC LL N OUS T S. (1932)
S CTION 711. DMISSIONS.
Reguatons 43, rtce 57: ffectve date I -31-7 28
of change n e empton. T. D. 4571
Ta on admssons Secton 711(e) of the Revenue ct of 1932,
amended by secton 212 of the Natona Industra Recovery ct,
and further amended by Pubc Resouton No. 3 , Seventy-fourth
Congress, approved une 28, 1935. rtce 57 of Reguatons 43,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 711(e) of the Revenue ct of 1932, as amended by secton
212 of the Natona Industra Recovery ct, was further amended
by Pubc Resouton No. 3 , Seventy-fourth Congress, approved
une 28, 1935, whch reads, n part, as foows:
That Tte I , as amended, and Parts I, II, III, and I of Tte , as
amended, of the Revenue ct of 1932, are further amended by strkng out
1935 wherever appearng theren, and nsertng n eu thereof 1937.
In conformty wth the provsons of aw quoted above, artce 57,
as amended by Treasury Decson 4379, approved ugust 9, 1933
C. . II-2, 353 , s further amended as foows:
rt. 57. ffectve date of change n e empton. The sums pad for adms-
son whch are not sub|ect to ta under secton 500(a) of the Revenue ct
of 192G, as amended by secton 711(a) of the Revenue ct of 1932, are those
whch are ess than 41 cents. ffectve uy 1, 1937, any sum of 3 or ess
pad for admsson w not be ta abe. The tme of payment and not the tme
of admsson w govern n determnng whch e empton s appcabe. Con-
sequenty, f a person shoud purchase a tcket of admsson for an amount
n e cess of 40 cents where the payment was made before uy 1, 1937, for
an admsson to take pace after that date, the payment so made woud be
sub|ect to ta .
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 24, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
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393 Regs. 48(1928), rt. 3 .
TITL . DMISSIONS ND DU S. (192 )
S CTION 501 O T R NU CT O 192 , S M ND D Y S CTION
413 O T R NU CT O 1928. CLU DU S T .
Reguatons 43 (19 28), rtce 3 : Soca cubs. I -32-7 43
Ct. D. 1000
dues ta revenue acts of 192 and 1928 decson of court.
Soca Cub Character of Organzaton.
Where a cub whch was organzed for the promoton of art and
terature devoted a substanta porton of ts budng space, ts
ncome from dues and endowment, and ts servces, to soca actv-
tes, ncudng the mantenance of a restaurant, the soca features
were not merey Incdenta or subordnate to the prmary purposes,
but served an end n themseves, and the dues were sub|ect to ta .
Dstrct Court of the Unted States for the Southern Dstrct of
New York.
Century ssocaton, v. Chares W. nderson, Indvduay and as Coector of
Interna Revenue for the Thrd Dstrct of New York.
May 10, 1935.
memorandum of decson on motons for drected verdct.
ncks, D. .: Ths Is an acton brought by the pantff for the recovery
of ta es coected durng the perod from May 1, 1927, to March 31, 1931,
In the aggregate sum of 40,381.28, under the authorty of the provsons of
2 U. S. C. ., 872.
The parres stpuated for tra by a |ury of one, and at the cose of the
evdence each sde moved for a drected verdct. Ths procedure makes a
detaed fndng of facts unnecessary. Notwthstandng, a genera statement
of the consderatons whch have controed my decson may serve a usefu
purpose.
The appcabe statute has been construed by Treasury Reguatons 43,
artce 3 , the vadty of whch s unquestoned. Under ths reguaton, I
can not drect a verdct for the pantff wthout fndng that ts soca features
are not a matera purpose of the organzaton but are subordnate and merey w
ncdenta to the actve furtherance of a dfferent and predomnant purpose
In ths case, art and terature. Such a fndng I can not reach on the record In
ths case.
The record Incudes the pantff s year books for each year fang wthn
the ta abe perod. These year books Incude character sketches of members
recenty deceased and from these sketches t s fuy apparent that the cub
shetered a soca fe whch was a przed end In Itsef. To be sure, In ths
soca fe the vvd coors n the art gaery may have bended wth the meow
background of the brary. Its pattern may have been woven on the oom
of the arts. ut for present purposes t s Its e stence, rather than ts
source, that has Importance. nd the charm of ts quaty can not serve to
deny the reaty of ts e stence.
The presence of ths soca feature n the fe of the cub s aso attested
n more tangbe ways. Space n the cub budng was generousy aocated
for soca actvtes. nd from the revenues of the cub avaabe from dues
and endowment, the drect e pendtures to support soca actvtes such as
the restaurant, etc., substantay e ceed the e pendtures drecty devoted to
the servce of art and terature.
To be sure, the cub has a brary n sze and quaty surpassng that to be
e pected n a purey soca cub. Lkewse as to ts art coecton. nd the
evdence shows that the brary and art gaery wth ts frequent e hbtons
are generousy patronzed by members and guests. ut f such facts betoken
a devoton to art and terature, the quaty of the ktchen and the patronage
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Regs. 43, rt. 4.
394
of the dnng room equay demonstrate the presence of soca features. nd
the year books, as Indeed the severa Issues of the cub pamphet or buetn
whch are In evdence, are repete wth tems of purey soca Interest con-
sstent ony wth my concuson that the soca fe of the cub was an end
n Itsef, though not Its ony purpose.
Ths concuson stands even though I fnd as fuy proved (e cept for the
concusons of paragraphs 10 and 11) the summary of facts ncuded n
the pantff s bref. or every fact ncuded n the summary s consstent wth
a pocy on the part of the cub and wth a beef on the part of ts members
that the quaty of Its soca fe requres protecton and deserves perpetuaton.
ut the concuson of paragraphs 10 and 11 that the funds for endowment and
renovaton were motvated soey by zest for art and terature, I can not admt
or nothng n the evdence convnces me that a deght In the soca fe of
the cub was e cuded from a part n the movng mpuse of the contrbutors
to these funds. Indeed, hbt 10 ndcates that the renovaton fund was
whoy used (e cept for a brary stack room whch was apparenty a mnor
tem) for factes servng the soca fe of the cub. nd the ncome from
the endowment fund seems not to be restrcted to the drect servce of the arts.
To be sure, the presence of soca features merey Incdenta and subordnate
to the prmary purposes of art and terature woud not bar recovery. ut of
the tota physca factes of the cub, of the e pendture of ts revenues, and
of ts servces, the part devoted to soca ends s too substanta to ustfy the
Inference that the soca features are Incdenta merey. Nor can I fnd evdence
that the soca actvtes were subordnate ony to the prmary purposes. That
members were ured to the cub by ts soca attractons does not thereby |ustfy
the Inference that the spacous soca factes and the we-ordered servce of
the cub were provded for the purpose of ncreasng attendance at the art
gaery or brary, If ndeed that be mportant. To be sure, t we may be that
scores of cub members, each n the e ercse of hs ndvdua genus, have
enrched the artstc and terary fe of the communty. Concevaby some
part of ths umnaton may have been t by sparks struck from the Century
fnt. ut If there be any reaton between the umnaton and the Century
spark, t s too remote to permt a fndng that the entre soca structure of
the cub was mantaned ony as a fnt from whch the creatve spark mght
sprng.
ccordngy the pantff s moton for a drected verdct must be dened, and
the defendant s moton must be granted, and t Is so ordered.
S CTION 500(a)2 O T R NU CT O 192 , S M ND D Y
S CTION 412(a) O T R NU CT O 1928 ND Y S CTION
711(b) O T R NU CT O 1932. DMISSIONS.
Reguatons 43, rtce 4: Scope and bass I -42-7750
of ta es. S. T. 822
n amount charged by a cub for obtanng tckets of admsson
to theaters, operas, and other paces of amusement for ts members
s ta abe as an e cess charge.
Inqury s made whether an amount charged by a cub n e cess
of the estabshed prce of tckets of admsson to theaters, operas,
and other paces or amusement obtaned for members of the cub s
sub|ect to ta under secton 500 (a)2 of the Revenue ct of 192 , as
amended by secton 412(a) of the Revenue ct of 1928 and secton
711(b) of the Revenue ct of 1932.
Secton 500(a)2 of the Revenue ct of 192 , as amended, mposes
a ta upon tckets or cards of admsson to theaters, operas, and
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395
Regs. 43(1932), rt. 24.
other paces of amusement, sod at/news stands, hotes, and paces
other than the tcket offces of such theaters, operas, or other paces
of amusement, at a prce n e cess of the sum of the estabshed prce
therefor at such tcket offces pus the amount of any ta mposed
under paragraph (1), equvaent to 10 per cent of the amount of such
e cess| the ta to be pad by the person seng such tckets.
rtce 4 of Reguatons 43 provdes n part as foows:
The provsons of the aw reatng to e cess charges appy regardess of the
estabshed prce, even though t may be ess than 41 cents and not ta abe
under secton 500(a) 1. ny amount receved by the persons eng the tckets
or cards over and above the estabshed prce, or any ump sum whch bears a
reaton to the number of tckets so sod, whether caed a contrbuton,
servce charge, or the ke, Is an e cess charge .
Upon request by ts members, the cub n queston procures tckets
of admsson to theaters| etc., from tcket brokers or from the bo
offce of theaters. The tckets are bed to the cub monthy at the
bo offce prce (pus brokers fees when procured from brokers) and
are sent to the cub or drecty to the members, or eft at the tcket
offce of the theater. The cub bs each member monthy for the
cost of the tckets procured for hm pus a charge of 25 cents a tcket.
The fact that the broker or theater, as the case may be, bs the
cub for the tckets and the cub n turn bs ts members therefor
at the estabshed prce pus brokers fees (f any) and ts charge of
25 cents per tcket ceary ndcates that the reatonshp between the
cub and ts members, n so far as the procurement and devery of
tckets s concerned, Is that of seer and purchaser rather than that
of agent and prncpa. Unquestonaby, the broker or theater does
not ook to the member for the purchase prce of the tckets whch
are bed to the cub. aure of the members to pay the cub for
the tckets does not reeve the cub from the payment therefor. c-
cordngy, t s hed that there s a sae of tckets to the members by
the cub at a prce n e cess of the estabshed prce therefor, and
that the cub s charge of 25 cents for each tcket procured by t and
sod to ts members s an e cess charge wthm the meanng of
the aw and reguatons and s ta abe as such.
S CTION 500 O T R NU CT O 192 , S M ND D Y
S CTION 711 O T R NU CT O 1932.
Reguatons 43(1932), rtce 24: dmssons I -28-7594
by or for the beneft of edera, State, or Ct. D. 991
muncpa governments.
DMISSIONS T R NU - CT OP 1032 D CISION O COURT.
Sut thetc Games Conducted by State Unversty adty
of Ta .
The promoton of athetc games by the unversty system of
Georga s not prmary an educatona undertakng nor the opera-
ton of an essenta governmenta functon, and the edera ta
mposed upon admssons to such games s vad. The ta s m-
posed upon the purchaser, was owng to the edera Government,
and was vountary coected by the unversty, whch may not
by ts sut for a decaratory udgment obtan an n|uncton re-
stranng the coecton of the ta so receved.
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Regs. 71, rt. 2.
39
Dstrct Court op the Unted States for the Northern Dstrct of Georga,
tanta Dvson.
Regents of the Unversty System of Georga v. TP. . Page, Coector of
Interna Revenue.
pr 10, 1935.
OPINION.
Underwood, .: Ths s a sut by the regents of the Unversty of Georga
System for a decaratory |udgment, and an n|uncton n support thereof,
aganst defendant to estabsh ther rght as offcers of the State of Georga to
certan funds dstraned by defendant and by hm camed to be ta es due the
Unted States and coected on amounts pad for admssons to athetc games.
Ths proceedng s upon moton to dsmss the b as amended.
Companants cam that sad athetc games were a part of the educatona
system of the State of Georga and that the admssons thereto coud not be
ta ed by the edera Government because to do so woud be to ta operatons
of the State essenta to the e ecuton of ts governmenta functons. Com-
panants further contend that, athough there appears on the face of each
tcket sod a statement that a certan amount was for admsson and another
amount was for the edera ta , both of whch amounts were coected, never-
theess, on the back of each tcket there was a notce to the effect that the
seer camed no ta was coectbe and that, n the event ths cam was
uphed, the whoe amount woud be retaned as the admsson charge.
They further nsst that the ta , even f egay mposed, was aganst the
patrons and not aganst companants and that nether companants nor other
agent of the State coud be requred to coect the ta .
Defendant mantans that the Unted States s the rea party defendant and
has not consented to the determnaton of the queston nvoved by decaratory
|udgment that an n|uncton s prohbted by secton 3224 of the Revsed
Statutes that the promoton of athetc games where admssons are charged s
not an essenta governmenta functon, and that the b shoud be dsmssed.
If the admssons were sub|ect to the edera ta , the ta mposed was a
vad ta aganst the purchaser and was actuay coected by the seer, whether
an mmedate agent of the State or of an agency of the State created for a
speca purpose, and beongs to the edera Government. The petton shows
that the dstrant s for the ta aone and not for any penates. It s not neces-
sary to decde whether or not the edera Government coud have requred such
agent to coect the ta , snce the agent vountary dd so, and there s no
reason why the State, f t s wng to do so, shoud not ad the edera
Government n the coecton of ts ta es.
The aegatons of the petton are not suffcent to satsfy the court that the
conductng of athetc games, even f done by the State, on the scae and for
the purpose and for the revenue ndcated by the petton. Is prmary an
educatona undertakng or an operaton of the State essenta to the e ecuton
of ts governmenta functons but on the contrary the court s of opnon that
same s not such a governmenta functon and that the ta s vad.
Whereupon t s ordered and decreed that defendant s moton to dsmss the
petton be sustaned, the n|uncton prayed for dened and the b dsmssed,
at pantffs costs. Ths the 10th day of pr. 1935.
TITL III O T R NU CT O 192 , S
M ND D. ST MP T S.
Reguatons 71, rtce 2: ffectve perod. I -31-7 29
T. D. 45 9
Stamp ta es on ssues and transfers of stocks and bonds, saes of
products for future devery, and deeds of conveyance, under Tte
III of the Revenue ct of 192 , as amended by Tte II, Part ,
of the Revenue ct of 1928 and Tte , Part III, of the Revenue
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397
Regs. 71, rt. 34.
ct of 1932, and further amended by secton 212 of the Natona
Industra Recovery ct and secton 12 of the Revenue ct of
1884, and as further amended by Pubc Resouton No. 3 , Seventy-
fourth Congress. rtce 2 of Reguatons 71, as amended by
Treasury Decson 4383 (C. . II-2, 358), further nmended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Tte of the Revenue ct of 1932 has been amended by Pubc
Resouton No. 3 , Seventy-fourth Congress, approved une 28, 1935,
whch reads n part as foows:
That Parts I, II, III, and I of Tte , as amended, of the
Revenue ct of 1932, are further amended by strkng out 1935 wherever
appearng theren, and Insertng In eu thereof 1937.
In conformty wth the provsons of the aw above quoted, artce 2
of Reguatons No. 71, approved uy 1 , 1932, as amended by Treas-
ury Decson 4383 (C. . II-2, 358), s further amended to read
as foows:
rt. 2. ffectve petod. The stamp ta provsons of the Revenue ct of
192 , as amended by the Revenue ct of 1928, are st n fu force and effect,
e cept as amended by the Revenue cts of 1932 and 1934. The amendments
made by the Revenue ct of 1932 are effectve on and after une 21, 1932. The
amendment made by the Revenue ct of 1934 s effectve on and after May 11,
1934. The rates of ta , as we as the addtona ta es mposed by the amend-
ments made by the Revenue cts of 1932 and 1934 to Schedue of Tte III
of the Revenue ct of 192 , as amended by the Revenue ct of 1928, are
effectve ony to and ncudng une 30, 1937.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 24, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury.
SC DUL -3 O TITL III O T R NU CT O 192 , S
M ND D Y S CTION 723(a) O T R NU CT O 1932.
Reguatons 71, rtce 34: Saes or transfers r -48-7833
sub|ect to ta . Ct. D. 1038
ST MP T R NU CT O 102 decson of court.
Tbansfeb or Rght to Receve Stock Nomnee.
Where the ta payer subscrbed for shares of stock and, before
tme for devery, drected the ssung corporaton to make out the
certfcate representng the shares n the name of a partnershp
whose soe busness whs to hod, wth no benefca nterest theren,
stocks, bonds, and other securtes beongng to the ta payer, and
to transfer them at ta payer s request, the nomnaton of the part-
nershp as the person n whose name the certfcate shoud be
ssued consttuted a transfer of the ega tte to the rght to re-
ceve the stock, ta abe under the provsons of Schedue (3) of
secton 800 of the Revenue ct of 192G, notwthstandng the fact
that the certfcate was devered to the subscrber rather than
to the nomnee.
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Regs. 71, rt. 34.
398
Unted States Dstrct Coubt, Southern Dstrct of New York.
ounders Genera Corporaton, pantff, v. ames . oey, Coector of Unted
States Interna Revenue for the Second Dstrct of the State of New York,
defendant.
September 10, 1935.
OPINION.
Moton by defendant to dsmss the compant for faure to state a cause of
acton. Moton granted.
The acton s at aw to recover the sum of 4,733.33 coected by the de-
fendant as a ta wth penaty and Interest.
Goddard, Dstrct udge: Ths moton, equvaent to a demurrer, rases the
queston whether the facts aeged n the compant dscose a transacton sub-
|ect to the documentary stamp ta whch was assessed and coected from the
pantff under Schedue (3) of secton 800 of the Revenue ct of 192 .
The facts aeged may be summarzed as foows:
On September 10, 1929, pantff made a wrtten agreement wth an eectrc
power corporaton, herenafter referred to as the Issung corporaton, to sub-
scrbe at the prce of 13.50 per share for 100,000 shares to be accompaned by
a warrant enttng the hoder to subscrbe for 1 addtona share of such com-
mon stock before anuary 2, 1940, at the f ed prce of 25 per share. The
shares, wth accompanyng warrants, were to be devered and payment therefor
was to be made on September 17, 1929. efore the tme set for devery, the
pantff drected the ssung corporaton to have the certfcate representng
the sad 100,000 shares of stock wth accompanyng warrants, made out n the
name of the pantffs nomnee, enton Co. Ths was done, and on Sep-
tember 17, 1929, such certfcate was- devered to the pantff upon payment
by t of the agreed subscrpton prce. The documentary stamp ta upon the
orgna ssue of sad 100,000 snares of stock and accompanyng warrants, was
duy pad by the Issung corporaton, and stock transfer ta es have been duy
pad as to a shares and warrants whch have been transferred out of the
name of enton Co. In addton, the ta ng authortes demanded from the
pantff, and on October 22, 1934, coected the sum of 4,733.33 as a ta , wth
penaty and nterest, upon the aeged transfer by the pantff to ts nomnee,
enton Co., because of the pantff s drecton for ssuance of the aforesad
certfcate In the atter s name.
enton Co. s a partnershp, whose soe busness s to hod n the ms
name stocks, bonds and other securtes beongng to the pantff, and to
transfer them at the pantff s request. Nether the frm nor any partner has
any benefca Interest In the property so hed. The frm receves from the
pantff an annua fee of 1,500 for actng as such agent.
Contendng that the ta so coected from t was Iega, the pantff fed a
cam for a refund and upon ts re|ecton brought ths sut. The defendant s
moton to dsmss squarey rases the queston whether the nomnaton by the
pantff of enton Co. as the person n whose name the certfcate shoud be
made out s sub|ect to ta under the statute n queston.
Secton 800 of the Revenue ct of 192 provdes that
On and after the e praton of 30 days after the enactment of ths ct
there sha be eved, coected, and pad, for and In respect of the severa
bonds, debentures or certfcates of stock and of ndebtedness, and other docu-
ments, nstruments, matters and thngs mentoned and descrbed n Schedue
of ths tte the severa ta es specfed n such schedue.
Schedue (3) reads as foows:
3. Capta stock, saes or transfers: On a saes, or agreements to se, or
memoranda of saes or deveres of, or transfers of ega tte to shares or
certfcates of stock or to rghts to subscrbe for or to receve such
shares or certfcates, whether made upon or shown by the books of the corpora-
ton, or by any assgnment n bank, or by any devery, or by any paper or
agreement or memorandum or other evdence of transfer or sae, whether en-
ttng the hoder n any manner to the beneft of such stock, nterest, or rghts,
or not, on each 100 of face vaue or fracton thereof, 2 cents, and where such
shares are wthout par or face vaue, the ta sha be 2 cents on the transfer
or sae or agreement to se on each share .
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399
Regs. 71, rt. 34.
Reguatons 71, reatng to stamp ta es on documents mposed by the Reve-
nue ct of 192 , and the Revenue ct of 1928 contan the foowng provsons:
rt. 31. ass of ta . very transfer or sae of stock, ether before or after
Issuance of a certfcate, s ta abe. The ta accrues at tme of makng the
sae or devery of or transfer of the ega tte to shares, or certf-
cates of stock or of the rght to subscrbe for or to receve such
shares or certfcates, regardess of the tme or manner of the devery of the
certfcates, or agreement or memorandum of sae.
rt. 34. Saes and transfers sub|ect to ta . The foowng transactons are
sub|ect to the ta :
(o) The sae, or transfer, or change of ownershp, of certfcates of stock,
or of profts, or of nterest n property or accumuatons n corporatons, |ont-
stock companes, or assocatons.
(b) The sae or transfer of shares of stock, whether or not represented by
certfcates.
(c) The transfer of stock to or by trustees.

(g) The transfer of the Interest of a subscrber for stock, however such
nterest may be evdenced or condtoned upon further payments.
(h) The transfer of the rght to subscrbe for stock n any corporaton, |ont-
stock company, or assocaton, whether or not evdenced by warrants.

(t) The transfer of the rght to receve stock whch a corporaton has uncon-
dtonay agreed to ssue.
( ) Transfers of stock are sub|ect to the ta even though the hoders thereof
are not entted n any manner to the beneft of the stock.
rt. 77. urther defntons. (1) When used n these reguatons:
(b) The term ssue ncudes not ony actua devery of, but aso acceptance
of subscrptons to shares or certfcates of stock .
rt. 85. ff ng and canceaton of stamps. (a) In the case of the ssue of
shares of stock, whether on organzaton or reorganzaton, the stamps repre-
sentng the ta sha be aff ed to the stock books and not to the certfcates
ssued.
rom the foregong e cerpts t Is apparent that the statutory bass of ta aton
s very broad and that the reguatons have been drafted n equay Incusve
terms. Wth certan e press e ceptons, not now matera, a ta s ad upon
every transfer of the ega tte to shares or certfcates of stock, or to rghts to
subscrbe for or receve such shares or certfcates, whether or not the transferee
acqures any benefca nterest. If the Issung corporaton had ssued the shares
subscrbed for to the pantff and the atter had then transferred them to Its
agent, enton Co., t can not be doubted that the Government woud have been
entted to coect two stamp ta es: one on the sae of the stock to the pantff
the other on the transfer of ega tte from the pantff to ts agent. ut the
transacton as actuay carred out dd not take ths form, athough t accom-
pshed the same resut, and n the matter of stamp dutes the form s a Im-
portant. (Unted States v. I sham, 17 Wa., 49 .) The ta can not therefore be
sustaned on the theory that n ega effect the transacton was the same as
though the pantff had taken ega tte to the shares and transferred them to
ts nomnee. ut t can be sustaned, n my opnon, on the theory that the
nomnaton of enton Co. as the person to whom the certfcate was to be
ssued, fas wthn the e act etter of the statute ta ng transfers of ega
tte to rghts to receve such shares or certfcates. Pror
to such nomnaton the pantff had the rght to receve the shares and by Its
nomnaton ts rght was transferred to ts nomnee. True, the rght was cond-
tona upon payment for the shares by the pantff, but the statute does not nd-
cate that the rght to receve shares must be uncondtona at the tme when t s
transferred In order to consttute a ta abe transfer. The phrase of the statute
upon whch I rey has been apped In severa cases where one corporaton has
sod ts assets to another to be pad for by stock of the atter whch the vendor
drected to be ssued to ts stockhoders. (Marcon Wreess Teegraph Co. v.
Duffy, 273 ed., 197 T. D. 3219, S. T. 1921, 55 George . orme Co. v.
Unted States, 10 ed. Supp., 23 Ct. D. 981, C. . I -1, 433 Unted States
v. rown ence c Wre Co., 9 ed. Supp., 1008 Ct D. 982, C. . I -1, 438
Raybestos-Manhattwn, Inc., v. Unted States, 10 ed. Supp., 130 Ct. D. 980, C. .
I -1, 431 .) Compare cases reachng a dfferent resut on sghty dfferent
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Regs. 71, rt. 34.
400
facts. (Mnnesota M. t M. Co. v. Wouts, 2 ed. Supp., 789 Westmoreand
Coa Co. v. McLaughn, 8 ed. Supp. 983 Shreveport dorado Ppe Lne Co. v.
McOrace, 3 ed. (2d), 202 (C. C. . 5).)
The Marcon case, n my |udgment, s rght and shoud govern the case at bar.
It s true that In the Marcon case the nomnees receved the stock for ther own
beneft, whe here enton Co. hods t for the pantff. ut the fact that the
transferee gets no benefca nterest s made mmatera by the e press terms of
the statute.
The pantff makes no attempt to e pan why the nomnaton of enton Co.
shoud not be deemed a transfer of pantff s rght to receve shares of stock. It
rests ts argument chefy upon Unon Trust Co. v. ener (2 ed. (2d), 391, and
cases foowng t. Dean v. Cadwe Co., 9 ed. Supp., 177 ed, Oore d Co.
v. Unted States (Northern Dstrct Inos, pr 8, 1935).
It seems to me that the decson n Unon Trust Co. v. ener dsregards the
e press words of the statute. There the argument that the nomnee transferred
a rght to receve the shares seems to have been dsposed of by the court wth
the statement that the nomnee was a mere empoyee and had no benefca n-
terest n the stock. ut snce the statute tsef says that t s mmatera
whether the transferee receves a benefca nterest, I am not ncned to foow
Unon Trust Co. v. cner.
In my opnon the ta was vady assessed, and accordngy the moton to
dsmss the compant Is granted.
Reguatons 71, rtce 34: Saes or transfers I -48-7834
sub|ect to ta . Ct. D. 1039
ST MP T R NU CT O 192 D CISION O SUPR M COURT.
1. Transfeb of Rght to Receve Stock.
The ssue of stock by a corporaton to the stockhoders of two
other corporatons n e change for the assets of those corporatons
nvoves the transfer of rghts to receve stock whch s sub|ect to
the stamp ta mposed by secton 800, Schedue -3, of the Revenue
ct of 192 .
2. Decson fphmed.
Decson of the Court of Cams of the Unted States (10 ed.
Supp., 130 (Ct. D. 980, C. . I -1, 431), af|rmed.
Supreme Court of the Unted States.
Raybestos-Manhattan, Inc., pettoner, v. T e Unted States.
On wrt of certorar to the Court of Cams.
November 11, 1935.
OPINION.
Mr. ustce Stone devered the opnon of the Court.
In ths case we granted certorar (294 U. S., ) to revew a udgment
of the Court of Cams to sette a doubtfu pont of edera aw, of mportance
n the admnstraton of the Revenue cts, and to resove a confct of the
decson beow wth that of the Court of ppeas for the Thrd Crcut n
MacLauohn v. Westmoreand Coa Co. (73 . (2d), 1004), affrmng 8 . Supp.,
9 3, on opnon beow.
The queston presented s whether the ssue by pettoner of ts shares of
stock to the stockhoders of two other corporatons n e change for the assets
of those corporatons, pursuant to a pan for ther consodaton, nvoved a
transfer ta ed by secton 800( )3 of the Revenue ct of 192 . (44 Stat, 9,
99, 101.) The Court of Cams hed that t dd, and dened recovery of the
ta , whch pettoner had pad under protest. (10 ed. Supp., 130.)
Secton 800, Schedue (2) of the 192 ct mposes a stamp ta at a spec-
fed rate on the orgna Issue of shares of corporate stock. y secton 8O0( )3
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401
Regs. 71, rt. 84.
a ke ta s ad On a saes, or agreements to se, or memoranda of saes
or deveres of, or transfers of ega tte to shares or certfcates of stock or
of nterest n property n any corporaton, or to rghts
to subscrbe for or to receve snch shares or certfcates whether made upon
or shown by the books of the corporaton or by any paper or agree-
ment or memorandum or other evdence of transfer of sae . Secton
800 mposes abty for the ta upon the transferor, the transferee and the
corporaton whose stock s transferred.
Pettoner was organzed under the aws of New ersey as a step n carry-
ng out a pan and agreement for the consodaton of three other corporatons.
Two of the corporatons conveyed ther property to pettoner n return for
a specfed number of ts shares of capta stock, ssued not to the two cor-
poratons, but drecty to ther stockhoders n proporton to ther hodngs.
The Government and the ta payer are not In accord as to the precse nter-
pretaton to be paced upon the contracts whch resuted n the consodaton,
but acceptng the ta payer s contenton for purposes of decson, we assume
that t was agreed by a concerned that the shares of pettoner were to be
ssued drecty to the stockhoders of the two corporatons wthout further
nterventon by the atter.
Labty for the ta eved on the orgna ssue of stock s conceded but t
s dened that the transacton nvoved any ta abe transfer wthn the purvew
of Schedue -3. It s sad that the pettoner was sub|ect to the ta mposed
by ths schedue ony f there was a transfer of the rght to receve te stock
to be ssued by pettoner for the assets of the two corporatons that as nether
of them was entted, under the agreement, to receve the certfcates for the
newy ssued shares, whch were to be ssued drecty to ther stockhoders,
nether corporaton can be sad to have transferred rghts to receve stock. We
thnk the statute s not to be read so narrowy.
The stock transfer ta s a revenue measure e cusvey. Its anguage ds-
coses the genera purpose to ta every transacton whereby the rght to be or
become a sharehoder or to receve any certfcate of any nterest In Its property
Is surrendered by one and vested n another. (See Provost v. Unted States,
2 9 U. S., 443, 458, 459 T. D. 3811, C. . -, 417 .) Whe the statute speaks
of transfers, t does not requre that the transfer sha be drecty from the
band of the transferor to that of the transferee. It s enough f the rght or
nterest transferred s, by any form of procedure, renqushed by one and vested
n another. ven the ownershp of a share of stock, transfer of whch s ad-
mttedy ta ed, s not transferred drecty from one to another as s tte to a
chatte or to rea estate. Transfer of tte to the shares s effected by a form of
novaton by whch the rght of the sharehoder s surrendered to the corporaton
n return for ts recognton of a new sharehoder desgnated by the transferor
and the ssue to hm of a new certfcate of stock. It s renqushment of the
ownershp for the beneft of another, and the resutant acquston of t by hm
whch cas the statute nto operaton.
The sub|ect of the ta s not aone the transfer of ownershp n shares of
stock. It embraces transfers of rghts to subscrbe for or receve shares or
certfcates whether made upon the books of the corporaton or by any paper,
agreement, or memorandum or other evdence of transfer. In the
present case the generatng source of the rght to receve the newy ssued
shares of pettoner was the conveyance to t of the property of each of the
corporatons to be consodated. The new shares coud not awfuy be Issued
to any other than the grantor corporaton wthout ts authorty, and that au-
thorty coud not be e ercsed for the beneft of thrd persons other than ts own
assentng stockhoders. The consodaton agreement thus mposed the duty
on pettoner to ssue the new shares upon recept of the property, and at the
same tme made dsposton to the stockhoders of the two corporatons of the
correatve rght to receve the stock.
We thnk that ths effectve dsposton of the rght to receve the stock
nvoved a ta abe transfer qute as much as f the severa ega reatonshps
of the partes had been estabshed at dfferent tmes and by separate documents.
It Is not doubted that there woud have een a ta abe transfer f each corpora-
ton had conveyed ts property to pettoner n e change for ts shares of stock
to be ssued as the grantor mght drect, and had ater ordered the certfcates
to be ssued to ts stockhoders. The reach of a ta ng ct whose purpose s
as obvous as the present s not to be restrcted by technca refnements. ut
we do not dscern even a technca dfference of any sgnfcance between such
a transacton and that now before us, where the same duty to Issue the stock s
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Regs. 71, rt. 34.
402
created and the same shft of the benefcares of It Is effected smutaneousy
In a snge document. No convncng reason s suggested why the ct shoud
be thought to ta the one and not the other.
The statute Is thus not restrcted n ts appcaton to rghts to demand devery
of the stock such as the agreement vested In the stockhoders of the two corpora-
tons. It embraces the more genera one, Inseparabe from the transacton
by whch the obgaton to Issue the stock was created and whch nhered n the
two corporatons by operaton of aw. Income Is not any the ess ta abe
ncome of the ta payer because by hs command t s pad drecty to another
n performance of the ta payer s obgaton to that other. (See No. 1, Dougas v.
Wcuts, 3eeded ths day Od Coony Trust Co. v. Commssoner, 279 U. S., 71
Ct D. 80, C. . III-2, 222 Unted States v. oston d Mane R. R., 279 U. S,
732 Ct. D. 73, C. . III-2, 315 .) ere the power to command the dsposton
of the shares ncuded the rght to receve them and the e ercse of the power
whch transferred the rght Is sub|ect to the ta .
Ta abty of transfers of stock from the name of a fducary
to the name of a ward n the States of Wsconsn, Coorado, Mary-
and, Deaware, rgna, and Connectcut
Inqury s made concernng abt 7 for stamp ta es on transfers
of certfcates of stock occurrng n the States of Wsconsn, Dea-
ware, Coorado, and Maryand from a guardan to a ward, from the
commttee of the estate of an ncompetent person n rgna, and
from the conservator of the property of an ncompetent person n
Connectcut, to such person.
Schedue -3 of Tte III of the Revenue ct of 192 , as
amended by secton 723(a) of the Revenue ct of 1932, mposes
a stamp ta on a transfers of ega tte to shares or certfcates
of corporate stock. The ta beng eved on the act of transferrng
ega tte (Goodyear Tre c Rubber Co. v. Unted States, 273 U. S.,
100), the test of ta abty, where there s any change of name n a
certfcate of stock, s whether any transfer of ega tte to the stock
has occurred. Ths, n turn, depends upon the aws of the State.
(MS. 42, C. . I -1, 338.) If, under the State aw, no transfer
of ega tte to the stock occurs when there s a transfer from the
name of the fducary to the name of the ward no stamp ta s egay
due. (S. T. 805 and S. T. 813, C. . I -1, 425.)
In the States of Wsconsn, Coorado, and Maryand the guardan
of a mnor does not acqure ega tte to hs ward s estate, such
tte beng vested contnuousy n the ward. Consequenty, n any
of those States, when a certfcate of stock s transferred from the
name of a guardan to that of hs ward, no transfer of ega tte to
the stock occurs and no stamp ta s due. Under the aws of Dea-
ware, however, ega tte to the persona property of a ward s vested
n the guardan. Consequenty, the transfer of stock n that State
from the name of a guardan to the name of hs ward resuts n the
transfer of ega tte to such stock and s ta abe.
The commttee of an ncompetent person n the State of rgna
has merey the custody and management of the estate of the n-
competent person. Custody and management are not couped wth
such an nterest as to vest n the commttee the ega tte to the
ffrmed.
Reguatons 71, rtce 34: Saes or trans-
fers sub|ect to ta .
( so rtce 35.)
I -39-7714
S. T. 819
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403
Msc.
ncompetent s estate. The decsons of the rgna courts support
the common aw doctrne that the ncompetent s a ward of the State
and that the commttee apponted by the court s a baff or curator
of the ward s estate and has merey possesson of the estate not
couped wth an nterest.
In the State of Connectcut, when any person havng property
s found to be ncapabe of managng hs affars the probate court
may appont what s known as a conservator, who, on gvng bond,
has charge of such a person and hs property. The statutory dutes
of such conservator are to manage the estate of the ncompetent and
appy the net ncome (or, f necessary, part of the prncpa) to hs
support. The decsons of the courts of that State ndcate that
Connectcut foows the rue that a conservator of the estate of an
ncapabe person has no tte thereto.
Inasmuch as transfers of stock n rgna from the commttee
of an ncompetent person to such person and transfers of stock n
Connectcut from a conservator of an ncapabe person to such person
are merey nomna, there beng no transfer of ega tte to the stock,
the transfers are not sub|ect to the stamp ta mposed by Schedue
-3 of Tte TII of the Revenue ct of 192 , as amended by secton
723 of the Revenue ct of 1932.
TITL IL SP CI L T S. (192 )
MISC LL N OUS OCCUP TION L T S.
I -52-7877
Ct. D. 1053
SP CI L CIS T S R NU CT O 192 D CISION O SUPII M
COURT.
Msceaneous Occupatona Ta es Reta Deaer n Mat
Lquor n oaton of State Law Consttutonaty.
The speca e cse ta of 1,000, mposed by secton 701 of the
Revenue ct of 192 upon a persons engaged n the quor traffc
In voaton of State aw, s a penaty mposed In addton to any
the State may decree, and as such s beyond the mts of edera
power. The statute s a cear nvason of the poce power, n-
herent n the States, reserved from the grant of powers to the
edera Government by the Consttuton.
Supreme Court of the Unted States.
No. 40. The Unted States of merca, pettoner, v. Ous L. Constantne.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
December 9,1935.
opnon.
Mr. ustce Roberts devered the opnon of the Court
In November, 1934, an nformaton was fed n the Dstrct Court for
Northern abama chargng that on October 8, 1934, at rmngham, a., the
respondent conducted the busness of a reta deaer n mat quor contrary
to the aws of the State, wthout havng pad the speca e cse ta of 1,000
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404
Imposed by secton 701 of the Revenue ct of 192 .1 demurrer and a moton
to quash were overrued, a pea of not guty was entered and a |ury tra
was waved. Pursuant to a stpuaton of facts, the court found that for the
fsca year uy 1, 1934, to une 30, 1935, the respondent regstered wth the
coector of nterna revenue as a reta quor deaer and pad the ta of
25 mposed upon such deaers by R. S. 3244, as amended on the date named
In the nformaton the respondent had a restaurant n rmngham, where
he conducted the busness of a reta deaer n mat quors contanng more
than one-haf of 1 per cent acoho, whch busness was contrary to the aws
of the State and of the cty and had not pad the 1,000 ta . Respondent s
moton for |udgment was dened, that of the Unted States was granted, and
the respondent was sentenced. The crcut court of appeas reversed the
|udgment on the ground that the secton became noperatve upon the repea
of the eghteenth amendment
In ts petton for certorar the Unted States, though admttng the absence
of a confctng decson by the crcut court of appeas of any other crcut,
caed attenton to dverse decsons n the dstrct courts,4 to the many other
cases pendng n whch acton s awatng authortatve settement of the ques-
ton presented heren, to the arge amount of money nvoved, and to the number
of persons whose abty w reman uncertan unt the dspute Is fnay
setted. The queston thus assumes the mportance requred by rue 38 and
the wrt Issued accordngy.
In concudng that the aw mposed a penaty n ad of the enforcement of
te eghteenth amendment, and therefore fe wth ts repea, the court reed
upon the egsatve hstory and admnstratve nterpretaton of secton 701,
und aso.thought such a constructon necessary to avod a serous queston
under rtce I, secton 8 of the Consttuton as to the unformty of operaton
of the ct throughout the Unted States. The Government nssts that the
secton was not a part of the machnery for enforcng the prohbton amend-
ment, but a revenue measure evyng an e cse conformaby to the Consttuton.
rst: The Government attacks, and the respondent supports, the concuson
of the court beow that the secton was adopted pursuant to the eghteenth
amendment We thnk tte ad s to be had from the egsatve hstory.
On the one hand t s sad that the substance of the secton was orgnay
emboded n the Revenue ct of 1918 whch became a aw ebruary 28, 1919
that whe under consderaton by Congress n the autumn of 1918 the b
contaned the secton n queston and that, when enacted, t was made effectve
as of anuary 1, 1919. s the eghteenth amendment was not procamed unt
anuary 9, 1919, effectve anuary 9, 1920, the argument s that the ct of
1918 was Independent revenue egsaton and no secton of t coud have been
ntended to enforce fundamenta aw whch was to become operatve ong after
the passage of the ct. rom the fact that the provson for the addtona
ta of 1,000 was carred forward from the ct of 1918 through those of 1921
and 1924 Into that of 92 the concuson s drawn that the ta remaned,
1 On and after uy 1, 1928, there sha be eved, coected, and pad annuay. In Iea
of the ta Imposed by ecton 701 of the Revenue ct of 1924, a speca e cse ta of
1,000, In the case of every person carryng on the busness of a brewer, dster. whoe-
ae quor deaer, reta deaer, whoesae deaer In mat quor, reta deaer n mat
quor, or manufacturer of sts, as defned In secton 3244 as amended and secton 3247
of the Revsed Statutes. In any State, Terrtory, or Dstrct of the Unted States con-
trary to the aws of such State, Terrtory, or Dstrct, or In any pace theren n whch
carryng on such busness s prohbted by oca or muncpa aw. The payment of the
ta Imposed by ths secton sha not be hed to e empt any person from any penaty
or punshment provded for by the aws of any State. Terrtory, or Dstrct for carry-
ng on such busness In such State, Terrtory, or Dstrct, or n any manner to authore
the commencemet or contnuance of such busness contrary to the aws of such State,
Terrtory, or Dstrct, or n paces prohbted by oca or muncpa aw.
ny person who carres on any busness or occupaton for whch a speca ta s
Imposed by ths secton, wthout havng pad such speca ta , sha, besdes beng abe
for the payment of such speca ta , be sub|ect to a penaty of not more than 1,000 or
to Imprsonment for not more than one year, or both. (Revenue ct of 192 , ch. 27.
44 Staf, 9. 95.)
T . S. C, Tte 2 , secton 205. The ct mposes speca ta es as foows: rewers
100 manufacturers of sts 50, and 20 for each st or worm reta deaers a
quors, 25 whoesae quor deaers 100 reta deaers n mat quors 20 whoesae
deaers In mat quors 50.
75 . (2d), 928.
Ceveand v. Davt (9 Supp. 337) Green v. Page (9 . Supp., 844) rabham t.
Cooper (9 . Supp., 904) LbcrU v. Nee (10 . Supp., 33 ) Senate Cub v. Met
r . C. Idaho) Unted States v. rthovcr (D. C. N. D. Te .) Unted tatet v. Coumba
rut Products Co. (D. C. . D. Ta.). The ast three decsons are unreported.
Revenue ct of 1918 (ch. 18, secton 1001 (12), secton 1005, 40 Stat., 1057, 1128,
1129) Revenue ct of 1921 (ch. 13 , sectons 1001, 1004, 42 Stat., 227, 29 , 298)1
Revenue ct of 1924 (ch. 234, sectons 701, 704, 43 Stat., 253, 327. 328).
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405
Msc.
as t was In the begnnng, a means of rasng revenue, and that ts purpose
was not atered by the e stence of natona prohbton when t was readopted
as secton 701 of the Revenue ct of 192 . Reference s aso made to the fact
that the secton was specfcay repeaed by the Revenue ct of 1935 and the
deducton s drawn that Congress thought t had no reaton to the prohbton
On the other hand, the respondent urges that the procamaton of the amend-
ment pror to the passage of the ct of 1918 made prohbton a certanty
that the. ta of 1,000 ad upon voators of State ouor aws, n addton
to the graded e cses on varous forms of the quor busness prescrbed by
R. S. 3244, and the retenton of the 1,000 ta n the 192 ct, whch dscarded
the many e stng e cses on other busnesses, evnce a purpose to prohbt
rather than to ta quor traffc voatve of State aws.
or reasons presenty to be stated we fnd t unnecessary to decde whether
the pocy e hbted by the ct at ts ncepton was ndependent of the
eghteenth amendment or n subventon of t.
Second: The court beow and the respondent regard the admnstratve con-
structon as persuasve that the secton Is pena n character. fter the
adopton of the Revenue ct of 192 the Treasury rued that the so-caed ta
of 1,000 was a penaty. Upon repea of the eghteenth amendment the pos-
ton was reversed coectors were nstructed to treat the tem as a speca
ta and the Department proceeded to prepare and dstrbute approprate
revenue stamps to be ssued n token of ts payment We thnk the admns-
tratve practce has tte bearng upon the queston of the nature of the
e acton. Durng the fe of the amendment coecton was awfu whether
the demand was for a ta or a penaty and the cassfcaton by the.admns-
tratve offcers was therefore mmatera. Congress then had power, n the
enforcement of prohbton, to mpose penates for voatons of natona
prohbtory aws.
Thrd: The repea of the eghteenth amendment renders t necessary to
determne whether the e acton s n fact a ta or a penaty. If t was ad
to rase revenue ts vadty s beyond queston notwthstandng the fact that
the conduct of the busness ta ed was n voaton of aw. The Unted States
has the power to evy e cses upon occupatons, and to cassfy them for ths
purpose and need ook ony to the fact of the e ercse of the occupaton or
cang ta ed, regardess of whether such e ercse s permtted or prohbted
by the aws of the Unted States or by those of a State. The burden of the
ta may be mposed ake on the |ust and the un|ust. It woud be strange
f one carryng on a busness the sub|ect of an e cse shoud be abe to e cuse
hmsef from payment by the pea that n carryng on the busness he was
voatng the aw. The rue has aways been otherwse. The ta Imposed by
R. S. 3244u affords an opposte ustraton. That ct mposes an e cse,
varyng n amount, upon dfferent forms of the quor traffc. The respondent
pad the annua ta of 25 thereby requred, despte the. fact that he was vo-
atng oca aw n prosecutng hs busness. Undoubtedy ths was a true ta
for whch he was abe. The queston s whether the e acton of 1,000 n ad-
ct of ugust 30. 1035 (Pubc, No. 407, Seventy-fourth Congress).
Treasury Decson 3911 ( uy 30. 192 IC. . -2, 274 ). Sub|ect of Interna
revenue prohbton ta es are ( c) dvded Into two casses:
1. Interna revenue ta es proper that Is ta es generay recognzed as such.
2. Those whe In the nature of Interna revenue ta es are necessary hed to be
penates, and must be coected through the Unted States courts.
The foowng st s cassed as ta es:
Reta deaers In mat quors 20
Whoesae deaers n mat quors 0
The foowng st Is cassed as penates:
Under secton 701 of the Revenue ct of 1020. speca ta of 1,000 on any
person carryng on reta busness of deaer n mat quors contrary to aws of State or
Terrtory.
Those desgnated as penates. Such ta es w be carefuy schedued, summarzed,
and reported to the Unted States attorney for any acton he may brng.
Secton 2 of the eghteenth amendment drected that the Congress and severa States
shoud have concurrent power of enforcement by approprate egsaton. (Compare
Natona Prohbton cases, 253 t S., 850 Unted States v. Lama, 2 0 U. S., 377
erbert v. Lousana, 272 U. S., 312.)
Lcense Ta cases (5 Wa., 4 2).
10 Unted States v. Yugnorch (25 U. S., 450, 4 2) I ntcd States v. Stafoff (2 0
U. 8., 477, 480) Unted States v. One ord Coupe (272 U. S., 321, 327, 328).
u Lcense Ta cases, supra.
Supra, note 2.
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Msc.
40
dton, by reason soey of hs voaton of State aw, s a ta or a penaty
If, as the court beow thought, secton 701 was part of the enforcng machnery
under the amendment, t automatcay fe at the moment of repea.
ut even though the statute was not adopted to penaze voatons of the
amendment, t ceased to be enforceabe at the date of repea, f, n fact, ts
purpose s to punsh rather than to ta . The ony coor for the asserton of
congressona power to ordan a penaty for voaton of State qour aws s
the eghteenth amendment, whch gave to the edera Government power to
enforce naton-wde prohbton. That has been recaed and the case must
be decded n the ght of consttutona prncpes whch woud have been
appcabe had the amendment never been adopted. In the cts whch have
carred the provson, the tem s varousy denomnated an occupaton ta ,
an e cse ta , and a speca ta . If n reaty a penaty t can not be converted
nto a ta by so namng t, and we must ascrbe to t the character dscosed
by ts purpose and operaton, regardess of name. Dsregardng the desgna-
ton of the e acton, and vewng ts substance and appcaton, we hod that
t s a penaty for the voaton of State aw, and as such beyond the mts of
edera power.
Snce 1878, the Revsed Statutes have cassfed varous forms of the quor
traffc for the payment of e cses dfferng n amount accordng to the nature
of the busness. When the secton e actng 1,000 addtona from a persons
engaged In the traffc n voaton of State aw was made a part of the revenue
aws the amount of the ta due by the respondent under It. S. 3244 was 25.
The so-caed e cse of 1,000 s forty tmes as great. It s ten tmes as great
as the annua ta under R. S. 3244 for whoesae quor deaers and brewers,
and ffty tmes as great as that mposed upon deaers n mat quors. If the
Imposts under R. S. 3244 were f ed n amount n accordance wth the m-
portance of the busness or supposed abty to pay, the e acton n queston
s hghy e orbtant. Ths fact ponts n the drecton of a penaty rather
than a ta .
The condton of the mposton s the commsson of a crme. Ths, together
wth the amount of the ta , s agan sgnfcant of pena and prohbtory Intent
rather than the gatherng of revenue. Where, n addton to the norma and
ordnary ta f ed by aw, an addtona sum s to be coected by reason of
conduct of the ta payer voatve of the aw, and ths addtona sum s grossy
dsproportonate to the amount of the norma ta , the concuson must be that
the purpose s to mpose a penaty as a deterrent and punshment of unawfu
conduct.
We concude that the ndca whch the secton e hbts of an ntent to pro-
hbt and to punsh voatons of State aw as such are too strong to be ds-
regarded, remove a sembance of a Revenue ct and stamp the sum t e acts
as a penaty. In ths vew the statute s a cear nvason of the poce power,
nherent n the States, reserved from the grant of powers to the edera
Government by the Consttuton.
We thnk the suggeston has never been made certany never entertaned
by ths Court that the Unted States may mpose cumuatve penates above
and beyond those specfed by State aw for nfractons of the State s crmna
code by ts own ctzens. The affrmaton of such a proposton woud obterate
the dstncton between the deegated powers of the edera Government and
those reserved to the States and to ther ctzens. The mpcatons from a
decson sustanng such an mposton woud bo startng. The concesson
of such a power woud open the door to unmted reguaton of matters of State
concern by edera authorty. The reguaton of the conduct of ts own ctzens
beongs to the State, not to the Unted States. The rght to mpose sanctons
for voatons of the State s aws nheres n the body of ts ctzens shakng
through ther representatves. So far as the reservatons of the tenth amend-
ment were quafed by the adopton of the eghteenth the quafcaton had
been aboshed.
Unted States v. Chambers (291 U. S.. 217).
Sec note 8, supra.
u Unted States v. |a ranca (supra, 572).
Macaen Co. v. Massachusetts (279 U. S., C20, 25) Unted States v. One or
Coupe (supra, 328) : ducatona ms Corporaton v. Ward (282 D. S., 379, 387).
See note 2, supra.
18 Compare Lpke v. Lcderer (259 U. S., 557, 502).
Uehcg v. Unted States (188 U. S., 05, 13).
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407
Regs. 9, 70.
Reference was made In the argument to decsons of ths Court hodng that
where the power to ta s conceded the motve for the e acton may not be
questoned. These are wthout reevance to the present case. The pont here
Is that the e acton s n no proper sense a ta but a penaty Imposed n add-
ton to any the State may decree for the voaton of a State aw. The cases
cted deat wth ta es concededy wthn the ream of the edera power of
ta aton. They are not authorty where, as In the present Instance, under the
guse of a ta ng ct the purpose s to usurp the poce powers of the State.
In vew of what has been sad we do not consder the contenton that the aw
Is bad for want of the unformty of operaton requred by rtce I, secton 8,
of the Consttuton.
The |udgment Is affrmed.
I -52-7879
Ct. D. 1054
SP CI L CIS T S R NU CT OP 102 D CISION O SUPR M
COURT.
Msceaneous Occupatona Ta es Reta Lquor Deaer n
oaton of State Law Consttutonaty.
The speca e cse ta of 1,000, mposed by secton 701 of the
Revenue ct of 192 upon a persons engaged n the quor traffc
In voaton of State aw, s a penaty mposed n addton to any
the State may decree, and as such s beyond the mts of edera
power. The statute Is a cear Invason of the poce power, n-
herent n the States, reserved from the grant of powers to the
edera Government by the Consttuton.
Supreme Court op the Unted States.
No. 4 . The Unted States of merca, pettoner, v. Roger esterson and
ernord Roberts.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut.
December 9, 1935.
OPINION.
Mr. ustce Roberts devered the opnon of the Court.
Ths case, ke No. 40 Ct. D. 1053, page 403, ths uetn , nvoves the
vadty of secton 701 of the Revenue ct of 192 . The crcut court of appeas
reversed |udgments of convcton under an ndctment chargng engagng In the
busness of a reta quor deaer contrary to the aws of Okahoma on ugust
17, 1934. (8 . Supp., 80 7 . (2d), 913.)
or the reasons gven In the opnon In No. 40 the |udgment s
ffrmed.
S CTION 3 O T CT O UGUST 2, 188 , S M ND D Y S CTION
2 O T CT O M Y 9, 1902.
Reguatons 9, Secton 70: Whoesae deaer I -31-7 2
n oeomargarne denned. S. T. 81
( so Secton 72, Reguatons 9.)
Labty to speca ta as whoesae deaers n oeomargarne
of e porters who negotate purchases of oeomargarne for foregn
buyers.
dvce s requested whether e porters of oeomargarne under the
crcumstances stated heren are sub|ect to speca ta as whoesae
deaers n oeomargarne.
aey v. Drare urnture Co. (250 U. S.. 20 T. D. 334 , C. . 1-2, 337 ) .
Waace (250 U. S., 44) Under v. Unted States (208 U. S., 5, 17).
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Regs. 9, 70.
408
Secton 3 of the ct of ugust 2, 188 (24 Stat., 209), as amended
by secton 2 of the ct of May 9, 1902 (32 Stat., 193), provdes n
part as foows:
Whoesae deaers n oeomargarne sha pay 4S0. very person who ses
or offers for sae oeomargarne n the orgna manufacturer s packages sha
be deemed a whoesae deaer n oeomargarne.
The M Company handes ts e ports of oeomargarne through
e porters ocated n the Unted States. The M Company does not
dea drecty wth the foregn purchasers. typca case nvoves
the foowng procedure: foregn purchaser sends hs order for
oeomargarne to an e porter n the Unted States, specfyng the
knd and amount of the product desred and gvng the name and
address of the purchaser to whom t s to be consgned, together wth
nstructons as to the preparaton and shpment of the packages.
The e porter transmts the order to the M Company. The M Com-
pany prepares the product for e port, wthdraws the same wthout
the payment of ta , and addresses the packages to the foregn con-
sgnee for devery at the dock for the account of the e porter. The
M Company s gven a recept for the product so devered, whch
recept s turned over to the e porter upon recept of the purchase
prce. The e porter thereupon assumes charge of the shpment, e e-
cutes an e port b of adng n the name of the foregn purchaser,
sees that a shppng arrangements are attended to, takes out nsur-
ance, etc. The e porter pays the M Company for the shpment out
of hs own funds and charges the same to the account of the foregn
purchaser, or uses funds or credts of the foregn purchaser whch
are avaabe for the purpose.
It s contended that tte to the oeomargarne passes drecty from
the M Company to the foregn purchaser and s at no tme vested
n the e porter and that the e porter s not sub|ect to the speca
ta as a whoesae deaer n oeomargarne.
The queston s whether the e porter, n effectng the purchase and
sae of the oeomargarne for e port, acts merey as the agent of the
foregn purchaser, or whether hs ega status s that of a factor or
commsson merchant. If he s nothng more than an e port broker,
. e., one who negotates saes and purchases of goods for the account
of others and not for hmsef, no abty for speca ta as a whoe-
sae deaer s ncurred. If, however, he acts as a factor or comms-
son merchant, . e., for hs own account, he s sub|ect to the ta .
It s cear that the M Company ooked ony to the e porter for
the payment of the purchase prce and deat wth hm as prncpa
rather than as agent of the foregn purchaser. The M Company
dd not recognze the foregn purchaser n the transacton or n any
way rey upon hs credt or fnanca standng.
In Stack v. Tucker Go. (23 Wa., 321), the Unted States Su-
preme Court made the foowng statement:
The dfference between a factor or commsson merchant and a
broker s stated by a the books to be ths: a factor may buy and se n
hs own name, and he has the goods n hs possesson whe a broker, as
such, can not ordnary buy or se n hs own name, and has no possesson
of the goods sod.
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409
Regs. 9, 70.
The queston there nvoved was whether the company n nego-
tatng saes of goods produced by others was sub|ect to ta as
M whoesae deaers under secton 79 of the ct of une 30, 18 4,
as amended by the ct of uy 13, 18C . In that case Tucker
Co., ke the e porter n the nstant case, camed that the company
acted merey as agent and was not sub|ect to ta as whoesae dea-
ers. The Court ponted out that the company negotated the saes
n ts own name and on commsson, had possesson of the goods
as soon as the saes were made, and devered or shpped the goods
to the company s customers. The Court hed that the company s
course of busness ceary consttuted them commsson merchants
as contradstngushed from mere brokers or agents, and that the
company was sub|ect to ta as whoesae deaers. There s no
dfference n prncpe between the case of Sack v. Tucker Co.,
supra, and the nstant case wth respect to the course of busness
empoyed n negotatng the purchase, sae, and devery of the
goods. In both cases the goods passed through the hands of the
mddeman before the purchaser receved them. In determnng
abty of an e porter for ta as a deaer n oeomargarne,
t s mmatera whether the e porter takes tte to the goods. s
stated n Unted States v. en (38 ed., 73 ), whch nvoved the
queston whether en was sub|ect to ta as a reta quor deaer
n procurng and fng orders for quor, The word deaer
s not confned to one who ses hs own property ony. In unn
v. Dmond (72 ed., 993), the syabus of the decsonof the Crcut
Court of ppeas for the Nnth Crcut reads as foows:
Commsson merchants who, at the request of foregn correspondents, oc-
casonay purchase quors n quantty, and take charge of shppng the
same, and ether charge the costs and ther commssons upon ther books
to th account of such correspondents, or draw upon them for the fu amount
of the purchase prce wth costs and commssons, are whoesae quor
deaers, wthn the meanng of Revsed Stntutes, secton 3244, and abe,
as-snch, to the speca ta .
In the course of the opnon the court sad:
One who thus buys for the purpose of fng a speca order s to
a ntents as truy a deaer as one who carres a stock of goods for the same
purpose, and t s unmportant that hs proft s receved n the form of a
percentage upon the cost of the goods to hm, or that t s caed a com-
msson .
In vfew of the foregong, t s hed that the e porters n queston
are sub|ect to speca ta as whoesae deaers n oeomargarne under
secton 3 of the ct of ugust 2, 188 , as amended.
Ths rung w be effectve as of uy 1, 1935.
Gur T. evertng,
Commssoner of Interna Revenue.
pproved uy 12, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury/.
47318 3ft 14
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Regs. 4, rt. 43.
410
TITL . C PIT L STOC ND C SS PRO ITS
T S. (1934)
Rues governng ad|ustments under secton 701(f) of the Reve-
nue ct of 1934 of the orgna or ad|usted decared vaue of
capta stock where a corporaton acqures ts own capta stock
and hods, retres, reses, or otherwse dsposes of t.
n opnon s requested concernng the proper appcaton of
the provsons of secton 701(f) of the Revenue ct of 1934, where
a corporaton acqures ts own capta stock and hods, retres,
reses, or otherwse dsposes of t.
Those provsons read n part as foows:
(f) or the frst year endng une 30 n respect of whch a ta s mposed
by ths secton upon any corporaton, the ad|usted decared vaue sha be the
vaue, as decared by the corporaton n Its frst return under ths secton
(whch decaraton of vaue can not be amended), as of the cose of ts ast
ncome-ta ta abe year endng at or pror to the cose of the year for whch
the ta s mposed by ths secton (or as of the date of organzaton n the
case of a corporaton havng no ncome-ta ta abe year endng at or pror to
the cose of the year for whch the ta s mposed by ths secton). or any
subsequent year endng une 30, the ad|usted decared vaue n the case of a
domestc corporaton sha be the orgna decared vaue pus (1) the cash
and far market vaue of property pad In for stock or shares, (2) pad n sur-
pus and contrbutons to capta, (3) ts net ncome, (4) the e cess of ts
ncome whoy e empt from the ta es mposed by Tte I over the amount
dsaowed as a deducton by secton 24(a)5 of such tte, and (5) the amount
of the dvdend deducton aowabe for ncome ta purposes, and mnus ( )
the vaue of property dstrbuted n qudaton to sharehoders, ( ) dstrbu-
tons of earnngs or profts, and (C) the e cess of the deductons aowabe
for ncome ta purposes over ts gross ncome ad|ustment beng made for
each ncome-ta ta abe year ncuded n the perod from the date as of whch
the orgna decared vaue was decared to the cose of ts ast ncome-ta
ta abe year endng at or pror to the cose of the year for whch the ta s
mposed by ths secton. The amount of such ad|ustment for each such year
sha be computed (on the bass of a separate return) accordng to the ncome
ta aw appcabe to such year.
There are certan fundamenta prncpes concernng the nature
of treasury stock and the effect on the capta structure of a corpora-
ton resutng from the acquston, sae, and/or retrement of such
stock that must be apped n the consderaton of the queston
rased. The power of a corporaton to purchase, se, and/or retre
ts own stock s usuay reguated by the aws of the State of ts
ncorporaton or by ts charter. or the purposes of ths opnon t
s assumed that the aws of the State and the charter of the corpora-
ton permt the e ercse of such power.
The generay accepted vew s that the term treasury stock
reates to stock that has been ssued for vaue and ater has been
acqured and paced n the treasury of the corporaton whch ssued
t. (Secton 12, Cook on Corporatons 14 Corpus urs, 407.) Such
stock may usuay be sod or dsposed of for any egtmate corporate
purpose. (14 Corpus urs, 407.)
S CTION 701 C PIT L STOC T .
Reguatons 4, rtce 43: d|usted
decared vaue.
I -28-7593
G. C. M. 15055
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411
Regs. 4, rt. 43,
The mere purchase of outstandng stock by the corporaton whch
ssued t effects no change n ts capta structure. The subsequent
resae of such stock by the corporaton s kewse neffectua to brng
about any such change. Ownershp of the stock under such cond-
tons s substantay the same as ownershp of any other asset.
Nether the purchase nor the sae of such stock nor both of them
combned warrant any change n the orgna decared vaue of the
capta stock of a corporaton under subdvson (1) or ( ) of
secton 701(f).
Where a corporaton acqures stock not for resae but for retre-
ment, a dfferent rue s appcabe. Secton 701(f) provdes that the
amount of the ad|ustment authorzed by ts terms for each ncome-
ta ta abe year sha be computed accordng to the ncome ta aw
appcabe to such year. Secton 115(c) of the Revenue ct of 1934
provdes that amounts dstrbuted n parta qudaton of a cor-
poraton sha be treated as n part or fu payment n e change for
the stock. Subdvson () of that secton defnes the term amounts
dstrbuted n parta qudaton as meanng a dstrbuton by a
corporaton n compete canceaton or redempton of a part of ts
stock, or one of a seres of dstrbutons n compete canceaton or
redempton of a or a porton of ts stock. The compete retrement
of any part of the stock of a corporaton s a dstrbuton n qu-
daton. ( rtce 115-5, Reguatons 8 .) The purchase of stock for
retrement marks the commencement of the dstrbuton for quda-
ton but the transacton s not compete uness and unt the stock s
actuay retred. The foregong vews are n harmony wth con-
cusons reached n S. T. 728 (C. . III-1, 447) n respect of a
smar queston under a prevous aw. In order to satsfy the terms
of subdvson ( ) of secton 701(f), there must be a retrement of
the stock as we as a dstrbuton of property n e change for the
stock. oth condtons must be satsfed. If there s a purchase of
stock for the e press purpose of retrement and t s actuay retred,
there s ceary a dstrbuton n qudaton wthn the meanng of
the aw. The retrement competes the qudaton, but f t was
an afterthought t can not be reated back to the purchase so as to
warrant the concuson that there was any dstrbuton n quda-
ton wthn the meanng of subdvson ( ).
It s the opnon of ths offce that the foowng genera rues
shoud govern the determnaton of whether any ad|ustment can be
made n the orgna or ad|usted decared vaue of the capta stock
of a corporaton, where a corporaton acqures ts own capta stock
and hods, retres, reses, or otherwse dsposes of t:
(a) The addton to the orgna decared vaue of the capta
stock of a corporaton authorzed by subdvson (1) of secton 701(f)
of the Revenue ct of 1934, namey, the cash and far market
vaue of property pad n for stock or shares, has reference to the
sae of stock whch has never before been ssued and not to treasury
stock.
(b) The term dstrbuted n qudaton to sharehoders, ap-
pearng n subdvson 5( of secton 701(f), shoud be construed
as ncudng both the purchase and the retrement of outstandng
shares of stock by the corporaton whch ssued them.
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Regs. 4(1934), rt. 9 .
412
(c) Where the purchase and retrement of the shares of stock occur
n one ncome-ta ta abe year the ad|ustment authorzed by subd-
vson ( ) must be made n the capta stock ta return for the
subsequent year endng une 30.
d) Where a corporaton purchases ts own stock and reses t, no
ad|ustment under subdvson (1) or subdvson ( ) of secton
701(f) may be made, but an ndrect ad|ustment may resut from
the transacton under other provsons of secton 701(f), dependng
upon the facts.
(e) Where outstandng stock s purchased for retrement n one
ncome-ta ta abe year Dut s not retred unt a subsequent year,
the stock shoud be consdered outstandng unt retred and canceed
by the method provded by the partcuar State statute for the
retrement and canceaton of capta stock, and no ad|ustment may
be made unt retrement s effected. Commssoner v. S. . Woods
Machne Co., 57 ed. (2d), 35 Doernbecher Manufacturng Co. v.
Commssoner, 30 . T. ., 973.)
Robert . ackson,
ssstant Genera Counse for the
ureau of Interna Revenue.
Reguatons 4 (1934), rtce 9 : Tme for I -29-7 05
makng returns. Mn. 4357
tensons of tme for fng capta stock ta returns.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, uy 12,,1935.
Coectors of Interna Revenue and Others Concerned:
No genera e tenson of tme for fng capta stock ta returns for
the ta abe year ended une 30, 1935, w be made. ccordngy,
such returns must, uness a specfc e tenson s granted n a partcu-
ar case, be fed on or before uy 31, 1935.
s a genera rue, no specfc e tenson of tme for fng capta
stock ta returns w be granted n any case where the ncome ta
return for 1934 (whether upon a caendar or a fsca year bass) was
due to be fed on a date pror to uy 31,1935. ccordngy, n such
a case, requests for e tenson based upon reasons such as (1) the
corporate offcers are away on busness or vacaton, (2) pressure of
busness, (3) unavaabty of the corporaton s accountant or at-
torney, etc., w not be consdered as warrantng aowance.
specfc e tenson of tme for fng capta stock ta returns w
be aowed by the Commssoner, upon request, under the foowng
crcumstances:
(1) Where the ncome ta return s made on the bass of a fsca
year ended ether May 31, 1935, or une 30, 1935, so that the ncome
ta return s not due to be fed unt after uy 31, 1985.
(2) Where the corporaton receved an e tenson of tme for fng
ts ncome ta return for 1934 (whether upon a caendar or a fsca
year bass), whch e tenson w e pre subsequent to uy 31, 1935.
Sub|ect to these condtons and as provded for n artce 90 of
Reguatons 4 (1934 edton), appcatons for e tenson of tme
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413 Regs. 4(1934), Chs. I, III, I .
shoud be fed wth the coector of nterna revenue. The coector
w make proper record of the appcaton and forward t mme-
datey to the Commssoner, wth hs recommendaton as to whether
the e tenson shoud be granted. The appcaton shoud set forth
under oath n fu deta the specfc reasons for desrng an e ten-
son, the date on whch the ncome ta return for 1934 was fed or
s due to be fed, and the tme for whch the e tenson s asked.
No such appcaton w be consdered uness t s fed at or before
the tme for fng the return.
y reason of statutory mtaton, an e tenson may not be granted
n any event beyond September 29, 1935.
Correspondence reatve to the procedure outned heren shoud
refer to the number of ths mmeograph and to the symbos MT: CST.
Wrght Matthews,
ctng Commssoner.
Reguatons 4(1934), Chapters III, III, I . I -32-7 42
T. D.4575
C I IT L STOC T .
Reguatons 4 (approved ugust 27, 1934), reatng to the cap-
ta stock ta under secton 701 of the Revenue ct of 1934, amended
wth respect to Chapter III (Corporatons Dstngushed rom
Other Organzatons), Chapter III ( emptons), and Chapter
I (Returns).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Chapter III of Reguatons 4 s hereby amended to read as
foows:
Chapter III.
CORPOR TIONS DISTINGUIS D ROM OT R ORG NIZ TIONS.
rt. 21. Cassfcaton of organzatons. or the purpose of ta aton the ct
makes ts own cassfcatons and prescrbes ts own standards of cassfcaton.
Loca aw s of no Importance n ths connecton. Thus a trust may be cassed
as a trust or as an assocaton (and, therefore, as a corporaton), dependng
upon ts nature or ts actvtes. (See artce 23.) The term corporaton s
not mted to the artfca entty usuay known as a corporaton, but ncudes
aso an assocaton, a trust cassed as on assocaton because of ts nature or
ts actvtes, a ont-stcck company, an nsurance company, and certan knds
of partnershps. (See artces 22 and 24.)
rt. 22. ssocaton. The term assocaton s not used n the ct n any
narrow or technca sense. It ncudes any organzaton, created for the trans-
acton of desgnated affars, or the attanment of some ob|ect, whch, ke a
corporaton, contnues notwthstandng that ts members or partcpants change,
and the affars of whch, ke corporate affars, are conducted by a snge nd-
vdua, a commttee, a board, or some other group, actng n a representatve
capacty. It s mmatera whether such organzaton s created by an agree-
ment, a decaraton of trust, a statute, or otherwse. It ncudes a vountary
assocaton, a |ont-stock assocaton or company, a busness trust, a Mas-
sachusetts trust, a common aw trust, an nvestment trust (whether of
the f ed or the management type), an nternsurance e change operatng
through an attorney n fact, a partnershp assocaton, and any other type of
organzaton (by whatever name known) whch s not, wthn the meanng
of the ct, a trust or an estate, or a partnershp. If the conduct of the affars
of a corporaton contnues after the e praton of ts charter, or the termnaton
of ts e stence, t becomes an assocaton.
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Regs. 4(1934), Chs. I, III, I . 414
rt. 23. ssocaton dstngushed from trust. The term trust, as used
n the ct, refers to an ordnary trust, namey, one created by w or by
decaraton of the trustees or the grantor, the trustees of whch take tte
to the property for the purpose of protectng or conservng t as customary
requred under the ordnary rues- apped n chancery and probate courts.
The benefcares of such a trust generay do no more than accept the benefts
thereof and are not the vountary panners or creators of the trust arrange-
ment. ven though e benefcares do create such a trust,- It s ordnary
done to conserve the trust property wthout undertakng any actvty not
strcty necessary to the attanment of that ob|ect.
s dstngushed from the ordnary trust descrbed n the precedng para-
graph s an arrangement whereby the ega tte to the property s conveyed
to trustees (or a trustee) who, under a decaraton or agreement of tru t,
hod and manage the property wth a vew to ncome or proft for the beneft
of benefcares. Such an arrangement s desgned (whether e pressy or
otherwse) to afford a medum whereby an ncome or proft-seekng actvty
may be carred on through a substtute for an organzaton such as a voun-
tary assocaton or a |ont-stock company or a corporaton, thus obtanng the
advantages of those forms of organzaton wthout ther dsadvantages.
If a trust s an undertakng or arrangement conducted for ncome or proft,
the capta or property of the trust beng supped by the benefcares, and f
the trustees or other desgnated persons are, n effect, the managers of the
undertakng or arrangement, whether the benefcares do or do not appont or
contro them, the benefcares are to be treated as vountary |onng or coop-
eratng wth each other n the trust, |ust as do members of an assocaton, and
the undertakng or arrangement s deemed to be an assocaton cassfed by the
ct as a corporaton.
y means of such a trust the dsadvantages of an ordnary partnershp are
avoded, and the trust form affords the advantages of unty of management
and contnuty of e stence whch are characterstc of both assocatons and
corporatons. Ths trust form aso affords the advantages of capacty, as a
unt, to acqure, hod, and dspose of property and the abty to sue and be
sued by strangers or members, whch are characterstc of a corporaton and
aso frequenty affords the mtaton of abty and other advantages char-
acterstc of a corporaton. These advantages whch the trust form provdes
are frequenty referred to as resembance to the genera form, mode of pro-
cedure, or effecveness In acton, of an assocaton or a corporaton, or as
quas-corporate form. The effectveness n acton n the case of a trust or
of a corporaton does not depend upon technca arrangements or devces such
as the appontment or eecton of a presdent, secretary, treasurer, or other
offcer, the use of a sea, the ssuance of certfcates to the benefcares,
the hodng of meetngs by managers or benefcares, the use of a charter
or by-aws, the e stence of contro by the benefcares over the affars
of the organzaton, or upon other mnor eements. They serve to emphasze
the fact that an organzaton possessng them shoud be treated as a corpora-
ton, but they are not essenta to such cassfcaton, for the fundamenta
benefts en|oyed by a corporaton, as outned above, are attaned, n the case
of a trust, by the use of the trust form tsef. The ct dsregards the technca
dstncton between a trust agreement (or decaraton) and ordnary artces
of assocaton or a corporate charter, and a other dfferences of deta. It
treats such a trust accordng to ts essenta nature, namey, as an assocaton.
Ths s true whether the benefcares form the trust or, by purchase or other-
wse, acqure an nterest n an e stng trust.
The mere sze or amount of capta nvested n the trust s of no mportance.
Sometmes the actvty of the trust Is a sma venture or enterprse, such as
the dvson and sae of a parce of and, the erecton of a budng, or the
care and renta of an offce budng or apartment house sometmes the
actvty s a trade or busness on a much arger scae. The dstncton s that
between the actvty or purpose for whch an ordnary strct trust of the
tradtona type woud be created, and the actvty or purpose for whch a
corporaton for proft mght have been formed.
bt. 24. Lmted partnershp as partnershp. Lmted partnershps of the
type authorzed by the statutes of New York and many other States are
ordnary partnershps and not corporatons wthn the meanng of the ct.
Such mted partnershps, whch can not mt the abty of the genera
pnrtners, athough the speca partners en|oy mted abty so ong as they
observe the statutory condtons, whch are dssoved by the death or attempted
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415 Regs. 4(1934), Chs. I, III, I .
transfer of the Interest of a genera partner, and whch can not take rea
estate or sue In the partnershp name, are so ke common aw partnershps
as to render mpractcabe any dfferentaton n ther treatment for ta
purposes.
rt. 25. Lmted partnershp as corporaton. Lmted partnershps of the
type of partnershps wth mted abty or partnershp assocatons au-
thorzed by the statutes of Pennsyvana and a few other States are ony
nomnay partnershps. Such so-caed mted partnershps, offerng oppor-
tunty for mtng the abty of a the members, provdng for the trans-
ferabty of partnershp shares, or havng other matera characterstcs of
corporate form, must make returns and pay the ta as corporatons. In a
doubtfu cases mted partnershps w be treated as corporatons uness they
submt satsfactory proof that they are not n effect so organzed. Mchgan
partnershp assocaton s ta abe as a corporaton.
Chapter III s hereby amended by revson of the artces us set
forth hereunder:
The thrd paragraph of artce 71 s amended to read as foows:
To estabsh ths e empton one of the foowng requrements must be met:
(1) If a corporaton camed e empton from capta stock ta under secton
215 of the Natona Industra Recovery ct, by reason of the provsons of
secton 103 (other than paragraph ( )) of the Revenue ct of 1932, or under
secton 101 of the Revenue ct of 1934, and the corporaton has receved
from the Commssoner a etter sustanng such cam, no further proof Is
requred and such corporaton w not be requred to fe a capta stock
ta return for the ta abe year ended une 30, 1935, or for any subsequent
ta abe year e cept as ndcated n the ast precedng paragraph. (2) If
a corporaton has not estabshed ts e empton for capta stock ta purposes
n the manner stated n (1) above, t must fe orm 707, revsed, ndcatng
the bass of the e empton as provded for on the return, together wth docu-
mentary evdence as foows: (a) If a corporaton has prevousy camed
e empton from edera ncome ta under a provson of secton 101 of the
ct, or under an dentca provson of a pror Revenue ct, and the Com-
mssoner has sustaned ts cam, a copy of the Commssoner s etter sus-
tanng such cam shoud be attached ( ) f a corporaton has not prevousy
estabshed ts e empton from edera ncome ta , or f t s unabe to, or
does not, submt the proof requred under (a) above, then t sha attach an
affdavt to ts capta stock ta return showng the character of the organza-
ton, the purpose for whch t was organzed, ts actua actvtes, the sources
of ts ncome and ts dsposton, whether or not any of ts ncome s credted
to surpus or may nure to the beneft of any prvate sharehoder or ndvdua,
and n genera a facts reatng to ts operatons whch affect ts rght to
e empton. To such affdavt sha be attached a copy of the charter or artces
of ncorporaton, the by-aws of the organzaton, and the atest fnanca
statement, showng the assets, abtes, recepts, and dsbursements of the
organzaton. The words prvate sharehoder or ndvdua In secton 101
refer to ndvduas havng a persona and prvate nterest n the actvtes
of the corporaton.
Subdvson 9 paragraph 4 of artce 71 s amended to read as
foows:
(9) Mutua nsurance companes: (a) Copes of the poces or certfcates
of membershp ( ) f any substanta amount of ncome s camed to be
hed for the payment of osses or e penses, a statement based upon a reabe
tabe of oss e perence demonstratng that the amount so hed for the payment
of osses s reasonaby necessary or n the case of e penses, a statement based
upon reabe statstcs showng that the e penses were ncurred or that
n a probabty they w be ncurred.
The ffth and s th paragraphs of artce 71 are amended to read as
foows:
The coector, upon recept of the return, wth affdavt and other papers
attached, w forward them to the Commssoner for decson as to whether
the organzaton s e empt
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Regs. 4(1934), Cbs. I, III, I . 41
ter consderaton by the Commssoner, the corporaton w be advsed
whether ts cam or e empton s sustnned or dened. If the cam s sus-
taned, no further capta stock ta returns w be requred so ong as ts
e empt status s not changed. If the cam s dened, nterest accrues on
any ta due at the rate of 1 per cent a month from the due date of the ta
and not from the date when e empton was dened. See artces 101 and 10 2.
rtce 7 s amended to read as foows:
rt. 7 . Cemetery companes. cemetery comptny may be entted to
e empton
(1) If t s owned by and operated e cusvey for the beneft of ts ot
owners who hod such ots for bona fde bura purposes and not for purpose
of resae, or
(2) If t s not operated for proft.
ny cemetery corporaton chartered soey for bura purposes and not per-
mtted by ts charter to engage n any busness not necessary ncdent to that
purpose, s e empt from capta stock ta , provded that no part of ts net
earnngs nures to the beneft of any prvate sharehoder or ndvdua.
cemetery company whch fufs the other requrements of the ct may be
e empt, even though t ssues preferred stock enttng the hoders to dvdends
at a f ed rate, not e ceedng the ega rate of nterest n the State of ncorpo-
raton, or 8 per cent per annum, whchever Is greater, on the vaue of the con-
sderaton for whch the stock was ssued, provded that ts artces of
ncorporaton requre
(1) That the preferred stock sha be retred at par as soon as suffcent
funds avaabe therefor are reazed from saes, and
(2) That t 11 funds not requred for the payment of dvdends upon, or for
the retrement of, preferred stock sha be used by the company for the care
and mprovement of the cemetery property.
The thrd paragraph of artce 77 s amended to read as foows
and the ffth paragraph of such artce s deeted n ts entrety:
n educatona organzaton wthn the meanng of the ct s one desgned
prmary for the mprovement or deveopment of the capabtes of the nd-
vdua, but. under e ceptona crcumstances, may ncude an assocaton whose
soe purpose s the nstructon of the pubc, or an assocaton whose prmary
purpose s to gve ectures on sub|ects usefu to the ndvdua and benefca
to the communty, even though an assocaton of ether cass has ncdenta
amusement features. n organzaton formed, or avaed of, to dssemnate
controversa or partsan propaganda s not an educatona organzaton wthn
the meanng of the ct.
rtce 82 s amended by nsertng the foowng new paragraph at
the begnnng thereof:
rt. 82. armers or oter mutua ha, cycone, casuaty, or fre nsurance
companes or assocatons. farmers mutua nsurance company wthn
the meanng of secton 101(11) s a oca assessment mutua company operatng
n a restrcted terrtory. In order to be e empt under secton 101(11) the other
mutua nsurance companes or assocatons enumerated theren must be of the
same genera character as a farmers mutua nsurance company and ther
operatons must be kewse restrcted.
rtce 84 s amended to read as foows:
rt. 84. Insurance companes. Insurance companes sub|ect to the ta m-
posed by secton 201, 204, or 207 of the Revenue ct of 1934 are e empt from
capta stock ta under secton 701 (c)2. Such e empt status must be estab-
shed by an ofca rung. or that purpose a capta stock ta return must
be fed to show under whch of the specfed sectons the corporaton s sub|ect
to ncome ta . fter consderaton by the Commssoner, the corporaton w
be advsed whether ts cam for e empton s sustaned or dened. If the cam
Is sustaned, uo further capta stock ta returns w be requred so ong as the
e empt status s not changed. If the cam Is dened, nterest accrues on any
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417 Regs. 4(1934), Chs. I, III, I .
ta doe at the rate of 1 per cent a month from the due date of the ta and not
from the date when e empton was dened. See artces 101 and 102.
The e empton provded by ths secton does not appy to ncorporated nsur-
ance agences, attorneys n fact for recproca or Internsurance companes,
hodng companes for Insurance companes, or any corporaton (other than an
Insurance company) whch s cosey affated wth, or s a facty of, or
whose capta stock s hed by, an nsurance company.
rtce 89 s amended to read as foows:
rt. SO. Cams for e empton. s corporatons are generay organzed to
do busness, every domestc corporaton s presumed to be sub|ect to the ta
uness satsfactory evdence Is submtted showng that t s e empt. ccord-
ngy, the e empton from the ta because of not dong busness must be
estabshed by an offca rung. Such rung must be made for each ta abe
year regardess of whether an e empton had been aowed for a prevous
ta abe year. or ths purpose a capta stock ta return must be fed for
each year accompaned by an affdavt of one of the prncpa offcers of the
corporaton settng forth the evdence n support of the cam for e empton as
outned n the nstructons on the return form. In addton, the return must
dscose an orgna or an ad|usted decared vaue for the capta stock accord-
ngy as the case fas wthn the foowng rues:
(1) Where the corporaton has not aready estabshed an orgna decaraton
of vaue upon a frst return (see artce 41(d)) under the ct, an orgna
decaraton of vaue sha be made upon the return for the current year.
(2) Where the corporaton estabshed an orgna decared vaue by a frst
return such vaue must be ad|usted upon the current return as requred by
artce 43( ).
The return and affdavt w be forwarded upon recept by the coector to
the Commssoner for acton. fter such acton, the corporaton w be advsed
whether ts cam for e empton s sustaned or dened. If the cam s
sustaned and f the return dscosed an orgna decaraton of vaue, such
decaraton w not consttute the orgna decared vaue and so w not
affect subsequent years. If n such case the return dscosed, nstead, an
ad|usted decared vaue, whe no ta woud be due for the current year, such
ad|usted decared vaue w consttute the base for makng statutory ad|ust-
ments wth respect to subsequent years. If the cam s dened, nterest accrues
on any ta due at the rate of 1 per cent a month from the due date of the
ta and not from the date when e empton was dened. See artces 101 and
102.
Chapter I s amended by revsng the second paragraph of artce
95 to read as foows:
If, durng the entre ta abe perod and at the tme the return s requred to
be fed, the property of a corporaton Is n the custody of the aw, beng
admnstered by a recever, edera conservator, or a State offcer wth powers
smar or anaogous to those of such edera conservator, such offcer shoud
e ecute and fe orm 707, revsed, accompaned by a statement of fu partcu-
ars as to when the corporate affars were taken over by such offcer, the
authorty under whch he was apponted, whether the corporate affars are
st under hs admnstraton, and, f not, when the recevershp, etc., term-
nated. No such offcer may, however, make the orgna decaraton of vaue,
but such decaraton of vaue, f not aready estabshed, sha be made by the
corporaton n ts frst return when and f the busness s returned to the
corporaton. If the edera or State offcer does not fe the form referred to
above, t sha be fed by the corporaton and sha state the nformaton whch
otherwse woud have been submtted by hm.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 31, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury.
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Regs. 81, rt. 7.
418
GRICULTUR L D USTM NT CT.
S CTION 9. PROC SSING T .
Reguatons 81, rtce : Rate of ta .
I -37-7 91
P. T. 31
Tobacco used n te manufacture of ong-cut tobacco prepared for
both chewng and smokng purposes s sub|ect to processng ta
at the rate appcabe to tobacco used n de manufacture of artces
otbe than chewng tobacco, where t can not be estabshed that
such ong-cut tobacco s prepared for use prncpay for chewng
purposes.
Inqury s made whether ong-cut tobacco prepared for chewng as
we as smokng s cassfabe, for processng ta purposes, as chew-
ng tobacco where t s mpossbe to determne that such tobacco s
used prncpay for chewng purposes.
The term chewng tobacco s defned n the reguatons wth
respect to the processng ta on certan tobacco (T. 1). 4530, C. .
I -1, 475) as foows:
Chewng tobacco. ( hewng tobacco s tobacco of dfferent knds prepared for
use prncpay for chewng purposes.
(n) Pug chewng tobucco. I ug chewng tobacco s chewng tobacco manu-
factured and pressed nto fat cakes.
( ) Twst. Twst s the type of chewng tobacco manufactured n the form
of a twst.
(c) Other chewng tobacco. Other chewng tobacco s tobacco prepared for
use prncpay for chewng.
Long-cut tobacco ceary s nether pug nor twst chewng tobacco
as defned n the reguatons. Where t can not be estabshed that
ong-cut tobacco s prepared for use prncpay for chewng pur-
poses, such tobacco does not come wthn the cassfcaton of other
chewng tobacco. ccordngy, tobacco used n the manufacture of
such ong-cut tobacco s sub|ect to processng ta at the rate app-
cabe to tobacco used n the manufacture of artces other than chew-
ng tobacco.
Cotton destroyed after beng put n process s sub|ect to the
processng ta .
The queston s presented whether the processng ta attaches to
cotton whch s destroyed after beng put n process.
The processng ta s mposed upon the frst domestc processng
and s measured by the amount of the commodty put n process.
( rtce 5, Reguatons 81 artce 7. Reguatons 81. as amended by
Treasury Decsons 4392 and 4403 (C. . II-2, 430).) Cotton
enters the processng stage at the tme the bae s opened for the pur-
pose of processng and the processng ta attaches at that tme.
There s no provson n the aw or reguatons authorzng the
e cuson or deducton of the amount of cotton destroyed after beng
put n process from the amount of cotton put n process durng the
Reguatons 81, btce 7: When ta attaches.
I -37-7 92
P. T. 32
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419
Regs. 81, t. 9.
ta abe perod. ccordngy, the processng ta attaches to the frst
domestc processng of a cotton put n process regardess of whether
a part or a of the cotton s ater destroyed.
S CTION 9(d), S M ND D. PROC SSING T .
Reguatons 81, rtce 9: emptons from I -41-7738
processng ta . G. C. M. 15 42
( so rtce 2(h).)
The custom mng for to of wheat produced by a State nst-
tuton even though not for market consttutes processng
wthn the meanng of secton 9(d) of the grcutura d|ust-
ment ct, as amended.
n opnon s requested whether the custom mng for to of
wheat produced by a State nsttuton, the resutng products beng
consumed n connecton wth the operaton of the nsttuton, con-
sttutes processng of the wheat wthn the meanng of secton
9(d) 1 of the grcutura d|ustment ct, as amended.
Secton 9 of the grcutura d|ustment ct, as amended, pro-
vdes n part as foows:
(d) s used n part 2 of ths tte
(1) In case of wheat, rye, barey, and corn, the term processng means
the mng or other processng (e cept ceanng and dryng) of wheat, rye,
barey, or corn for market, ncudng custom mng for to .
rtce 9(b) of Reguatons 81 reads n part as foows:
Processng for, or for sae to, the Unted States, a State, a Terr-
tory, or a possesson, s sub|ect to the ta , whether or not the commodty or
the product derved from the commodty s owned by the Unted States, such
State, such Terrtory, or such possesson.
Secton 9(d), as amended, defnes processng n the case of
wheat and the other commodtes named as the mng or other
processng for market, ncudng custom mng for to.
Itacs supped. The queston has arsen whether custom mng
for to of wheat n tsef consttutes processng as defned by the
ct, that s, whether custom mng for to must be for market
n order to consttute processng. In other words, the queston
presented s whether the term processng means mng for mar-
ket, ncudng custom mng for to for market, or whether the
word ncudng s used n the sense of aso or and n add-
ton, so that processng means ether mng for market or
custom mng for to, rrespectve of whether the custom mng
for to s for market.
The word ncudng has been hed to mean comprsng, whch
mports addton (Peope v. Southern Pacfc Co., 290 Pac, 25
(Ca.)) as cassng that whch foows wth that whch goes before
(Mabcn v. Rosser, 103 Pac, 74 (Oka.)) as specfyng a partcuar
case, out of abundant cauton, to render certan what woud other-
wse be doubtfu (Lynch v. Geaner Combne arvester Corporaton,
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Regs. 81, rt. 9.
420
17 S. W. (2d), 554 (Mo.)). In tter . Unted States (10 ed
73), a duty was mposed on a trmmngs, ncudng brads.
The mporter contended that the meanng of the anguage used was
to make dutabe ony those brads whch were to be used for trm-
mng. The court hed, however, that the word ncudng was not
used by way of specfcaton but by way of addton meanng a
trmmngs, among whch are ncuded brads. In Unted States
v. Perce (147 ed., 199), nvovng a duty mposed on unmanufac-
tured tmber, ncudng pup woods, t was hed that the word n-
cudng was used n the sense of aso, and added pup woods to
the st of dutabe artces even though they were manufactured.
In the above-named cases, arsng under the Tarff ct, prevous
cts were referred to n order to determne the egsatve ntent,
an ad not avaabe n the nstant case. owever, the cases above
cted afford ampe authorty to construe the word ncudng n
the defnton of processng n the accumuatve or addtona
sense so that custom mng for to s of tsef processng
under the ct.
It s the opnon of ths offce that the word ncudng as used
n secton 9(d) 1 of the ct, as amended, means and, aso, n
addton to, or as embracng the partcuar wthn the precedng
genus or cass, so that custom mng of wheat for to, n and of
tsef, consttutes a ta abe processng, rrespectve of whether the
custom mng for to s for market. ccordngy, the custom m-
ng for to of wheat produced by a State nsttuton consttutes
processng of such wheat wthn the meanng of secton 9(d)
of the grcutura d|ustment ct, as amended, and s sub|ect to
ta under the provsons of artce 9( ) of Reguatons 81.
The foregong constructon of the phrase custom mng for
to s equay appcabe to the other commodtes enumerated n
secton 9(d) of the ct, as amended.
bthur . ent,
ctng ssstant Genera Counse for the
ureau of Interna Revenue.
S CTION 15. MPTIONS ND COMP NS TING T S.
Reguatons 81, rtce 9: emptons from I -37-7 93
processng ta . P. T. 33
Where pork products derved from hogs processed by the pro-
ducer thereof are served to patrons of the producer s restaurant,
the producer Is entted to the 30O-pound e empton on such prod-
ucts prescrbed by Treasury Decson 4518 (O. . I -1, 450), pro-
vded e has not durng e marketng year sod drecty to or e -
changed drecty wth, consumers more than 1,000 pounds of such
pork products.
dvce s requested whether the 300-pound e empton on certan
pork products provded n Treasury Decson 4518 (C. . I -1,
450) s appcabe where an ndvdua saughtered hogs produced by
hm and served the pork products derved therefrom to the patrons
of hs restaurant n an amount ess than 1,000 pounds durng the
marketng year.
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421
Regs. 81, rt. 1 .
Treasury Decson 4518, supra, provdes n part as foows:
( ) empton. (a) producer who processes hogs produced by hm and
who, durng any marketng year, ses drecty to, or e changes drecty wth,
consumers not more than 300 pounds of the products derved therefrom, s
e empt from processng ta on the ve-weght equvaent thereof, computed n
accordance wth the converson factors prescrbed, as set forth beow. Ths
e empton s appcabe ony wth respect to hogs owned by the producer from
the tme they were farrowed. feeder-processor s not entted to, and may
not cam, any e empton wth respect to saes, transfers, or e changes of hog
products made by hm.
( ) producer who processes hogs produced by hm and who, durng any
marketng year, ses drecty to, or e changes drecty wth, consumers, prod-
ucts derved therefrom n e cess of 300 pounds but not n e cess of 1,000 pounds
sha be entted to the e empton on 300 pounds of such products but sha pay
the processng ta on the e cess above 300 pounds. The processng ta on
such e cess sha be computed on a ve-weght bass n accordance wth the
converson factors herenafter set forth.
It s hed that the servng of the pork n queston to the patrons
of the producer s restaurant consttutes a sae of the pork by the
producer drecty to consumers wthn the meanng of Treasury Dec-
son 4518. ccordngy, the producer s entted to the 300-pound
e empton on such products prescrbed by Treasury Decson 4518,
provded he has not durng the marketng year sod drecty to, or
e changed drecty wth, consumers mo e than 1.000 pounds of pork
products derved from nogs produced and processed by hm. The
producer must report such processng on P. T. orm 4 , revsed.
Reguatons 81, rtce 1 : Ta abe artces. I - 11 7777
T. D. 4594
Compensatng ta under the grcutura d|ustment ct
mendment to artce 10 of Reguatons 81.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Coectors of Customs, and Others
Concerned:
Paragraph . Secton 15(e) of the grcutura d|ustment ct,
as amended, provdes:
Durng any perod for whch a processng ta s n effect wth respect to
any commodty there sha be eved, assessed, coected, and pad upon any
artce processed or manufactured whoy or party from such commodty and
mported nto the Unted States or any possesson thereof to whch ths tte
appes, from any foregn country or from any possesson of the Unted States
to whch ths tte does not appy, whether Imported as merchandse, or as a
contaner of merchandse,, or otherwse, a compensatng ta equa to the
amount of the processng ta n effect wth respect to domestc processng of
such commodty nto such an artce at the tme of mportaton: Provded,
(1) That n the event any of the provsons of ths tte have been or are
hereafter made appcabe to any possesson of the Unted States In the case
of any partcuar commodty or commodtes, but not generay, ths tte, for
the purposes of ths subsecton, sha be deemed appcabe to such possesson
wth respect to such commodty or commodtes but sha not be deemed app-
cabe to such possesson wth respect to other commodtes . Such
ta sha be pad pror to the reease of the artce from customs custody or
contro.
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Regs. 81, rt. 1 .
422
Par. . Secton 15(a) of the grcutura d|ustment ct, as
amended, provdes n part:
If at uny tme the Secretary of grcuture fnds, that any cass
of products of any commodty s of such ow vaue that the Im-
poston of the processng ta woud prevent n whoe or n arge part the use
of the commodty n the manufacture of such products then the Sec-
retary of grcuture sha so certfy to the Secretary of the Treasn|gr, spec-
fyng whether such resut w n hs udgment most effectvey be prevented
by a suspenson of the mposton of the processng ta or a refund of the
ta pad, wth respect to such amount of the commodty or any product
thereof as s used u the manufacture of such products . Durng the
perod n whch any certfcate under ths secton s effectve, the provsons of
subsecton (e) of ths secton sha be suspended wth respect to a mported
artces of the knd descrbed n such certfcate .
Pursuant to the above provsons artce 1 of Reguatons 81
approved uy 12, 1933), as amended by Treasury Decson 4501
approved December 4, 1934) C. . III-2, 524 , s further
amended to read as foows:
kt. 1 . Ta abe artces. (a) very artce processed or manufactured
whoy or party from a commodty, and mported (whether as merchandse, or
as a contaner of merchandse, or otherwse) Into the Unted States or any
possesson thereof to whch the ct appes wth respect to such commodty,
from any foregn country or from any possesson of the Unted States to
whch the ct does not appy wth respect to such commodty, s ta abe, f
at the tme of such mportaton a processng ta s n effect wth respect
to the eonuuodty from whch the artce has been so processed or manufactured.
( ) Durng the perod n whch any certfcate of the Secretary of gr-
cuture ssued under secton 15(a) of the ct s effectve, the provsons of
secton 15(e) of the ct are suspended and the compensatng ta s not mposed
wth respect to mported artces of the knd descrbed n such certfcate.
When any such certfcate s Issued the Commssoner of Interna Revenue
w announce the commodty and artces wth respect to whch the certfcate
s effectve.
Ths amendment s effectve as of the earest moment of ugust
24, 1935.
Gut T. everng,
Commssoner of Interna Revenue.
pproved October 24, 1935.
T. . Cootdge,
ctng Secretary of the Treasury.
S CTION 15(e), S M ND D Y T CT O M Y 9, 1934 (PU LIC,
NO. 213, S NTY-T IRD CONGR SS). MPTIONS ND COMP N-
S TING T S,
Reguatons 81, rtce 1 : Ta abe artces. I -32-7 44
P. T. 29
Ta abty under secton 15(e) of the grcutura d|ustment
ct, as amended by the ct of May 9, 1034 (Pubc, No. 213,
Seventy-thrd Congress), of a m ture of backstrap moasses and
nvert sugar or other sugars mported nto the Unted States.
Inqury s made whether a m ture of backstrap moasses and
nvert sugar or other sugars, mported nto the Unted States from
a foregn country under the cassfcaton of backstrap moasses
for use as anma feed or for dstaton or other purposes, s sub-
|ect to the compensatng ta mposed by secton 15(e) of the gr-
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423
Regs. 82, rt. 4.
cutura d|ustment ct, as amended by the ct of May 9, 1934
(Pubc, No. 213, Seventy-thrd Congress).
Secton 15(e) of the grcutura d|ustment ct, as amended,
provdes n part as foows:
(e) Durng any perod for whch a processng ta s n effect wth respect
to any commodty there sha be eved, assessed, coected, and pad upon any
artce processed or manufactured whoy or party from such commodty and
mported nto the Unted States or any possesson thereof to whch ts tte
appes, from any foregn country or from any possesson of the Unted States
to whch ths tte does not appy, a compensatng ta equa to
the amount of the processng ta n effect wth respect to domestc processng
of such commodty at the tme of mportaton .
The compensatng ta wth respect to artces processed or manu-
factured whoy or party from sugar beets or sugarcane became
effectve on une 8,1934. (T. D. 4549, C. . I -1, 4 2, amendng
T. D. 4441, C. . III-1, 501.)
The terms sugar and backstrap moasses are defned n sec-
ton 9(d) of the ct, as amended, as foows:
( ) The term sugar means sugar n any form whatsoever, derved from
sugar beets or sugarcane, whether raw sugar or drect consumpton sugar,
ncudng aso edbe moasses, srups and any m ture contanng sugar (e cept
backstrap moasses and beet moasses).
(C) The term backstrap moasses means the commercay so-desgnated
by-product of the cane sugar ndustry, not used for human consumpton or
for the e tracton of sugar.
The term sugar m tures s denned n Treasury Decsons 4441
and 4549, supra, and n Sugar eguatons, Seres 1, No. 1, as foows:
The term sugar m tures means the commercay so-desgnated or so-
descrbed m tures contanng sugar.
It s hed that a m ture of backstrap moasses and nvert or other
sugars s not backstrap moasses, as defned n secton 9(d) (C)
of the grcutura d|ustment ct, as amended, but s a sugar
m ture wthn the meanng of the aw and reguatons. ccord-
ngy, such a m ture s sub|ect to the compensatng ta mposed
by secton 15(e) of the grcutura d|ustment ct, as amended,
upon the mportaton thereof nto the Unted States or any posses-
son thereof to whch the ct appes wth respect to sugar beets
and sugarcane, from any foregn country or from any possesson of
the Unted States to whch the ct does not appy wth respect to
sugar beets and sugarcane, regardess of the use for whch the
m ture s mported.
S CTION 1 . LOOR STOC S.
Reguatons 82, rtce 4: rtces ta ed. I -2 -7573
P. T. 28
Cotton yarn hed on ugust 1, 1933, for manufacture nto coth
s sub|ect to the foor stocks ta mposed by secton 1 (a) 1 of the
grcutura d|ustment ct.
Inqury s made whether cotton yarn hed on ugust 1, 1933, for
manufacture nto coth s sub|ect to the foor stocks ta mposed by
secton 1 (a) of the grcutura d|ustment ct.
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Regs. 82, rt. 5.
424
The foor stocks ta mposed by that secton became effectve on
ugust 1, 1933, wth respect to artces processed whoy or n chef
vaue from cotton whch were hed on that date for sae or other ds-
poston. (T. D. 4389, C. . II-2, 438, revokng T. D. 4377, C. .
II-2, 435, and T. D. 4433, C. . III-1, 474.)
It s contended that the word artce, as used n secton 1 (a) 1,
s mted to artces competed and ready for sae, and that an artce
hed for further manufacture s not hed for sae or other dspos-
ton wthn the meanng of that secton.
In unge v. Redden (14 U. S., 233), the court, n defnng the word
artce as used n a statute reatng to tarffs, stated:
We agree wth the crcut court that the word must be taken
comprehensvey and can not be restrcted to artces put n condton for fna
use, but embraces as we tngs manufactured ony n part, or not at a.
Congress evdenty ntended to ta not ony a processng of the
commodty occurrng after the effectve date, but aso to evy a foor
stocks ta on a artces processed whoy or n chef vaue from the
commodty whch were hed on the effectve date for sae or for fur-
ther processng n order to prevent an accumuaton of goods whch
had been through the frst domestc processng before the effectve
date.
In vew of the foregong, t s hed that the cotton yarn n queston
s an artce whch was hed for sae or other dsposton on ugust
1, 1933, wthn the meanng of secton 1 (a) 1, and, therefore, s sub-
|ect to the ta on foor stocks mposed by that secton.
S CTION 1 , S M ND D Y T CT O M Y 9, 1934 (PU LIC, NO.
213, S NTY-T IRD CONGR SS). LOOR STOC S.
Reguatons 82, rtce 5: ed for sae or I -32-7 45
other dsposton. P. T. 30
Sugar bed on une 8, 1934, whch was aso hed n transt or
n storage on pr 25, 1934, for use ether n the manufacture of
food products or for sae, whchever shoud prove more advanta-
geous to the owner, Is not e empt from the foor stocks ta mposed
by the grcutura d|ustment ct, as amended.
Inqury s made whether sugar hed on une 8, 1934, whch was
aso hed n transt or n storage on pr 25, 1934, for use ether n
the manufacture of food products or for sae, whchever shoud prove
more advantageous to the owner, s e empt from the foor stocks ta
under subdvson (c) (2) of secton 1 of the grcutura d|ust-
ment ct, as amended by the ct of May 9, 1934 (Pubc, No. 213,
Seventy-thrd Congress).
Secton 1 of the grcutura d|ustment ct, as amended, pro-
vdes n part as foows:
(c) (2) any sugar hed on pr 25, 1934, by, or to be devered
under a bona fde contract of sae entered nto pror to pr 25, 1934, to, any
manufacturer or converter, for use n the producton of any artce (e cept
sugar) and not for utmate consumpton as sugar sha be e empt
from ta aton under subsecton (a) of ths secton, .
Under contracts entered nto pror to pr 25, 1934, the M Cor-
poraton purchased pounds of sugar. Such sugar was hed n the
name of the M Corporaton, ether n transt or n storage, on pr
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425
Regs. 83(1934), rt. 3.
25, 1934, and aso on une 8, 1934 (the atter date beng the effectve
date of the processng ta wth respect to sugar), for use n the
manufacture of food products or for sae, whchever shoud prove
more advantageous to the owner.
The M Corporaton contends that such sugar, to the e tent that
t was n fact used n the manufacture of food products, s e empt
from the foor stocks ta under secton 1 (c)2, supra.
The provsons of the statute do not warrant the concuson that
the ta abty of the partcuar sugar depends upon utmate use or
devery. On the contrary, the sugar acqures ts e empt status pror
to use as ndcated by the specfc provsons of the statute. Sugar
hed on une 8, 1934, had on that date a ta abe or nonta abe status,
dependng upon the appcabty at that tme of the e empton
statute under consderaton. The e empton appes ony to stocks
of sugar hed on une 8, 1934, whch were kewse hed on pr 25,
1934, by, or to be devered under a bona fde contract of sae entered
nto pror to pr 25, 1934, to, any manufacturer or converter for
use n the producton of any artce (e cept sugar) and not for
utmate consumpton as sugar. S nce the sugar n queston was hed
on pr 25, 1934, and une 8, 1934, by the M Corporaton for use
ether n the manufacture of food products or for sae, whchever
shoud prove more advantageous to the corporaton, t s hed that
the aternatve purpose destroys the e empton granted by secton
1 (c) 2, supra. ccordngy, the sugar n queston s sub|ect to the
foor stocks ta mposed by secton 1 (c) 1 of the grcutura d-
|ustment ct, as amended.
S CTION 17(a), S M ND D Y T CT O M RC 18, 1935 (PU LIC,
NO. 20, S NTY- OURT CONGR SS), ND Y T CT O
UGUST 24, 1935 (PU LIC, NO. 320, S NTY- OURT CONGR SS).
PORT TIONS.
Reguatons 83(1934), rtce 3: Cam for I -45-7789
refund. P. T. 34
Refunds under secton 17(a) of the grcutura d|ustment ct,
as amended (reatng to refunds upon e portaton), are aowabe
ony where the ta has actuay been pad to a coector of Interna
revenue.
Inqury s made whether the words ta due and payabe, as used
n secton 17(a) of the grcutura d|ustment ct, as amended by
the ct of March 18,1935 (Pubc, No. 20, Seventy-fourth Congress),
and by the ct of ugust 24, 1935 (Pubc, No. 320, Seventy-fourth
Congress), appy to cams for refund under such secton where the
processor has not pad to a coector of nterna revenue the process-
ng ta wth respect to the product e ported.
Secton 17(a) of the grcutura d|ustment ct, as amended,
reatng to refunds upon e portaton, provdes n part that:
Upon the e portaton to any foregn country (and/or to the Php-
pne Isands, the rgn Isands, mercan Samoa, the Cana Zone, and the
sand of Guam) of any product processed whoy or party from a commodty
wth respect to whch product or commodty a ta has been pad or s payabe
under ths tte, the ta due and payabe or due and pad sha be credted or
refunded.
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Regs. 81, rt. 12.
42
The words ta due and parabe as used n secton 17(a), as
amended, appy ony where an amount nvoved n a cam under
ths secton s to be credted aganst a ta due and payabe. cam
for refund of any nterna revenue ta mpes that the ta , refund
of whch s camed, has n fact been pad to the agency of the Unted
States desgnated by aw to receve such payment. ccordngy, a
cam for refund under secton 17(a) of the grcutura d|ustment
ct, as amended, s aowabe ony where the processng ta wth
respect to the artce e ported has actuay been pad to a coector
of nterna revenue.
Postponement of payment of ta on the processng of cotton,
under the grcutura d|ustment ct, as amended. rtces 12
and 20, Reguatons 81 (approved uy 12, 1 33), amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 19(b) of the grcutura d|ustment ct,
approved May 12, 1933, as amended, provdes as foows:
provsons of aw, ncudng penates, appcabe wth respect to the ta es
mposed by secton 00 of the Revenue ct of 192 , and the provsons of secton
20 of the Revenue ct of 1932, sha, n so far as appcabe and not Inconsst-
ent wth the provsons of ths tte, be appcabe In respect of ta es Imposed
by ths tte: Provded, That the Secretary of the Treasury s authorzed to
permt postponement, for a perod not e ceedng 180 days, of the payment of
ta es covered by any return under ths tte.
Par. . The Department of grcuture ppropraton ct, 193 ,
approved May 17, 1935 (Pubc, No. 2, Seventy-fourth Congress),
provdes, n part, as foows:
The processng ta authorzed by Pubc ct No. 10, Seventy-thrd Congress
(48 Stat., 31), when eved upon cotton, sha be payabe 90 days after the fng
of the processor s report: Provded, That, under reguatons to be prescrbed by
the Secretary of the Treasury, the tme for payment of such ta upon cotton
may be e tended, but In no case to e ceed s months from the date of the fng
of te report.
rtce 12 of Reguatons 81 reatng to processng ta and com-
pensatng ta under the grcutura d|ustment ct, s hereby
amended to read as foows:
rt. 12.. Payment of processng ta . The processng ta shn, wthout assess-
ment by the Commssoner of Interna Revenue or notce from the coector, be
due and payabe to the coector at the tme f ed for fng the return, e cept
that n the case of cotton the ta for the month of pr, 1935, and for each
subsequent caendar month sha be payabe to the coector not ater than 90
days after the tme f ed for fng the return. or provsons reatve to post-
ponement of tme of payment, detas as to medum of payment, and oans from
the Reconstructon nance Corporaton, see artce 2 . or provsons reatve
to nterest, see artce 29.

S CTION 19. COLL CTION O T S.
Reguatons 81, rtce 12: Payment of proc-
essng ta .
I -30-7 14
T. D. 45 8
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427
IRegs. 81, rt. 2 .
Reguatons 81, rtce 2 : Payment. I -30-7 15
T. D.45 8

Subdvsons (a) and (e) of artce 2 of Reguatons 81, reatng
to processng ta and compensatng ta under the grcutura d-
|ustment ct, are hereby amended to read as foows:
(a) Processng ta . The processng ta Is due and payabe as provded
In artce 12.
(e) Postponement of tme of payment. Under the provsons of secton
19(b) of the ct, as amended, the Secretary of the Treasury s authorzed
to permt postponement of payment of the ta for a perod not e ceedng 180
days. Under the provsons of the Department of grcuture ppropraton
ct, 103 , approved May 17, 1935 (Pubc, No. 2, Seventy-fourth Congress), the
tme for payment of the ta on the processng of cotton may be postponed for
a perod not to e ceed s months from the tme f ed for fng the return.
uthorty for grantng such postponements s hereby deegated to the Com-
mssoner of Interna Revenue, who w ssue approprate nstructons to co-
ectors of nterna revenue, to whom appcatons for postponement of payment
of the ta shoud be submtted. The coector w make proper record of the
appcaton for postponement and forward the appcaton mmedatey to the
Commssoner, wth hs recommendaton as to aowance or dsaowance of
the appcaton. The appcaton sha set forth under oath the specfc
reasons for desrng a postponement and sha ceary ndcate what hardshps
w resut f the postponement were not granted. The term hardshp
means more than an nconvenence to the ta payer. It must appear that sub-
stanta oss or sacrfce w resut to the ta payer from makng payment of
the ta on the due date. Postponement w not be granted on a genera state-
ment of hardshp, but n each case there must be furnshed a statement of the
specfc facts showng what, f any, fnanca oss or sacrfce w resut f the
postponement s not granted. The amount and the tme for whch the post-
ponement s asked shoud be stated. Where an appcaton s made to postpone
the payment of ta to a date subsequent to the thrteth day after the date f ed
for fng the return, a current fnanca statement sha be submtted wth
the appcaton. In case the postponement s granted wth respect to any
amount of ta , such amount sha be pad at or before the tme of e praton
of the perod of such postponement.
The provsons of Treasury Decson 4402, approved November 2,
1933 C. . II-2, 444 , reatng to postponement of payment of
processng ta wth respect to cotton, sha not appy wth respect
to the ta for any month subsequent to March, 1935.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 18, 1935.
T. . CoOLIDG ,
ctng Secretary of the Treasury.
Reguatons 81, rtce 2 : Payment. I -38-7707
T. D.4587
Postponement of payment of ta under the grcutura d|ust-
ment ct, as amended. rtce 2 , Reguatons 81 (approved uy
12, 1933), amended.
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Regs. 81, rt. 2 .
428
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 19(b) of the grcutura d|ustment ct,
approved May 12, 1933, as amended by the ct approved ugust 24,
1935 (Pubc, No. 320, Seventy-fourth Congress), provdes as
foows:
provsons of aw, Incudng penates, appcabe wth respect to the
ta es mposed by secton 00 of the Revenue ct of 192 , and the provsons of
secton 020 of the Revenue ct of 1932, sha, In so far as appcabe and not
Inconsstent wth the provsons of ths tte, be appcabe n respect of ta es
Imposed by ths tte: Provded, That the Secretary of the Treasury Is
authorzed to permt postponement, for a perod not e ceedng 180 days, of the
payment of not e ceedng three-fourths of the amount of ta es covered by
any return under ths tte but postponement of a ta es covered by returns
under ths tte for a perod not e ceedng 180 days may be permtted n cases
In whch the Secretary of the Treasury authorzes such ta es to be pad each
month on the amount of the commodty marketed durng the ne t precedng
month.
Par. . The Department of grcuture ppropraton ct, 193 ,
approved May 17, 1935 (Pubc, No. 2, Seventy-fourth Congress),
provdes, n part, as foows:
The processng ta authorzed by pubc ct numbered 10, Seventy-thrd
Congress (48 Stat, 31), when eved upon cotton, sha be payabe 90 days
after the fng of the processor s report: Provded, That, under reguatons
to be prescrbed by the Secretary of the Treasury, the tme for payment of
such ta upon cotton may be e tended, but In no case to e ceed s months
from the date of the fng of the report.
Subdvson (e) of artce 2 of Reguatons 81, as amended by
Treasury Decson 45 8, approved uy 18, 1935 page 427, ths
uetn , reatng to processng ta and compensatng ta under the
grcutura d|ustment ct, s hereby amended to read as foows:
(e) Postponement of tme of payment. Under the provsons of secton 19(b)
of the ct, as amended, the Secretary of the Treasury s authorzed to permt
postponement of payment of not e ceedng three-fourths (e cept n the case of
cotton) of the amount of the ta for a perod not e ceedng 180 days. The
Secretary of the Treasury s further authorzed to penut, for a perod not
e ceedng 180 days, the postponement of payment of the entre amount of ta ,
n cases n whch he authorzes the payment of such ta each month on the
amount of the commodty marketed durng the ne t precedng month. In the
case of cotton under the provsons of the Department of grcuture ppro-
praton ct, 1930, approved May 17, 1935 (Pubc, No. 2, Seventy-fourth
Congress), the tme for payment of the ta on the processng of cotton may be
postponed for a perod not to e ceed s months from the tme f ed for fng
the return. uthorty for grantng such postponements s hereby deegated
to the Commssoner of Interna Revenue, who w ssue approprate Instruc-
tons to coectors of nterna revenue, to whom appcatons for postponement
of payment of the ta shoud be submtted. The coector w make pro er
record of the appcaton for postponement and forward the appcaton mme-
datey to the Commssoner, wth Ids recommendaton as to aowance or
dsaowance of the appcaton. The appcaton sha set forth under oath
the specfc reasons for desrng a postponement and sha ceary ndcate what
hardshps w resut f the postponement were not granted. The term hard-
shp means more than an nconvenence to the ta payer. It must appear
that substanta oss or sacrfce w resut to the ta payer from makng pay-
ment of the ta on the due date. Postponement w not be granted on a
genera statement of hardshp, but n each case there must e furnshed a
statement of the specfc facts showng what, f any, fnanca oss or sacrfce
w resut f the postponement s not granted. The amount and the tme
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429
Mso.
for whch the postponement Is asked shoud be stated. Where an appca-
ton s made to postpone the payment of ta to a date subsequent to the
thrteth day after the date f ed for fng the return, a current fnanca state-
ment sha be submtted wth the appcaton. In case the postponement s
granted wth respect to any amount of ta , such amount sha be pad at or
before the tme of e praton of the perod of such postponement.
Guy T. everng,
Commssoner of Interna Revenue.
pproved September 17, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 81, rtce 2 : Payment. I -4 -7801
Ct. D. 1033
processng ta agrcutura ad|ustment act revsed statutes-
decson of court.
Sut n quty In|uncton.
ppcatons for temporary n|unctons aganst coecton of
processng ta es mposed under the grcutura d|ustment ct,
pendng appea from dena of n|unctons by the ower court,
w not be granted where the bs of compant fed wth the
ower court dd not aege such e traordnary and e ceptona
crcumstances as woud render nappcabe secton 3224, Revsed
Statutes, and where the ta payers had, at the tme sut was com-
menced, and st have, a pan, adequate, and compete remedy
at aw.
Unted States Crcut Court of ppeas foe the Nnth Crcut.
sher Umrng Ms Co., a Corporaton, appeant, v. e . Mc . erhus,
Indvduay and as Coector of Interna Revenue for the Dstrct of Wash-
ngton, appeee.
Centenna ourng Ms Co., a, Corporaton, appeant, v. e . Mc . erhus,
Indvduay and as Coector of Interna Revenue for the Dstrct of Wash-
ngton, appeee.
Rtzve ourng Ms, a Corporaton, appeant, v. e . Mc . erhus, Ind-
vduay and as Coector of Interna Revenue for the Dstrct of Washngton,
appeee.
Upon appeas from the Dstrct Court of the Unted States for the Western Dstrct of
Washngton, Southern Dvson.
efore Gaereout, Den man, and Mathews, Crcut udges.
ugust 15, 1935.
OPINION.
Garrecht, Crcut udge: verfed appcaton for a temporary In|uncton
pendng appea has been fed n ths court by each of the appeants heren.
The appcatons are dentca n form and are here beng consdered |onty.
On uy 1, 1035, separate bs- of compant and pettons for decaratory
udgments were fed In these causes n the Dstrct Court of the Unted States
for the Western Dstrct of Washngton, Southern Dvson, by the appeants,
for the purpose of en|onng the coecton of processng ta es under the terms of
the grcutura d|ustment ct (-18 Stat., 31, ch. 25) and for a decaraton,
under the edera Decaratory udgment ct, that the processng ta es are
ega and unconsttutona n the respects set forth n the bs and pettons.
On uy 11, 1935. the court beow rendered an ora opnon, statng that t
woud enter an order denyng the requested restranng order and n|uncton,
temporary and permanent, and decnng to render a decree decaratory of the
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430
consttutonaty or unconsttutonaty of the grcutura d|ustment ct.
Thereafter the appeee nterposed a moton to dsmss the bs of compant
and the pettons. On uy 19, 1935, the ower court entered a fna order ds-
mssng the bs and the pettons for decaratory |udgments.
Immedatey foowng the order of dsmssa, each of the appeants sought
to obtan from the ureau of Interna Revenue an e tenson of tme for pay-
ng the processng ta es heren nvoved. On ugust 7, 1935, the ureau
formay notfed the appeants In wrtng that such e tenson of tme woud
not be granted, and demanded payment of the une nstament of the ta es
not ater than ugust 1 , 1935, at whch tme penates woud commence to
attach. ppeas to ths court were thereafter perfected, and the present
appcatons for temporary n|unctons were fed.
We are not at ths tme passng upon the consttutonaty of the grcu-
tura d|ustment ct, but are confnng our decson soey to the queston of
the proprety of ssung temporary n|unctons pendng appea.
Secton 3224 of the Revsed Statutes (2 U. S. C. ., secton 154) provdes as
foows:
No sut for the purpose of restranng the assessment or coecton of any
ta sha be mantaned n any court.
The prncpa reason for such a provson, as the Supreme Court has ponted
out, s that, as courts are wthout authorty to apporton or equaze ta es
or to make assessments, such suts woud enabe those abe for ta es n some
amount to deay payment or possby to escape ther awfu burden and so
to nterfere wth and thwart the coecton of revenues for the support of the
Government. (Mer v. Nut Margarne Co., 284 U. S., 498, 509 Ct. D. 457,
C. . I-1, 370 .)
owever, as the Supreme Court n ths opnon has ndcated that certan
e traordnary and e ceptona crcumstances may render the statute Inapp-
cabe, t therefore becomes necessary for us to nqure whether the crcum-
stances aeged by the appeants n these cases are of that e traordnary and
e ceptona character whch, under the decsons of the Supreme Court, woud
|ustfy us n dsregardng or refusng to appy secton 3224.
In the frst pace, the mere aegaton that a ta ng statute s unconsttu-
tona does not remove a case from the purvew of secton 3224. Ths s
graphcay ustrated by two Supreme Court decsons devered by the same
|ustce, deang wth the same ta , and handed down the same day. In aey
v. Dre e urnture Co. (259 U. S., 20, 44 T. D. 3340, C. . 1-2, 337 ), Mr.
Chef ustce Taft hed the edera Chd Labor Ta Law to he unconsttu-
tona. In aey v. George (250 U. S., 1 , 20 T. D. 3347, C. . 1-2, 342 ), he
reversed a decree of the dstrct court permanenty en|onng a coector of
nterna revenue from coectng a ta assessed under the same Chd Labor
Ta Law. In the atter case, the Chef ustce, wth reference to secton 3224,
sad:
The averment that a ta ng statute s unconsttutona does not take ths
case out of the secton. There must be some e traordnary and e ceptona
crcumstance not here averred or shown to make the provsons of the secton
nappcabe. (Dodge v. rady, 240 U. S., 122, 12 .) In spte of ther aver-
ment, the companants dd not e haust a ther ega remedes. They mght
have pad the amount assessed under protest and then brought sut aganst
the coector to recover the amount pad wth nterest.
So n the nstant case, the remedy at aw there suggested by Mr. Chef ustce
Taft s open to the appeants.
It Is hornbook aw that suts n equty can not be sustaned n any case where
a pan, adequate, and compete remedy at aw may be had. Ths fundamenta
prncpe s emboded n an enactment by Congress. (28 U. S. C. ., secton
384.) ach of the appeants, however, seeks to avod the appcaton of ths
rue by settng out the foowng aegatons n ts appcaton for a temporary
n|uncton pendng appea:
The appeant has no adequate remedy at aw:
(a) In that Congress s on the pont of passng a aw whch destroys any
adequate remedy for recoverng the sad ta , n the event of ts payment that
the pendency of sad tgaton, whch w deny to appeant the rght to recover
any processng ta unconsttutonay e acted, consttutes a rea and mmnent
threat of rreparabe oss.
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Msc.
(b) In that, uness the appeant pays sad processng ta es, t and ts offcers
w be sub|ect to heavy crmna penates provded for n the ct n addton to
the monetary penaty provded for nonpayment of sad ta es.
(c) In that appeant s customers have stated that they w refuse to pay the
amount of sad ta to the appeant, and that therefore appeant, n the event
sad ta s nvad, w be unabe to coect the same from ts customers and
w ose the entre amount thereof wthout any chance of rembursement.
(d) In that, n any event, the appeant w be obged to wage a mutpcty
of suts aganst ts sad customers for the coecton of sad ta es, and that ap-
peant, as a consequence, w ose many of ts sad customers wth no possbty
of redress for such oss.
We w brefy consder each aegaton seratm.
(a) It woud be a strange procedure for a court of chancery to measure the
adequacy of a remedy at aw, not by what the aw s at the tme the equty sut
s fed, but by certan nebuous con|ectures of what the aw may be at some
future tme. ursdcton s determned as of the tme the sut was com-
menced. Pacfc Teephone Teegraph Co. v. Cty of Seatte, 14 . (2d),
877, 879.) quty acts n the present tense. (Contnenta Securtes Co. v.
Interborough R. T. Co., 207 P., 4 7, 471, affrmed, 221 ., 44 (C. 0. . 2).) The
appeants had at the tme of the commencement of these suts, and st have,
a pan, adequate, and compete remedy at aw. They can pay the ta and sue to
recover at aw. quty s not to be frghtened nto assumng |ursdcton by the
bugaboo of dre propheces of what the aw may be n the future. To grant an
In|uncton n antcpaton of a possbe n|ury to arse under a aw that may
never be passed, s, to say the east, unusua. What companant s rghts may be,
and what reef shoud be afforded hm n the event of the passago of such a aw
as he contempates, can not now be antcpated. (Ryan v. Wams, 100 .,
172, 175.) It woud be an unwarranted encroachment by the |udcary upon the
egstve branch of the Government shoud the court attempt a race of d-
gence wth Congress to defeat the appcabty of an ct to a pendng case.
(La Crow v. Unted States (D. C. W. D. Tenn., No. -1248, decded uy 27,
1935), reported n The Unted States Law Week, ugust 13, 1935, pages 4-5.)
We are unanmousy of the opnon that ths court shoud not be governed or
nfuenced n ts acton by specuatons or predctons regardng future congres-
sona enactments.
(b) The provson for heavy crmna penates for nonpayment of the
ta es n queston s not an unusua one n ta egsaton. Punshment can be
avoded by payng the ta and then sung for a refund.
(c) ppeants pettons show that heretofore they have passed on the ta
to ther customers who they cam have now notfed them that f the ta
s hed nvad the customers w not pay such part of the purchase prce of
the processed product as refects the ta and by reason thereof appeants w
be unabe to coect these accounts. It s not camed that appeants have
promsed ther customers any rebate or refund n case the ta s hed nvad,
or that the obgaton of such customers to pay for four purchased from appe-
ants s n any way contngent upon the vadty of the ta . Regardess of the
utmate fate of the processng ta , appeants have and w have the rght
to coect the fu purchase prce of a four sod by them. Moreover, these
contentons may a be answered by pontng out that f the ta n queston
s eventuay decared nvad, there w be no occason for the appeants to
demand that ther customers remburse them for the ta , as to any saes made
thereafter. s to saes theretofore made, even f the customers refuse to pay
the amount of the ta . as averred, the appeants w stand no oss, for they
w be entted to sue for a refund.
(d) The mere fact that the appeants customers may refuse to pay that
porton of the purchase prce of four ascrbabe to such ta , f the ta s uphed,
s not suffcent ground for a court of equty to en|on the coecton of the ta
from appeants. The ta Is aganst appeants drecty and f they choose to
pass t on to customers who refuse to pay and tgaton resuts, such w not
consttute a mutpcty of suts n the equty .sense.
In ther bref before ths court, the appeants aso rey upon the foowng
paragraph n the bs of compant fed by them n the court beow r
Pantff has been notfed by severa of ts customers durng the week mme-
datey precedng ths acton, who have purchased arge quanttes of four
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432
whch as been processed durng the month of May, 1935, and ether devered
to sad customers or s n transt, and for whch purchases pantff has not
receved payment from sad customers, that sad customers w not pay pan-
ft that part of the purchase prce of sad processed four whch refects the
processng ta thereon, f the grcutura d|ustment ct, and/or those prov-
sons reatng to processng ta es, are decared nvad and unconsttutona by
the courts, and sad customers have notfed pantff and demanded that pan-
tff do not pay the processng ta es on sad purchased four that f pantff pays
sad processng ta es for the month of May, 1935, and subsequent months as
sad processng ta es accrue, and other mng companes engaged n processng
wheat do not pay such processng ta es, and n so dong are uphed by the
courts, pantff w ose sad and other customers.
It s cear from the bs of compant fed n the court beow and from the
appcatons for temporary n|unctons fed n ths court, that the appeants
are now addng the amount of the processng ta es to ther seng prce, and
that they ntend to contnue to o so. In ther bref, the appeants assert that
mng companes whch have not pad the ta by reason of an n|unctve
order w be n a poston to pay to ther customers the wthhed ta , even
though they are presenty coectng n the purchase prce of four the amount
of the ta . There s nothng n the peadngs or the brefs before us to nd-
cate that the appeants woud not kewse presenty coect the amount of
the ta from ther customers, even f we were to grant a temporary n|uncton.
ute the contrary s nferabe from the appeants statements. Ths woud
resut n the un|ust enrchment of the appeants.
It has been suggested that there accrues to the appeants each month a rght
of demand and sut n the event that the ta be mpropery assessed, or In the
event that the ta ng statute s decared to be unconsttutona. rom ths t
Is argued that a mutpcty of suts aganst the Government woud resut.
There Is no reference to ths pont n the peadngs or In the brefs, nor do we
beeve that t s we taken. There s no need for the appeants to sue each
month to recover the ta es n queston, n the event the statute s decared
unconsttutona. Under the provsons of 2 U. S. C. ., secton 15 , as amended
n 1932, the ta payer s aowed two years from the date of the mang of the
dsaowance notce by the Commssoner, wthn whch to nsttute a sut for
such refund or credt. ccordng to 20 U. S. C. ., secton 157, a cams for
refunds must be presented to the Commssoner wthn four years ne t after
the payment of the ta n queston. In other words, the ta payer s gven a
ma mum of more than s years from the date of payment wthn whch to
fe hs sut. e need not sue for the ta es monthy, but may seek to recover a
ump sum.
The appeants aso rey upon the foowng paragraph n ther appcatons
before ths court:
That throughout the Unted States many suts n equty have been nst-
tuted by mers and mng companes stuated dentcay wth the appcant
heren that n a very great ma|orty of such cases, more than 80 n number.
Unted States dstrct courts have granted temporary n|unctve reef durng
the pendency of the causes n sad dstrct courts, etc.
rom the foregong, the appeants argue that uness they are granted the
reef sought, they w be paced at a tremendous dsadvantage n the sae
of four. In other words, the appeants argument amounts to ths: The fact
that other mng companes have been awarded n|unctve reef n the same
stuaton shoud compe ths court to award to the appeants smar reef, n
order to equaze compettve condtons regardess of whether or not we be-
eve such n|unctve reef warranted under edera statutes or under the
prncpes of equty. We do not beeve that such equazaton of compettve
condtons, under such crcumstances, s one of the dutes of a court of
chancery.
The ma|orty of the court are of the opnon that, under the showng made
n these appcatons, we are not |ustfed n dsregardng the provsons of
secton 3224 of the Revsed Statutes, supra.
ccordngy, the appcatons for temporary n|unctons pendng appea are
dened.
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I -50-785S
T. D.4 11
Ta m processng of renforced paper fabrc nto renforced
paper fabrc tape and reated ta es wth respect to such tape under
the grcutura d|ustment ct, as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Coectors of Customs, and
Others Concerned:
Paragraph . Subsecton (d) of secton 15 of the grcutura
d|ustment ct, as amended, provdes:
The Secretary of grcuture sh ascertan from tme to tme whether the
payment of the processng ta upon any basc agrcutura commodty s caus-
ng or w cause to the processors or producers thereof dsadvantages n com-
petton from competng commodtes by reason of e cessve shfts n consump-
ton between such commodtes or products thereof. If the Secretary of gr-
cuture fnds, after nvestgaton and due notce and opportunty for hearng
to nterested partes, that such dsadvantages n competton e st, or w
e st, he sha procam such fndng. The Secretary sha specfy n ths
procamaton the competng commodty and the compensatng rate of ta on
the processng thereof necessary to prevent such dsadvantages n competton.
Thereafter there sha be eved, assessed, and coected upon the frst domestc
processng of such competng commodty a ta , to be pad by the processor, at
the rate specfed, unt such rate s atered pursuant to a further fndng under
ths secton, or the ta or rate thereof on the basc agrcutura commodty s
atered or termnated. In no case sha the ta mposed upon such competng
commodty e ceed that mposed per equvaent unt, as determned by the
Secretary, upon the basc agrcutura commodty.
Par. . procamaton of the Secretary of grcuture dated
November 1, 1935, provdes n part:
Whereas, after nvestgaton and due notce and opportunty for
hearng to nterested partes, and after due consderaton of a the facts, I
fnd that the payment of the processng ta on cotton s causng and w cause
to the processors thereof dsadvantages n competton from renforced paper
fabrc by reason of e cessve shfts n consumpton between such commodtes
or products thereof.
nd
Now, therefore, be t known that I, . . Waace, Secretary of grcuture
of the Unted States of merca, actng under and pursuant to, and by vrtue of,
the authorty rested n me by an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, after due consderaton
of a the facts, do hereby procam a my fndngs as above set out, and do
hereby specfy that the compensatng rate of ta on the processng of renforced
paper fabrc necessary to prevent such dsadvantages n competton s 21.7
cents per thousand 1-nch yards of renforced paper fabrc tape, e cept that f
n any case the renforced paper fabrc tape processed as aforesad has any
cotton content, the ta per thousand 1-nch yards of such renforced paper
fabrc tape sha be that amount by whch 21.7 cents e ceeds the amount of
such ta , f any, as sha have been payabe pursuant to the provsons of sad
grcutura d|ustment ct, or any procamaton thereunder, by reason of
the frst domestc processng of such cotton content, and/or by the mportaton
of such cotton content n any form nto the Unted States of merca or any
possesson thereof to whch sad ct appes.
Par. C. Subsecton (c) of secton 10 of the grcutura d|ust-
ment ct, as amended, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
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434
necessary to carry out the powers vested n hm by ths tte, ncudng regu-
atons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such
penaty, not n e cess of 1C0, as may be provded theren.
Par. D. The reguatons wth respect to renforced paper fabrc
made by the Secretary of grcuture, and approved by the Pres-
dent, November 1, 1935, provde:
I. Defntons.
(1) The foowng terms as used n these reguatons sha have the meanng
hereby assgned to them:
Pnt domestc prucessng. The frst domestc processng of renforced paper
fabrc s te manufacture or fabrcaton of renforced paper fabrc nto ren-
forced paper fabrc tape.
Renforced paper fabrc. Renforced paper fabrc s a fabrc (1) comprsed
of two or more pes of paper, an adhesve ayer between sad pes of paper,
a seres of spun or ur.spun, but not woven, fbers (such as ssa, |ute, hemp,
fa , cotton, and/or the ke) between sad pes of paper and secured thereto
by sad adhesve, such fbers beng so arranged as to gve the fabrc n ts
entre wdth or n any part of such wdth substanta strength transverse to
the fabrc when the fabrc s frmy attached by an adhesve to some other
matera or (2) comprsed of a paper strp, to whch s aff ed an adhesve,
n seres of spun or unspun, but not woven, fbers (such as ssa, |ute, hemp,
fa , cotton, and/or the ke), such fbers beng so arranged as to gve the
fabrc n ts entre wdth or In any part of such wdth substanta strength
transverse to the fabrc when the fabrc s frmy attached by an adhesve to
some other matera or (3) comprsed of one or more pes of paper renforced
wth woven matera other than matera woven entrey from cotton or (4)
comprsed of one or more pes of paper renforced wth matera woven
entrey from cotton, the weght of such cotton matera beng eght (8) pounds
or ess per one hundred (100) square yards of the fabrc and the tearng
strength of the crosswse (fer) threads and fbers of the fabrc beng forty
(40) or more unts, mendorf test or (5) comprsed of one or more pes of
paper renforced wth combnaton of matera specfed under (1), (2), (3),
and (4) under (1), (2), (3), (4), and (5) above the outer surface of sad
fabrc may be gummed or ungummed.
Renforced paper fabrc apc. Renforced paper fabrc tape s renforced
paper fabrc processed for dstrbuton n rbbon form and ess than four (4)
nches n wdth.
II. Converson actor.
(2) I hereby estabsh that the converson factor for renforced paper fabrc
tape processed from renforced paper fabrc to determne the amount of ta
mposed or refunds to be made wth respect thereto sha be 100 per centum
of the processng ta rate per thousand 1-nch yards of renforced paper
fabrc tape.
Par. . Subsecton (a) of secton 19 of the grcutura d|ust-
ment ct, as amended, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. . Subsecton (d) of secton 19 of the grcutura d|ust-
ment ct, as amended, provdes n part:
Under reguatons made by the Commssoner of Interna Revenue, wth the
approva of the Secretary of the Treasury, any person requred pursuant to
the provsons of ths tte to fe a return may be requred to fe such return
and pay the ta shown to be due thereon to the coector of nterna revenue
for the dstrct n whch the processng was done or the abty was n-
curred.
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Par. G. Subsecton (d) of secton 10 of the grcutura d|ust-
ment ct, as amended, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as may
be necessary to carry out the powers vested n hm by ths tte.
Pab. . Secton 1101, Revenue ct of 192 , made appcabe by sec-
ton 19(b), grcutura d|ustment ct, as amended, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) There bees me effectve at 12.01 a. m., eastern stand-
ard tme, November 1, 1935, (1) a processng ta on the frst domestc process-
ng of renforced paper fabrc nto renforced paper fabrc tape, (2) a compen-
satng ta wth respect to renforced paper fabrc tape, mported on or after
November 1, 1935, and (3) a ta on foor stocks of renforced pa|)er fabrc tape
whch were hed for sae or other dsposton at 12.01 a. m., eastern standard
tme, November 1, 1935.
The rate of processng ta s gven n artce 2 of these reguatons. The
rate of compensatng ta , and of ta on foor stocks s gven n artce 5 of
these reguatons.
( ) or reguatons reatng to the processng ta and compensatng ta , con-
sut Reguatons 81, as amended. or reguatons reatng to the ta on foor
stocks, consut Reguatons 82, as amended: and for reguatons reatng to
e portaton, consut Reguatons 83, as amended. The foregong reguatons,
81, 82, and 83, are genera reguatons under the grcutura d|ustment ct,
as amended, and are suppemented by the reguatons n ths Treasury decson.
(c) Wth respect to certan renforced paper fabrc tape processed from
renforced paper fabrc, the date November 1, 1935, s the effectve date
as defned and used n sad Reguatons 81, 82, and 83.
(d) The varous defntons set forth n the reguatons of the Secretary
of grcuture n paragraph D(), above, are hereby made a part of these
reguatons.
bt. 2. Processng ta es. (a) Reguatons 81, as amended, shoud be con-
suted for deraed reguatons wth respect to the processng ta .
( ) Rate of ta . The rate of ta on the frst domestc processng of ren-
forced paper fabrc nto renforced paper fabrc tape s 21.7 cents per thousand
1-nch yards of renforced paper fabrc tape, e cept that f n any case the
renforced paper fabrc tape processed has any cotton content, the ta per
thousand 1-nch yards of such renforced paper fabrc tape sha be 21.7 cents
ess the amount of processng or compensatng ta , f any, pad or payabe
pursuant to the provsons of the grcutura d|ustment ct, as amended,
wth respect to such cotton content.
(c) rst dome tc processng. The frst domestc processng of renforced
paper fabrc s the manufacture of suc fabrc nto renforced paper fabrc
tape In rbbon form, and ess than four (4) nches n wdth.
(d) Returns. The form prescrbed for return of processng ta s P. T.
orm 211.
The return for the month of November, 1935. and for each subsequent caen-
dar month sha be fed on or before the ast day of the month ne t foowng
the mouth n whch such processng s done. The amount of ta shown to be
due on each such return must be pad at the tme f ed for fng the return,
or f the tme for payment be postponed, then at the tme or tmes desgnated
for payment n such postponement.
ach such return sha be fed wth, and the ta shown to be due thereon
sha be pad to, the coector of Interna revenue for the dstrct n whch
the processng was done. If the ta payer s engaged n processng renforced
paper fabrc n more than one coecton dstrct he sha fe wth the coector
for each respectve dstrct a separate return wth respect to the processng
done n such dstrct. If wthn a coecton dstrct the ta payer has more
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than one m, or other pace where such processng s done, there sha be
attached to the return fed n such dstrct a separate schedue for each such
pant or other pace, gvng nformaton as requred n artce 11 of Reguatons
81, as amended.
rt. 3. Compensatng ta on mported artces. compensatng ta became
effectve at 12.01 a. m., eastern standard tme, November 1, 1935, wth respect
to renforced paper fabrc tape mported on and after sad date nto the
Unted States, or any possesson thereof to whch the ct appes, from any
foregn country or any possesson of the Unted States to whch the ct does
not appy. The rate of compensatng ta |s gven n artce 5 of these regua-
tons. or detaed reguatons reatve to the compensatng ta , see Chapter
I of Reguatons 81, as amended.
rt. 4. Ta on foor stocks. (a) There became effectve at 12.01 a. m.,
eastern standard tme. November 1, 1935, a ta wth respect to foor stocks of
renforced paper fabrc tape, whch on that date were hed for sae or other
dsposton. or detaed reguatons reatve to the ta on foor stocks, see
Reguatons 82, as amended.
( ) Returns. The form prescrbed for return of ta on foor stocks (other
than separate reta stocks) s P. T. orm 32 . The ta shown thereon must be
pad at the tme when the return s fed, or, f the tme for payment be post-
poned or e tended, then at the tme or tmes desgnated for payment n such
postponement or e tenson.
The form prescrbed for return of ta on foor stocks (separate reta stocks)
Is P. T. orm 42 . The ta shown thereon must be pad at the tme when the
return s ted, or, f the tme for payment be postponed or e tended, then at the
tme or tmes desgnated for payment n such postponement or e tenson.
ach return sha be fed wth, and the ta shown to be due thereon sha
be pad to, the coector of nterna revenue for the dstrct n whch such
foor stocks were hed for sae or other dsposton. If the ta payer hods
foor stocks n more than one coecton dstrct he sha fe wth the coector
for each respectve dstrct a separate return wth respect to foor stocks hed
n such dstrct. If wthn a coecton dstrct the ta payer has more than
one warehouse, store, or other pace where such foor stocks are hed, there
sha be attached to the nventory and return, or nventory, record and return
fed n such dstrct a separate schedue for each such warehouse, store, or
other pace, gvng the nformaton requred by artces 11 and 1 of Regua-
tons 82, as amended.
The rate of ta on foor stocks s g -en n artce 5 of these reguatons.
rt. 5. Rates of compensatng ta , of ta on foor stocks, and of credt or
refund. The rate of compensatng ta , the rate of foor stocks ta , and the
rate of credt or refund wth respect to renforced paper fabrc tape s 21.7
cents per thousand 1-nch yards of renforced paper fabrc tape, e cept that f
the renforced paper fabrc tape has any cotton content, the ta per thousand
1-nch yards of such tape sha be 21.7 cents ess the amount of processng or
compensatng ta , f any, pad or payabe pursuant, to the provsons of the
grcutura d|ustment ct, as amended, wth respect to such cotton content.
rt. 0. stng contracts. or genera provsons reatng to e stng con-
tracts, sec Reguatons 81, as amended, artces 27 and 28, and Reguatons 82,
artce 7.
rt. 7. orms. To nsure the proper return of the ta es mposed by the
ct, and to factate the refund or credt cf ta es, certan forms are pre-
scrbed for use by ta payers. The foowng prescrbed forms sha be used
as requred by the provsons of the appcabe reguatons and n accordance
wth the nstructons contaned on such forms:
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orm No.
Desgnaton.
Requred by
P. T. orm 2 ...
P. T. orm 24....
P. T. orm 24-C.
P. T. orm 27....
P. T. orm 28
P. T. orm 32 __
P. T. orm 42 __
Return of processor of renforced
paper fabrc.
Cam for refund of ta es egay
coected.
Cam for refund of, or credt for,
ta pad wth respect to ar-
tces devered for chartabe
dstrbuton or use.
Cam for refund of, or credt
for, ta pad wth respect to
artces e ported.
Cam for credt on return of over-
payment.
oor ta nventory and return,
by a person other than one
engaged n reta trade, by a
person engaged n reta trade
f artces are hed by hm ese-
where than n hs reta stock.
oor ta nventory, record, and
return, by a person engaged n
reta trade.
Reguatons 81, artce 11,
as amended, and artce
2( ) above.
Reguatons 81, artce
31(a).
Reguatons 81, artce 32,
as amended.
Reguatons 83 (Septem-
ber, 1934, edton).
Reguatons 81, artce
31( ).
Reguatons 82, artce 11,
as amended.
Reguatons 82, artce 1 .
Gut T. everno,
Commssoner of Interna Revenue.
pproved December ,1935.
T. . Coodge, ,
ctng Secretary of the Treasury.
I -29-7 03
T. D.45 5
Processng ta and compensatng ta wth respect to rce under
the grcutura d|ustment ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngon, D. G.
Coectors of Interna Revenue and others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, as
amended, provdes, n part:
When the Secretary of grcuture determnes that renta or bene-
ft payments are to be made wth respect to any basc agrcutura commodty,
he sha procam such determnaton, and a processng ta sha be n effect
wth respect to such commodty from the begnnng of the marketng year
therefor ne t foowng the dnte of such procamaton e cept that
n the case of rce, the Secretary of grcuture sha, before pr 1, 1935,
procam that renta or beneft payments are to be made wth respect thereto,
and the processng tu sha be n effect on and after pr 1. 1035.
In the case of rce, the perod from ugust 1 to uy 31, both ncusve, sha
be consdered to be the marketng year.
Par. . procamaton of the ctng Secretary of grcuture,
dated March 18, 1935, provdes:
I, M. L. Wson, ctng Secretary of grcuture of the Unted States
of merca, have determned and hereby procam that renta and/or beneft
payments are to be made wth respect to rce, a basc agrcutura commodty.
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438
Par. C. Secton 9(b) of the grcutura d|ustment ct, as
amended, provdes n part:
or the perod from pr 1, 1035, to uy 31, 193 , both ncusve,
the processng ta wth respect to rce sha be at the rate of 1 cent per
pound of rough rce, sub|ect, however, to any modfcaton of such rate whch
may be made pursuant to any other provson of ths tte. In the
case of rce, the weght to whch the rate of ta sha be apped sha be
the weght of rough rce when devered to a processor, e cept that where
the producer processes hs own rce, the weght to whch the rate of ta
sha be apped sha be the weght of rough rce when devered to the pace
of processng.
Par. D. Secton 9(d) of the grcutura d|ustment ct, as
amended, provdes n part:
(7) In the case of rce
( ) The term rough rce means rce n that condton whch s usua
and customary when devered by the producer to a processor.
( ) The term processng means the ceanng, sheng, mng (ncud-
ng custom mng for to as we as commerca mng), grndng, rong,
or other processng (e cept grndng or crackng by or for the producer thereof
for feed for hs own ve stock, ceanng by or drecty for a producer for
seed purposes, and dryng) of rough rce and n the case of rough rce wth
respect to whch a ta -payment warrant has been prevousy ssued or apped
for by appcaton then pendng, the term processng means any one of
the above-mentoned processngs or any preparaton or handng n connecton
wth the sae or other dsposton thereof.
(D) The term processor, as used n subsecton ( -)1 of secton 15 of
ths tte, means any person (ncudng a cooperatve assocaton of producers)
engaged n the processng of rce on a commerca bass (ncudng custom
mng for to as we as commerca mng).
Par. . Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Par. . The reguatons, wth respect to rce, made by the Secre-
tary of grcuture, wth the approva of the Presdent, dated March
30, 1935, provde:
I. Marketng Year.
(1) I do hereby ascertan and prescrbe that for the purposes of sad ct
the frst marketng year for rce sha begn ugust 1, 1935.
II. Rates of Ta .
(2) The rate of processng ta on the frst domestc processng of rce, begn-
nng pr 1, 1935, sha be one (1) cent per pound of rough rce.
The weght to whch the rate of ta sha be apped sha be the weght of
rough rce when devered to a processor, e cept that where the producer proc-
esses hs own rce, the weght to whch the rate of ta sha be apped sha be
the weght of rough rce when devered to the pace of processng.
III. Defntons.
(3) The foowng terms, as used n these reguatons, sha have the meanngs
hereby assgned to them:
rst domestc processng means the ceanng, sheng, mng (Incudng
custom mng for to as we as commerca mng), grndng, rong, or
other processng (e cept grndng or crackng by or for the producer thereof for
1 See paragraph .
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Msc.
feed for hs own ve stock, ceanng by or drecty for a producer for seed pur-
poses, and dryng) of rough rce and n the case of rough rce wth respect to
whch a ta -payment warrant has been prevousy ssued or apped for by app-
caton then pendng, the frst domestc processng means any one of the above-
mentoned processngs or any preparaton or handng n connecton wth the
sae or other dsposton thereof.
Rough rce (frequenty termed or referred to as paddy ) means rce n that
condton whch s usua and customary when devered by the producer to a
processor.
Ground rough rce s rough rce whch has been cracked, crushed, chopped, or
ground.
Ceaned rough rce s rough rce whch has been sub|ected to a ceanng process
for remova of separabe e traneous foregn matter.
rocn rce s rce whch has been hued and from whch the germ and the
bran have not been removed.
Rce mea s brown rce whch has been cracked, crushed, chopped, puverzed,
or ground.
Med rce s rce whch has been hued and from whch the germ and a
or part of the bran have been removed, and may be ether whoe or broken,
coated, or uncoated.
Granuated rce s med rce whch has been cracked, crushed, chopped,
puverzed, or ground.
Rce four s four resutng from the puverzng and/or botng of med rce.
Rce starch s starch resutng from the wet mng of rce n any form.
Rce powder s rce starch whch has been puverzed and/or boted.
Rce breakfast foods are preparatons of a breakfast food type n whch rce
s used as one of the ngredents, ncudng (a) the roed and faked type, con-
sstng chefy of rce and ( ) the puffed type, consstng chefy of rce.
Rce soup s soup whch ncudes as one of ts Ingredents rce In any form.
ermented beverages:
(a) eer s an acohoc beverage made by fermentaton from cereas, ncud-
ng rce, and favored wth hops or other substance to mpart ts characterstc
btter favor.
( ) Rce wne or sake s an acohoc beverage made by a speca process of
fermentaton from materas consstng chefy of rce.
Dsted sprts are products derved from materas consstng chefy of rce
by a process of dstaton, to whch other ngredents may have been added, and
Incude both beverages and medcna preparatons of the knds commony
referred to as Chnese wnes.
Rce hu s the husk or tough fbrous outer coat of rough rce.
Rce bran s the bran of rce together wth such quantty of hu fragments
and germ as Is usua n the reguar mng of rce, and ncudes huer bran and
stone bran.
Rce germ s the embryo of the rce kerne.
Rce posh s the fne powdery matera resutng from the poshng of .med
rce.
I . Converson actors.
I do hereby estabsh converson factors for artces processed whoy, n chef
vaue, or party from rce to determne the amount of ta mposed or refunds to
be made wth respect thereto.
The foowng tabe of converson factors f es the percentage of the per pound
processng ta on rough rce wth respect to each pound of the foowng artces
processed whoy, n chef vaue, or party from rough rce:
rtce.
Unt
(pounds).
Converson
factor (per
cent of the per
pound process-
ng ta on
rough rce).
Ground rough rce
Ceaned rough rce
rown rce
Rce mea.
Med rce.
100
101
130
130
144
|
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440
rtce.
Granuated rce
Rce four
Rce starch
Rce powder
Rce breakfast foods:
(a) Roed or faked typos, consstng chefy of rce..
(b) Puffed type, consstng chefy of rce
Rce soup
ermented beverages:
(a) eer, f made from materas of whch rce const-
tuted, by weght 1
Over o of 1 per cent and not over 10 per cent
Over 10 per cent and not over 15 per cent..
Over 15 per cent and not over 20 per cent..
Over 20 per cent and not over 25 per cent..
Over 25 per cent and not over 30 per cent..
Over 30 per cent and not over 35 per cent..
Over 35 per cent and not over 40 per cent..
Over 40 per cent and not over 45 per cent. .
Over 45 per cent
( ) Rce wne or sake
Dsted sprts
Rce hu
Rce bran
Rce germ
Rce posh ,
Unt
(pounds).
cusve of water added durng the manufacturng process.
1 arre of 31 gaons,
Gaon.
s to any artce for whch no converson factor Is assgned, I herehy estabsh
(1) that f such artce s made, drecty or ndrecty, n some part from another
artce for whch a converson factor s assgned, then as to each pound of the
rce content of such part the converson factor sha he the converson factor
for such other artce, and (2) that f such artce s made, drecty or ndrecty,
n some part from rce hut not as to such part from another artce for whch
a converson factor s assgned, then as to such part the ta or refund sha
be computed at the rate of the processng ta upon the bass of the amount of
roug rce estabshed to have been actuay used n the producton of such part
In the event that the Commssoner of Interna Revenue, any ta payer, or
any person entted to a refund estabshes that any artce processed from rce,
wth respect to whch a ta s mposed, or whch may be the sub|ect of a cam
for refund, whch s ncuded In the above st, contans more or ess rce content
than represented by the sted converson factor, then the amount of the ta
or of the refund sha be computed at the rate of the processng ta upon the
bass of the amount of rough rce estabshed to have been actuay used n the
producton of the artce.
Par. G. Secton 1 (f) of the grcutura d|ustment ct, as
amended, provdes:
The provsons of ths secton 1 sha not be appcabe wth respect to rce.
Par. . Secton 15 (b-1) and (b-2), grcutura d|ustment
ct, as amended, provdes:
(b-1) The Secretary of grcuture s authorzed and drected to ssue ta -
payment warrants, wth respect to rough rce produced n 1933 and 1934
1 Secton 1 , reatng to ta wth respect to foor stocks.
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suffcent to cover the ta wth respect to the processng thereof nt the rate n
effect at the tme of such Issuance, to any processor wth respect to any such
rce whch he has n hs possesson on March 31, 1935, and to, or at the drecton
of any other person wth respect to nny such rce whch, on or after pr 1,
1935, he devers for processng or ses to a processor.
(b 2) The warrants authorzed and drected to be ssued by subsecton
(b-1) of ts secton
(1) sha be ssued by the Secretary of grcuture or hs duy authorzed
agent In such manner, at such tme or tmes, at such pace or paces, n such
form, and sub|ect to such terms r .nd condtons wth reference to the transfer
thereof or the vodng of warrants frauduenty obtaned and/or erroneousy
Issued, ns the Secretary of grcuture may prescrbe.
(2) sha be accepted by the coector of nterna revenue and the Secretary
of the Treasury at the face vaue thereof n payment of any processng ta
on rce.
Par. I. Secton 17(a) of the grcutura d|ustment ct, as
amended, provdes n part :
Upon the e portaton to any foregn country (and/or to the Phppne
Isands, the rgn Isands, mercan Samoa, the Cana Zone, and the Isand
of Guam) of any product wth respect to whch a tu has been pad under ths
tte, or of any product processed whoy or party from a commodty wth
respect to whch product or commodty a ta has been pad under ths tte,
the ta due and pad sha be refunded. The refund sha be pad to the
e porter or to the consgnor named n the b of adng under whch the product
s e ported, as determned under the reguatons prescrbed by the Com-
mssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury. In the ca,se of rce, a ta due under ths tte whch has been pad
by a ta -payment warrant sha be deemed for the purposes of ths subsecton
to have been pad and wth respect to any refund authorzed under ths
secton, the amount schedued by the Commssoner of Interna Revenue for
refundng sha be pad, any provson of aw notwthstandng.
Par. . Secton 15(e) of the grcutura d|ustment ct, as
amended, provdes n part:
Durng any perod for whch a processng ta s n effect wth respect to
any commodty there sha be eved, assessed, coected, and pad upon any
artce processed or manufactured whoy or party from such commodty and
mported Into the Unted States or any possesson thereof to whch ths tte
appes, from any foregn country or from any possesson of the Unted
States to whch ths tte does not appy, whether mported as merchandse,
or as a contaner of merchandse, or otherwse, a compensatng ta equa to
the amount of the processng ta In effect wth respect to domestc processng
of such commodty at the tme of mportaton: Provded. (1) That n the event
any of the provsons of ths tte have been or are hereafter made appcabe
to nny possesson of the Unted States In the case of any partcuar commodty
or commodtes, but not generay, ths tte, for the purposes of ths subsecton,
sha be deemed appcabe to such possesson wth respect to such commodty
or commodtes but sha not be deemed appcabe to such possesson wth
respect to other commodtes:
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded n ths tte sha he coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es sha
be pad nto the Treasury of the Unted States.
Par. L. Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as may
be necessary to carry out the powers vested n hm by ths tte.
Par. M. Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
47318 30 15
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442
Pursuant to the above quoted provsons and provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) t the earest moment of pr 1, 1935, there
became effectve (1) a processng ta on the frst domestc processng of rce
and (2) a compensatng ta wth respect to a artces processed or manufac-
tured whoy or party from rough rce and mported on or after pr 1, 1935.
The rate of processng ta s gven n artce 2 of these reguatons. The
rates of compensatng ta are gven n artce 4 of these reguatons.
No ta s Imposed wth res ect to foor stocks of artces processed from rce.
See paragraph G, above.
( ) or reguatons reatng to the processng ta and compensatng ta ,
consut Reguatons 81, and for reguatons reatng to e portaton under secton
17 of the ct, consut Reguatons 83 (September, 1934, edton), whch are
genera reguatons under the grcutura d|ustment ct, as amended. Sad
reguatons are suppemented by the reguatons contaned n ths Treasury
decson.
(c) The effectve date as defned and used n Reguatons 81 and Regua-
tons 83 (September, 1934, edton), that s, the date when the processng ta
wth respect to rce became effectve, s pr 1, 1935.
(d) The varous defntons set forth In the reguatons of the Secretary of
grcuture n paragraph (3) above are hereby made a part of these reguatons.
rt. 2. Processng ta . (a) ta s mposed on the frst domestc processng
of rce. rst domestc processng of rce means:
(1) The ceanng, sheng, mng (ncudng custom mng for to as we
as commerca mng), grndng, rong, or other processng (e cept grndng
or crackng by or for the producer thereof for feed for hs own ve stock, cean-
ng by or drecty for a producer for seed purposes, and dryng) of rough rce
(2) In the case of rough rce wth respect to whch a ta -payment warrant
has been prevousy Issued or apped for by appcaton then pendng (a) any
one of the above-mentoned processngs or (b) any preparaton or handng
In connecton wth the sae or other dsposton thereof. See subdvson (c)
of ths artce.
The term rough rce means rce n that condton whch s usua and cus-
tomary when devered by the producer to a processor. The rate of ta on the
frst domestc processng of rce s one (1) cent per pound of rough rce. The
weght of rce to whch the rate of ta sha be apped sha be the weght of
rough rce when devered to a processor, e cept that where the producer proc-
esses hs own rce, the weght to whch the rate of ta sha be apped sha be
the weght of rough rce when devered to the pace of processng.
( ) Ta -payment uarrants. Ta -payment warrants ssued pursuant to sec-
ton 15 (b-1) and (b-2)1 of the ct, as amended, w be accepted at the face vaue
thereof by coectors of nterna revenue n payment of any processng ta wth
respect to rce. If the amount of ta -payment warrants tendered wth a
processng ta return e ceeds the amount of ta shown to be due on sad re-
turn, the amount n e cess sha be camed on the return fed for the foowng
month as a credt aganst the ta shown thereon to be due. If the amount
of ta -payment warrants tendered wth a processng ta return Is ess than the
amount of ta shown to be due on such return, the dfference sha be pad n cash.
(c) emptons. empt from the processng ta are:
(1) The processng of rough rce by or for the producer thereof for con-
sumpton by hs famy, empoyees, or househod.
(2) The grndng or crackng of rough rce by or for the producer thereof
for feed for hs own ve stock.
(3) The ceanng of rough rce by or drecty for a producer for seed purposes.
The e empton under subdvson (3) does not appy f (a) a ta -payment
warrant has been ssued, or (b) a ta -payment warrant has been apped for
by appcaton then pendng, wth respect to such rough rce, and such rce
s prepared or handed n connecton wth a sae or other dsposton thereof.
When rough rce Is (1) processed fo the producer thereof, for consumpton
by hs famy, empoyees, or househod, or (2) ground or cracked for the pro-
ducer thereof, for feed for hs own ve stock, or (3) cenned drecty for the
producer for seed purposes, f the above e empton wth respect thereto appes,
the processor sha procure at the tme of devery of the product an affdavt
or certfcate n dupcate on P. T. orm 29- . One copy of such affdavt or
1 See paragraph .
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certfcate sha be kept on the premses of the processng pant, and the other
sha be fed by the processor wth hs monthy return on P. T. orm 5, on
whch deductons are taken for suc processng, grndng, crackng, or ceanng.
(d) The form prescrbed for return of processng ta s P. T. orm 5. The
return for the month of pr, 1935, and for each subsequent caendar month
sha be fed on or before the ast day of the month foowng the month n
whch the processng s done. The amount of ta shown to be due on each such
return must bo pad at the tme when the return s ted, or f the tme for
payment be postponed, then at the tme or tmes desgnated for payment n
such postponement.
(e) ach person engaged n the processng of rce sha keep a wrtten record
showng wth respect to rough rce (1) the quantty on hand at the begnnng
of the month, (2) the quantty receved durng the month, (3) the quantty
shp ed or devered durng the month, (4) the quantty sod or otherwse ds-
posed of durng the month, (5) the quantty on hand at the end of the month,
and ( ) the quantty put n process durng the month. These quanttes must
be the actua weght of the rough rce when devered to the processor, or
when devered to the pace of processng f the processor s aso the producer.
bt. 3. Compensatng ta on mported artces. compensatng ta became
effectve at the earest moment of pr 1, 1935, wth respect to a artces
processed or manufactured whoy or party from rce mported on and after
sad date, nto the Unted States or any possesson thereof to whch the ct
appes, from any foregn country or any possesson of the Unted States to
whch the ct does not appy. The ta appcabe to such artces s gven
n artce 4 of these reguatons. Detaed reguatons as to ths ta are con-
taned In Chapter I of Reguatons 81, as amended by Treasury Decson 4501,
approved December 4, 1934 C. . III-2. 524 .
rt. 4. Rates of compensatng ta or of refund. (a) The rates of compen-
satng ta or of refund wth respect to artces processed whoy or party from
rce are as foows:
(1) In the case of an artce named beow, the rate s:
Cassfcaton.
Ground rough rce
Ceaned rough rce
rown rce
Rce mea
Med rce
Granuated rce
Rce four
Rce starch
Rce powder
Rce breakfast foods:
(a) Roed or faked types, consstng chefy of rce
( ) Puffed type, consstng chefy of rce
Rce soup
ermented beverages:
(a) eer, f made from materas of whch rce consttuted, by
weght1
Over y m of 1 per cent and not over 10 per cent
Over 10 per cent and not over 15 per cent
Over 15 per cent and not over 20 per cent
Over 20 per cent and not over 25 per cent
Over 25 per cent and not over 30 per cent
Over 30 per-cent and not over 35 per cent
Over 35 per cent and not over 40 per cent
Over 40 per cent and not over 45 per cent
Over 45 per cent
( ) Rce wne or sake
Dsted sprts
Rate ot ta
or of refund
(cents).
Per pound.
1. 00
1. 01
1. 30
1. 30
1. 44
1. 44
1. 44
2. 13
2. 13
1. 7
3. 74
. 09
Per barre of
SI gaons.
5. 95
9. 7
13. 38
17. 10
20. 82
24. 4
28. 2
31. 97
35. 9
Per naton.
a so
30. 00
1 cusve of water added durng the manufacturng process.
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(2) In te case of an artce not named n (1) above, part of whch was made
drecty or ndrecty from an artce named n (1) above, the rate of ta or of
refund wth respect to such part sha be the rate for the named artce from
whch such part was made and, f such part was made ndrecty from an artce
named n (1) above, and drecty from another artce named n (1) above, the
rate of ta or of refund sha be the rate for the named artce from whch
such part was drecty made. or e ampe, f such part was made from med
rce, the rate of ta or of refund wth respect to such part s the rate for
med rce.
(3) In the case of an artce not named n (1) above, part of whch was made
drecty or ndrecty from rce, but not as to such part drecty or ndrecty
from an artce named n (1) above, the amount of ta or of refund sha be
equvaent to the amount of ta on the processng of such quantty of rough rce
as was actuay used n the producton of such part.
( ) In the event that the Commssoner of Interna Revenue fnds, or any
ta payer, or any person entted to a refund, estabshes, that an artce proc-
essed from rce, wth respect to whch a ta Is mposed, or whch may be the
sub|ect of a cam for refund, whch s ncuded n the above st, contans more
or ess rce content than represented by the converson factor prescrbed therefor
n paragraph (4), above, then the amount of ta or of refund sha be equva-
ent to the amount of tu on the processng of such quantty of rough rce as s
shown to have been actuay used n the producton of the artce.
(c) ny refund or credt of ta , made pursuant to the provsons of secton
15(c) or any refund made under the provsons of secton 17(a) of the ct,
sha be made ony on the foowng bass:
(1) If the ta pad was a compensatng ta , the amount of refund sha be
the amount of ta actuay due and pad wth respect to the partcuar product
devered or e ported.
(2) If the ta pad was a processng ta , the amount of refund sha be de-
termned n accordance wth the rate of processng ta n effect at the tme of
the frst domestc processng of rce from whch the devered or e ported product
was processed and n accordance wth the proper converson factor n effect
at the tme the product was devered or e ported.
No refund under the provsons of sectons 17(a) of the ct, as amended, w
be made wth respect to artces processed from rce whch are e ported uness
t s shown that the ta wth respect to such artces was actuay pad n cash
or by the tender of ta -payment warrants. No refund under the provsons of
secton 15(c) of the ct. as amended, w be made wth respect to artces
processed from rce devered for chartabe dstrbuton or use uness t Is
shown that the ta wth respect to such artces was actuay pad n cash.
Cams for such refunds sha be supported by the affdavt of the processor
showng when the processng occurred whch resuted n the partcuar rce
product e ported or devered, and when the ta was pad to the coector. If
the cam s made under the provsons of secton 15(c) of the ct, such affdavt
must show that the ta was pad n cash. The affdavt of the processor must
aso show the quantty and knd of product sod, the name and address of the
person to whom devered, and date of devery. The cam sha aso be sup-
ported by the affdavt of each person to whom such rce product s subsequenty
devered, showng the quantty and knd of product receved, the name and
address of the person from whom receved, and date of recept, and to whom a
or part thereof was devered, the quantty and knd devered, the name and
address of the person to whom devered, and the date of devery. These aff-
davts must trace such product from the processor to the person who fes the
cam.
rt. 5. stng contracts. or genera provsons reatng to e stng con-
tracts, see Reguatons 81, artces 27 and 28.
If a processor had such a contract for devery on or after pr 1, 1035, of an
artce processed whoy or n chef vaue from rce, the. ta on such processng
(f done on or after pr 1, 1935) must be returned on the current monthy
return and then pad. The respectve rate shown n artce 4 of these regua-
tons shoud be used n determnng the amount of ta to be coected from the
vendee.
rt. C. orms. To nsure the proper return and coecton of the processng
ta mposed by the ct, and to factate the refund of ta es, certan forms are
heren prescrbed. The prescrbed form must be used ns requred by thenppca-
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be provson of Reguatons 81, Reguatons 83 (September, 1934, edton), and
these reguatons, and must be carefuy fed out n e act accordance wth the
appcabe provsons of the proper reguatons and the Instructons contaned
on such form. The foowng forms wth respect to rce are here prescrbed:
orm No.
Desgnaton.
Requred by
P. T. orm 5
Processng ta return.
Reguatons 81, artce 11.
Reguatons 81, artces
30, 31(a), 32.
P. T. orm 24
Cam for refund of overpay-
ment under grcutura d-
|ustment ct.
P.T. orm24-C-
Cam for refund of, or credt
for, ta pad wth respect to
artces devered for char-
tabe dstrbuton or use.
Reguatons 81, artce 32,
as amended (T. D. 4454
C. . III-2, 479 ).
P. T. orm 27
Cam for refund of ta pad
wth respect to artces e -
ported.
Reguatons 83 (Septem-
ber, 1934, edton).
P. T. orm 28
Cam for credt on monty
return.
Reguatons 81, artce
31( ).
Gt|t T. everno,
Commssoner of Interna Revenue.
pproved uy 10, 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
I -37-7 9
T. D.453
Processng ta and compensatng ta wth respect to rce under
the grcutura d|ustment ct, as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, as
amended by the ct approved March 18, 1935, provdes, n part:
When the Secretary of grcuture determnes that renta or beneft
payments are to be made wth respect to any basc agrcutura commodty, e
sha procam such determnaton, and a processng a sha be n effect wth
respect to such commodty from to begnnng of the marketng yea therefor
ne t foowng the dae of such procamaton e cept that n the
case of rce, the Secretary of grcuture sha, before pr 1. 1935, procam
that renta or beneft payments are to he made wth respect thereto, and the
processng ta sha be n effect on and after pr 1, 1035. In tho
case of rce, the perod from ugust 1 to uy 31, both ncusve, sha be
consdered to be the marketng year.
Par. . procamaton of the ctng Secretary of grcuture,
dated March 18, 1935, provdes:
I, M. I|. Wson, ctng Secretary of grcuture of the Unted
States of merca, have determned and hereby procam that renta and/or
beneft payments are to be made wth respect to rce, a basc agrcutura
commodty.
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Pah. C. Secton 9(b) of the grcutura d|ustment ct, as
amended, provdes n part:
(3) or the perod from pr 1, 1933, to uy 31, 193 , both ncusve, the
processng ta wth respect to rce sha be eved, assessed, coected, and pad
at the rate of 1 cent per pound of rough rce.
(7) In the case of rce, the weght to whch the rate of tar sha be apped
sha be the weght of rough rce when devered to a processor, e cept that,
where the producer processes hs own rce, the weght to whch the rate of
ta sha be apped sha be the weght of rough rce when devered to the
pace of processng.
Par. D. Secton 9(d) of the grcutura d|ustment ct, as
amended, provdes n part:
(7) In the case of rce
( ) The term rough rce means rce n that condton whch s usua and
customary when devered by the producer to a processor.
( ) The term processng means the ceanng, sheng, mng (ncudng
custom mng for to as we as commerca mng), grndng, rong, or
other processng (e cept grndng or crackng by or for the producer thereof
for feed for hs own ve stock, ceanng by or drecty for a producer for seed
purposes, und dryng) of rough rce and n the case of rough rce wth respect
to whch a ta -payment warrant had been prevousy Issued or apped for by
appcaton then pendng, the term processng means any one of the above-
mentoned processngs or any preparaton or handng n connecton wth the
sae or other dsposton thereof.
(D) The term processor, as used n subsecton (b-1)1 of secton 15 of ths
tte, means any person (ncudng a cooperatve assocaton of producers)
engaged n the processng of rce on a commerca bass (ncudng custom
mng for to as we as commerca mng).
Par. . Secton 10(c), grcutura d|ustment ct, provdes:
The Secretary of grcuture s authorzed, wth the approva of the
Presdent, to make such reguatons wth the force and effect of aw as may
be necessary to carry out the powers vested n hm by ths tte, ncudng
reguatons estabshng converson factors for any commodty and artce
processed therefrom to determne the amount of ta mposed or refunds to be
made wth respect thereto. ny voaton of any reguaton sha be sub|ect
to such penaty, not n e cess of 100, as may be provded theren.
Par. . The reguatons, wth respect to rce, made by the Secre-
tary of grcuture, wth the approva of the Presdent, dated
March 30, 1935, as revsed and, n part, superseded by reguatons
made by the ctng Secretary of grcuture, wth the approva of
the Presdent, dated uy 31, 1935, provde:
I. Marketng Yeah.
(1) I do hereby ascertan and prescrbe that for the purposes of sad ct
the frst marketng year for rce sha begn ugust 1, 1935.
II. ate of Ta .
(2) The rate of processng ta on the frst domestc processng of rce, be-
gnnng pr 1, 1935, sha be one (1) cent per pound of rough rce.
The weght to whch the rate of ta sha be apped sha be the weght
of rough rce when devered to a processor, e cept that where the producer
processes hs own rce, the weght to whch the rate of ta sha be apped
sha be the weght of rough rce when devered to the pace of processng.
1 Sop paragraph O.
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Mso.
III. Defntons.
(3) The foowng terms, as used In these reguatons, sha have the mean-
ngs hereby assgned to them:
rst domestc processng means the ceanng, sheng, mng (ncudng cus-
tom mng for to as we as commerca mng), grndng, rong, or other
processng (e cept grndng or crackng by or for the producer thereof for feed
for hs own ve stock, ceanng by or drecty for a producer for seed purposes,
and dryng) of rough rce and n the case of rough rce wth respect to whch
a ta -payment warrant has been prevousy ssued or apped for by appca-
ton then pendng, the frst domestc processng means any one of the above-
mentoned processngs or any preparaton or handng n connecton wth the
sae or other dsposton thereof.
Rough rce (frequenty termed or referred to as paddy ) means rce n
that condton whch s usua and customary when devered by the producer
to a processor.
Ground rough rce s rough rce whch has been cracked, crushed, chopped,
or ground.
Ceaned rough rce s rough rce whch has been sub|ected to a ceanng
process for remova of separabe e traneous foregn matter.
rmcn rce s rce whch has been hued and from whch the germ and the
bran have not been removed.
Rce mea s browu rce whch has been cracked, crushed, chopped, puverzed,
or ground.
Med rce s rce whch has been hued and from whch the germ and a
or part of the bran have been removed, and may be ether whoe or broken,
coated or uncoated.
(a) rewers rce s broken med rce whch w pass ready through a
meta seve perforated wth round hoes fve and one-haf s ty-fourths of one
nch In dameter.
(b) Other med rce s any med rce other than brewers rce.
Granuated rve s med rce whch has been cracked, crushed, chopped,
puverzed, or ground.
Rce four s four resutng from the puverzng and/or botng of med
rce.
Rce starch s starch resutng from the wet mng of rce n any form.
Rce powder s rce starch whch has been puverzed and/or boted.
Rce breakfast foods are preparatons of a breakfast food type n whch rce
s used as one of the ngredents, ncudng (a) the roed and faked type,
consstng chefy of rce and (b) the puffed type, consstng chefy of rce.
Rce soup s soup whch ncudes as one of ts ngredents rce n any form.
ermented beverages. (a) eer s an acohoc beverage made by fermenta-
ton from cereas, ncudng rce, and favored wth hops or other substance
to mpart ts characterstc btter favor.
( ) f ce cnc or sake s an acohoc beverage made by a speca process
of fermentaton from materas consstng chefy of rce.
Dsted sprts are products derved from materas consstng chefy of rce
by a process of dstaton, to whch other ngredents may have been added,
and ncude both beverages and medcna preparatons of the knds commony
referred to as Chnese wnes.
Rce hu s the husk or tough fbrous outer coat of rough rce.
Rce bran s the bran of rce together wth such quantty of hu fragments
and germ as s usua n the reguar mng of rce, and ncudes huer bran
and stone bran.
Rce germ s the embryo of the rce kerne.
Rce posh s the fue powdery matera resutng from the poshng o(
med rce.
I . Converson actobs.
(4) I do hereby estabsh converson factors for artces processed whoy,
n chef vaue, or party from rce to determne the amount of ta mposed
or refunds to be made wth res ect thereto.
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448
The foowng tabe of converson factors f es the percentage of the per
pound processng ta on rough rce wth respect to each pound of the foowng
artces processed whoy, n chef vaue, or party from rough rce:
rtce.
Ground rough rce
Ceaned rough rce
rown rce
Rce mea
Med rce:
(a) rewers rce
( ) Other med rce
Granuated rce
Rce four
Rce starch
Rce powder
Rce breakfast foods:
(a) Roed or faked types, consstng chefy of rce...
( ) Puffed type, consstng chefy of rce
Rce soup
ermented beverages:
(a) eer, f made from materas of whch rce const-
tuted by weght:1
Over yo per cent and not over 10 per cent
Over 10 per cent and not over 15 per cent.
Over 15 per cent and not over 20 per cent
Over 20 per cent and not over 25 per cent
Over 25 |er cent and not over 30 per cent..
Over 30 per cent and not over 35 per cent
Over 35 per cent and not over 40 per cent
Over 40 per cent and not over 45 per cent
Over 45 per cent
( ) Rce wne or sake
Dsted sprts
Rce hu
Rce bran
Rce germ
Rce posh
Unt
(pounds).
Converson
(actor (per
cent of the per
ponnd proces-
ng tan
rough rce).
100
101
130
130
75
145
75
75
215
215
178
377
310
504
97
891
1,084
1,278
1, 471
1, 5
1,859
887
3,000
0
0
0
0
1 cusve of water added durng the manufacturng process.
Per barre of .11 gaons.
Per gaon.
s to any artce for whc no converson factor s assgned, I hereby estabsh
(1) that f such artce s made, drecty or ndrecty, n some part from
another artce for whch a converson factor Is assgned, then as to each pound
of the rce content of such part the converson factor sha be the converson
factor for such other artce, and (2) that f such artce s made, drecty
or ndrecty, n some part from rce but not as to such part from another artce
for whch a converson factor s assgned, then as to such part the ta or refund
sha be computed at the rate of the processng ta upon the bass of the amount
of rough rce estabshed o have been actuay used n the producton of such
part.
In the event that the Commssoner of Interna Revenue, any ta payer, or any
person entted to a refund estabshes that any artce processed from rce,
wth respect to whch a ta s mposed, or whch may be the sub|ect of a cam
for refund, whch s ncuded n the above st, contans more or ess rce content
than represented by the sted converson factor, then the amount of the ta or
In thp rnsp of rce wne or sake, and dsted sprts, 1 gaon In the case of beer,
1 barre of 31 gaons.
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Mso.
of the refund sha be computed at the rate of the processng ta upon the bass
of the amount of rough rce estabshed to have been actuay used n the
producton of the artce.
Par. G. Secton 15 (b-1) and (b-2), grcutura d|ustment ct,
as amended, provdes:
(b-1) The Secretary of grcuture s authorzed and drected to ssue ta -
payment warrants, wth respect to rough rce produced n 1033 and 1934
suffcent to cover the ta wth respect to the processng thereof at the rate
In effect at the tme of such ssuance, to any processor wth respect to auy such
rce whch he has n hs possesson on March 31, 1935, and to, or at the drecton
of any other person wth respect to any such rce whch, on or after pr 1,
1935, he devers for processng or ses to a processor:
(b-2) The warrants authorzed and drected to be ssued by subsecton (b-1)
of ths secton
(1) sha be ssued by the Secretary of grcuture or hs duy authorzed
agent n such manner, at such tme or tmes, at such pace or paces, n such
form, and sub|ect to such terms and condtons wth reference to the transfer
thereof or the vodng of warrants frauduenty obtaned and/or erroneousy
ssued, as the Secretary of grcuture may prescrbe,
(2) sha be accepted by the coector of nterna revenue and the Secretary
of the Treasury at the face vaue thereof n payment of any processng ta
on rce.
Par. . Secton 17(a) of the grcutura d|ustment ct, as
amended, provdes n part:
Upon the e portaton to any foregn country (and/or to the Phppne
Isands, the rgn Isands, mercan Samoa, the Cana Zone, and the sand
of Guam) of any product wth respect to whch a ta has been pad under
ths tte, or of any product processed whoy or party from a commodty
wth respect to whch product or commodty a ta has been pad under ths
tte, the ta due and pad sha be refunded. The refund sha be pad to
the e porter or to the consgnor named n the b of adng under whch the
product s e ported, as determned under reguatons prescrbed by the Com-
mssoner of Interna Revenue, wth the approva of the Secretary of the
Treasury. In the case of rce, a ta due under ths tte whch has been pad
by a ta -payment warrant sha be deemed for the purposes of ths subsecton
to have been pad and wth respect to any refund authorzed under ths
secton, the amount schedued by the Commssoner of Interna Revenue for
refundng sha be pad, any provson of aw notwthstandng.
Par. I. Secton 15(e) of the grcutura d|ustment ct, as
amended, provdes n part:
Durng any perod for whch a processng ta s n effect wth respect
to any commodty there sha be eved, nssessed, coected, and pad upon
any artce processed or manufactured whoy or party from such commodty
and mported Into the Unted States or any possesson thereof to whch ths
tte appes, from any foregn country or from any possesson of the Unted
States to whch ths tte does not appy, whether mported as merchandse,
or as a contaner of merchandse, or otherwse, a compensatng ta equa to
the amount of the processng ta n effect wth respect to domestc processng
of such commodty nto such an artce at the tme of mportaton: Provded,
(1) That n the event any of the provsons of ths tte have been or
are hereafter made appcabe to any possesson of the Unted States n the
case of any partcuar commodty or commodtes, but not generay, ths tte,
for the purposes of ths subsecton, sha be deemed appcabe to such possesson
wth respect to such commodty or commodtes but sha not be deemed
appcabe to such possesson wth respect to other commodtes
Par. . Secton 19(a), grcutura d|ustment ct, provdes:
The ta es provded In ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested In hm by ths tte.
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450
Par. L. Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (o) t the earest moment of pr 1, 1935, there
became effectve (1) a processng ta on the frst domestc processng of rce
and (2) a compensatng ta wth respect to a artces processed or manu-
factured whoy or party from rough rce and mported on or after pr 1,
1935.
The rate of processng ta s gven n artce 2 of these reguatons. The
rates of compensatng ta are gven n artce 4 of these reguatons.
( ) or reguatons reatng to the processng ta and compensatng ta ,
consut Reguatons 81, and for reguatons reatng to e portaton under
secton 17 of the ct, consut Reguatons 83 (September, 1934, edton), whch
are genera reguatons under the grcutura d|ustment ct, as amended.
Sad reguatons are suppemented by the reguatons contaned n ths Treas-
ury decson.
(c) The effectve date as defned and used n Reguatons 81 and Regu-
atons 83 (September, 1934, edton), that s. the date when the processng
ta wth respect to rce became effectve, s pr 1, 1935.
( ) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph (3 above are hereby made a part of these regua-
tons.
bt. 2. Processng ta . (a) ta Is Imposed on the frst domestc process-
ng of rce. rst domestc processng of rce means:
(1) The ceanng, sheng, mng (ncudng custom mng for to as weU
as commerca mng), grndng, rong, or other processng (e cept grndng
or crackng by or for the producer thereof for feed for hs own ve stock,
ceanng by or drecty for a producer for seed purposes, and dryng) of rough
rce
(2) In the case of rough rce wth respect to whch a ta -payment warrant
has been prevousy ssued or apped for by appcaton then pendng, (a) any
one of the above-mentoned processngs or ( ) any preparaton or handng n
connecton wt the sae or other dsposton thereof. See subdvson (c) of
ths artce.
The term rough rce means rce n that condton whch s usua and cus-
tomary when devered by the producer to a processor. The rate of ta on the
frst domestc processng of rce s one (1) cent per pound of rough rce. The
weght of rce to whch the rate of ta sha be apped sha be the weght of
rough rce when devered to a processor, e cept that where the producer proc-
esses hs own rce, the weght to whch the rate of ta sha be apped sha
be the weght of rough rce when devered to the pace of processng.
( ) Ta -payment warrants. Ta -payment warrants ssued pursuant to sec-
ton 15 (b-1) and (b-2)1 of the ct, as amended, w be accepted at the face
vaue thereof by coectors of nterna revenue n payment of any processng ta
wth respect to rce. If the amount of ta -payment warrants tendered wth a
processng ta return e ceeds the amount of ta shown to be due on sad
return, the amount n e cess sha be camed on the return fed for the foow-
ng month as a credt aganst the ta shown thereon to be due. If the amount
of ta -payment warrants tendered wth a processng ta return s ess than the
amount of ta shown to be due on such return, the dfference sha be pad n
cash.
(c) emptons.
empt from the processng ta are:
(1) The processng of roug rce by or for the producer thereof for con-
sumpton by hs famy, empoyees, or househod.
(2) The grndng or crackng of rough rce by or for the producer thereof for
feed for hs own ve stock.
1 Sec paragraph G.
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(3) The ceanng of rough rce by or drecty for a producer for seed purposes.
The e empton under subdvson (3) does not appy f (a) n ta -payment
warrant has been Issued, or ( ) a ta -payment warrant has been apped for by
appcaton then pendng, wth respect to such rough rce, and such rce s pre-
pared or handed n connecton wth a sae or other dsposton thereof.
When rough rce s (1) processed for the producer thereof, for consumpton
by hs famy, empoyees, or househod, or (2) ground or cracked for the pro-
ducer thereof, for feed for hs own ve stock, or (3) ceaned drecty for the
producer for seed purposes, f the above e empton wth respect thereto appes,
the processor sha procure at the tme of devery of the product an affdavt or
certfcate n dupcate on P. T. orm 29- . One copy of such affdavt or
certfcate sha be kept on the premses of the processng pant, and the other
sha be fed by the processor wth s monthy return on P. T. orm 5, on
whch deductons are taken for such processng, grndng, crackng, or ceanng.
( f) The form prescrbed for return of processng ta s P. T. orm 5. The
return for each month sha be fed on or before the ast day of the month
foowng the caendar month n whch the processng s done. The amount of
ta shown to be due on each such return must be pad at the tme when the
return s fed, or f the tme for payment be ostponed, then at the tme or tmes
desgnated for payment n such postponement.
(e) ach person engaged n the processng of rce sha keep a wrtten record
showng wth respect to rough rce (1) the quantty on hand nt the begnnng
of the month, (2) the quantty receved durng the month, (3) the quantty
shpped or devered durng the month, (4) the quantty sod or otherwse
dsposed of durng the month, (5) the quantty on hand at the end of the month,
and (0) the quantty put n process durng the month. These quanttes must
be the actua weght of the rough rce when devered to the processor, or when
devered to the pace of processng f the processor s aso the producer.
kt. 3. Compensatng ta on mported artce . compensatng ta became
effectve at the earest moment of pr 1, 1935, wth respect to a artces
processed or manufactured whoy or party from rce mported on and after
sad date, nto the Unted States or any possesson thereof to whch the ct
appes, from any foregn country or any possesson of the Unted States to
whch the ct does not appy. The amount of compensatng ta payabe wth
respect to an mported artce s based on the rate n effect wt respect to such
artce at the tme of mportaton and not the rate n effect at the tme of the
wthdrawa of such artce from customs custody or contro. The ta appcabe
to such artces s gven n artce 4 of these reguatons. Detaed reguatons
as to ths ta are contaned n Chapter I of Iteguatons 81, as amended by
Treasury Decson 4501, approved December 4, 1934 C. . III-2, 524 .
et. 4. Rates of compensatng ta or of refund. (a) The rates of compen-
satng ta or of refund wth respect to artces processed whoy or party from
rce are as foows:
(1) In the case of an artce named beow, the rate s:
Cassfcaton.
Rate of ta or
of refund
(cents).
Ground rough rce
Ceaned rough rce
rown rce
Rce mea
Med rce:
(a) rewers rce
(b) Other med rce
Granuated rce
Rce four
Rce starch
Rce powder
Rce breakfast foods:
(a) Roed or faked types, consstng chefy of rce
( ) Puffed type, consstng chefy of rce
Rce soup
Pa pound.
1. 00
1. 01
1. 30
1. 30
. 75
1. 45
. 75
. 75
2. 15
2. 15
1. 78
a 77
. 09
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452
Cassfcaton.
Rate of ta or
of refund
(cents).
ermented beverages:
(o) eer, f made from materas of whch rce consttuted, by
weght:1
Over Mo per cent and not over 10 per cent
Over 10 per cent and not over 15 per cent
Over 15 per cent and not over 20 per cent
Over 20 per cent and not over 25 per cent
Over 25 per cent and not over 30 per cent_
Over 30 per cent and not over 35 per cent
Over 35 per cent and not over 40 per cent
Over 40 per cent and not over 45 per cent
Over 45 per cent
( ) Rce wne or sake.
Dsted sprts
Per barrt of
S gtUau.
3.10
5.04
.97
91
10.84
12.78
14.71
1 . 5
a59
Pa (often.
a 87
30. 00
cusve of water added durng the manufacturng process.
(2) In the case of an artce not named n (1) above, part of whch was
made drecty or Indrecty from an artce named n (1) above, the rate
of ta or of refund wth respect to such part sha be the rate for the named
artce from whch such part was made and, If such part was made Indrecty
from an artce named n (1) above, and drecty from another artce named
In (1) above, the rate of ta or of refund sha be the rate for the named
artce from whch such part was drecty made. or e ampe, If such part
was made from med rce, the rate of ta or of refund wth respect to such
part s the rate for med rce.
(3) In the case of an artce not named In (1) above, part of whch was
made drecty or ndrecty from rce, but not as to such part drecty or nd-
recty from an artce named n (1) above, the amount of ta or of refund
sha be equvaent to the amount of ta on the processng of such quantty
of rough rce as was actuay used n the producton of such part
( ) In the event that the Commssoner of Interna Revenue fnds, or any
ta payer, or any person entted to a refund, estabshes, that an artce proc-
essed from rce, wth respect to whch a ta s mposed, or whch may be the
sub|ect of a cam for refund, whch s ncuded n the above st, contans more
or ess rce content than represented by the converson factor prescrbed
therefor n paragraph (4), above, then the amount of ta or of refund sha
be equvaent to the amount of ta on the processng of such quantty of rough
rce as s shown to have been actuay used n the producton of the artce.
(c) ny refund or credt of ta , made pursuant to the provsons of secton
15(c) or any refund made under the provsons of secton 17(a) of the ct,
as amended, sha be made ony on the foowng bass:
(1) If the ta pad was a compensatng ta , the amount of refund sha
be the amount of ta actuay due and pad wth respect to the partcuar
product devered or e ported.
(2) If the ta pad was a processng ta , the amount of refund sha be
determned n accordance wth the rate of processng ta n effect at the tme
of the frst domestc processng of rce from whch the devered or e ported
product was processed and n accordance wth the proper converson factor
In effect at the tme the product was devered or e ported.
No refund under the provsons of secton 17(a) of the ct, ns amended,
w be made wth rpswt to artces processed from rce whch are e ported
uness t Is shown that the ta wth respect to such artces was actuay
pad n cash or by the tender of ta -payment warrants. No refund under the
provsons of secton 15(c) of the ct, as amended, w be made wth respect
to artces processed from rce devered for chartabe dstrbuton or use
uness t s shown that the ta wth respect to such artces was actuay
pad n cash.
Cams for such refunds sha be supported by the affdavt of the processor
showng when the processng occurred whch resuted n the partcuar rce
product e ported or devered, and when the ta was pad to the coector.
If the cam s made under the provsons of secton 15(c) of the ct, as
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453
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amended, such affdavt must show that the ta was pad n cash. The affdavt
of the processor must aso show the quantty and knd of product sod, the
name and address of the person to whom devered and date of devery. The
cam sha aso be supported by the affdavt of each person to whom such
rce product s subsequenty devered, showng the quantty and knd of product
receved, the name and address of the person from whom receved, and date
of recept, and to whom a or part thereof was devered, the quantty and
knd devered, the name and address of the person to whom devered, and tha
date of devery. These affdavts must trace such product from the processor
to the person who fes the cam.
rt. 5. orms. To nsure the proper return and coecton of the processng
ta mposed by the ct, and to factate the refund of ta es, certan forms are
heren prescrbed. The prescrbed form must be used as requred by the ap-
pcabe provson of Reguatons SI, Reguatons S3 (September, 1934, edton),
and these reguatons, and must bo carefuy fed out n e act accordance wth
the appcabe provsons of the proper reguatons and the nstructons con-
taned on such form. The foowng forms wth respect to rce are here pre-
scrbed :
orm No.
Desgnaton.
Requred by
P. T. orm 5
Processng ta return
Reguatons 81, artce 11.
Reguatons 81, artces 30,
31(a), 32.
P. T. orm 24.
Cam for refund of overpay-
ment or abatement under
grcutura d|ustment ct.
Cam for refund of, or credt
for, ta pad, or payabe, wth
respect to artces devered
for chartabe dstrbuton or
use.
P. T. orm 24-C-
Reguatons 81, artce 32,
as amended (T. D. 4454
C. . II-2, 479 ).
P. T. orm 27.
P. T. orm 28.--
Cam for refund of ta pad
wth respect to artces e -
ported.
Reguatons 83 (Septem-
ber, 1934, edton).
Cam for credt on monthy
return.
Reguatons 81, artce
31( ).
rt. . ffectve date. Treasury Decson 45 5, approved uy 10, 1935
page 437, ths uetn , sha reman n force and effect n so far as t reates
to abty for ta ncurred and rght to refund or credt accrued pror to
ugust 1, 1935. These reguatons sha be n force and effect as of the earest
moment of ugust 1, 1935.
Gut T. everng,
Commssoner of Interna Revenue.
pproved September 9,1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -4 -7805
T. D.4 01
Processng ta and compensatng ta wth respect to rye under
the grcutura d|ustment ct, as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue, Coectors of Customs, and Others
Concerned:
Paragraph . Secton 11 of the grcutura d|ustment ct, as
amended, provdes n part:
the term basc agrcutura commodty means rye
and any regona or market cassfcaton, type, or grade thereof
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454
Par. . t the tme of the ssuance of the procamaton of the
Secretary of grcuture, referred to n paragraph C, secton 9(a)
of the grcutura d|ustment ct, as amended, provded, n part:
When the Secretary of grcuture determnes that renta or beneft
payments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton .
Par. C. procamaton of the Secretary of grcuture, dated
uy 2, 1935, provdes:
I, . . Waace, Secretary of grcuture of the Unted States of merca,
actng under and pursuant to an ct of Congress, known as the grcutura
d|ustment ct, approved May 12, 1933, as amended, have determned, and
hereby procam that renta and/or beneft payments are to be made wth respect
to rye, a basc agrcutura commodty.
Pah. D. Secton 9(b)4 of the grcutura d|ustment ct, as
amended by the ct approved ugust 24, 1935 (Pubc, No. 320,
Seventy-fourth Congress), provdes:
or the perod from September 1, 1935, to December 31, 1937, both ncusve,
the processng ta wth respect to rye sha be eved, assessed, coected, and
pad at the rate of 30 cents per bushe of 5 pounds. In the case of rye, the
frst marketng year sha be consdered to be the perod commencng Septem-
ber 1, 193o, and endng une 30, 193 . Subsequent marketng years sha com-
mence on uy 1 and end on une 30 of the succeedng year. The provsons
of secton 1 of ths tte sha not appy n the case of rye.
Par. . Secton 9(d) of the grcutura d|ustment ct, as
amended, provdes n part:
In case of rye the term processng means the mng
or other processng (e cept ceanng and dryng) of rye
for market, ncudng custom mng for to as weU as commerca mng, but
sha not ncude the grndng or crackng thereof not n the form of four for
feed purposes ony.
Par. . Secton 15(e) of the grcutura d|ustment ct, as
amended, provdes n part:
Durng any perod for whch a processng ta s n effect wth respect to any
commodty there sha be eved, assessed, coected, and pad upon any artce
processed or manufactured whoy or party from such commodty and mported
nto the Unted States or any possesson thereof to whch ths tte appes, from
any foregn country or from any possesson of the Unted States to whch ths
tte does not appy, whether mported as merchandse, or as a contaner of
merchandse, or otherwse, a compensatng ta equa to the amount of the
processng ta n effect wth respect to domestc processng of such commodty
nto such an artce at the tme of mportaton: .
Par. G. Secton 10(c) of the grcutura d|ustment ct, as
amended, provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw as may be
necessary to carry out the powers vested n hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artces processed
therefrom to determne the amount of ta mposed or refunds to be made wth
respect thereto. ny voaton of any reguaton sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
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Pab. . The reguatons, wth respect to rye, made by the ctng
Secretary of grcuture, and approved by the Presdent on ugust
27, 1935, provde:
I. Marketno Year.
(1) In the case of rye, the frst marketng year sha be consdered to be
the perod commencng September 1, 1935, and endng une 30, 193 . Subse-
quent marketng years sha commence on uy 1 and end on une 30 of the
succeedng year.
II. Rate of Ta .
(2) or the perod from September 1, 1935, to December 31, 1937, both
ncusve, the processng ta wth respect to rye sha be eved, assessed, co-
ected, and pad at the rate of 30 cents per bushe of 5 pounds.
The weght of rye sub|ect to the processng ta sha be the weght of cean
rye.
III. Defntons.
(3) The foowng terms, as used n these reguatons, sha have the mean-
ngs hereby assgned to them:
rst domestc processng means the mng or other processng (e cept
ceanng and dryng) of rye for market, ncudng custom mng for to as
we as commerca mng, but sha not ncude the grndng or crackng
thereof not n the form of four for feed purposes ony.
Whoe-rye fow, whoe-rye mea s any four, or mea, made from rye, con-
tanng n ther appro mate natura proportons substantay a of the constt-
uents of cean rye.
rye four e cept whoe-rye our and trhoe-rye mea s any four (e cept
whoe-rye four, whoe-rye mea, rye farna) obtaned In the mng of rye.
Rye farna s the coarse granuar endosperm product obtaned n the mng
of rye.
Prepared rye pancake four s any commerca preparaton consstng of rye
four together wth varyng amounts of other four, or fours (e. g., wheat,
corn, rce, and buckwheat), commony used n the preparaton of pancakes,
grdde cakes, or waffes.
ye bread s bread obtaned by bakng a dough, the chef rye consttuent of
whch s rye four.
Pumperncke (ncudng both domestc and foregn types) Is the bread ob-
taned by bakng a dough n whch whoe-rye four or whoe-rye mea s the
chef rye consttuent.
Rye crackers, Swedsh heath oread, and smar artces are rye products of
the cracker or bscut type whch contan four or mea made from rye.
Toasted rye. breakfast foods are toasted or ready-to-eat preparatons of the
breakfast food type n whch rye n any form s used as an ngredent.
Rye mat s rye whch has been mated and prepared for use n brewng,
dstng, or other processng.
Rye mash s a mash matera n whch rye s a consttuent prepared for use
n the producton of fermented beverages, dsted sprts, or other artces.
Rye dsted sprts are acohoc dstates derved from rye ether whoy
or n part.
Rye feed s rye bran, rye mddngs, rye red dog, or any product of rye
(not n the form of four) resutng from the grndng or crackng thereof for
feed purposes ony.
Dsters rye dred grans s the dred resdue obtaned n the manufacture
of acoho and other dsted sprts from rye.
Dsters rye soubes s a by-product from the manufacture of acoho from
rye sods obtaned by the evaporaton of mash quor after the remova of the
acoho and wet grans.
I . Converson actors.
(4) I do hereby estabsh the foowng converson factors for artces
processed whoy or party from rye to determne the amount of ta mposed
or refunds to be made wth respect thereto.
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45
The foowng tabe of converson factors fes the percentage of the per-
bushe processng ta on rye wth respect to 100 pounds1 of the foowng
artces processed whoy or party from rye:
rtce.
Whoe-rye four, whoe-rye mea
rye four e cept whoe-rye four and whoe-rye mea
Rye farna
Prepared rye pancake four
Rye bread
Pumperncke:
(a) Domestc type
( ) oregn type
Rye crackers, Swedsh heath bread and smar artces
Toasted rye breakfast foods
Rye mat
Rye mash 2
Rye dsted sprts 1
Rye feed
Dsters rye dred grans 1
Dsters rye soubes --
1 In the case of rye dsted sprts, 1 gaon of 100 proof.
1 The above converson factors for rye mash and rye dsted sprts are based upon ft mash contanng
ony rye. In case rye s used ony n part, the converson factor for rye mash or rye dsted sprts sha
be the proporton of the above converson factor whch the weght of the rye n the mash bears to the tota
weght of the grans and gran products n the mash.
s to any artce for whch no converson factor s assgned, I hereby estab-
sh (1) that f such artce s made, drecty or ndrecty, n some part from
another artce for whch a converson factor s assgned, then as to each 100
pounds of the rye content of such part the converson factor sha be the
converson factor for such other artce, and (2) that f such artce s made,
drecty or ndrecty, n some part from rye but not as to such part from
another artce for whch a converson factor Is assgned, then as to such part
the ta or refund sha be computed at the rate of the processng ta upon the
bass of the amount of rye estabshed to have been actuay used In the
producton of such part.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund or credt sha estabsh that any artce proc-
essed whoy or party from rye, represents more or ess rye than s ndcated
by the converson factor sted above for such artce, then the amount of ta ,
refund, or credt wth respect to such artce sha be computed at the rate
of the processng ta on the bass of the amount of rye estabshed to be
actuay represented theren.
Par. I. Secton 19(a) of the grcutura d|ustment ct, as
amended, provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad Into the Treasury of the Unted States.
Par. . Secton 10(d) of the grcutura d|ustment ct, as
amended, provdes:
The Secretary of the Treasury Is authorzed to make such reguatons as
may be necessary to carry out the powers vested u hm by ths tte.
Par. . Secton 1101 of the Revenue ct of 192 , made app-
cabe by secton 19(b) of the grcutura d|ustment ct, as
amended, provdes:
The Commssoner, wt the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
1 In the cap of rye dsted sprts, 1 gaon of 100 proof.
cept where the factored artce from whch such part Is made Is dsted sprts, tn
whch case each 1 gaon of 100 proof s the measure Instead of each 100 pounds.
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Par. L. Secton 19 of the grcutura d|ustment ct, as
amended by the addtons of subsecton (d) by the ct approved
ugust 24, 1935 (Pubc, No. 320, Seventy-fourth Congress), pro-
vdes n part:
Unckr reguatons made by the Commssoner of Interna Revenue, wth
the approva of the Secretary of the Treasury, any person requred pursuant
to the provsons of ths tte to fe a return may be requred to fe such return
and pay the ta shown to be due thereon to the coector of nterna revenue
for the dstrct n whch the processng was done or the abty was n-
curred.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
btce 1. Genera. (o) There became effectve at the earest moment of
September 1, 1935, (1) a processng ta on the frst domestc processng of
rye, and (2) a compensatng ta wth respect to a artces processed or
manufactured whoy or party from rye, and mported on or after September
1, 1935.
The rate of processng ta s gven n artce 2 of these reguatons. The
rates of compensatng ta are gven n artce 4 of these reguatons.
No ta s mposed wth respect to foor stocks of artces processed from
rye. See paragraph D above.
( ) or reguatons reatng to the processng a and compensatng ta
consut Reguatons 81, as amended, and for reguatons reatng to e portaton
under secton 17 of the ct consut Reguatons 83 (September, 1934, edton).
Reguatons 81 and 83 are genera reguatons under the grcutura d|ust-
ment ct, as amended. Sad reguatons are suppemented by the reguatons
n ths Treasury decson.
(c) Wth respect to rye and artces processed therefrom, the date Sep-
tember 1, 1935, s the effectve date as defned and used n Reguatons 81.
(d) The varous defntons set forth n the reguatons of the ctng Sec-
retary of grcuture In paragraph (3) above, are hereby made a part of
these reguatons.
(e) The term rye, as used n these reguatons, means rye of any knd,
cassfcaton, type, or grade.
rt. 2. Processng ta . (a) The processng ta on the frst domestc proc-
essng of rye became effectve at the frst moment of September 1, 1935. or
detaed reguatons reatve to the ta on processng, see Reguatons 81.
( ) Rate of ta . The rate of ta appcabe to the frst domestc processng
of rye s 30 cents per bushe of 50 pounds.
(o) rst domestc processng. The frst domestc processng of rye s the
mng or other processng (e cept ceanng and dryng) of rye for market,
Incudng custom mng for to as we as commerca mng, but sha not
ncude the grndng or crackng thereof not n the form of four for feed
purposes ony.
(d) Weght of rye. The number of bushes of rye. the processng of whch
s sub|ect to the ta , sha be determned on the bass of cean rye put nto
the frst domestc processng. In the case of rye whch s to be ground, the
number of bushes sha be determned by weghng the rye (ncudng any non-
rye matera contaned theren) at any tme pror to grndng. To the weght
of rye so ascertaned (1) there sha be added the weght of any bran or so-
caed beeswng whch was removed pror to such weghng, and (2) there
sha be subtracted the weght of any other matera (e cept bran or bees-
wng ) whch was removed after such weghng, but before grndng.
(c) empton. The processng of rye by or for the producer thereof for
consumpton by hs own famy, empoyees, or househod s e empt from the
processng ta . Ths appes to what s known as custom mng (for to or
for money), but not to cases such as, for e ampe, where a producer devers
rye to an eevator or store n e change for four or other rye products, nor s
there any e empton where a producer who has hs rye processed receves a
knd or grade of product other than that whch coud have been processed
from the rye devered by such producer.
(/) Returns. The form prescrbed for return of processng ta s P. T.
orm 7.
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458
The return for the month of September, 1935, and for each subsequent caen-
dar month sha be fed on or before the ast, day of the month nest foowng
the month n whch sUL h processng s done. The amount of ta shown to be
due on each such return must be pad at the tme f ed for fng the return,
or f the tme for payment be postponed, then at the tme or tmes desgnated
for payment n such postponement.
ach such return sha be fed wth, and the ta shown to be due thereon
sha be pad to, the coector of nterna revenue for the dstrct n whch the
processng was done. If the ta payer s engaged n processng rye n more
than one coecton dstrct he sha fe wth the coector for each respectve
dstrct a separate return wth respect to the processng done In such dstrct.
If wthn a coecton dstrct, the ta payer has more than one m, or other
pace where such processng s done, there sha te attached to the return
fed In such dstrct a separate schedue for each such factory, m, pant, or
other pace, gvng nformaton as requred n artce 11 of Reguatons 81, aa
amended.
(g) Records. or the month of September, 1935, and for each caendar
month thereafter, each processor of rye sha keep an accurate wrtten record
showng wth respect to rye (1) the quantty on hand at the begnnng of the
month, (2) the quantty receved durng the month, (3) the quantty shpped
or devered durng the month, (4) the quantty otherwse dsposed of durng
the mouth, (5) the quantty on hand at the end of the month, (C) the quantty
put In process durng the mouth, and (7) the knd and quantty of a artces
or products resutng from such processng. The quanttes for (1) to (5),
ncusve, on each record sha be shown n accordance wth eevator scae
weghts wthout deductng any dockage aowances. When eevator scae
weghts are not obtanabe, the most reabe weght shoud be used.
rt. 3. Compensatng tar on mported artces. compensatng ta became
effectve at the earest moment of September 1, 1935, wth respect to a
artces processed whoy or party from rye, and mported on and after sad
date nto the Unted States, or any possesson thereof to whch the ct appes,
from any foregn country or any possesson of the Unted States to whch the
ct. does not appy. The rates of ta appcabe to such artces are gven n
artce 4 of these reguatons. or detaed reguatons reatve to the compen-
satng ta , see Chapter I of Reguatons 81, as amended.
bt. 4. Rates of compensatng ta , or of credt or refund. (a) The rates
of compensatng ta mposed wth respect to artces processed whoy or party
from rye and mported on and after September 1, 1935, and the rates of refund
or credt aowabe wth respect to such artces e ported on or after sad
date or devered on or after sad date to an organzaton for chartabe
dstrbuton or use are as foows:
(1) In the case of an artce named beow, the rate Is:
Cassfcaton.
Cent ptr
pound.
0. 5438
. 82 5
. 82 5
.082
. 1 2
Whoe-rye four and whoe-rye mea
rye four e cept whoe-rye four and whoe-rye mea
Rye farna
Prepared rye pancake four
Rye bread
Pumperncke:
-
.3 3S
(a) Domestc type
( ) oregn type
Rye crackers, Swedsh heath bread, and smar artces
Toasted rye breakfast food
Rye mat
Rye mash 1
. 07
. 5357
Per |afoa
Rye dsted sprts 1
1 The above rates of ta for ryo mash and rye dsted sprts are based upon a mash contanng ony rye.
The rates of ta for rye mash and rye dsted sprts sha be the proport on of the above rates whch tn
weght of the rye In the mash bears to the tota weght of grans and gran products n the mash.
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(2) In the case of an artce not named n (1) above, part of whch was
made drecty or Indrecty from an artce named n (1) above, the rate of
ta or of refund wth respect to such part su be the rate for the named
artce from whch such part was made and, f such part was made ndrecty
from an artce named n (1) above, and drecty from another artce named
In (1) above, the rate of ta or of refund sha be the rate for the named
artce from whch such part was drecty made.
(3) In the case of an artce not named n (1) above, part of whch was
made drecty or ndrecty from rye, but not as to such part drecty or n-
drecty from an artce named n (1) above, the amount of ta or of refund
sha be equvaent to the amount of ta on the processng of such quantty
of rye as was actuay used n the producton of such part.
( ) In the event that the Commssoner of Interna Revenue fnds, or any
ta payer, or any person entted to a refund or credt, estabshes that an
artce processed from rye, wth respect to whch a ta s mposed, or whch
may be the sub|ect of a cam for refund or credt, whch s ncuded n the
above st, represents more or ess rye content than s Indcated by the con-
verson factor sted therefor n paragraph (4) above, then the amount of
ta , refund, or credt wth respect to such artce sha be equvaent to the
amount of ta on the processng of such quantty of rye as s shown to have
been actuay used n the producton of the artce.
(c) ny refund or credt made pursuant to the provsons of sectons
15(c) or 17(a) of the ct sha be made ony on the foowng bass:
(1) If the ta pad or payabe s a compensatng ta , the amount of the
refund or credt sha be the amount of ta actuay due and pad, or due
am payabe, wth respect to the partcuar product devered or e ported.
(2) If the ta pad or payabe Is a processng ta , the amount of the refund
or credt sha be determned n accordance wt the rate of processng ta
n effect at the tme of the frst domestc processng of the rye from whch
the devered or e ported product was processed and n accordance wth the
proper converson factor n effect at the tme the product was devered or
e ported.
bt. 5. stng contractu. or genera provsons reatng to e stng
contracts, see Reguatons 81, as amended, artces 27 and 28.
rt. . orms. To nsure the proper return and the coecton of the
processng ta mposed by the ct, and to factate the refund or credt
of ta es, certan forms are prescrbed for use by ta payers. The prescrbed
form must be used as reqnred by the appcabe provsons of Reguatons 81,
as amended, Reguatons 83, or these reguatons, and must be carefuy fed
ont n e act accordance wth the appcabe provsons of the proper regua-
tons and the nstructons prnted on the form. The foowng forms wth
respect to rye are hereby prescrbed:
orm No.
Desgnaton.
Requred by
P. T. orm 7
P. T. orm 24...
P. T. orm 24-C
P. T. orm 27...
P. T. orm 28...
P. T. orm 29...
Return of processor of rye-
Cam for refund of ta es e-
gay coected.
Cam for refund of, or credt for,
ta pad wth respect to
artces devered for char-
tabe dstrbuton or use.
Cam for refund of, or credt for,
ta pad wth respect to
artces e ported.
Cam for credt on return, of
overpayment.
Producer s affdavt or certf-
cate.
Reguatons 81, artce 11,
and artce 2(f) above.
Reguatons 81, artce
31(a).
Reguatons 81, artce 32,
as amended.
Reguatons 83 (Septem-
ber, 1934, edton).
Reguatons
31( ).
Reguatons
9(a).
81,
81,
artce
artce
Gut T. everng,
Commssoner of Interna Revenue.
pproved November 9, 1935.
Stephen . Gbbons,
ctng Secretary of the Treasury.
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I -33-7 53
T.D.457
Processng of sugarcane nto srup or moasses by or for the
producer thereof for ae by hm for use as anma feed or for ds-
taton purposes. ( grcutura d|ustment ct, as amended.)
mendng Treasury Decson 4549, approved May 21, 1935 C. .
I -1, 402 .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 15(b) of the grcutura d|ustment ct,
as amended, provdes:
No ta sha be requred to be pad on the processng of any commodty by
or for the producer thereof for consumpton by hs own famy, empoyees, or
househod and the Secretary of grcuture s authorzed, by reguatons, to
e empt from the payment of the processng ta the processng of commodtes
by or for the producer thereof for sae by hm where, n the |udgment of the
Secretary, the mposton of a processng ta wth respect thereto s unnecessary
to effectuate the decared pocy.
Par. . The reguatons wth respect to sugar beets and sugarcane,
made by the Secretary of grcuture, and approved by the Presdent
on une 18,1935, provde:
MPTION.
In my |udgment, the payment of the processng ta upon the processng of
sugarcane by or for the producer thereof for sae by hm, where such processng
as been prescrbed, drected or permtted by the Secretary of grcuture under
the provsons of any sugarcane producton ad|ustment contract and where such
processng resuts n srup or moasses for use, and whch sha be used, for
anma feed or for dstaton purposes, s unnecessary to effectuate the decared
pocy of the ct. ccordngy, I do hereby e empt from the payment of the
processng ta the processng of sugarcane by or for the producer thereof for
sae by hm, where such processng has been prescrbed, drected, or permtted by
the Secretary of grcuture under the provsons of any sugarcane producton
ad|ustment contract and where such processng resuts In srup or moasses for
use, and whch sha be used, for anma feed or for dstaton purposes.
The foregong e empton sha take effect as of March 4, 1985, the effectve
date of Puerto Rco dmnstratve Rung No. 1, reatng to the Puerto Rco
sugarcane producton ad|ustment contract.
Pursuant to the above-quoted provsons the foowng reguatons
are hereby prescrbed:
rtce 2 (e) of Treasury Decson 4549 s hereby amended by addng
at the end thereof the foowng:
(11) If the producer processes, or has processed for hm, on or after March
4, 1935, sugarcane, for sae by hm, where such processng has been prescrbed,
drected or permtted by the Secretary of grcuture under the provsons of
any sugarcane producton ad|ustment contract, and where such processng resuts
n srup or moasses for use, and whch sha be used, for anma feed or for
dstaton purposes, such processng s e empt from the processng ta .
Where such processng s done for the producer, the producer sha furnsh
to the processor an affdavt n dupcate on P. T. orm 29 , fuy e ecuted n
accordance wth the nstructons thereon contaned, and n accordance wth
these reguatons, settng out the name and address of the processor, the amouut
of sugarcane devered, the artce nto whch processed (srup or moasses),
and the amount thereof, the permsson or drecton of the Secretary of gr-
cuture, that such srup or moasses s to be used for anma feed or dstaton
purposes, the amount of the artce sod for such purposes, the date of sae, and
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name of the vendee. Such affdavt sha be attached to the processor s return
on P. T.. orm 8, fed for the month In whch such processng occurred.
Where-the producer s aso the processor, he sha e ecute, n dupcate, P. T.
orm 29 . Such affdavt sha be attached to the processor s return on P. T.
orm 8, fed for the month n whch the processng occurred.
rtce of Treasury Decson 4549 s hereby amended by addng
thereto the foowng sentence:
The e empton provded n artce 2 (e) (11) of these reguatons (as amended),
sha be n force and effect as of the earest moment of March 4, 1935, n the
Unted States (ncudng awa and aska) and n Puerto Ueo, and sha be
n force and effect as of the earest moment (Mana tme) on March 4, 1935,
In the Phppne Isands.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 8, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury.
I -43-77 5
T. D. 4593
Processng ta under the grcutura d|ustment ct, as
amended. Credt or refund of ta wth respect to urey tobacco
used n the manufacture of chewng tobacco.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 1 of the grcutura d|ustment ct, as
amended, provdes n part:
(e) Upon the sae or other dsposton of any artce processed whoy or n
chef vaue from any commodty w|th respect to whch the e stng rate of the
processng ta s to be ncreased, or decreased, that on the date such Increase,
or decrease, frst takes effect wth respect to the commodty, s hed for sae
or other dsposton (ncudng artces n transt) by any person, and upon
the producton of any artce from a commodty n process on the date on
whch the rate of the processng ta s to be ncreased or decreased, there
sha be made a ta ad|ustment as foows:
(1) Whenever, subsequent to une 2 , 1934, the rate of the processng ta on
the processng of the commodty generay or for any desgnated use or uses ,
or as to any desgnated product or products thereof for any desgnated use or
uses, or as to any cass of products, Is decreased, there sha be credted or
refunded to such person an amount equvaent to the dfference between the
rate of the processng ta payabe or pad at the tme mmedatey precedng
the decrease n rate and the rate of the processng ta whch woud have been
payabe wth respect to the commodty from whch processed, f the processng
had occurred on such date: Provded, hacevcr, That no such credt or refund
sha be made n the case of hogs uness the rate of the processng ta m-
medatey precedng sad decrease Is equa to, or ess than, the rate of the
processng ta In effect on the date on whch any foor-stocks ta was pad
pror to the adopton of ths amendment.

(g) No refund, credt, or abatement of any amount of any ta sha bo made
or aowed under ths secton, uness, wthn 120 days after the rght to such
refund, credt, or abatement accrued, or wthn 120 days after the date of the
adopton of ths amendment, whchever Is the ater, a cam for such refund,
credt, or abatement (conformng to such reguatons as the Commssoner of
Interna Revenue, wth the approva of the Secretary of the Treasury, may pre-
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4 2
scrbe) s fed by the person entted to such refund, credt, or abatement and
no such cam sha be aowed for an amount ess than 10.
Par. . The reguatons wth respect to tobacco made by the Secre-
tary of grcuture, wth the approva of the Presdent, dated
anuary 19, 1935, provde, n part:
I do hereby fnd, as of ebruary 1. 1035. after nvestgaton and due notce
and opportunty for hearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta at the rate determned by
the Secretary of grcuture as of October 1, 1934, to equa the dfference between
the current average farm prce and the far e change vaue of urey tobacco,
on the processng of urey tobacco manufactured nto chewng tobacco, w
cause such reducton n the quantty of urey tobacco manufactured nto chew-
ng tobacco, domestcay consumed, us to resut n the accumuaton of surpus
stocks of urey tobacco, or of chewng tobacco produced therefrom, or n the
depresson of (he farm prce of urey tobacco. I do hereby, accordngy, deter-
mne, as of ebruary 1. 1035, that the processng ta on the frst domestc proc-
essng of urey tobacco used n the manufacture of chewng tobacco sha be
at the rate of two and fve-tenths (2.5) cents per pound, farm saes weght,
whch rate, as of the effectve date thereof, w prevent such accumuaton of
surpus stocks of urey tobacco, chewng tobacco produced therefrom, and
depresson of tbe farm prce of urey tobacco whenever urey tobacco n
processng order, from whch stem has not been removed, s processed n the
manufacture of chewng tobacco, tbe measure of ta sha be two and nne-tenths
(2.0) cents per nd of such tobacco whenever urey tobacco n processng
order, from whch stem has been removed, s processed n the manufacture of
chewng tobacco, the measure of ta sha be three and nne-tenths (3.9) cents
per pound of such tobacco these amounts beng n accordance wth the respec-
tve weght reatonshps determned to e st between urey tobacco n such
states and the farm sat s weght of urey tobacco.

I do hereby estabsh the foowng converson factors for chewng tobacco
processed from urey, fue-cured, tre-cured, and/or dark ar-cured tobacco to
determne the amount of ta mposed on foor stocks or refunds to be made wth
respect to foor stocks:
rtce.
Unt.
Converson factor.
Chewng tobacco:
(1) Pug chewng to-
Pound
45 per cent of the per pound processng
ta on arey tobacco used n the
manufacture of chewng tobacco.
bacco.
(2) Twst chewng to-
Pound
70 per cent of the per pound processng
ta on dark ar-cured tobacco used
n the manufacture of chewng
tobacco.
bacco.
(3) Other chewng to-
Pound
50 per cent of the per pound processng
ta on urey tobacco used n the
manufacture of chewng tobacco.
bacco.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any chewng tobacco processed
whoy or n chef vaue from Maryand, urey, fue-cured, fre-cured, or dark
ar-cured tobacco, on whch a ta on foor stocks s mposed or whch may be
the sub|ect of a cam for refund on foor stocks, whch s ncuded n the pre-
cedng st s processed whoy or n chef vaue from a knd of tobacco other
than that sted heren for such chewng tobacco, or contans more or ess of
the knd of tobacco so sted than represented by the sted converson factor, the
converson factor for such artce sha be:

( ) If processed whoy or n chef vaue from urey tobacco, 155 per cent
of the per pound processng ta on urey tobacco used n the manufacture of
chewng tobacco for each pound of urey tobacco sad chewng tobacco s
estabshed to contan.
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Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed:
rtce 1. Credt or refund wth respect to urey tobacco n process. Wth
respect to a nrey tobacco n process on ebruary 1, 1935, and manufac-
tured nto chewng tobacco, the frst domestc processng of whch was not com-
peted pror to that date, and on whch processng ta attached at the rate n
effect pror to that date, the processor w be entted to refund (or credt
aganst any ta due under the ct) of the dfference between the rate n
effect pror to, and the rate effectve, on ebruary 1,1935. The rates of credt or
refund wth respect to each pound of such tobacco are:
arm saes
weght.
In process
ng order.
Used n manufacture of:
Stem not
removed.
Stem
removed.
Pug or twst chewng tobacco. .
0. 01
.03
0. 018
. 041
0. 025
.05
Cam for credt shoud be e ecuted on P. T. orm 28 and attached to the
monthy return on whch such credt s camed. Cam for refund shoud be
made on P. T. orm 24 and sha affrmatvey state that the cam s not for
the refund of ta es egay or erroneousy coected, but s for the refund of
ta es wth respect to tobacco n process on ebruary 1, 1935. See artce 3
for genera provsons appcabe to these cams.
bt. 2. Credt or refund on foor stocks of vhecng tobacco processed whoy
or n chef vaue from urey tobacco. (a) ny person who, at the earest
moment of ebruary 1, 1935, hed for sae or other dsposton any chewng
tobacco processed whoy or n chef vaue from urey tobacco, wth respect to
whch a ta had been pad under the provsons of the grcutura d|ustment
ct, s entted to refund (or credt aganst any ta due under the ct) of the
dfference between the amount of ta pad wth respect to the artce and the
amount of ta that woud have been payabe wth respect thereto f the process-
ng of the commodty had occurred on ebruary 1, 1935. Rates of such refund
or credt are as foows:
Chewng tobacco, pug, per pound, 0.0072.
Chewng tobacco, other than pug, twst, or scrap, per pound, 0,018.
Chewng tobacco, twst, 0.0248 per pound of urey tobacco actuay con-
taned n the artce.
If the Commssoner or any person entted to credt or refund can estabsh
that any chewng tobacco, e cept twst or scrap, ncuded n the above st,
whch may be the sub|ect of a cam for credt or refund, contans more or
ess urey tobacco than represented by the converson factor prescrbed there-
for, the rates of credt or refund wth respect to each pound of urey tobacco
contaned n such chewng tobacco are:
In pug chewng tobacco, 0.0248.
In chewng tobacco other than pug, twst, or scrap, 0.0558.
The camant s requred to show on hs cam for credt or refund: (1) the
brand name of such chewng tobacco, (2) the factory number and dstrct where
manufactured , (3) the net weght of the artce, and (4) the weght of urey
tobacco contaned n the artce.
The term person and the term sae or other dsposton sha have
the same meanngs n these reguatons as gven respectvey n artce 1(c)
and (t) of Reguatons 82.
(ft) The cam for credt or refund referred to n (a) above sha be made
on P. T. orm 24D, revsed September, 1935. The form sha be fuy and
accuratey fed out n accordance wth the nstructons prnted thereon, and
n accordance wth these reguatons.
(1) The cam sha show wth respect to each cass of products nventored
thereon (a) the amount of ta pad wth respect to the products sted n the
Inventory, credt or refund of whch ta s camed, ( ) the knd of ta pad,
that s, processng ta , ta on foor stocks, or compensatng ta , (c) to whch
coector the ta was pad, and (d) f credt or refund of processng ta s
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4 4
camed, the mont and year n whch the processng of the commodty occurred
whch resuted n the product sted n the nventory.
(2) The camant sha, as of the begnnng of busness on ebruary 1, 1935,
make or cause to he made an nventory of such of the artces enumerated n
subdvson ( ) above, as were hed by hm, at that tme, for sae or other
dsposton. The sae rues as to ownershp or tte and as to the nventory
as are contaned n artces 5 and 11, respectvey, of Reguatons 82 sha be
appcabe wth respect to cams fed hereunder, ncudng cams wth respect
to reta stocks. The nventory sha /e set forth on the P. T. orm 24D, revsed
September, 1935. See artce 3 for genera provsons appcabe to these cams.
The foowng sha be appcabe wth respect to a cams for the refund
or credt referred to n artce 1 and artce -:
rt. 3. Genera requrements awcabe to cams. (a) ach cam sha be
supported by evdence whch w estabsh to the satsfacton of the Comms-
soner that the ta , for credt or refund of whch the cam s made, was
actuay pad to a coector of nterna revenue.
( ) The cam sha be sgned by the camant, and sha be sworn to by
hm f an ndvdua, or, If a corporaton or frm, by a duy authorzed offcer
or member thereof.
(c) The cam must be fed on or before December 21, 1935, wth the coector
of nterna revenue for the dstrct n whch the camant has hs prncpa
pace of busness (or, f he has no prncpa pace of busness n the Unted
States, wth the coector at atmore, d.). cam for credt must be
attached to the return on whch the credt s camed, when the return s fed
wth the coector.
(rf) ny person who fes a cam for refund or credt sha preserve for
four years thereafter, a compete and detaed record of the facts upon whch
the cam was based, ncudng any nventory, a true copy of whch nventory
sha aso be retaned on the premses where the artces were hed on the
effectve date. The hooks, documents, and other records or papers, upon
whch such cam was based sha be open for nspecton by any nterna reve-
nue offcer. The records sha be kept n such manner, and sha contan such
nformaton, as w enabe the Commssoner to determne the accuracy of the
Inventory and the vadty of the cam.
(c) No cam for credt or refund fed under these reguatons w be
aowed for an amount ess than 10.
rt. 4. These reguatons suppement and n part revse the provsons of
Treasury Decson 4530, approved arch 8, 1935 C. . I -1, 475 , and to
the e tent of such revson, but not otherwse, supersede the provsons of such
Treasury decson.
Gut T. everno,
Commssoner of Interna Revenue.
pproved October 21, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
I -50-7857
T. D.4 10
Processng and other ta es wth respect to tobacco under the
grcutura d|ustment ct.
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(b), grcutura d|ustment ct, as
amended, provdes:
(1) The processng ta sha be at such rate as equas the dfference between
the current average farm prce for the commodty and the far e change vaue
of the commodty, pus such percentage of such dfference, not to e ceed 20
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Mso.
per centum, as the Secretary of grcuture may determne w resut In the
coecton, In any marketng year wth respect to whch such rate of ta may be
In effect pursuant to the provsons of ths tte, of an amount of ta equa to
( ) the amount of credts or refunds whch he estmates w be aowed or
made durng such perod pursuant to secton 15(c) wth respect to the com-
modty and ( ) the amount of ta whch he estmates woud have been co-
ected durng such perod upon a processngs of snch commodty whch are
e empt from ta by reason of the fact that such processngs are done by or for
a State, or a potca subdvson or an nsttuton thereof, had such process-
ngs been sub|ect to ta . If, pror to the tme the ta takes effect, or at any
tme thereafter, the Secretary has reason to beeve that the ta at such rate,
or at the then e stng rate, ou the processng of the commodty generay or
for any desgnated use or uses, or on the processng of the commodty n the
producton of any desgnated product or products thereof for any desgnated
use or uses, w cause or s causng such reducton n the quantty of the com-
modty or products thereof domestcay consumed as to resut n the accumua-
ton of surpus stocks of the commodty or products thereof or In the depres-
son of the farm prce of the commodty, then the Secretary sha cause an
approprate nvestgaton to be made, and afford due notce and opportunty for
hearng to Interested partes. If thereuwn the Secretary determnes and pro-
cams that any such resut w occur or s occurrng, then the processng ta
on the processng of the commodty generay or for any desgnated use or uses,
or on the processng of the commodty n the producton of any desgnated prod-
uct or products thereof for any desgnated use or uses, sha be at such ower
rate or rates as be determnes and procams w prevent such accumuaton of
surpus stocks and depresson of the farm prce of the commodty, and the ta
sha reman durng ts effectve |terod at such ower rate unt the Secretary,
after due notce and opportunty for hearng to nterested partes, determnes
and procams that an ncrease n the rate of such ta w not cause such
accumuaton of surpus stocks or depresson of the farm prce of the com-
modty. Thereafter the processng ta sha be at the hghest rate whch the
Secretary determnes w not cause such accumuaton of surpus stocks or
depresson of the farm prce of the commodty, but t sha not be hgher than
the rate provded In the frst sentence of ths paragraph.
(2) In the case of tobacco, the ta on the frst domestc
processng of the commodty generay or for any partcuar use, or n the pro-
ducton of any desgnated product for any desgnated use, sha be eved,
assessed, coected, and pad at the rate prescrbed by the reguatons of the
Secretary of grcuture n effect on the date of the adopton of ths amend-
ment, durng the perod from such date to December 31, 1937, both dates
Incusve.

( ) ( ) ny rate of ta whch s prescrbed n paragraph (2), of
ths subsecton or whch s estabshed pursuant to ths paragraph ( ) on the
processng of any commodty generay or for any desgnated use or uses, or on
the processng of the commodty n the producton of any desgnated product or
products thereof for any desgnated use or uses, sha be decreased (Incudng
a decrease to zero) n accordance wth the formua , standards, and requre-
ments of paragraph (1) of ths subsecton, n order to prevent such reducton
n the quantty of such commodty or the products thereof domestcay con-
sumed as w resut n the accumuaton of surpus stocks of such commodty
or the products thereof or n the depresson of the farm prce of the commodty,
and sha thereafter be Increased n accordance wth the provsons of para-
graph (1) of ths subsecton but sub|ect to the provsons of subdvson ( ) of
ths paragraph ( ).
( ) If the average farm prce of any commodty, the rate of ta on the proc-
essng of whch s prescrbed In parngraph (2), of ths subsecton
or s estabshed pursuant to ths paragraph ( ), (urng any perod of 12 suc-
cessve months endng after uy 1, 193 , consstng of the frst 10 months of
any marketng year and the ast 2 months of the precedng marketng year
(1) s equa to, or e ceeds by 10 per centum or ess, the far e change vaue
thereof, or, n the case of tobacco, s ess than the far e change vaue by not
more than 10 per centum, the rate of such ta sha (sub|ect to the provsons
of subdvson ( ) of ths paragraph ( ) be ad|usted, at the begnnng of the
ne t succeedng marketng year, to such rate as equas 20 per centum of the
far e change vaue thereof.
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4

() e ceeds by more than 20 per centum the far e change vaue thereof,
the rate of such ta sha (sub|ect to the provsons of subdvson ( ) of ths
paragraph ( )) be ad|usted, at the begnnng of the ne t succeedng marketng
year, to such rate as equas 10 per centum of the far e change vaue thereof.
(C) ny rate of ta whch has been ad|usted pursuant to ths paragraph ( )
sha reman at such ad|usted rate uness further ad|usted or termnated pur-
suant to ths paragraph (0), unt December 31, 1937, .
Par. . Secton 10(c), grcutura d|ustment ct, as amended,
provdes:
The Secretary of grcuture s authorzed, wth the approva of the Presdent,
to make such reguatons wth the force and effect of aw as may be necessary
to carry out the powers vested n hm by ths tte, ncudng reguatons estab-
shng converson factors for any commodty and artce processed therefrom
to determne the amount of ta mposed or refunds to be made wth respect
thereto. ny voaton of any reguaton sha be sub|ect to such penaty, not
In e cess of . 100, as may be provded theren.
Pah. C. Secton 15(e), grcutura d|ustment ct, as amended,
provdes n part:
Durng any perod for whch a processng ta Is n effect wth respect to any
commodty there sha be eved, assessed, coected, and pad upon any artce
processed or manufactured whoy or party from such commodty and mported
nto the Unted States or any possesson thereof to whch ths tte appes,
from any foregn country or from any possesson of the Unted States to whch
ths tte does not appy, whether Imported as merchandse, or as a contaner of
merchandse, or otherwse, a compensatng ta equa to the amount of the
processng ta n effect wth respect to domestc processng of such commodty
nto such au artce at the tme of mportaton: .
Par. D. Secton 1 , grcutura d|ustment ct, as amended,
provdes n part:
(e) Upon the sae or other dsposton of any artce processed whoy or n
chef vaue from any commodty wth respect to whch the e stng rate of the
processng ta s to be ncreased, or decreased, that on the date such ncrease, or
decrease, frst takes effect wth respect to the commodty, s hed for sae or
other dsposton (ncudng artces n transt) by any person, and upon the
producton of any artce from a commodty n process on the date on whch the
rate of the processng ta s to be ncreased or decreased, there sha be made
a ta ad|ustment as foows:
(1) Whenever, subsequent to une 2 , 1934, the rate of the processng ta on
the processng of the commodty generay or for any desgnated use or uses, or
as to any desgnated product or products thereof for any desgnated use or uses,
or as to any cass of products, s decreased, there sha be credted or refunded
to such person an amount equvaent to the dfference between the rate of the
processng ta payabe or pad at the tme mmedatey precedng the decrease
n rate and the rate of the processng ta whch woud have been payabe wth
respect to the commodty from whch prqeessed, f the processng had occurred
on such date: .
(2) Whenever the rate of the processng ta on the processng of the com-
modty generay, or for any desgnated use or uses, or as to any desgnated
product or products thereof for any desgnated use or uses, or as to any cass
of products, Is ncreased, there sha be eved, assessed and coected a ta to
be pad by such person equvaent to the dfference between the rate of the
processng ta payabe or pad at the tme mmedatey precedng the Increase
n rate and the rate of the processng ta whch woud be payabe wth respect
to the commodty from whch processed, f the processng had occurred on such
date.

(g) No refund, credt, or abatement of any amount of any ta sha be made
or aowed under ths secton, uness, wthn 120 days after the rght to such
refund, credt, or abatement accrued, or wthn 120 days after the date of the
adopton of ths amendment, whchever s the ater, a cam for suc refund,
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Msc.
credt, or abatement (conformng to such reguatons as the Commssoner of
Interna Revenue, wth the approva of the Secretary of the Treasury, may
prescrbe) Is fed by the person entted to such refund, credt, or abatement,
and no such cam sha be aowed for an amount ess than 10.
Par. . The reguatons wth respect to cgar-eaf tobacco, and
wth respect to Maryand, urey, fue-cured, fre-cured, and dark
ar-cured tobacco, made by the Secretary of grcuture, wth the
approva of the Presdent, dated September 14, 1933, as revsed and,
n part, superseded by reguatons made by the Secretary of gr-
cuture, wth the approva of the Presdent, dated respectvey une
30, 1934, September 27, 1934, anuary 19, 1935, and September 2 ,
1935, provde:
I. Marketng Teab.
(1) I do hereby ascertan and prescrbe that for the purposes of sad ct
the frst marketng year for cgar-eaf, Maryand, urey, fue-cured, fre-cured
and dark ar-cured tobacco sha begn October 1, 1933.
II. Rates or Ta .
(2) . C-gar-eaf tobacco. I do hereby fnd, from avaabe statstcs of
te Department of grcuture, that the average farm prce of cgar-eaf
tobacco durng the perod from ugust 1, 1934, to uy 31, 1935, ncusve, was
s teen and fve-tenths (1 .5) cents per pound that the far e change vaue
thereof for sad perod was s teen and fve-tenths (1 .5) cents per pound
that the sad average farm prce s equa to the sad far e change vaue
thereof and that the rate of ta on the processng of cgar-eaf tobacco s,
therefore, requred to be ad|usted as of October 1, 1935, n accordance wth
the provsons of subsecton (b) of secton 9 of the grcutura d|ustment
ct, as amended.
I do hereby determne and procam, after Investgaton and due notce and
opportunty for hearng to nterested partes, and due consderaton havng been
gven to a of the facts, that the processng ta , at such rate as equas 20 per
centum of the sad far e change vaue of cgar-eaf tobacco, that s, at the rate
of three and three-tenths (3.3) cents per pound, farm saes weght, on the
processng of cgar-eaf tobacco used In the manufacture of products other than
scrap chewng and/or smokng tobacco, w cause such reducton n the quantty
of cgar-eaf tobacco or products thereof, domestcay consumed, as to resut In
the accumuaton of surpus stocks of cgar-eaf tobacco or of products thereof,
or In the depresson of the farm prce of cgar-eaf tobacco. I do hereby,
accordngy, determne and procam, as of October 1, 1935, that the processng
ta on the frst domestc processng of cgar-eaf tobacco, e cept the cgar-eaf
tobacco used In the manufacture of scrap chewng and/or smokng tobacco, sha
be at the rate of three (3) cents per pound, unsweated, farm saes weght,
whch rate, as of the effectve date thereof, w prevent such accumuaton of
surpus stocks of cgar-eaf tobacco or products thereof and depresson of the
farm prce of cgar-eaf tobacco whenever sweated cgar-eaf tobacco from whch
stem has not been removed Is processed n the manufacture of products other
than scrap chewng and/or smokng tobacco, the measure of ta to be pad by
the processor n respect of each pound of such tobacco processed sha be three
and seventy-fve hundredths (3.75) cents, e cept that when the cgar-eaf tobacco
so processed s of the knd cassfed n the Unted States Department of gr-
cuture, ureau of grcutura conomcs, Servce and Reguatory nnounce-
ments, No. 118, as fre-cured tobacco, the measure of ta sha be three and
twenty-fve hundredths (3.25) cents whenever sweated cgar-eaf tobacco from
whch stem has been removed s processed n the manufacture of products other
than scrap chewng and/or smokng tobacco, the measure of ta to be pad by
the processor n respect of each pound of such tobacco processed sha be fve
(5) cents, e cept that when the cgar-eaf tobacco so processed s of the knd
cassfed n the Unted States Department of grcuture, ureau of grcu-
tura conomcs, Servce and Reguatory nnouncements, No. 118, as fre-cured
tobacco, the measure of ta sha be four and three-tenths (4.3) cents. The
above amounts are In accordance wth the respectve weght reatonshps deter-
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mned to e st between cgar-eaf tobacco n such states and the farm saes
weght of unsweated cgar-eaf tobacco.
I do hereby determne and procam, after nvestgaton and due notce and
opportunty for bearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta , at such rate as equas
20 per centum of the sad far e change vaue of cgar-eaf tobacco, that s, at
the rate of three and three-tenths (3.3) cents per pound, farm saes weght, on
the processng of cgar-eaf tobacco used n the manufacture of scrap chewng
nnd/or smokng tobacco w cause such reducton n the quantty of cgar-eaf
tobacco manufactured nto scrap chewng and/or smokng tobacco, domestcay
consumed, as to resut n the accumuaton of surpus stocks of cgar-eaf tobacco,
or of scrap chewng and/or smokng tobacco produced therefrom, or n the
depresson of the farm prce of cgar-eaf tobacco. I do hereby, accordngy,
determne and procam, ns of October 1, 1935, that the processng ta on the.
frst domestc processng of cgar-eaf tobacco used In the manufacture of scrap
chewng and/or smokng tobacco sha be at the rate of two (2) cents per pound,
unsweated, farm saes weght, whch rate, as of the effectve date thereof, w
prevent such accumuaton of surpus stocks of cgar-eaf tobacco, scrap chewng
and/or smokng tobacco produced therefrom, and depresson of the farm prce
of cgar-eaf tobacco. Whenever sweated cgar-eaf tobacco from whch stem
has not been removed s processed n the manufacture of scrap chewng and/or
smokng tobacco, the measure of ta to be pad by the processor n respect of
each pound of such tobacco processed sha be two and fve-tenths (2.5) cents
whenever sweated cgar-eaf tobacco from whch stem has been removed s
processed n the manufacture of scrap chewng and/or smokng tobacco, the
measure of ta to be pad by the processor n respect of each pound of such
tobacco processed sha be three and three-tenths (3.3) cents. The above
amounts are In accordance wth the respectve weght reatonshps determned
to e st between cgar-eaf tobacco n such states and the farm saes weght of
unsweated cgar-eaf tobacco.
(3) . Maryand tobacco. I do hereby fnd, from avaabe statstcs of the
Department of grcuture, that the average farm prce of Maryand tobacco
durng the perod from ugust 1, 1934, to uy 31,1935, ncusve, was s teen and
four-tenths (10.4) cents per pound that the far e change vaue thereof for sad
perod was eghteen and one-tenth (18.1) cents per pound that the sad average
farm prce Is ess than the sad far e change vaue thereof by not more than
10 per centum and that the rate of ta on the processng of Maryand tobacco
s, therefore, requred to be ad|usted, as of October 1, 1935, n accordance wth
the provsons of subsecton (b) of secton 9 of the grcutura d|ustment
ct, as amended. ccordngy, the rate of the processng ta on the frst
domestc processng of Maryand tobacco as ad|usted, as of October 1, 1935, by
the provsons of subsecton (b) of secton 9 of the grcutura d|ustment ct,
as amended, s three and s ty-two hundredths (3. 2) cents per pound, farm
saes weght, whch rate equas 20 per centum of sad far e change vaue of
Maryand tobacco whenever Maryand tobacco n processng order from whch
hteu has not been removed Is processed, the measure of ta t-wU be three and
eghty-fve hundredths (3.85) cents per pound of such tobacco whenever Mary-
and tobacco n processng order from whch stem has been removed s processed,
the measure of ta sha he fve and two-tenths (5.2) cents per pound of such
tobacco. The above amounts are n accordance wth the respectve weght
reatonshps determned to e st between Maryand tobacco n such states and
the farm saes weght of Maryand tobacco.
(4) C. urcy tobacco. I do hereby fnd from avaabe statstcs of the
Department of grcuture that the average farm prce of urcy tobacco
durng the perod from ugust 1, 1934, to uy 31, 1935, ncusve, was s teen
and nne-tenths (1G.9) cents per pound that the far e change vaue thereof
for sad perod was seventeen and fve-tenths (17.5) cents per pound that
the sad average farm prce s ess than the sad far e change vaue thereof
by not more than 10 per centum and that the rate of ta on the processng
of urey tobacco s, therefore, requred to be ad|usted, as of October 1, 1935,
n accordance wth the provsons of subsecton (b) of secton 9 of the
grcutura d|ustment ct, as amended. ccordngy, the rnte of the
processng ta on the frst domestc processng of urey tobacco, e cept the
urey tobacco used n the manufacture of chewng tobacco, as ad|usted, as
of October 1, 1935, by the provsons of subsecton (b) of secton 9 of the
grcutura d|ustment ct, as amended, s three and fve-tenths (3.5)
cents per pound, farm saes weght, whch rate equas 20 per centum of sad
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Msc.
far e change vaue of urey tobacco whenever urey tobacco In processng
order from whch stem has not been removed Is processed n the manufacture
of products other than chewng tobacco, the measure of ta sha be four (4)
cents per pound of such tobacco whenever urey tobacco n processng order
from whch stem has been removed Is processed n the manufacture of products
other than chewng tobacco, the measure of ta sha be fve and four-tenths
(5.4) cents per pound of such tobacco. The above amounts are n accordance
wth the respectve weght reatonshps determned to e st between urey
tobacco n such states and the farm saes weght of urey tobacco.
I do hereby determne and procam, after nvestgaton and due notce
and opportunty for bearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta . at the rate specfed
above, on the processng of urey tobacco used In the manufacture of chewng
tobacco w cause such reducton n the quantty of urey tobacco manu-
factured nto chewng tobacco, domestcay consumed, as to resut n the
accumuaton of surpus stocks of urey tobacco, or of chewng tobacco
produced therefrom, or n the depresson of the farm prce of urey tobacco.
I do hereby, accordngy, determne and procam, as of October 1, 1935, that
the processng ta on the frst domestc processng of urey tobacco used
In the manufacture of chewng tobacco sha be at the rate of two and
fve-tenths (2.5) cents per pound, farm saes weght, whch rate, as of the
effectve date thereof, w prevent such accumuaton of surpus stocks of
urey tobacco, chewng tobacco produced therefrom, and depresson of the
farm prce of urey tobacco whenever urey tobacco n processng order,
from whch stem has not been removed, s processed n the manufacture of
chewng tobacco, the measure of ta sha be two and nne-tenths (2.9) cents
per pound of such tobacco whenever urey tobacco n processng order, from
whch stem as been removed, s processed n the manufacture of chewng
tobacco, the measure of ta sha be three and nne-tenths (3.9) cents per
pound of such tobacco. The above amounts are In accordance wth the
respectve weght reatonshps determned to e st between urey tobacco
n such states and the farm saes weght of urey tobacco.
(5) D. ue-cured tobacco. I do hereby fnd, from avaabe statstcs of
the Department of grcuture, that the average farm prce of fue-cured
tobacco durng the perod from ugust 1, 1934, to uy 31, 1935, ncusve, was
twenty-seven and three-tenths (27.3) cents per pound that the far e change
vaue thereof for sad perod was eghteen and nne-tenths (18.9) cents per
pound that the sad average farm prce e ceeds the sad far e change vaue
thereof by more than 20 per centum and that the rate of ta on the processng
of fue-cured tobacco Is, therefore, requred to be ad|usted, as of October 1, 1935,
In accordance wth the provsons of subsecton (b) of secton 9 of the gr-
cutura d|ustment ct, as amended. ccordngy, the rate of the processng
ta on the frst domestc processng of fue-cured tobacco as ad|usted, as of
October 1, 1935, by the provsons of subsecton (b) of secton 9 of the gr-
cutura d|ustment ct, as amended. Is one and eghty-nne hundredths (1.80)
cents per pound, farm saes weght, whch rate equas 10 per centum of sad
far e change vaue of fue-cured tobacco whenever fue-cured tobacco In proc-
essng order from whch stem has not been removed Is processed, the measure
of ta sha be two and thrteen hundredths (2.13) cents per pound of such
tobacco whenever fue-cured tobacco n processng order from whch stem has
been removed s processed, the measure of ta sha be two and seventy-three
hundredths (2.73) cents per pound of such tobacco. The above amounts are
In accordance wth the respectve weght reatonshps determned to e st
between fue-cured tobacco n such states and the farm saes weght of fue-
cured tobacco.
( ) . re-crcd tobacco. I do hereby fnd, from avaabe statstcs of the
Department of grcuture, that the average farm prce of fre-cured tobacco
durng the perod from ugust 1, 1934, to uy 31, 1935, Incusve, was ten and
eght-tenths (10.8) cents per pound that the far e change vaue thereof for
sad perod was ten and seven-tenths (10.7) cents per pound that the sad
average farm prce e ceeds the sad far e change vaue thereof by ess than
10 per centum and that the rate of ta on the processng of fre-cured tobacco
s, therefore, requred to be ad|usted, as of October 1, 1935, n accordance wth
the provsons of subsecton (b) of secton 9 of the grcutura d|ustment
ct, as amended.
ccordngy, the rate of the processng ta on the frst domestc processng
of fre-cured tobacco as ad|usted, as of October 1, 1935, by the provsons of
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470
subsecton (b) of secton 9 of the grcutura d|ustment ct, as amended,
s two and fourteen hundredths (2.14) cents per pound, farm saes weght,
whch rate equas 20 per centum of sad far e change vaue of tre-cured
tobacco whenever (re-cured tobacco n processng order from whch stem has
not been removed Is processed, the measure of ta sha be two and thrty-s
hundredths (2.30) cents per pound of such tobacco whenever fre-cured tobacco
In processng order from whch stem as been removed s processed, the meas-
ure of tu sha be three and one-tenth (3.1) cents per pound of such tobacco.
The above amounts are n accordance wth the respectve weght reatonshps
determned to e st between fre-cured tobacco n such states aud the farm saes
weght of fre-cured tobacco.
(7) . Dark ar-cured tobacco. I do hereby determne as of October 1, 1933,
that the processng ta on the frst domestc processng of dark ar-cured to-
bacco sha he at the rate of three aud three-tenths (3.3) cents per pound,
farm saes weght, whch rate equas the dfference between the current aver-
age farm prce for dark ar-cured tobacco and the far e change vaue of dark
ar-cured tobacco, whch prce and vaue, both as defned n sad ct, have been
ascertaned by me from avaabe statstcs of the Department of grcuture.
Whenever dark ar-cured tobacco n processng order from whch stem as not
been removed s processed, the measure of ta sha be three and eght-tenths
(3.8) cents per pound of such tobacco whenever dark ar-cured tobacco n
processng order from whch stem has been removed s processed, the measure
of ta sha be fve and one-tenth (5.1) cents per pound of such tobacco, these
amounts beng n accordance wth the respectve weght reatonshps deter-
mned to e st between dark ar-cured tobacco n such states and the farm saes
weght of dark ar-cured tobacco.
I do hereby fnd, as of ebruary 1, 1935, after nvestgaton and due notce
and opportunty for hearng to nterested partes, and due consderaton havng
been gven to a of the facts, that the processng ta at the rate determned
by the Secretary of grcuture as of October 1. 1933, to equa the dfference
between the current average farm prce and the far e change vaue of dark
ar-cured tobacco, on the processng of dark ar-cured1 tobacco manufactured
nto chewng tobacco, w cause such reducton n the quantty of dark ar-
cured tobacco manufactured nto chewng tobacco, domestcay consumed, as
to resut n the accumuaton of surpus stocks of dark ar-cured tobacco, or
of chewng tobacco produced therefrom, or n the depresson of the farm prce
of dark ar-cured tobacco. I do hereby, accordngy, determne, as of ebruary
1, 1935, that the processng ta on the frst domestc processng of dark ar-
cured tobacco used n the manufacture of chewng tobacco sha be at the rate
of two (2) cents per pound, farm saes weght, whch rate, as of the effectve
date thereof, w prevent such accumuaton of surpus stocks of dark ar-eured
tobacco, chewng tobacco produced therefrom, and depresson of the farm prce
of dark ar-cured tobacco whenever dark ar-cured tobacco n processng order,
from whch stem as not been removed, s processed n the manufacture of
chewng tobacco, the measure of ta sha be two and three-tenths (2.3) cents
per pound of such tobacco whenever dark ar-cured tobacco n processng order,
from whch stem has been removed, s processed n the manufacture of chewng
tobacco, the measure of ta sha be three and one-tenth (3.1) cents per pound
of such tobacco these amounts beng n accordance wth the respectve weght
reatonshps determned to e st between dark ar-cured tobacco n such states
and the farm saes weght of dark ar-cured tobacco.
III. Defntons.
(8) The foowng terms, as used n these reguatons, sha have the mean-
ngs hereby assgned to them:
rst domestc processng. The frst domestc processng of cgar-eaf tobacco s
the fabrcatng of the product to be used by the consumer. The acts of stemmng,
sweatng or fermentng, and condtonng sha not be deemed processng.
(a) In the case of cgars, stoges, cheroots, or sma cgars, t s the fabr-
catng of cgar-eaf tobacco nto the form to whch no tobacco s added and
from whch no tobacco s subtracted a scrap, cuttngs, and cppngs not
eft n such products sha be deemed not to have been processed.
(b) In the case of scrap chewng and/or smokng tobacco, t s the prepar-
ng of any form of cgar-eaf tobacco for consumpton as scrap chewng and/or
smokng tobacco.
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471
Msc.
The frst domestc processng of Maryand, urey, foe-eared, fre-cured, or
dark ar-cured tobacco s the fabrcatng of the product to be used by the con-
sumer. In the case of cgarettes, smokng tobacco, chewng tobacco, and snuff,
It Is the fabrcatng of any one or more of the above knds of tobacco nto the
artces to be consumed.
Cgar eaf tobacco. Cgar-eaf tobacco s eaf tobacco, cassfed In Unted
States Department of grcuture, ureau of grcutura conomcs, Servce
and Reguatory nnouncements, No. 118, In casses 4, 5, , and 8, and any
tobacco of other grades or types of eaf tobacco (ncudng, but not mted
to, Maryand, urey, fue-cured, fre-cured and dark ar-cured tobacco), used
In the manufacture or fabrcaton of cgars, stoges, cheroots, sma cgars,
scrap chewng tobacco, and/or scrap smokng tobacco.
Maryand. Maryand tobacco s the knd of ar-cured tobacco cassfed as
type 82 n the Unted States Department of grcuture, ureau of grcu-
tura conomcs, Servce and Reguatory nnouncements, No. 118, e cept such
tobacco so cassfed as s specfcay ncuded n the above defnton of cgar-
eaf tobacco. It sha be deemed to Incude aso a the other domestc ght
ar-cured tobacco e ceptng urey when processed n the manufacture of
cgarettes, smokng tobacco, chewng tobacco, and/or snuff.
urey. urey tobacco s the knd of ar-cured tobacco cassfed as type
31 In the Unted States Department of grcuture, ureau of grcutura
conomcs, Servce and Reguatory nnouncements, No. 118, e cept such to-
bacco so cassfed as s specfcay Incuded n the above defnton of cgar-eaf
tobacco.
ue-cured. ue-cured tobacco s the knd of tobacco cassfed as types 11,
12, 13, 14, and 90 n the Unted States Department of grcuture, ureau of
grcutura conomcs, Servce and Reguatory nnouncements, No. 118, e -
cept such tobacco so cassfed an s specfcay ncuded n the above defn-
ton of cgar-eaf tobacco. It sha be deemed to ncude aso a other fue-
cured tobacco when processed In the manufacture of cgarettes, smokng to-
bacco, chewng tobacco, and/or snuff.
re-cured. re-cured tobacco s the knd of tobacco cassfed as types 21,
22, 23, and 24 n the Unted States Department of grcuture, ureau of
grcutura conomcs, Servce and Reguatory nnouncements, No. 118, e cept
such tobacco so cassfed as s specfcay ncuded n the above defnton of
cgar-eaf tobacco. It sha be deemed to ncude aso a other domestc
fre-cured tobacco when processed n the manufacture of cgarettes, smokng
tobacco, chewng tobacco, and/or snuff.
Dork ar-cured. Dark ar-cured tobacco s the knd of tobacco cassfed as
types 35, 3 , and 37 n the Unted States Department of grcuture, ureau
of grcutura conomcs, Servce and Reguatory nnouncements, No. 118,
e cept such tobacco so cassfed as s specfcay ncuded n the above defn-
ton of cgar-eaf tobacco. It sha be deemed to ncude aso a other domestc
dark ar-cured tobacco when processed n the manufacture of cgarettes, smok-
ng tobacco, chewng tobacco, and/or snuff.
Processng order. Processng order s the state of Maryand, urey, fue-
cured, fre-cured, and/or dark ar-cured tobacco at the tme of processng
thereof.
Cgarettes. Cgarettes are ros of tobacco wrapped n paper.
Snuff. Snuff s tobacco that has been cut, ground, or puverzed nto sma
partces for use n snffng, dppng, or chewng.
Smokng tobacco. Smokng tobacco s tobacco of dfferent knds prepared for
use prncpay for smokng purposes.
(a) Granuated smokng tobacco. Granuated smokng tobacco Is tobacco
that s cut, threshed, or broken nto sma partces sutabe partcuary for
ppe smokng or hand-roed cgarettes.
( ) Other smokng tobacco. Other smokng tobacco s tobacco not granuated
whch s prepared for use prncpay for ppe smokng.
Chewng tobacco. Chewng tobacco Is tobacco of dfferent knds prepared
for use prncpay for chewng purposes.
(a) Pug chewng tobacco. Pug chewng tobacco s chewng tobacco manu-
factured and pressed Into fat cakes.
( ) Twst. Twst s the type of chewng tobacco manufactured n the form
of a twst
(c) Other chewng tobacco. Other chewng tobacco Is tobacco prepared for
use prncpay for chewng.
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472
Leaf tobacco. Leaf tobacco s tobacco n the forms n whch t appears be-
tween the tme t s strpped from the stak, or prmed and cured, and the tme
t enters nto a manufacturng process.
Leaf tobacco from whch stem has not been removed:
Unstemmed. Unstemmed eaf tobacco s eaf tobacco from whch stem or
md rb has not been removed, ncudng both whoe eaf and eaf-scrap.
Leaf-scrap. Leaf-scrap s eaf tobacco consstng of oose and tanged whoe
and/or broken eaves.
Leaf tobacco from whch stem has been removed:
Stemmed or strps. Stemmed or strps are eaf tobacco from whch stem or
md-rb has been removed.
Strp-scrap. Strp-scrap s eaf tobacco consstng of oose and tanged por-
tons of stemmed or strps.
Shredded fer. Shredded fer s eaf tobacco commony known as such and
usuay consstng of strp-scrap of two or more types of tobacco.
Cuttngs. Cuttngs are portons of cgar wrapper and/or cgar bnder strps.
Cppngs. Cppngs are sma portons of strps, frequenty ncudng sma
portons of wrapper, bnder, and fer strps.
p-products:
Sftngs. Sttngs are partces of eaf tobacco savaged from the resdue of
tobacco after processng.
Dust. Dust s the resdue of tobacco resutng from processng, after sftngs
have been savaged.
Sweatng. Sweatng s the handng of eaf tobacco as t passes through one
or more fermentatons.
Order. Order s the state of tobacco wth respect to ts mosture content.
Sccatcd. Sweated s the condton of cgar-eaf tobacco whch has passed
through one or more seasona fermentatons or whch has reached a corre-
spondng degree of fermentaton.
ermentng. See Sweatng.
Condtonng. Condtonng s the preparng of cgar-eaf tobacco for storage.
nswcated. Unsweated s the condton of unfermented cgar-eaf tobacco.
Cgars -Stoges Cheroots. Cgars, stoges, and cheroots are ros of tobacco
wrapped wth tobacco.
Sma cgars. Sma cgars are cgars weghng not more than three (3)
pounds per thousand (1,000).
Scrap chewng and/or smokng tobacco. Scrap chewng nnd/or smokng
tobacco s tobacco prepared for chewng or smokng purposes from scraps, cut-
tngs, or cppngs resutng from the manufacture of cgars, or from tobacco
eaves prmary of the types cassfed n casses 4, 5, . and 8 n the Unted
States ureau of grcutura conomcs, Sen-ce and Reguatory nnounce-
ments, No. 118, cut or broken nto sma peces but not shredded or granuated,
to whch favorng or sweetenng may or may not have been added.
arm saes weght. The farm saes weght of eaf tobacco Is the weght of
eaf tobacco n ts unstemmed form and n the order t s usuay devered by
the grower.
I . Converson actors.
(9) . I do hereby estabsh the foowng converson factors for artces
processed from cgar-eaf tobacco, to determne the amount of ta mposed or
refunds to be made wth respect thereto.
The foowng tabe of converson factors f es the percentage of the per
pound processng ta on cgar-eaf tobacco wth respect to a pound of the fo-
owng artces processed whoy, party, or n chef vaue from cgar-eaf
tobacco:
Per cent.
Cgars, stoges, cheroots, sma cgars 1 7
Sftngs and/or dust 0
In the computaton of the weght of cgars, stoges, cheroots, or sma cgars
for the purposes of the appcaton of the above tabe of converson factors, n
order to compute the ta ad|ustment on foor stocks, 1,000 cgars, stoges, or
cheroots sha be deemed to wegh seventeen and one-haf (171/.-) pounds, f the
ta payer so eects, and 1,000 sma cgars sha be deemed to wegh two and
seventy-fve hundredths (2.75) pounds, f the ta payer so eects.
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473
Msc.
I do hereby estabsh (as of ebruary 1, 1935) the foowng converson
factor for scrap chewng and/or smokng tobacco processed whoy, party, or
In chef vaue, from cgar-eaf tobacco, to determne the amount of ta mposed
or refunds to be made wth respect thereto:
rtce.
Unt
Converson factor.
Scrap chewng and/or smok-
ng tobacco.
Pound
110 per cent of the per pound process-
ng ta on cgar-eaf tobacco used n
the manufacture of scrap chewng
and/or smokng tobacco.
. I do hereby estabsh the foowng converson factors for artces proc-
essed from urey, fue-cured, fre-cured and/or dark ar-cured tobacco to
determne the amount of ta mposed or refunds to be made wth respect thereto,
e cept ta es and refunds on foor stocks:
rtce.
Unt.
Converson factor.
Cgarettes.
Smokng tobacco:
(1) Granuated smokng
tobacco.
(2) Smokng tobacco
other than granu-
ated.
Chewng tobacco:
(1) Pug chewng to-
bacco.
1,000
Pound.
Pound.
Pound.
(2) Twst chewng to-
bacco.
Pound.
183 per cent of the per pound process-
ng ta on fue-cured tobacco, pus
122 per cent of the per pound process-
ng ta on urey tobacco, pus
8 per cent of the per pound processng
ta on Maryand tobacco.
88 per cent of the per pound process-
ng ta on fue-cured tobacco, pus
29 per cent of the per pound process-
ng ta on urey tobacco.
9 per cent of the per pound process-
ng ta on urey tobacco, pus
7 per cent of the per pound process-
ng ta on dark ar-cured tobacco,
pus
per cent of the per pound processng
ta on fue-cured tobacco, pus
1 per cent of the per pound processng
ta on fre-cured tobacco.
45 per cent of the per pound processng
ta on urey tobacco used n the
manufacture of chewng tobacco,
pus
33 per cent of the per pound process-
ng ta on fue-cured tobacco used
n the manufacture of chewng to-
bacco, pus
21 per cent of the per pound process-
ng ta on dark ar-cured tobacco
used n the manufacture of chewng
tobacco.
70 per cent of the per pound process-
ng ta on dark ar-cured tobacco
used n the manufacture of chewng
tobacco, pus
1 per cent of the per pound process-
ng ta on urey tobacco used n
the manufacture of chewng to-
bacco, pus
5 per cent of the per pound process-
ng ta on fre-cured tobacco used
n the manufacture of chewng to-
bacco.
47318
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474
rtce.
Unt.
Converson actor.
Chewng tobacco Con.
(3) Other chewng to-
Pound
Snuff.
Sttngs and dust.
Pound.
Pound..
50 per cent of the per pound process-
ng ta on urey tobacco used n
the manufacture of chewng to-
bacco, pus
23 per cent of the per pound processng
ta on dark ar-cured tobacco used
n the manufacture of chewng to-
bacco, pus
10 per cent of the per pound process-
ng ta on fru-cured tobacco used
n the manufacture of chewng
tobacco.
102 per cent of the per pound process-
ng ta on fre-cured tobacco, pus
5 per cent of the per pound processng
ta on dark ar-cured tobacco, pus
1 per cent of the per pound processng
ta on urey tobacco.
0
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any artce processed whoy
or party from Maryand, urey, fue-cured, fre-cured, and/or dark ar-cured
tobacco (n case of chewng tobacco, see foowng paragraph) on whch a ta
s mposed (other than a ta on foor stocks) or whch may be the sub|ect of a
cam for refund (other than a refund on foor stocks), whch Is ncuded In the
above st s processed whoy or party from a knd or knds of tobacco other
than those sted above for such artce, or contans more or ess of the knds of
tobacco so sted than represented by the sted converson factors, the converson
factor sha be:
(o) 144 per cent of the per pound processng ta on Maryand tobacco for
each pound of Maryand tobacco sad artce s estabshed to contan, pus
( ) 155 per cent of the per pound processng ta appcabe to the urey
tobacco used n the manufacture of sad product for each pound of urey
tobacco sad artce s estabshed to contan, pus
(c) 145 per cent of the per pound processng ta appcabe to the fue-cured
tobacco used n the manufacture of the sad product for each pound of fue-
cured tobacco sad artce Is estabshed to contan, pus
( ) 143 per cent of the per pound processng ta on fre-cured tobacco for
each pound of fre-cured tobacco sad artce Is estabshed to contan, pus
(e) 15 per cent of the per pound processng ta on dark ar-cured tobacco
for each pound of dark ar-eurred tobacco sad artce s estabshed to contan.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any chewng tobacco processed
whoy or party from Maryand, urey, fue-cured, fre-cured, and/or dark
ar-cured tobacco on whch a ta s Imposed (other than a ta on foor stocks),
or whch may be the sub|ect of a cam for refund (other than a refund on
foor stocks), whch Is Incuded n the precedng st s processed whoy or party
from a knd or knds of tobacco other than those sted heren for such chewng
tobacco, or contans more or ess of the knds of tobacco so sted than repre-
sented by the sted converson factors, the converson factor sha be:
(a) 144 per cent of the per pound processng ta on Maryand tobacco for
each pound of Maryand tobacco sad chewng tobacco s estabshed to contan,
pus
( ) 155 per cent of the per pound processng ta on urey tobacco used In
the manufacture of chewng tobacco for each pound of urey tobacco sad
chewng tobacco Is estabshed to contan, pus
(c) 145 per cent of the per pound processng ta on fue-cured tobacco used
n the manufacture of chewng tobacco for each pound of fue-cured tobacco
sad chewng tobacco s estabshed to contan, pus
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475
Mac.
(d) 143 per cent of the per pound processng ta on fre-cured tobacco used
In the manufacture of chewng tobacco for each pound of fre-cured tobacco
sad chewng tobacco s estabshed to contan, pus
(e) 15 per cent of the per pound processng ta on dark ar-cured tobacco
used n the manufacture of chewng tobacco for each pound of dark ar-cured
tobacco sad chewng tobacco s estabshed to contan.
C. I do hereby estabsh the foowng converson factors for artces proc-
essed from urey, fue-cured, fre-cured, and/or dark ar-cured tobacco to
determne the amount of ta mposed on foor stocks or refunds to be made
wth respect to foor stocks:
rtce.
Cgarettes
Smokng tobacco:
(1) Granuated smok-
ng tobacco.
(2) Smokng tobacco
other than granu-
ated.
Chewng tobacco:
(1) Pug chewng to-
bacco.
(2) Twst chewng to-
bacco.
(3) Other chewng to-
bacco.
Snuff .
Sftngs and dust.
Converson factor.
183 per cent of the per pound process-
ng ta on fue-cured tobacco.
88 per cent of the per pound process-
ng ta on fue-cured tobacco.
59 per cent of the per pound process-
ng ta on urey tobacco.
45 per cent of the per pound process-
ng ta on urey tobacco used n
the manufacture of chewng to-
bacco.
70 per cent of the per pound process-
ng ta on, dark ar-cured tobacco
used n the manufacture of chewng
tobacco.
50 per cent of the per pound process-
ng ta on urey tobacco used n
the manufacture of chewng to-
bacco.
102 per cent of the per pound process-
ng ta on fre-cured tobacco.
0.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any artce processed whoy
or n chef vaue from Maryand, urey, fue-cured, fre-cured, or dark ar-
cured tobacco (n case of chewng tobacco, see foowng paragraph) on whch
a ta on foor stocks s mposed or whch may be the sub|ect of a cam for
refund on foor stocks, whch s Incuded n the above st s processed whoy
or n chef vaue from a knd of tobacco other than that sted above for such
artce, or contans more or ess of the knd of tobacco so sted than represented
by the sted converson factor, the converson factor for such artce sha be:
(a) If processed whoy or n chef vaue from Maryand tobacco, 144 percent
of the per pound processng ta on Maryand tobacco for each pound of
Maryand tobacco sad artce s estabshed to contan.
( ) If processed whoy or In chef vaue from urey tobacco, 155 per cent
of the per pound processng ta appcabe to the urey tobacco used n the
manufacture of sad product for each pound of urey tobacco sad artce s
estabshed to contan.
(c) If processed whoy or n chef vaue from fue-cured tobacco, 145 per
cent of the per pound processng ta appcabe to the fue-cured tobacco used
In the manufacture of the sad product for each pound of fue-cured tobacco
whch sad artce s estabshed to contan.
(d) If processed whoy or n chef vaue from fre-cured tobacco, 143 per
cent of the per pound processng ta on fre-cured tobacco for each pound o
fre-cured tobacco whch sad artce s estabshed to contan.
(e) If processed whoy or n chef vaue from dark ar-cured tobacco, 150
per cent of the per pound processng ta on dark ar-cured tobacco for each
pound of dark ar-cured tobacco whch sad artce Is estabshed to contan.
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47
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund estabshes that any chewng tobacco processed
whoy or n chef vaue from Maryand, urey, fue-cured, fre-cured, or dark
ar-cured tobacco, on whch a ta on foor stocks s mposed or whch may be
the sub|ect of a cam for refund on foor stocks, whch s ncuded n the
precedng st Is processed whoy or In chef vaue from a knd of tobacco
other than that sted heren for such chewng tobacco, or contans more or
ess of the knd of tobacco so sted than represented by the sted converson
fuctor, the converson factor for such artce sha be:
(a) If processed whoy or In chef vaue from Maryand tobacco, 144 per cent
of the per pound processng ta on Maryand tobacco for each pound of Mary-
and tobacco sad chewng tobacco s estabshed to contan.
( ) If processed whoy or n chef vaue from urey tobacco, 155 per cent
of the per pound processng ta on urey tobacco used n the manufacture
of chewng tobacco for each pound of urey tobacco sad chewng tobacco s
estabshed to contan.
(c) If processed whoy or n chef vaue from fue-cured tobacco, 145 per
cent of the per pound processng ta on fue-cured tobacco used n the manu-
facture of chewng tobacco for each pound of fue-cured tobacco sad chewng
tobacco s estabshed to contan.
(d) If processed whoy or In chef vaue from fre-cured tobacco, 143 per
cent of the per pound processng tu on fre-cured tobacco used n the manu-
facture of chewng tobacco for each pound of fre-cured tobacco sad chewng
tobacco s estabshed to contan.
(e) If processed whoy or In chef vaue from dark ar-cured tobacco, 15
per cent of the per pound processng ta on dark ar-cured tobacco used n
the manufacture of chewng tobacco for each pound of dark ar-cured tobacco
sad chewng tobacco s estabshed to contan.
Par. . Secton 19(a), grcutura d|ustment ct, as amended,
provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad Into the Treasury of the Unted States.
Par. G. Secton 10(d), grcutura d|ustment ct, as amended,
provdes:
The Secretary of the Treasury Is authorzed to make such reguatons as
may be necessary to carry out the powers vested n hm by ths tte.
Par. . Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, as amended, provdes:
The Commssoner, wth the approva of the Secretary, sha prescrbe and
pubsh a needfu rdes and reguatons for the enforcement of ths ct
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) t the earest moment of October 1, 1933, there
became effectve (1) a processng ta on the frst domestc processng of cgar-
eaf tobacco, Maryand, urey, fue-cured, fre-cured, and dark ar-cured to-
bacco (2) a compensatng ta wth respect to a artces processed or manu-
factured whoy or n chef vaue from any of sad market cassfcatons of
tobacco, and mported on or after sad date. compensatng ta became
effectve wth respect to a artces processed or manufactured whoy or party
from any of the above market cassfcatons of tobacco, and mported after
11.23 a. n., eastern standard tme, May 9, 1934.
t the earest moment of October 1, 1935, there became effectve a foor
stocks ta wth respect to a artces processed whoy or n chef vaue from
Maryand tobacco and foor stocks of chewng tobacco processed whoy or n
chef vaue from fre-cured tobacco, hed for sae or other dsposton on such
date.
The present rates of processng ta are gven n artce 2 of these reguatons.
The present rates of compensatng ta , ta on foor stocks, and of credt or
refund, are gven In artces 8, 4, and 5 of these reguatons.
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477
Msc.
( ) or reguatons reatng to the processng ta and compensatng ta ,
consut Reguatons 81, as amended. or reguatons reatng to the ta on
foor stocks consut Reguatons 82, and for reguatons reatng to e portaton
consut Reguatons 83, as amended. The foregong reguatons are genera
reguatons under the grcutura d|ustment ct, as amended, and are sup-
pemented by these reguatons.
(c) The effectve date, as defned and used In Reguatons 81, as amended,
and Reguatons 82, as amended, s:
(1) October 1,1933, wth respect to any type or knd of tobacco named above,
and artces or products processed or manufactured whoy or n chef vaue
therefrom
(2) ugust 1, 1034, wth respect to the reducton n the rate of ta on the
processng of fue-cured tobacco nto pug chewng tobacco or twst tobacco
(3) October 1, 1934, wth respect to the ncrease n the rate of ta on the
processng of urey tobacco and the reducton n the rate of ta on the process-
ng of Maryand tobacco
(4) ebruary 1, 1935, wth respect to the reducton n the rate of ta on
the processng of cgar-eaf tobacco nto scrap chewng or smokng tobacco, the
revson of the measures of ta appcabe to the processng of cgar-eaf
tobacco of the knd cassfed n Unted States Department of grcuture, u-
reau of grcutura conomcs, Servce and Reguatory nnouncements, No.
118, as fre-cured tobacco, and the reducton n the rates of ta on the processng
of urey, fue-cured, fre-cured, and dark ar-cured tobacco nto chewng
tobacco.
(5) October 1, 1935, wth respect to (1) the Increase n the rate of ta on the
processng of a Maryand tobacco, and on the processng of fre-cured tobacco
nto chewng tobacco (2) wth respect to the reducton n the rate of ta on the
processng of a fue-cured tobacco, and on the processng of urey tobacco and
fre-cured tobacco nto any artce other than chewng tobacco.
(d) The varous defntons set forth n the reguatons of the Secretary of
grcuture n paragraph (8), above, are hereby made a part of these regu-
ar ons.
(e) The term person and the term sae or other dsposton sha have
the same meanngs n these reguatons as gven respectvey In artce 1(c)
and () of Reguatons 82, as amended.
rt. 2. Processng ta es. (a) Reguatons 81, as amended, shoud be con-
suted for detaed reguatons wth respect to the processng ta .
( ) Returns. The form prescrbed for return of the ta on the processng of
cgnr-eaf tobacco s P. T. orm , revsed ebruary, 1935. The form prescrbed
for return of ta on the processng of Maryand, urey, fue-cured, fre-cured,
and dark ar-cured tobacco, Is P. T. orm , revsed October, 1935.
These returns for the month of October, 1935, and for each subsequent
caendar month sha be fed on or before the ast day of the month ne t
foowng the month n whch the processng s done. The amount of ta shown
to be due on each such return sha be pad at the tme f ed for fng the return,
or f the tme for payment be postponed, then at the tme or tmes desgnated
for payment n such postponement.
ach such return sha be fed wth, and the ta shown to be due thereon
sha be pad to, the coector of Interna revenue for the dstrct n whch the
processng was done. If the ta payer s engaged n processng tobacco n more
than one coecton dstrct he sha fe wth the coector for each respectve
dstrct a separate return wth respect to the processng done n such dstrct.
If wthn a coecton dstrct the ta payer has more than one pace where proc-
essng s done there sha be attached to the return fed n such dstrct a separate
schedue for each factory, gvng Informaton as requred n artce 11 of Regua-
tons 81, as amended.
(e) Records. ach processor of tobacco sha keep, for each caendar month,
a record as respects each market cassfcaton of tobacco, of (1) the quantty on
hand at the begnnng of the month, (2) the quantty receved durng the month,
(3) the quantty shpped or devered durng the month, (4) the quantty sod
or otherwse dsposed of as waste durng the month, (5) the quantty on hand at
the end of the month, and ( ) the quantty put n process durng the month.
These quanttes must be ascertaned by actua weghng on accurate scaes and
not by estmaton.
(d) empton. The processng of tobacco used n the producton of nsect-
cdes or fertzers s e empt from the ta .
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Msc.
478
(c) Rate of ta . The present rates of tu on the processng of cgar-eaf,
Maryand, arey, fue-cured, re-cured, and dark ar-cured tobacco are as
foows:
Market cassfcaton o( tobacco.
ffectve (ate.
Rates of taz per
Unsweated,
farm saes
ppcabe to
Stem Dot
removed.
Cgar-eaf of any knd used n
the manufacture of scrap
chewng or scrap smokng
tobacco
Cgar-eaf of any knd (e cept
that cassfed n Unted
States Department of gr-
cuture, . . ., Servce and
Reguatory nnouncements,
No. 118, as fre-cured tobac-
co) used n the manufacture
of artces other than scrap
chewng or scrap smokng
tobacco
Cgar-eaf of the knd cassfed
n Unted States Department
of grcuture, . . ., Serv-
ce and Reguatory n-
nouncements, No. 118, as
fre-cured tobacco, used n the
manufacture of artces other
than scrap chewng or scrap
smokng tobacco
Maryand
urey:
Used n manufacture of
Chewng tobacco
Other artces 1
ue-cured
re-cured
Dark ar-cured:
Used n manufacture of
Chewng tobacco
Other artces 1
eb. 1, 1935
0. 02
Sweated.
0. 025
Sweated.
SO. 033
Oct. 1,1933
0. 03
0. 0375
0.05
eb.
Oct.
eb.
Oct.
Oct.
Oct.
eb.
Oct.
1, 1935
1, 1935
1, 1935
1, 1935
1, 1935
1, 1935
1, 1935
1, 1933
.03
0. 03 2
. 025
. 035
. 0189
. 0214
02
. 033
. 0325
. 043
procurng order.
0.0385 0,052
. 029
. 04
. 0213
. 023
. 023
. 038
.039
. 054
.0273
.031
.031
. 051
1 cept cgars and crap chewng or scrap smokng tobacco.
f) ddtona ta wth respect to certan tobacco n process. Wth respect
to a Maryand tobacco n process of manufacture Into any artce and a
fre-cured tobacco n process of manufacture nto chewng tobacco, at the
earest moment of October 1, 1935, the frst domestc processng of whch
had not been competed pror to that date, and on whch the processng ta
attached pror to that date, an addtona processng ta aso attaches equa
to the dfference between the rate In effect Immedatey pror to, and the rate
effectve on October 1, 1935. The respectve rates of such addtona processng
ta , per pound, are:
Market cassfcaton of tobacco.
Rate of addtona tat per pound.
arm saes
weght.
ppcabe to
tera not
removed.
Stem
Maryand, n process of manufacture nto any
artce
re-cured, n process of manufacture nto chew-
ng tobacco
0. 03 2
. 0014
In processng
0.0385
. 001
0. 052
.002
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479
Msc.
ach processor of any market cassfcaton of tobacco sted above sha
enter on hs return, P. T. orm , revsed October, 1935, for the month of
October, 1935 (In addton to the quantty of such tobacco put n process
durng the month), the quantty of such tobacco In process at the frst moment
of October 1, 1935, the rate of ta gven above appcabe thereto, und the
amount of ta due thereon, and ncude such amount n the tota amount of
processng ta due as shown by that return.
(g) Credt or refund wth respect to certan tobacco n process. Wth respect
to a urey and fre-cured tobacco In process of manufacture at the earest
moment of October 1, 1935, Into artces other than chewng tobacco, and wth
respect to a fue-cured tobacco then n process of manufacture Into any artce,
the frst domestc processng of whch was not competed pror to that date,
and on whch the processng ta attached pror to that date, the processor
Is entted to credt or refund of the dfference between the rate In effect
mmedatey pror to, and the rate effectve on, October 1, 1935. The rates
of credt or refund wth respect to each pound of such tobacco are:
Market cassfcaton of tobacco.
arm saes
weght.
Stem not
removed.
Stem
removed.
urey, n process nto artces other than chew-
In procestng order.
ng tobacco .
0. 02
0. 03
0. 041
re-cured, n process nto artces other than
chewng tobacco
.007
. 0084
.01
ue-cured, n process nto chewng tobacco
.0011
.0017
.0017
ue-cured, n process nto artces other than
chewng tobacco
. 0231
. 0257
.0337
Cam for credt sha be e ecuted on P. T. orm 28 and attached to the
monthy return on whch such credt s camed. Cam for refund sha be
made on P. T. orm 24, and sha affrmatvey state that the cam s not for
the refund of ta es egay or erroneousy coected, but s for the refund of
ta es wth respect to tobacco In process on October 1, 1935. Such cam for
credt or refund sha be fed on or before anuary 28, 193 . No such cam
w be aowed In an amount ess than 10. See artce for genera provsons
reatng to these cams.
rt. 3. Rates of compensatng taw, or of credt or refund, wth respect to
artces processed from tobacco. (a) The present rates of compensatng ta
mposed wth respect to artces processed whoy or party from cgar-eaf to-
bacco, Maryand, urey, fue-cured, fre-cured, and dark ar-cured tobacco and
mported on and after October 1, 1935, and the rates for computng the amount
of refund or credt aowabe wth respect to such artces e ported on or after
sad date or devered on or after sad date to an organzaton for chartabe
dstrbuton or use are as foows:
rtces.
Rate of ta or
of refund or
credt.
Cgars, stoges, cheroots per pound-.
Sma cgars do
Scrap chewng or scrap smokng tobacco do
Cgarettes -per 1,000-
Smokng tobacco:
Granuated per pound-.
Other than granuated or scrap do
Chewng tobacco:
Pug do
Twst- do
Other ttan pug, twst, or scrap do
Snuff... - do.
Sttngs and dust do.
0. 0501
. 0501
. 022
. 080183
. 02 782
. 02430S
. 021 87
. 03032
. 01924
. 023828
. 0
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Msc.
480
( ) If the Commssoner, the ta payer or person entted to credt or refund
can estabsh that any artce Incuded n the above st, on whch a ta s
mposed, or whch may be the sub|ect of a cam for credt or refund (other
than a credt or refund wth respect to foor stocks) s processed from a knd
or knds of tobacco other than those sted wth respect to the artce n para-
graph 9) , ubove, or contans more or ess of the knds of tobacco than rep-
resented by the converson factors prescrbed therefor, the respectve rate gven
beow sha be used wth respect to the quantty of each knd of tobacco con-
taned n the artce. In the case of the compensatng ta , the eecton must
be made by the ta payer at the tme when the customs entry s fed. The cus-
toms entry and nvoce or cam must show: (1) the knd or knds of tobacco
from whch the artce has been processed, and (2) the actua quantty of
each knd of tobacco contaned n the artce. In such case the appcabe rates
of ta or of credt or refund are:
nd of tobacco contaned n the artce.
Maryand
urey:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of other artces
ue-cured
re-cured
Dark ar-cured:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of other artces
Rae per
pound of con-
tent of such
0. 052128
. 03875
. 05425
. 027405
. 030 02
. 0312
. 05148
kt. 4. Ta mposed on foor stocks of certan artces. (a) Ta es are m-
posed on foor stocks of a artces processed whoy or n chef vaue from
Maryand tobacco and foor stocks of chewng tobacco processed whoy or In
chef vaue from fre-cured tobacco, hed for sae or other dsposton on October
1, 103 ). The ta on such foor stotks s equvaent to the dfference between
the respectve rates of ta on the processng of Maryand tobacco, and on the
processng of fre-cured tobacco nto chewng tobacco, n effect mmedatey
pror to, and the rates of such ta effectve on, October 1, 1035. The respectve
rates of such foor ta are as foows:
Market cassfcaton of tobacco from whch artce was processed whoy or n cue- vaue.
Rate per
pound of con-
tent of such
tobacco.
Maryand
re-cured tobacco content of chewng tobacco.
0. 052128
. 002002
( ) The form prescrbed for nventory and return of such foor stocks Is
P. T. orm 3 . oor stocks of artces processed whoy or n chef vaue
from such tobacco, and hed n customs custody on October 1, 1935, must be
nventored separatey, and such nventory fed wth the coector of nterna
revenue for the dstrct n whch the artces are hed. Pror to each wth-
drawa of such artces from customs custody, return on P. T. orm 3 , cover-
ng the artces to be wthdrawn, sha be fed wth, and the ta pad to. the
coector of nterna revenue.
rt. 5. Credt or refund wth respect to foor stocks of certan artces. (a)
ny person who, at the earest moment of October 1, 1035, hed for sae or
other dsposton any artce processed whoy or n chef vaue from fue-
cured tobacco, or any artce other than chewng tobacco processed whoy or
In chef vaue from urey or fre-cured tobacco, wth respect to whch a ta
had been pad or s payabe under the provsons of the grcutura d|ust-
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481
Msc.
ment ct, as amended, s entted to refund or credt equvaent to the dffer-
ence between the respectve rates of ta on the processng of such tobacco nto
such artces n effect mmedatey pror to, and the rates of such ta effectve
on, October 1, 1935. The appcabe rates for computng the amount of such
credt or refund are as foows:
rtce.
Tobacco component
of chef vaue.
Rate.
Cgarettes per 1,000..
Smokng tobacco:
Granuated per pound..
Other than granuated or scrap do
Snuff do
ue-cured..
ue-cured..
urey
re-cured
0. 042273
. 020328
. 01534
. 007752
( ) If the Commssoner or any person entted to credt or refund can
estabsh that any artce whch may be the sub|ect of a cam for credt or
refund on account of reductons n the rates of processng ta effectve Oc-
tober 1, 1935, s processed whoy or n chef vaue from a knd of tobacco
other than that sted wth respect to the artce n paragraph (9)C, above
or contans more or ess of the knd of tobacco than represented by the con-
verson factor prescrbed therefor, the respectve rate gven beow sha be
used wth respect to the quantty of that knd of tobacco contaned n the
artce. The cam must show: (1) the knd of tobacco from whch the art-
ce has been processed whoy or n chef vaue, and (2) the actua quantty
of that knd of tobacco contaned n the artce. The appcabe rates for
computng the amount of credt or refund are:
nd of tobacco contaned In the artce.
Rate per
pound of con-
tent of such
tobacco.
urey used n the manufacture of artces other than chewng to-
bacco
ue-cured:
(1) Used n the manufacture of chewng tobacco
(2) Used n the manufacture of artces other than chewng
tobacco
re-cured used n the manufacture of artces other than chewng
tobacco
0. 0403
. 001595
. 033495
. 0108 8
(c) The cam for credt or refund referred to n subdvson (a) above sha
be made on P. T. orm 24 . The form sha be fuy and accuratey fed
out n accordance wth the nstructons prnted thereon, and In accordance wth
these reguatons. No such cam for credt or refund w be aowed n an
amount ess than 10, nor uness fed on or before anuary 28, 193 . See
artce for genera provsons reatng to these cams.
The cam sha show wth respect to each cass of products nventored
thereon (a) the amount of ta pad or payabe wth respect to the products
sted n the nventory, credt or refund of whch ta s camed, (f ) the knd
of ta pad or payabe, whether processng ta , ta on foor stocks, or compen-
satng ta , (c) to whch coector the ta was pad, and (d) f credt or refund
of processng ta s camed, the month and year In whch the processng of the
commodty occurred whch resuted n the product sted n the nventory.
The camant sha, as of the begnnng of busness on October 1, 1935, make
or cause to be made an nventory of such of the artces enumerated n sub-
dvson (a) above, as were hed by hm, at that tme, for sae or other dspo-
ston. The same rues as to ownershp or tte and as to the nventory as are
contaned n artces 5 and 11, respectvey, of Reguatons 82, as amended,
sha be appcabe wth respect to cams fed hereunder, Incudng cams wth
respect to reta stocks. The nventory sha be set forth on P. T. orm 24 .
G
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4S2
r. . Genera requrements appcabe to camt. The foowng genera
provsons are appcabe wth respect to the cams for credt or refund referred
to n artces 2 and 5:
(a) ach cam for credt or refund of a ta whch has been pad sha be
supported by evdence estabshng to the satsfacton of the Commssoner
that the ta was actuay pad to a coector of nterna revenue.
(ft) The cam sha be sgned by the camant, and sha be sworn to by
hm f an ndvdua, or, If a corporaton or frm, by a duy authorzed offcer
or member thereof.
(c) cam, f t s for refund, sha be fed wth the coector of Interna
revenue for the dstrct n whch the camant has hs prncpa pace of bus-
ness (or, If he has no prncpa pace of busness n the Unted States, wth
the coector at atmore, Md.). cam for credt sha be attached to the
return on whch the credt Is camed, when the return s fed wth the coector.
((f) ny person who fes a cam for credt or refund sha preserve for four
years thereafter, a compete and detaed record of the facts upon whch the
cam, ncudng the Inventory, was based. Such person sha aso retan a
true copy of the nventory on the premses where the artces were hed on the
effectve date. The books, records, papers, documents, etc., upon whch such
cam was based sha be open for Inspecton by any nterna revenue offcer.
The records sha be kept In such manner, and sha contan such nformaton,
as w enabe the Commssoner to determne the vadty of the cam.
rt. 7. ornu. To nsure the proper return of the ta es Imposed by the ct,
and to factate the coecton and refund of tu es, certan forms are pre-
scrbed for use by ta payers. The foowng prescrbed forms sha be used
as requred by the provsons of the appcabe reguatons and In accordance
wth the Instructons contaned on such forms:
orm No.
P. T. orm ,
revsed ebru-
ary, 1935.
P. T. orm ,
revsed Octo-
ber, 1935.
P. T. orm 24...
P. T. orm 24C.
P. T. orm 24 ..
P. T. orm 27...
P. T. orm 28...
P. T. orm 3 ..
Desgnaton.
Return of processor of cgar-
eaf tobacco.
Return of processor of tobacco,
other than cgar-eaf.
Cam for refund of ta es e-
gay coected.
Cam for refund of, or credt
for, ta pad wth respect to
artces devered for char-
tabe dstrbuton or use.
Cam for refund of, or credt
for, ta pad wth respect to
certan artces processed from
certan tobacco.
Cam for refund of, or credt
for, ta pad wth respect to
artces e ported.
Cam for credt on return, of
overpayment.
oor ta nventory and return
of certan artces processed
from tobacco hed for sae or
other dsposton on October
1, 1935.
Requred by-
Reguatons 81, artce 11,
and artce 2(a), above.
Reguatons 81, artce 11,
and artce 2(a), above.
Reguatons 81, artce
31(a).
Reguatons 81, artce 32,
as amended.
rtce 5, these regua-
tons.
Reguatons 83, as
amended.
Reguatons 81, artce
31( ).
rtce 4, these regua-
tons.
rt. 8. Treasury Decson 4530, approved March 8, 1935 (C. . I -1, 475),
and Treasury Decson 4593, npproved October 21, 1935 page 401, ths uetn ,
suppementng and n part revsng Treasury Decson 4530, sha reman n
force and effect ony n so far as they reate to abty for ta ncurred, and
rght to refund accrued durng the perod ebruary 1, 1935, to September 30,
1935.
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These reguatons sha be n force and effect as of the earest moment of
October 1, 1935, n so far as they reate to abty for ta ncurred or rght
to credt or refund accrued, on and after that date.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 4, 1935.
T. . Cootdge,
ctng Secretary of the Treasury.
I -34-7 5
T. D.4579
/ Processng and other ta es wth respect to wheat under the
grcutura d|ustment ct, as amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 9(a), grcutura d|ustment ct, as
amended, provdes, n part:
When the Secretary of grcuture determnes that renta or beneft
payments are to be made wth respect to any basc agrcutura commodty, he
sha procam such determnaton, and a processng ta sha be n effect wth
respect to such commodty from the begnnng of the marketng year therefor
ne t foowng the date of such procamaton .
Par. . procamaton of the Secretary of grcuture dated
une 20, 1933, provdes:
I, bnsy . Waace, Secretary of grcuture of the Unted States of merca,
actng under and pursuant to an ct of Congress known as the grcutura
d|ustment ct, approved May 12, 1933, have determned and hereby procam
that renta and/or beneft payments are to be made wth respect to wheat, a
basc agrcutura commodty.
Par. C. Secton 10(c), grcutura d|ustment ct, as amended,
provdes:
The Secretary of grcuture s authorzed, wth the approva of the Pres-
dent, to make such reguatons wth the force and effect of aw ns may be
necessary to carry out the powers vested n hm by ths tte, ncudng regua-
tons estabshng converson factors for any commodty and artce processed
therefrom to determne the amount of ta Imposed or refunds to be made wth
respect thereto. ny voaton of any reguatons sha be sub|ect to such
penaty, not n e cess of 100, as may be provded theren.
Par. D. Secton 9(d)(1), grcutura d|ustment ct, as
amended, provdes n part:
In case of wheat the term processng means the mng or
other processng (e cept ceanng and dryng) of wheat for market,
ncudng custom mng for to as we as commerca mng, but sha not
Incude the grndng or crackng thereof not n the form of four for feed
purposes ony.
Par. . Secton 15(e) of the grcutura d|ustment ct, as
amended, provdes n part:
Durng any perod for whch a processng ta s n effect wth respect to
any commodty there sha be eved, assessed, coected, and pad upon any
artce processed or manufactured whoy or party from such commodty and
Imported Into the Unted States or any possesson thereof to whch ths tte
appes, from any foregn country or from any possesson of the Unted States
to whch ths tte does not appy, whether Imported as merchandse, or as a
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484
contaner of merchandse, or otherwse, a compensatng ta equa to the
amount of the processng ta In effect wth respect to domestc processng of
such commodty at the tme of mportaton .
Par. . The reguatons wth respect to the processng ta on
wheat, made by the Secretary of grcuture, wth the approva of
the Presdent, dated une 2 , 1933, as suppemented, revsed, and, n
part, superseded by reguatons made by the Secretary of grcu-
ture, wth the approva of the Presdent, dated ugust 11, 1933, and
uy 8, 1935, provde:
I. Marketng Year.
(1) I do hereby scertan and prescrbe that for the purposes of sad ct
the frst marketng year for wheat sha begn uy 9, 1933.
II. Rate of Ta .
(2) I do hereby determne that as of uy 9, 1933, the processng ta on
the frst domestc processng of wheat sha be at the rate of 30 cents per
bushe of 0 pounds, whch rate equas the dfference between the current
average farm prce for wheat and the far e change vaue of wheat, whch
prce and vaue, both as defned n sad ct, have been ascertaned by me from
avaabe statstcs of the Department of grcuture.
The weght of wheat sub|ect to tue processng ta sha be the weght of
cean wheat not artfcay dred.
III. Defntons.
(3) The foowng terms, as used In these reguatons, sha have the mean-
ngs hereby assgned to them:
Whoe wheat end graham four s any four contanng n ther appro -
mate natura proportons substantay a of the consttuents of ceaned wheat.
four e cept whoe wheat and graham s any four (e cept whoe wheat,
graham, semona, and farna) obtaned n the commerca mng of wheat,
consstng essentay of the starch and guten of the endosperm, whch con-
tans not more than 1 per cent of ash (n the case of durum four not more
than 1.2 per cent of nsh).
Semona s the granuar product obtaned n the commerca process of
mng durum wheat, and s that porton of the endosperm retaned on 10
sk botng coth.
arna s the same as semona e cept that t s made from hard wheat
other than durum.
Prepared doughnut four Is a commerca preparaton (consstng of four,
shortenng, and other ngredents) commony used In the preparaton of cruers
(. e., doughnuts other than rased doughnuts) and fred cakes.
Prepared bscut four Is a commerca preparaton (consstng of four,
shortenng, and other ngredents) commony used n the preparaton of short
bread.
Prepared pancake four Is a commerca preparaton (consstng of at
east 50 per cent of wheat four and varyng amounts of other four, e. g., corn,
rce, rye, and buckwheat) commony used n the preparaton of pancakes,
grddecakes, or waffes.
Prepared pe crust four s a commerca preparaton (consstng of four,
shortenng, and other ngredents) commony used n the preparaton of pe
crusts or shes.
bread e cept rye ncudes any type of bread e cept (a) rye as heren
defned, (u) cweback, and (c) ros, a types, and coffee cake.
Rye bread s the bread obtaned by bakng a dough whch dffers from
wheat-bread dough n that not ess than one-thrd ( ) of the four ngredent
has been repaced by rye four.
Zreback s a commercay toasted bread.
Ros, a types, and coffee cake ncude any product commony caed a
ro or coffee cake, the four content of whch conssts of at east 95 per cent of
wheat four.
Crackers ncude artces commony known as bscuts.
Pretzes are made from n yeast-rased dough, submerged or precooked
n a caustc souton.
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Macaron and spaghett are pan nmentary pastes, ncudng vermce,
prepared and shaped from the dry doughs made from semona, farna, wheat
foor, or from a m ture of any two or a of these fours, and wth one or
more other ngredents.
Canned macaron and spaghett conssts of a m ture of cooked macaron
or spaghett, as defned heren, m ed wth cheese or other products and her-
metcay seaed.
Noodes are a form of egg amentary paste.
Outen s the product made from wheat four by the amost compete re-
mova of starch, and conssts prmary of proten.
Wheat starch s a product of wheat four resutng from the remova from
such four of practcay a of the proten, mnera, and fbrous matera.
Monosodum gutamate Is the monosodum sat of gutamc acd whch
s obtaned from wheat guten.
Dsted sprts are products derved from wheat mash by a process of
dstaton.
I . Converson actors.
(4) I do hereby estabsh the foowng converson factors for artces proc-
essed from wheat to determne the amount of ta mposed or refunds to be
made wth respect thereto:
The foowng tabe of converson factors f es the percentage of the per-
bushe processng ta on wheat wth respect to 100 pounds1 of the foowng
artces processed whoy, party, or In chef vaue from wheat These per-
centages are based upon a basc converson factor of 4.0 bushes of wheat as
equang 19 pounds of the four desgnated n tem 1( ) beow.
rtces processed whoy, party, or n chef vaue from wheat.
Converson
factors.
our
(a)
9)
(c)
d)
Products of frst domestc processng:
Whoe wheat and graham
four e cept whoe wheat and graham
Semona and farna
ran, shorts, mddngs, red dog, and a of the product
of wheat (other than whoe wheat and graham four)
resutng from the commerca mng thereof whch
contans more than 1 per cent of ash (n the case of
such product of durum wheat, more than 1.2 per
cent of ash)
2. Prepared four
(a) Doughnut
( ) scut
(c) Pancake
(d) Pc crust
. Cerea preparatons made chefy from wheat
(a) Whoe wheat type, ncudng those consstng chefy of
whoe wheat
( ) others e cept those consstng chefy of bran
Products of secondary processngs:
read
(a) bread e cept rye
( ) Rye
(c) Zweback
(d) Ros, a types, and coffee cake
Crackers
Pretzes
(a) Macaron and spaghett, e cept canned
(b) Canned macaron and spaghett
Noodes
Guten
1 . 7
4.
,
.
7.
8.
9.
10.
11.
Wheat starch
Monosodum gutamate..
12. Dsted sprts 1
234. 7
133. 8
223. 0
1 4. 3
140. 8
1 . 7
234. 7
1 1
120
154
1 1
230
244
250
31. 2
238
1, 173. 5
0
4, 94. 0
18. 8
1 In the case of dsted sprts 1 gaon of 100 proof.
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The artces to whch converson factors are specfcay assgned above are
hereby defned, for the purposes of these reguatons, as factored artce .
s to n artces not hereby specfcay assgned converson factors whch
ure nmde, drecty or ndrecty, n some part from a factored artce, I do
hereby estabsh that as to each 100 pounds of such part the converson fac-
tor s the converson factor hereby secfcay assgned for such factored
nrtce.
s to n artces not hereby specfcay assgned converson factors and whch
n some part are made, drecty or ndrecty, from wheat but not (as to such
part) from a factored artce, I do hereby estabsh that as to each 100
pounds of such part the converson factor s 1 8. 7 per cent of the per bushe
processng ta on wheat.
In the event that any ta payer, the Commssoner of Interna Revenue, or
any person entted to a refund or credt sha estabsh that any artce proc-
essed whoy, party, or n chef vaue from wheat represents more or ess
wheat than s ndcated by the converson factor sted above for such art-
ce, then the amount of ta , refund, or credt wth respect to such artce
sha be computed at the rate of the processng ta on the bass of the amount
of wheat estabshed to be actuay represented theren.
Par. G. Secton 19(a), grcutura d|ustment ct, as amended,
provdes:
The ta es provded n ths tte sha be coected by the ureau of Interna
Revenue under the drecton of the Secretary of the Treasury. Such ta es
sha be pad nto the Treasury of the Unted States.
Par. . Secton 10(d), grcutura d|ustment ct, as amended,
provdes:
The Secretary of the Treasury s authorzed to make such reguatons as
may be necessary to carry out the powers vested In hm by ths tte.
Par. I. Secton 1101, Revenue ct of 192 , made appcabe by
secton 19(b), grcutura d|ustment ct, as amended, provdes:
The Commssoner, wt the approva of the Secretary, sha prescrbe and
pubsh a needfu rues and reguatons for the enforcement of ths ct.
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws, the foowng reguatons are hereby
prescrbed:
rtce 1. Genera. (a) processng ta on the frst domestc processng of
wheat became effectve at the earest moment of uy 9, 1933. compensatng
ta became effectve wth respect to a artces processed whoy or n chef
vaue from wheat, and mported on or after uy 9, 1933. compensatng ta
became effectve wth respect to a artces processed whoy or party from
wheat, and mported after 11.23 a. m., eastern standard tme, May 9, 1934. See
secton 15(e) of the grcutura d|ustment ct, as amended by the ct
approved May 9, 1934 ( 48 Stat., 70), quoted n paragraph above.
The rate of processng ta s gven n artce 2 of these reguatons. The
rates of compensatng ta are gven In artce 4 of these reguatons.
( ) y vrtue of the procamaton of the Secretary of grcuture, set forth
n paragraph above, Reguatons 81, reatng to the processng ta and com-
pensatng ta , Reguatons 82, reatng to the ta on foor stocks, and Regu-
atons 83 (September, 1934, edton), reatng to e portaton, whch are genera
reguatons under the grcutura d|ustment ct, became appcabe wth
respect to wheat. The reguatons referred to are suppemented by the regua-
tons contaned In ths Treasury decson.
(c) Wth respect to wheat and artces processed therefrom, the date, uy 9,
1933, s the effectve date, as defned and used n Reguatons 81, Reguatons
82, and Reguatons 83 (September, 1934, edton).
(f) The varous defntons set forth In the reguatons of the Secretary of
grcuture n paragraph (3) above, are hereby made a part of these
reguatons.
cept where the factored artce from whch such part a made s dsted sprts,
n whch case each 1 gaon of 100 proof s the measure nstead of each 100
pounds.
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487
Msc.
(e) The term wheat, as used n these reguatons, means wheat of any
knd, cassfcaton, type, or grade.
bt. 2. Processng ta . (a) The processng ta on the frst domestc process-
ng of wheat became effectve at the frst moment of uy 9, 1933. The rate as
set forth In paragraph (2) shown above, Is 30 cents per bushe of 0 pounds.
The number of bushes sha be determned on the bass of the weght of the
wheat at the moment of begnnng the processng of such wheat. The weght
of wheat sub|ect to the processng ta sha be the weght of cean wheat not
artfcay dred. or detaed reguatons as to the ta on processng, see
Reguatons 81. The form prescrbed for return of processng ta s P. T. orm
1. The return sha be fed on or before the ast day of the month foowng
the month n whch the processng s done. The amount of ta shown to be
due on each such return must be pad at the tme the return Is fed, or, f the
tme for payment be postponed, then on or before the date or dates desgnated
for payment n such postponement. See artce 5 for st of prescrbed forms.
( ) ach person engaged n the processng of wheat sha keep a record and
make such report thereof as may be requred, as to (1) the quantty of wheat
on hand at the begnnng of the month, (2) the quantty of wheat receved
durng the month, (3) the quantty shpped or devered durng the month, (4)
the quantty ground for feed durng the month, (5) the quantty on hand at
the end of the month. These quanttes on each such record and report shn
be shown In accordance wth the eevator scae weghts after deductng the
dockage aowance ndcated by the censed nspector s certfcate. Where ee-
vator scae weghts are not obtanabe, the most reabe weght shoud be used
where there Is no censed nspector s certfcate avaabe, the dockage actuay
cacuated shoud be used.
(c) The processng of wheat by or for the producer thereof for consumpton
by hs own famy or empoyees or househod s e empt from the processng ta .
Ths appes to what s known as custom mng (for to or for money), but
not to cases such as, for e ampe, where a producer devers wheat to an ee-
vator or store n e change for four. Nor Is there any e empton where a pro-
ducer who has hs wheat processed nto four receves a knd or grade of four
other than that whch coud have been processed from the wheat devered
by such producer.
rt. 3. Compensatng ta on mported artces. compensatng ta became
effectve at the earest moment of uy 9, 1933, wth respect to a artces
processed whoy or In chef vaue from wheat and Imported on and after sad
date, nto the Unted States or any possesson thereof to whch the ct appes,
from any foregn country or any possesson of the Unted States to whch the
ct does not appy. compensatng ta became effectve wth respect to
artces processed whoy or party from wheat and mported after 11.23 a. m.,
May 9, 1934. The ta appcabe to such artces Is gven n artce 4 of these
reguatons. Detaed reguatons as to ths ta are contaned n Chapter I
of Reguatons 81, as amended by Treasury Decson 4501, approved December
4, 1934 C. . III-2, 524 .
bt. 4. Rates of compensatng ta or of refund. (a) Te rates of compensat-
ng ta or of refund wth respect to artces processed whoy or party from
wheat are as foows:
In the case of an artce named beow the rate Is:
Cassfcaton.
Products of frst processng:
1. our-
fa) Whoe wheat and graham ( cent)..
( ) four e cept whoe wheat and graham
(c) Semona and farna
(d) ran, shorts, mddngs, red dog, and a of the product
of wheat (other than whoe wheat and graham four)
resutng from the commerca mng thereof whch
contans more than 1 per cent of ash (n the case of
such product of durum wheat, more than 1.2 per cent
of ash)
Rates of ta
or of refund
(cents per
pound).
0. 500
.704
. 704
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Msc.
488
Cassfcaton.
Rates of ta
or of refund
(cent per
pound).
Products of frst processng Contnued
2. Prepared four
(a) Doughnut
( ) scut. -
(c) Pancake
( f) Pe crust
3. Cerea preparatons made chefy from wheat
(a) Whoe wheat type, ncudng those consstng chefy of
whoe wheat
( ) others e cept those consstng chefy of bran
Products of secondary processng:
4. read-
Co) bread e cept rye
( ) Rye - - -
(c) Zweback
( /) Ros, a types, and coffee cake
5. Crackers
. Pretzes.
7. (a) Macaron and spaghett, e cept canned
( ) Canned macaron and spaghett
8. Noodes
9. Guten
10. Wheat starch
11. Monosodum gutamate
12. Dsted sprts (per gaon, 100 proof)
( ) In the case of any artce processed whoy or party from wheat (but
not named n the st set forth n paragraph (a) of ths artce of these regua-
tons), whch s made, drecty or Indrecty, n some part from an artce
desgnated In such st, the converson factor for such part of the artce s
the same factor as that for the sted artce from whch such part has been
made, and the rate of ta or of refund for soc-h part of the artce, computed
from such converson factor, Is the same as for the sted artce from whch
the ta abe artce was made.
(c) If part of an artce processed whoy or party from wheat s made from
wheat (but s not made, drecty or Indrecty, from an artce sted n para-
graph (a) of ths artce of these reguatons), a converson factor of 1 7
per centum of the per bushe processng ta has been assgned to such part of
the artce, and, computed on the bass of such converson factor, the rate of
ta or of refund, per pound of wheat content of such part of the artce, s one-
haf of 1 cent.
(d) In the event that the Commssoner of Interna Revenue fnds, or any
ta payer, or any person entted to a refund or credt, estabshes that an art-
ce processed from wheat, wth respect to whch a ta Is mposed, or whch may
be the sub|ect of a cam for refund or credt, whch s Incuded n the above
st, represents more or ess wheat content than Is ndcated by the converson
factor sted therefor n paragraph (4), above, then the amount of ta , re-
fund, or credt wth respect to such artce sha be computed at the rate of the
processng ta on the bass of the amount of wheat estabshed to be actuay
represented theren.
(e) ny refund or credt of ta , made pursuant to the provsons of secton
15(c) or any refund made under the provsons of secton 17(a) of the ct,
sha be made ony on the foowng bass:
(1) If the ta pad was a compensatng ta , the amount of refund sha be
the amount of ta actuay pad wth respect to the partcuar product devered
or e ported.
(2) If the ta pad was a processng ta , the amount of refund sha be
determned In accordance wth the rate of processng ta In effect at the tme
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489
Msc-
of the frst domestc processng of the wheat from whch the devered or e -
ported product was processed and n accordance wth the proper converson
factor n effect at the tme the product was devered or e ported.
rt. 5. orn . To nsure the proper return of the ta es Imposed by the
ct, and to factate the coecton and refund of ta es, certan forms have
been prescrbed for use by ta payers. The prescrbed form must be used as
requred by the appcabe provsons of Reguatons 81, or Reguatons 83
(September, 1934, edton) and must be carefuy fed out n e act accordance
wth the nstructons prnted thereon and wth the appcabe provsons of the
proper reguatons. The foowng forms wth respect to wheat are hereby
prescrbed:
orm No.
Desgnaton.
Requred by
P. T. orm
Return of processor of wheat
Reguatons 81, artce 11.
Reguatons 81, artce
31(a).
P. T. orm 24
Cam for refund of ta es ega-
y coected.
Cam for refund of, or credt for,
ta pad wth respect to ar-
tces devered for chartabe
dstrbuton or use.
P. T. orm 24-C.
Reguatons 81, artce 32,
as amended by T. D.
4454 C. . III-2,
479).
P. T. orm 25
Reguatons 83 (Septem-
ber, 1934, edton), ar-
tce 15.
P. T. orm 2
ntry for e portaton.
Reguatons 83 (Septem-
ber, 1934, edton), ar-
tce 1 .
P. T. orm 27
Cam for refund of ta pad wth
respect to artces e ported.
Reguatons 83 (Septem-
ber, 1934, edton).
P. T. orm 28
Cam for credt, on return, of
overpayment.
Reguatons 81, artce
31( ).
P. T. orm 29
Producer s affdavt or certf-
cate.
Reguatons 81, artce
9(a).
rt. . ffectve date. Treasury Decson 4391, approved September 18,
1033 C. . II-2, 480 , sha reman n force and effect n so far as t reates
to abty for ta ncurred, and n so far as t reates to rght to refund ac-
crued, pror to ugust 1, 1935, e cept that It sha not reman n force and
effect n so far as t reates to compensatng ta ncurred and rght to refund
of compensatng ta and e port refund accrued after 11.23 a. m., eastern
standard tme, May 9, 1934. These reguatons sha be n force and effect
as of the earest moment of ugust 1, 1935, e cept that they sha be n force
and effect as of 11.23 a. m., eastern standard tme, May 9, 1934, In so far as
they reate to abty for compensatng ta ncurred and rght to refund of
compensatng ta and e port refund accrued, after that tme.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 1 ,1935.
T. . Coo,dge,
ctng Secretary of the Treasury.
I -52-7884
T. D.4 19
Processng and other ta es wth respect to wheat under the gr-
cutura d|ustment ct, as amended. rtce 4 of Treasury
Decson 4579 page 483, ths buetn , approved ugust 1 , 1935,
amended.
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Regs. 85, rt. 31.
490
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Subdvson (a) (12) of artce 4 of Treasury Decson 4579, ap-
proved ugust 1 , 1935, s hereby amended to read as foows:
12. Dsted sprts (per gaon, 100 proof) 5. 4
The provsons of ths amendment sha be deemed to have been
n force and effect as of the earest moment of ugust 1, 1935.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 2 , 1935.
T. . Coodoe,
ctng Secretary of the Treasury.
SIL R PURC S CT.
SC DUL -10 O TITL III O T R NU CT O 192 , S
DD D Y S CTION 8 O T SIL R PURC S CT O 1934.
SIL R, ND SO ORT , S L S ND TR NS RS.
Reguatons 85, rtce 31: Scope. I -31-7 30
S. 5
Ta abty Invoved n a certan sver futures contract and
n a London buon deaer s proft In respect of transactons con-
summated abroad by a ctzen of the Unted States.
Where a resdent of the Unted States purchases a sver futures
contract on an organzed commodty e change stuated outsde of
the Unted States and, nstead of acceptng devery of the sver,
qudates the contract by an offsettng sae, he s abe ony for the
ta on the net profts reazed by vrtue of the purchase and offsettng
sae. owever, where a resdent of the Unted States purchases an
nterest n sver buon from a London buon deaer, he s abe
for the ta on such deaer s one-eghth proft whether he accepts de-
very of the sver or reses the same pror to the devery date.
The foregong s equay appcabe where the purchaser s a ctzen
of the Unted States who has been a resdent thereof at any tme
durng the three months mmedatey precedng the date of the
transfer.
The rung heren wth respect to a purchase of an nterest n
sver buon from a London buon deaer s effectve on and after
uy 1 , 1935.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved.
T. . Coodoe,
ctng Secretary of the Treasury.
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491
Regs. 85, rt. 1.
Reguatons 85, rtce 1: Memorandum on I -47-782
transfers. T. D. 4 0
Ta on transfers of Interests n sver buon. Subdvson 10 of
Schedue of Tte III of the Revenue ct of 192 , as added by
secton 8 of the Sver Purchase ct of 1934.
Reguatons 85, artce 1, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, t . C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 85, approved une 19, 1934 (reatng to the ta on
transfers of nterests n sver buon under subdvson 10 of Sched-
ue of Tte III of the Revenue ct of 192 , as added by secton 8
of the Sver Purchase ct of 1934), are amended, as foows:
rtce 1 s amended by addng at the end thereof:
No memorandum of transfer s requred when scrap sver s transferred, tn
ots not e ceedng n the aggregate 300 fne troy ounces wthn any 10-day perod,
to any regstered |eweer, sversmth, refner, or other person reguary engaged
In the busness of furnshng sver for Industra, professona, or artstc use.
Gut T. evekng,
Commssoner of Interna Revenue.
pproved November 20, 1935.
T. . COOLIDG ,
ctng Secretary of the Treasury.
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MISC LL N OUS RULINGS.
ITUMINOUS CO L CONS R TION CT O 1935.
I -45-7791
T. D.459
Reguatons reatng to the ta on the sae or other dsposa of
btumnous coa under secton 3 of the tumnous Coa Conserva-
ton ct of 1935 (Pubc, No. 402, Seventy-fourth Congress)
(approved ugust 30, 1935).
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 3 of the tumnous Coa Conservaton ct approved
ugust 30, 1935, provdes:
There a hereby mposed upon the sae or other dsposa of a btumnous
coa produced wthn the Unted States an e cse ta of 15 per centum on the
sae prce at the mne, or n the case of captve coa the far market vaue of
such coa at the mne, such ta , sub|ect to the ater provsons of ths secton,
to be payabe to the Unted States by the producers of such coa, and to be
payabe monthy for each caendar month, on or before the frst busness day
of the second succeedng month, and under such reguatons, and n such
manner, as sha be prescrbed by the Commssoner of Interna Revenue:
Provded, That n the case of captve coa produced as aforesad, the Comms-
soner of Interna Revenue sha f a prce therefor at the current market
prce for the comparabe knd, quaty, and sze of coas n the ocaty where
the same s produced: Provded further, That any such coa producer who has
fed wth the Natona tumnous Coa Commsson hs acceptance of the code
provded for n secton 4 of ths ct, and who acts n compance wth the pro-
vsons of such code, sha be entted to a drawback n the form of a credt
upon the amount of such ta payabe hereunder, equvaent to 90 per centum
of the amount of such ta , to be aowed and deducted therefrom at the tme
settement therefor s requred, n such manner as sha be prescrbed by the
Commssoner of Interna Revenue. Such rght or beneft of drawback sha
appy to a coa sod or dsposed of from and after the day of the producer s
fng wth the commsson hs acceptance of sad code In such form of agree-
ment as the commsson may prescrbe. No producer sha by reason of hs
acceptance of the code provded for In secton 4 or of the drawback of ta es
provded In secton 3 of ths ct be hed to be precuded or estopped from con-
testng the consttutonaty of any provson of sad code, or ts vadty as
appcabe to such producer.
Pursuant to the above-quoted provsons and the provsons of the
vnrous nterna revenue aws, the foowng reguatons are hereby
prescrbed, to be n effect unt the ssuance of more compete regua-
tons under the ct. The sectons of aw quoted, e cept as other-
wse ndcated, are contaned n the tumnous Coa Conservaton
ct of 1935.
(492)
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493
Msc.
chapter
Geographca Scope and ffectve Perod.
Secton 3.
There Is hereby mposed upon the sae or other dsposa of a btu-
mnous coa produced wthn the Unted States an e cse ta
rtce 1. Geographca scope. The ta attaches to a saes or other ds-
posas of btumnous coa produced wthn the Unted States, whch Incudes
ony the States, the Terrtores of aska and awa, and the Dstrct of
Coumba, regardess of where the saes or other dsposas occur.
Secton M.
Secton 3 of ths ct sha become effectve on the 1st day of the thrd
caendar month after the enactment of ths ct, uness the commsson
sha not at that tme have formuated the code and forms of acceptance
for membershp theren, n whch event secton 3 of ths ct sha
become effectve from and after the date when the commsson sha
have formuated the code and such forms for acceptance, whch date
sha be promugated by ecutve order of the Presdent of the Unted
States.
Secton 21.
Ths ct sha cease to be n effect and any agences estabshed
thereunder sha cease to e st on and after four years from the date
of the approva of ths ct.
rt. 2. ffectve perod. The ta attaches to any sae or other dsposa of
btumnous coa by the producer on or after November 1, 1935, and before
ugust 30, 1039.
C PT R II.
Defntons.
Secton 10.
The term btumnous coa as used In ths ct sha Incude a
btumnous, senbtumnous, and subbtumnous coa and gnte. The
term producer sha ncude a persons, frms, assocatons, corpo-
ratons, trustees, and recevers engaged In mnng btumnous coa.
The term captve coa sha ncude a coa produced at a mne for
consumpton by the producer or by a subsdary or affate thereof, or
for use n the producton of coke or other forms of manufactured fue
by such producer or subsdary or affate.
rt. 11. Meanng of terms. s used n these reguatons
(a) The terms defned n the appcabe provsons of aw sha have the
meanng so assgned to them.
( ) The term ct means the tumnous Coa Conservaton ct of 1935.
(o) The term ta means the ta mposed under secton 3 of the ct.
(d) The term coa means btumnous coa as defned In the ct.
(c) The term sae Incudes an agreement whereby the seer transfers
the property (that Is, the tte or the substanta Incdents of ownershp) In
goods to the buyer for a consderaton caed the prce, whch may consst of
money, servces, or other goods.
(f) The term dsposa ncudes consumpton or use (whether In the pro-
ducton of coke or fue, or otherwse) by a producer, or a subsdary or an
affate thereof, and any transfer of tte by the producer to another (whether
by sae, e change, or otherwse).
(g) The term sae prce at the mne means the amount receved or to
be receved by the producer upon the sae of any quantty of coa, not Incud-
ng the amount of any transportaton or devery charges from the mne where
produced.
(ft.) The term far market vaue n the case of captve coa means the
current market prce, as f ed by the Commssoner, for the comparabe knd,
quaty, and sze of coas In the ocaty where the same s produced.
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494
( ) The term commsson means the Natona tumnous Coa Comms-
son.
(/) The term code means the btumnous coa code formuated by the
commsson.
(k) The term code member means a producer who has accepted and
operates under the provsons of the code.
( ) The term ta payer means any person sub|ect to the ta Imposed by
ths ct.
(m) The term person Incudes a natura person, a corporaton, a partner-
shp, a compauy, a trust or estate, a ont-stock company, an assocaton, or
oMcr unncorporated organzaton or group. It ncudes a guardan, commttee,
trustee, e ecutor, admnstrator, trustee n bankruptcy, recever, assgnee for the
beneft of credtors, conservator, or any person actng n a fducary capacty.
(n) The term subsdary or affate Incudes any person whose reatons
wth the producer, through stock ownershp or contro, or otherwse, are such
that ts transactons wth the producer are not ordnary made at arm s ength.
(o) The term Secretary means the Secretary of the Treasury.
) The term Commssoner means the Commssoner of Interna Revenue.
( ) The term coector means a coector of nterna revenue.
(r) The terms ncudes and ncudng when used In a statement con-
taned n these reguatons, sha not be deemed to e cude other thngs other-
wse wthn the meanng of such statement.
C PT R III.
Rate and Measure of Ta .
Secton 3.
There s hereby mposed upon the sae or other dsposa of a btum-
nous coa produced wthn the Unted States an e cse ta of 15 per
centum on the sae prce at the mne, or n the case of captve coa
the far market vaue of such coa at the mne, such ta ,
to be payabe by the producers of such coa, :
Provded, That n the case of captve coa produced as aforesad, the
Commssoner of Interna Revenue sha f a prce therefor at the
current market prce for the comparabe knd, quaty, and sze of coas
In the ocaty where the same s produced:
rt. 21. Rate and measure of ta . The rate and measure of the ta s 15
per cent of the sae prce at the mne, e cept that In the case of captve coa and
n the case of a dsposa other than by sae the rate and measure of the ta Is 15
per cent of the far market vaue of the coa at the mne at the tme of ds-
posa. The far market vaue of coa at the mne Is the current market
prce for the comparabe knd, quaty, and sze of coas n the ocaty where
the same Is produced.
If, for any reason, a producer s sae prce does not propery refect the prce
for whch a smar quantty and quaty of coa Is sod at the mne n the
ordnary course of trade by producers n the same ocaty and the sae s
not an arm s-ength transacton, the ta sha be computed upon the far
market prce for such coa. If, through the e stence of speca arrangements
between a producer and purchaser (as In the case of ntercompany transfers
at cost or at a fcttous prce), the prce for whch coa s sod by the pro-
ducer does not refect a far market prce, the sae s regarded as one made
otherwse than through an arm s-ength transacton. In such case the ta
sha be computed upon the far market prce of such coa.
bt. 22. Labty for ta . The ta Imposed by secton 3 of the ct s pay-
abe by the producer of the btumnous coa. or defnton of producer, see
secton 19 of the ct.
rt. 23. When the ta attaches. The ta attaches mmedatey (1) upon
the sae or other dsposa by the producer (see artce 11 (e) and (/)) and
(2) In the case of captve coa (see secton 19 of the ct) when the coa s
consumed at the mne or removed or shpped from the mne for consumpton
by the producer or a subsdary or affate thereof, or s used at the mne or
removed or shpped from the mne for use In the manufacture of coke or other
form of manufactured fue by the producer or a subsdary or affate thereof.
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495
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C 1T I .
Credt or Drawback t owabe to Code Members.
Secton 3.
Provded further. That any such coa producer who has
fed wth the Natona tumnous Coa Commsson hs acceptance of
the code provded for In secton 4 of ths ct, and who acts In com-
pance wth the provsons of such code, sha be entted to a draw-
back n the form of a credt upon the amount of such ta payabe
hereunder, equvaent to 90 per centum of the amount of such ta , to
be aowed and deducted therefrom at the tme settement therefor s
requred, In such manner as sha be prescrbed by the Commssoner
of Interna Revenue. Such rght or beneft of drawback sha appy
to a coa sod or dsposed of from and after the dny of the pro-
ducer s fng wth the commsson hs acceptance of sad code n such
form of agreement as the commsson may prescrbe.
Secton 5.

(b) The membershp of any such coa producer In such code and
hs rght to a drawback on the tu es eved under secton 3 of ths
ct, may be revoked by the commsson upon wrtten compant by any
party In Interest, after a hearng, wth thrty days wrtten notce to
the member, upon proof that such member has wfuy faed or
refused to compy wth any duty or requrement mposed upon hm
by reason of hs membershp and n such a hearng any party n
Interest, ncudng the dstrct boards, other code members, consumers,
empoyees, and the Commssoner of Interna Revenue, sha be entted
to present evdence and be heard: Provded, That the commsson, n
ts dscreton, may n such case make an order drectng the code
member to cease and desst from voatons of the code and upon
faure of the code member to compy wth such order the commsson
may reopen the case upon ten days notce to the code member affected
and proceed n the hearng thereof as above provded.
a
(c) ny producer whose membershp n the code and whose rght
to a drawback on the ta es as provded under ths ct has been
canceed, sha have the rght to have hs membershp restored upon
payment by hm of a ta es n fu for the tme durng whch It sha
be found by the commsson that hs voaton of the code or of any
reguaton thereunder, the observance of whch s requred by Its terms,
sha have contnued. In makng ts fndngs under ths subsecton the
commsson sha state specfcay (1) the perod of tme durng whch
such voaton contnued, and (2) the amount of ta es requred to be
pad to brng about renstatement as a code member.

w. 31. Producers entted to credt. In order to be entted to the credt
or drawback of 90 per cent of the amount of hs ta as provded by secton 3
of the ct, a producer must compy wth the foowng condtons: rst, fe
wth the Natona tumnous Coa Commsson hs acceptance of the code
second, net n compance wth the provsons of the code thrd, show code
membershp durng the ta abe perod for whch the return Is made and com-
pance n the manner requred by orm 1 (Coa). See artce 51. No credt or
drawback s aowabe wth respect to con sod or dsposed of pror to the date
of fng wth the commsson acceptance of the code.
rt. 32. When credt s aowed. The 90 per cent drawback or credt s de-
ductbe from the amount of ta shown on the return, orm 1 (Coa). Such
drawback or credt may be dsaowed f at any tme t appears that the
Natona tumnous Coa Commsson has revoked the code membershp of the
ta payer n the manner provded n the ct.
1 rtce 31 amended by Treasury Decson 4598, approved November 5, 1935 page
03, ths uetn .
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49
chapter v.
Saes not Sub|ect to Ta .
bt. 41. Saes to States or potca subdvsons thereof. The ta w not
attach to a sae of btumnous coa by the producer thereof to a State or
potca subdvson thereof for use n the e ercse of an essenta governmenta
functon, but a sae of btumnous coa by the producer thereof to a State or
a potca subdvson thereof for any other purpose s sub|ect to the ta .
saes to the Unted States, the Dstrct of Coumba, or a Terrtory or
possesson of the Unted States are ta abe regardess of whether the btum-
nous coa was purchased for use n the conduct of u governmenta or propre-
tary functon. The sae of coa to a State or potca subdvson thereof under
such condtons as to be ta -free w not reeve the producer from compance
wth the provsons of secton 4, Part 11(e), of the ct reatve to mnmum
and ma mum prces. To estabsh the e empt character of the sae under the
provsons of ths artce, the producer must obtan from hs vendee pror to
or at the tme of sae, and retan n hs possesson, an e empton certfcate n
substantay the foowng form:
MPTION C RTI IC T
( or use by States or potca subdvsons.)
, 193
(Date.)
The undersgned hereby certfes that he Is the
(Tte of offcer.)
of , and that the btumnous coa specfed
(State, cty, etc.)
In the accompanyng order or contract s purchased for use by the
In the e ercse of essenta governmenta
(Department.)
functons, namey:
It s understood that the e empton from ta n the case of saes of btum-
nous coa to States or potca subdvsons thereof s mted to such coa
purchased for use n the e ercse of essenta governmenta functons, and t s
agreed that when such coa purchased ta -free under ths e empton certfcate
s used for purposes other than n the e ercse of essenta governmenta func-
tons, or s sod to empoyees or others, the vendee w report such fact to the
vendor. It Is aso understood that the frauduent use of ths certfcate to
secure e empton w sub|ect the undersgned and a guty partes to a fne of
not more than 10,000 or to mprsonment for not more than fve years, or
both, together wth costs of prosecuton.
(Tte of offcer.)
The e empton certfcates and proper records of nvoces, orders, etc., rea-
tve to ta -free saes must be retaned by the producer so as to be ready
accessbe for Inspecton by Interna revenue offcers. If upon nspecton, It s
found that a producer s records wth respect to any sae camed to be ta -free
do not contan a proper e empton certfcate, as above outned, wth support-
ng nvoces and such other evdence as may be necessary to estabsh the
e empt character of the sae, the producer sha be abe for the ta upon such
sae.
rt. 42. Saes for e port. The ta w not attach to a sae of coa by the
producer for e port. owever, n order for the sae to be e empt t must be
a drect sae for e port and not a sae for resae for e port. Coa may be
regarded as havng been sod for e port If the producer has In hs possesson
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at the tme tte passes or at the tme of shpment, whchever s pror, a wrtten
order or contract of sae showng that the coa s to be shpped to a foregn
destnaton and that the coa w be transported to a foregn destnaton pror
to use, resae, or other dsposa wthn the Unted States. vdence of utmate
e portaton must be furnshed, as outned n artce 43 of these reguatons.
rt. 43. Proof of e portaton. portaton may be evdenced by (1) a copy
of the e port b of adng, or (2) a certfcate by the agent or representatve
of the e port carrer showng actua e portaton of the coa, or (8) a certf-
cate of andng sgned by a customs offcer of the foregn country to whch the
coa s e ported, or (4) where such foregn country has no customs admns-
traton a sworn statement of the foregn consgnee coverng recept of the coa.
In a cases the saes records together wth the evdence of the proof of
e portaton must be preserved by the producer for a perod of at east four
years from the 1st day of the second succeedng month foowng the sae, and
must be ready accessbe for Inspecton by Interna revenue offcers.
If the proof of e portaton s not furnshed wthn s months from the date
of sae by the producer, the producer sha ncude the ta on the sae of the
coa n hs return for the month n whch such -month perod e pres. If
proof of e portaton ater becomes avaabe, a cam for refund of any ta
pad may be fed on orm 843, or a credt may be taken upon any subsequent
monthy return, but such acton must be taken wthn the 4-year perod of
mtaton prescrbed by secton 3228, Unted States Revsed Statutes, as
amended.
chapter v.
dmnstratve and Genera Provsons,
monthy returns and payment op ta es.
Secton 3.
such ta to be payabe monthy for each caen-
dar month, on or before the frst busness day of the second succeedng
month, and under such reguatons, and n such manner, as sha be
prescrbed by the Commssoner of Interna Revenue:
Secton 7.
provsons of the aw, ncudng penates and refunds, reatng
to the coecton and dsposton of nterna revenue ta es, sha, n so
far as appcabe and not nconsstent wth the provsons of ths ct,
be appcabe wth respect to ta es Imposed under ths ct.
Secton 3173, Unted States Revsed Statutes, as amended.
It sha be the duty of any person, partnershp, frm, assocaton, or
corporaton, made abe to any duty, speca ta , or other ta mposed
by aw, when not otherwse provded for, (1) In case of a speca ta ,
on or before the thrty-frst day of uy n each year, and (2) In other
cases before the day on whch the ta es accrue, to make a st or
return, verfed by oath, to the coector or a deputy coector of the
dstrct where ocated, of the artces or ob|ects, Incudng the quantty
of goods, wares, and merchandse, made or sod and charged wth a
ta , the severa rates and aggregate amount, accordng to the forms and
reguatons to be prescrbed by the Commssoner of Interna Revenue,
wth the approva of the Secretary of the Treasury, for whch such
person, partnershp, frm, assocaton, or corporaton s abe:
Secton 1102 of the Revenue ct of 192 .

(b) Whenever n the |udgment of the Commssoner necessary he
may requre any person, by notce served upon hm, to make a return,
render under oath such statements, or keep such records as the Com-
mssoner deems suffcent to show whether or not such person s abe
to ta .
(c) The Commssoner, wth the approva of the Secretary, may by
reguaton prescrbe that any return requred by any Interna revenue
aw (e cept returns requred under ncome or estate ta aws) to be
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498
under oath may, If the amount of the ta covered thereby s not In
e cess of 10, be sgned or acknowedged before two wtnesses nstead
of under oath.
rt. 51. Returns. very producer made abe to the ta mposed by the
ct sha prepare for ench caendar month a return n dupcate on orm
1 (Coa) n accordance wth the nstructons thereon and In accordance wth
these reguatons. The return must be under oath and verfed before an offcer
duy authorzed to admnster oaths. If the amount of the ta shown by the
return to e due s 10 or ess, the return may be sgned and acknowedged
before two subscrbng wtnesses nstead of under oath.
rt. 52. Tme for fng returns. The return for each caendar month sha
be fed n dupcate wth the coector for the dstrct n whch s stuated the
prncpa pace of busness of the person fng the return, on or before the frst
busness day of the second succeedng month. or e ampe, the return for the
month of November, 1935, s due on or before anuary 2, 193 .
rt. 53. Tme of payment. The amount of ta shown on the return to be
due sha be pad to the coector at the tme f ed for fng the return, wthout
assessment by the Commssoner or notce from the coector.
Secton 02 of the Revenue ct of 1932.

(b) If the ta s not pad when due, there sha be added
as part of the ta nterest at the rate of 1 per centum a month from
the tme when the ta became due unt pad.
Secton 404 of the Revenue ct of 1935.
Notwthstandng any provson of aw to the contrary, nterest
accrung durng any perod of tme after the date of the enactment
of ths ct upon any nterna-revenue ta (ncudng amounts assessed
or coected as a part thereof) or customs duty, not pad when due,
sha be at the rate of per centum per annum.
rt. 54. Interest on denquent tames. If the ta s not pad when due there
sha be added as part of the ta nterest at the rate of per cent per annum
from the tme when the ta became due unt pad.
Secton 1104 of the Revenue ct of 1920, as amended by secton 18 of tbe
Revenue ct of 1928.
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 hereby authorzed, by any offcer or empoyee of the
urenu of Interna Revenue, ncudng the fed servce, desgnated by
hm for that purpose, to e amne any books, papers, records, or memo-
randa benrng upon the matters requred to be ncuded n the return,
and may requre the attendance of the person renderng the return or
of any offcer or empoyee of such person, or the attendance of any
other person havng knowedge n the premses, and may take hs
testmony wth reference to the matter requred by aw to be ncuded
n such return, wth power to admnster oaths to such person or
persons.
rt. 55. Records. very producer sha keep on fe at the prncpa pace
of busness, or at some other convenent or safe ocaton, accurate records and
accounts of a transactons nvovng the sae or other dsposa of btumnous
coa, ncudng captve coa. vdence wth respect to sae for e port, and
saes to States or potca subdvsons thereof, upon whch no ta s due,
must aso be mantaned. (See artces 41 and 42.)
The records sha contan suffcent nformaton to enabe the Commssoner
to determne whether the correct amount of ta has been pad. Such records
sha at a tmes be open for Inspecton by nterna revenue offcers, and sha
be mantaned for a perod of at east four years from the date the ta became
due or, In the case of ta -free saes, for a perod of at east four years from
the 1st day of the second succeedng month foowng the month n whch the sae
was made.
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499
Msc.
OP RDY SS SSM NT.
Secton 1105 or the Revenue ct of 1032, as amended by secton IO of tbe
Revenue ct of 1934.
(a) If the Commssoner beeves that the coecton of any ta
(other than ncome ta , estate ta , and gft ta ) under any provson
of the nterna-revenue aws w be eopardzed by deay, he sha,
whether or not the tme otherwse prescrbed by aw for makng return
and payng such ta has e pred, mmedatey assess such ta (together
wth a nterest and penates the assessment of whch s provded
for by aw). Such ta , penates, and Interest sha thereupon be-
come mmedatey due and payabe, and mmedate notce and demand
sha be made by tte coector for the payment thereof. Upon faure
or refusa to pay such ta , penaty, and nterest, coecton thereof
by dstrant sha be awfu wthout regard to the perod prescrbed
n secton 3187 of tbe Revsed Statutes, as amended.
(b) The coecton of the whoe or any part of the amount of such
assessment may be stayed by fng wth the coector a bond n such
amount, not e ceedng doube the amount as to whch the stay s de-
sred, and wth such suretes, as the coector deems necessary, con-
dtoned upon the payment of tbe amount coecton of whch s stayed,
at the tme at whch, but for ths secton, such amount woud be due.
P N LTI S.
Secton 317 , T nted States Revsed Statutes, as amended by secton 1103 of
the Revenue ct of 1920 and secton 19(d) of tbe Revenue ct of 1928.
In ease of any faure to mnke and fe a return or st
wthn the tme prescrbed by aw, or prescrbed by the Commssoner
of Interna Revenue or the coector n pursuance of aw, the Com-
mssoner sha add to the ta 25 per centum of ts amount, e cept
that when a return s fed after such tme and t s shown that the
faure to te t was due to a reasonabe cause and not to wfu
negect, no such addton sha be made to the ta . In case a fase or
frauduent return or st s wfuy made, the Commssoner sha add
to the ta 50 per centum of ts amount
The amount so added to any ta sha be coected at the same tme
and n the same manner and as a part of the ta uness the ta has
been pad before the dscovery of the negect, fasty, or fraud, n
whch case the amount so added sha be coected n the same manner
as the ta .
Secton 40 , Revenue ct of 1935.
In the case of a faure to make and fe an nterna-revenue ta
return requred by aw, wthn the tme prescrbed by aw or pre-
scrbed by the Commssoner n pursuance of aw, f the ast date so
prescrbed for fng the return s after the date of the enactment
of ts ct, f a 25 per centum addton to the ta s prescrbed
by e stng aw, then there sha be added to the ta , n eu of such
25 per centum: 5 per centum f the faure s for not more than 30
days, wth an addtona 5 per centum for each addtona 30 days or
fracton thereof durng whch faure contnues, not to e ceed 25 per
centum n the aggregate.
Secton 1114 of the Revenue ct of 102 .

(c) ny person who wfuy ads or asssts n, or procures, coun-
ses, or advses, the preparaton or presentaton under, or n connec-
ton wth any matter arsng under, the nterna-revenue aws, of a
fase or frauduent return, affdavt, cam, or document, sha (whether
or not such fasty or fraud s wth the knowedge or consent of the
person authorsed or requred to present such return, affdavt, cam,
or document) be guty of a feony and, upon convcton thereof, be
fned not more than 10,000, or mprsoned for not more than fve years,
or both, together wth the costs of prosecuton.
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500
Secton 85 of the Crmna Code of the Unted States, as amended by ct of Con-
gress approved une 18, 1934 (Pubc. No. 304, Seventy-thrd Congress).
Whoever sha make or cause to be made or present or cause to be
presented, for payment or approva, to or by any person or offcer In
the cv, mtary, or nava servce of the Unted States, or any
department thereof, or any cortoraton n whch the Unted States
of merca s a stockhoder, any cam upon or aganst the Govern-
ment of the Unted States, or any department or offcer thereof, or
any corporaton n whch the Unted States of merca s a stock-
hoder, knowng such cam to be fase, fcttous, or frauduent or
whoever sha knowngy and wfuy fasfy or concea or cover up
by any trck, scheme, or devce a matera fact, or make or cause to
be made any fase or frauduent statements or representatons, or
make or use or cause to be made or used any fase b, recept,
voucher, ro, account, cam, certfcate, affdavt, or deposton, know-
ng the same to contan any frauduent or fcttous statement or
entry, In any matter wthn the |ursdcton of any department or
agency of the Unted States or of any corporaton n whch the
Unted States of merca s a stockhoder or whoever
sha enter nto any agreement, combnaton, or conspracy to de-
fraud the Government of the Unted States, or any department or
offcer thereof, or any corporaton n whch the Unted States of
merca s a stockhoder, by obtanng or adng to obtan the pay-
ment or aowance of any fase or frauduent cam sha
be fned not more than 10,000 or Imprsoned not more than ten years,
or both.
Secton 37, Unted States Crmna Code.
If two or more persons conspre ether to commt any offense
aganst the Unted States, or to defraud the Unted States n any
manner or for any purpose, and one or more of such partes do any
act to effect the ob|ect of the conspracy, each of the partes to such
conspracy sha be fned not more than ten thousand doars, or
Imprsoned not more than two years, or both.
Secton 3177, Unted States Revsed Statutes.
ny coector, deputy coector, or nspector may enter, n the daytme,
any budng or pace where any artces or ob|ects sub|ect to ta are
made, produced, or kept, wthn hs dstrct, so far as t may be neces-
sary, for the purpose of e amnng sad artces or ob|ects. nd any
owner of such budng or pace, or person havng the agency or supern-
tendence of the same, who refuses to admt such offcer, or to suffer hm
to e amne such artce or artces, sha, for every such refusa, forfet
fve hundred doars. nd when such premses are open at nght, such
offcers may enter them whe so open, n the performance of ther
offca dutes. nd f any person sha forcby obstruct or hnder any
coector, deputy coector, or nspector, n the e ecuton of any power
and authorty vested n hm by aw, the person so offendng,
e ceptng n eases otherwse provded for, sha, for every such offense,
forfet and pay the sum of fve hundred doars, or be m-
prsoned for a term not e ceedng two years, at the dscreton of the
court.
Secton 3184, Unted States Revsed Statutes.
Where t Is not otherwse provded, the coector sha n person
or by deputy, wthn ten days after recevng any st of ta es from
the Commssoner of Interna Revenue, gve notce to each person
abe to poy any ta es stated theren, to be eft at hs dweng or
usua pace of busness, or to be sent by ma, statng the amount of
such ta es and demandng payment thereof. If such person does not
pay the ta es, wthn ten days after the servce or the sendng by
ma of such notce, t sha be the duty of the coector or hs deputy
to coect the sad ta es wth a penaty of fve per centum addtona
upon the amount of ta es, and nterest at the rate of one per centum
a month.
(Note: See Secton 404 of Revenue ct of 1935 wth respect to
nterest.)
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501
Msc.
Secton 1123 of the Revenue ct of 192 .
Whoever In connecton wth the sae or ease, or offer for sae or
ease, of any artce, or for the purpose of makng such sae or ease,
makes any statement, wrtten or ora, (1) ntended or cacuated to
ead any person to beeve that any part of the prce at whch such
artce Is sod or eased, or offered for sae or ease, conssts of a
ta mposed under the authorty of the Unted States, or (2) ascrb-
ng a partcuar part of such prce to a ta mposed under the author-
ty of the Unted States, knowng that such statement s fase or that
the tu s not so great as the porton of such prce ascrbed to such
ta , sha be guty of a msdemeanor and upon convcton thereof
sha be punshed by a fne of not more than 1,000 or by Imprsonment
not e ceedng one year, or both.
mp. . Penates. faure to fe a return as provded for In these regu-
atons causes to accrue a penaty of 5 per cent of the amount of the ta f
such faure Is for not more than 30 days, wth an addtona 5 per cent for
each addtona 80 days or fracton thereof durng whch faure contnues. In
no ease, however, sha the penaty e ceed 25 per cent n the aggregate.
If assessment s made of the ta , penaty, or Interest, and payment s not
made wthn 10 days after the Issuance of the form for frst notce and demand,
based on assessment approved by the Commssoner, there w accrue a 5 per
cent penaty, and Interest at the rate of per cent a year computed upon the
entre assessment (ncudng penaty and Interest, If any) from 10 days after
ssuance of sad form unt date of payment. In cases where assessment Is
setted by parta payments, nterest s to be computed from the e praton of
the frst O day notce through the date of the frst payment and from the ne t
succeedng day to the date of the ne t payment, unt the assessment s pad
In fu.
If a cam for abatement Is fed wth the coector wthn 10 days after the
date of the ssuance of the frst notce and demand, the 5 per cent penaty does
not attach. If the assessment s not pad wthn 10 days after recept of notce
of re|ecton of the cam, the 5 per cent penaty appes. The fng of the
cam does not stay the runnng of nterest, whch contnues to run for the
fu perod that Intervenes between the date of e praton of the frst notce
and demand and the date of payment.
If a fase or frauduent return be wfuy made, the penaty under secton
817 of the Revsed Statutes s 50 per cent of the tota ta due.
CLOSING GR M NTS.
Secton 0 (a) and (b) of the Revenue ct of 1028.
(a) uthorzaton. The Commssoner (or any offcer or empoyee
of the ureau of Interna Revenue, ncudng the fed servce, author-
zed n wrtng by the Commssoner) s authorzed to enter nto an
agreement In wrtng wth any person reatng to the abty of such
person (or of the person or estate for whom he acts) n respect of any
nterna-revenue ta for any ta abe perod endng pror to the date of
the agreement.
(b) naty of agreements. If such agreement s approved by the
Secretary, or the Undersecretary-, wthn such tme as may be stated n
such agreement, or ater agreed to, such agreement sha be fna and
concusve, and, e cept upon a showng of fraud or mafeasance, or
msrepresentaton of a matera fact
(1) the case sha not be reopened as to the matters agreed upon or
the agreement modfed, by any offcer, empoyee, or agent of the Unted
States, and
(2) n any sut, acton, or proceedng, such agreement, or any deter-
mnaton, assessment, coecton, payment, abatement, refund, or credt
made In accordance therewth, sha not be annued, modfed, set asde,
or dsregarded.
rt. 57. Cosng agreements. greements for the fna determnaton of
ta es mposed under the ct may he entered Into under the provsons of
secton 00 (a) and (b) of the Revenue ct of 1928. Such cosng or fna
agreements may reate to any ta abe perod endng pror to the date of the
agreement. Such an agreement may be e ecuted even though under such agree-
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Mec. 502
ment the ta payer Is not abe for any ta for the perod covered by the
agreement. ny ta or defcency In ta determned pursuant to such agreement
sha be assessed and coected, and any overpayment determned pursuant
thereto sha be credted or refunded In accordance wth the appcabe prov-
sons of the Interna-revenue aws.
Secton 3220 of the Unted States Revsed Statutes, as amended by secton 1111
of the Revenue ct of 1920 and secton 19(b) of the Revenue ct of 1928.
cept as otherwse provded the Commssoner of Inter-
na Revenue, sub|ect to reguatons prescrbed by the Secretary of
the Treasury, Is authorzed to remt, refund, and pay back a ta es
erroneousy or egay assessed or coected, a penates coected
wthout authorty, and a ta es that appear to be un|usty assessed or
e cessve In amount, or In any manner wrongfuy coected .
Secton 3228(a) of the Unted States Revsed Statutes, as amended by secton
1112 of the Revenue ct of 1928, secton 19(c) of the Revenue ct of 1928,
and secton 110 (a) of the Revenue ct of 1932.
cams for the refundng or credtng of any nterna-revenue ta
aeged to have been erroneousy or egay assessed or coected, or of
any penaty aeged to have been coected wthout authorty, or of
any sum aeged to have been e cessve or In any manner wrongfuy
coected must, be presented to the Commssoner of Interna
Revenue wthn four years ne t after the payment of such ta , penaty,
or sum. The amount of the refund sha not e ceed the
porton of the ta , penaty, or sum pad durng the four years mme-
datey precedng the fng of the cam, or If no cam was fed,
then durng the four years mmedatey precedng the aowance of
the refund.
INT R ST ON O RP YM NTS.
Secton 14 of the Revenue ct of 1928.
(a) Interest sha be aowed and pad upon any overpayment
In respect of any Interna-revenue ta , at the rate of per centum
per annum, as foows:
(1) In the case of a credt, from the date of the overpayment to
the due date of the amount aganst whch the credt Is taken, but f
the amount aganst whch the credt Is taken s an addtona assess-
ment of a ta mposed by the Revenue ct of 1921 or any subsequent
revenue ct, then to the date of the assessment of that amount.
(2) In the case of a refund, from the date of the overpayment
to a date precedng the date of the refund check by not more than
30 days, such date to be determned by the Commssoner.
(b) s used In ths secton the term addtona assessment
means a further assessment for a ta of the same character pre-
vousy pad In part, and Incudes the assessment of a defcency of
any Income or estate ta Imposed by the Revenue ct of 1924 or by
any subsequent revenue ct.

rt. 58. Refund . ta (Incudng penaty f any) erroneousy, Iegay,
or otherwse wrongfuy coected may be refunded by the Commssoner.
cam for such refund must be made on the prescrbed form In accordance
wth the Instructons prnted on such form and In accordance wth these regua-
tons. Copes of the prescrbed forms may be obtaned from the coector.
The cam shoud set forth ceary In deta the reasons and facts reed upon
n support of the cam, must be made under oath, and presented wthn four
years ne t after payment of such ta es.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved October 81, 1935.
. Morgenthat|. r.,
Secretary of the Treasury.
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503 Regs. 84, rts. 2, 9,10,11,1 ,18
I -45-7792
T. D. 4598
Ta on the sae or other dsposa of btumnous coa under sec-
ton 3 of the tumnous Coa Conservaton ct of 1935. Treasury
Decson 459 , artce 31 page 492, ths uetn , amended.
Treasury Department,
Offce of Commssoner of Interna eventte,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 31 of Treasury Decson 459 , approved October 31, 1935
(reatng to the ta on the sae or other dsposa of btumnous coa
under secton 3 of the tumnous Coa Conservaton ct of 1935),
s amended to read as foows:
bt. 31. Producers entted to credt. In order to be entted to the deduc-
ton, on the return, of the credt or drawback of 90 per cent of the amount
of the ta , as provded by secton 3 of the ct. u producer must have
been a member of the btumnous coa code (see artce 32) durng the ta abe
perod for whch the return s made. See artce 51. No credt or drawback
Is aowabe wth respect to coa sod or dsposed of pror to the date of fng
wth the commsson acceptance of the code.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 5, 1935.
osephne Roche,
ctng Secretary of the Treasury.
COTTON CT, 1934 (PU LIC, NO. 1 9, S NTY-T IRD
CONGR SS).
Reguatons 84 (1935), rtces 2, 9,10, I -4 -7800
11,1 , and 18. T.D.4 00
Ta on the gnnng of cotton under the Cotton ct, as amended.
empton from ta of 110 pounds of nt cotton harvested n crop
year 1935-3 and retaned for domestc use In producer s house-
hod rtces 2, 9,10,11,1 , and 18 of Reguatons 84,1935 edton,
amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Coectors of Interna Revenue and Others Concerned:
Paragraph . Subsecton (h) of secton 4 of the ct approved
pr 21, 1934, reatng to the ta on the gnnng of cotton, as added
by secton 42 of the ct approved ugust 24, 1935 (Pubc, No. 320,
Seventy-fourth Congress), provdes:
(h) The Secretary of grcuture s drected to e empt by reguaton from
the payment of the ta on the gnnng of cotton as eved under authorty of ths
ct, an amount of nt cotton not In e cess of 110 pounds, produced by or fc r
any producer and retaned for domestc use In hs househod.
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Regs. 84, rts. 2, 9, 10,11,1 ,18. 504
Pah. . The reguatons of the Secretary of grcuture (desg-
nated as . . 219), as amended, reatng to aotments and ta -
e empton certfcates under sad ct approved pr 21, 1934, were
further amended by the Secretary of grcuture on September 17,
1935, pursuant to the above-quoted provson of aw, by addng there-
to rtce I. Sectons 111 and 112 of sad rtce I provde n
part, respectvey, as foows:
Sue. 111. No ta sha be Imposed under the ct wth respect to
the gnnng of an amount of nt cotton harvested n the crop year 1935-3 whch
s produced by or for any producer and s retaned for domestc use In hs
househod and s not In e cess of 110 pounds.
Sec. 112. ach producer who desres to secure the beneft of the
whoe or any part of the speca e empton to whch he s entted under the
foregong, secton 111, sha, before the competon of the gnnng of the 1935
cotton crop produced by or for hm n respect of whch he ntends to e ercse
hs rght to such speca e empton, fe wth the county agent of the county of
whch he s a bona fde resdent an appcaton for e empton on orm No.
. . 33 .
Pursuant to the above-quoted provsons and the provsons of the
varous nterna revenue aws the foowng amendments to Regua-
tons 84, 1935 edton, approved uy 30, 1935, are hereby made:
Subdvson (h) of artce 2, Reguatons 84,1935 edton, s hereby
amended to read as foows:
(h) Ta e empton certfcate means a certfcate of e empton from the ta
ssued by the Secretary of grcuture under the ct.
Certfcate of speca e empton means a certfcate of speca e empton from
the ta Issued by the Secretary of grcuture, under the ct, wth respect to
an amount of nt cotton not n e cess of 110 pounds to be retaned by the
producer for domestc use n hs househod.
rtce 9 of Reguatons 84, 1935 edton, s hereby amended by
addng after subdvson (e) the foowng new subdvson (/):
(f) The gnnng on or after September 17, 1935, of not n e cess of 110 pounds
of nt cotton harvested In the crop year 1935-3 , produced by or for any pro-
ducer, to be retaned for domestc use In hs househod, s e empt from ta . In
order to estabsh such e empton, the gnner sha procure from the producer
at the tme of gnnng a propery e ecuted certfcate of speca e empton cover-
ng the amount of nt cotton gnned for, and to be retaned by, the producer
for domestc use n hs househod. Certfcates of speca e empton are ssued
to producers of cotton by the Secretary of grcuture. bae tag sha not
be attached to, or a certfcate of taggng ssued for, any nt cotton wth respect
to the gnnng of whch ths e empton Is appcabe.
The requred certfcates of speca e empton sha be fed wth each return
on whch e empton from ta s camed pursuant to ths subdvson (f).
rtce 10 of Reguatons 84, 1935 edton, s hereby amended to
read as foows:
bt. 10. Records of gnners. very gnner sha keep an accurate day
record of gnnng done on or after une 1, 1934. separate record sha be
kept for each pant where gnnng Is done. Such record wth respect to each
bae or other quantty of cotton gnned sha show (a) the date gnned, ( )
the name of the owner of the cotton, (c) the county In whch the cotton was
produced, (d) the sera number of the certfcate of taggng ssued (certfyng
to the attachment of a bae tag thereto), or the sera number of the en card
attached thereto, (e) the actua weght of the nt cotton gnned, (/) the
sera number on each porton of the cotton ta -e empton certfcate or certf-
cate of speca e empton surrendered, or the dentfyng etter of the re-
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505 Regs. 84, rts. 2. 9, 10, 11, 1 . 18.
spectve affdavt on . T. orm 10 , revsed, (g) the amount n pounds repre-
sented by the porton of the e empton certfcate surrendered wth yespect
thereto, or the amount n pounds represented by the certfcate of speca e emp-
ton, surrendered wth respect thereto, or the weght n pounds shown n the
affdavt referred to, and (h) the quantty of ta nbe cotton (dfference be-
tween the actua weght of nt cotton gnned and the amount n pounds rep-
resented by the e empton certfcate, or by the certfcate of speca e empton,
or shown n the affdavt). The book u whch such record sha be kept w
be furnshed to the gnner by the coector and entres theren as requred sha
be made on the day that the gnnng Is done. See artce 32 reatve to the
preservaton of ths record and ts nspecton by nterna revenue offcers.
rtce 11 of eguatons 84, 1935 edton, s hereby amended to
read as foows:
bt. 11. Returns of gnners. very gnner sha make a return, n dup-
cate, of a cotton gnned durng each caendar month. separate return, n
dupcate, sha be made for each pant where cotton Is gnned. The return
sha show wth respect to each bae or other quantty of cotton gnned durng
the month the same data requred to be kept n the gnner s record as provded
n artce 10, and sha account for every bae tag, for every certfcate of tag-
gng on G. T. orm 104, revsed, and for every en card on G. T. orm 105,
revsed. Issued to the gnner by the coector as provded In artces 20 and 13.
The return on G. T. orm 103, revsed, whch may be obtaned from any co-
ector, sha be fed out n accordance wth the Instructons contaned thereon
and In accordance wth these reguatons. oth the orgna and the dup-
cate sha be sgned and sworn to before an offcer authorzed to admnster
oaths, by the gnner, If an ndvdua, or, n other cases, by an e ecutve offcer
of the concern. The return (Incudng both orgna and dupcate) propery
fed out, sgned, and sworn to sha be fed wth the coector for the dstrct
wthn whch the pace of gnnng s stuated. The orgna return sha have
securey attached thereto each cotton ta -e empton certfcate, and certfcate of
speca e empton, surrendsred by the producer wth respect to cotton gnned
durng the month, and a affdavts requred by artces 9 and 13, and, together
wth the dupcate return, sha be fed on or before the ast day of the
month foowng the month for whch the return s made. The gnner sha
tender wth hs return to the coector a remttance to cover the amount of ta
due on the gnnng of a cotton durng the month other than that wth re-
spect to whch ta -e empton certfcates or certfcates of speca e empton
are surrendered, or affdavts are fed.
If the ast day of the month on whch the return s due fas on Sunday or
a ega hoday, the return may be fed on the ne t foowng busness day.
return must be fed wth the coector for each month whether or not
ta abty has been ncurred for that month.
If a gnner ceases busness, hs ast return must be marked na return.
The frst paragraph of artce 1 of eguatons 84, 1935 edton,
s hereby amended to read as foows:
rt. 1 . Transportaton, purchase, or sae of nt cotton. No person sha
transport or cause to be transported after uy 1, 1934, any nt cotton to whch
a bae tag Issued under the ct s not attached e cept (a) wthn the boundares
of the county whore produced ( ) for the purpose of storage by the producer,
n accordance wth artce 13 (c) a bae mported and hed n customs custody
or contro (see artce 22) (d) for e port f the bae tags have been removed
as provded n artce 30, as amended (e) n the form of bona fde sampes n
sma contaners (/) after t has been put n process (g) oose nt cotton, n
quanttes not e ceedng 110 pounds, the gnnng of whch s e empt from ta
(see artce 9), retaned by the producer for domestc use n hs househod,
whch Is transported on or after September 17, 1935, from the gn to the res-
dence of the producer or from the resdence of the producer to the pant of a
processor to be processed for the producer.
47318 3 17
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Regs. 84(1935), rt. 27.
50
rtce 18 of Reguatons 84, 1935 edton, s hereby amended by
addng at the end thereof the foowng new sentence:
The provsons of ths artce sha not appy to oose nt cotton, the gnnng
of whch s e empt from ta (see artce 9), retaned by the producer for
domestc use n hs househod.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November , 1935.
osephne Roche,
ctng Secretary of the Treasury.
Reguatons 84(1935), rtce 27: Destruc- I 3-77 4
ton of bae tags. T. D. 4592
rtce 30: porter.
Ta on cotton gnnng under the Cotton ct, approved pr 21,
1934, as amended. porters not requred to remove bae tags
from baes of nt cotton e ported. rtces 27 and 30(c) of Regu-
atons 84, 1935 edton, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 27 of Reguatons 84. 1935 edton, approved uy 30, 1935,
s hereby amended to read as foows:
rt. 27. Dettructon of bae tag - very person who emptes or breaks a bae
of cotton to whch a bae tag s attached sha cut the wre of such bae tag n
two paces, so as to sever the e posed part of the wre from the remander of
the tag.
Subdvson (c) of artce 30 of Reguatons 84 s hereby amended
to read as foows:
(c) The e porter may, mmedatey pror to adng of the nt cotton on the
e port vesse or mmedatey pror to adng at an Interor pont for shpment
on a through b of adng to a foregn country, remove the bae tag from eacb
bae of nt cotton or the bae tag may reman attached to the bae. If the bae
tag s removed, t sha be mutated by cuttng the wre of such bae tag n two
paces, so as to sever the e posed part of the wre from the remander of the
tag. The bae trgs removed durng each month sha be segregated and hed
for destructon under the supervson of a deputy coector of Interna revenue
detaed by the coector for that purpose. The certfcate of taggng for each
bae e ported durng the month sha be forwarded to the coector wth te
nformaton return coverng such perod. The return sha show the tota num-
ber of baes e ported. copy of the e port b of adng coverng each shpment
made durng such perod sha accompany the return.
When a bae of nt cotton from whch a bae tag has become ost s receved
at the port, t may be e ported Immedatey, provded the e porter reports the
bae n hs monthy nformaton return, and forwards to the coector wth hs
return, a certfcate of taggng and a statement, under oath, of a the facts n
hs possesson reatng to the oss of the tag.
Gut T. everng,
Commssoner of Interna Revenue.
pproved October 18, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
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507
Regs. 84(1934), rt. .
Reguatons 84 (1934), rtce : ate of I -28-759
ta . T. D. 45 3
Ta on the gnnng of cotton under the Cotton ct, approved
pr 21, 1934, cents per pound of nt cotton, effectve ou and
after une 18, 1935. (48 Stat., 598.)
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 4(a) of the Cotton ct, approved pr 21, 1934, provdes,
n part:
There s hereby eved and assessed on the gnnng of cotton hereafter har-
vested durng a crop year wth respect to whch ths ct s n effect, a ta at
the rate per pound of the nt cotton produced from gnnng, of 50 per centum
of the average centra market prce per pound of nt cotton, but n no event
ess than 5 cents per pound. If the cotton was harvested durng a crop year
wth respect to whch the ta s n effect, the ta sha appy even f the gnnng
occurs after the e praton of such crop year.
Secton 4(b) of the Cotton ct, approved pr 21, 1934, provdes,
n part:
The average centra market prce, per pound of nt cotton, sha be the aver-
age prce per pound of bass -nch mddng snot cotton on the 10 spot cotton
markets (desgnated by the Secretary of grcuture) as determned and pro-
camed from tme to tme by the Secretary of grcuture. The average cen-
tra market prce determned and procamed sha be the base for determnng
the rate of the ta unt a dfferent average centra market prce for nt cotton
s determned and procamed by the Secretary of grcuture.
The Secretary of grcuture, actng under and pursuant to sec-
ton 4(b) of the Cotton ct, approved pr 21, 1934, has determned
and procamed, as of une 18, 1935, the average centra market prce
of nt cotton to be 12 cents per pound.
The rate of ta on the gnnng of cotton, effectve as of the frst
moment of une 18,1935, s cents per pound.
Gut T. everng,
Commssoner of Interna Revenue.
pproved uy 9,1935.
T. . Coou |e,
ctng Secretary of the Treasury.
Reguatons 84(1934), rtce : Rate of I -7804
ta . T. D. 4 02
Ta on the gnnng of cotton under the Cotton ct, approved
pr 21, 1934 ( 48 Stat., 598), 5.45 cents per pound of nt cotton,
effectve on and after October 21, 1935.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Subsecton (a) of secton 4 of the ct approved pr 21, 1934 (48
Stat., 598), reatng to the ta on the gnnng of cotton, provdes, n
part:
There s hereby eved and assessed on the gnnng of cotton hereafter har-
vested durng a crop year wth respect to whch ths ct Is n effect, a ta at
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Msc.
508
the rate per pound of the nt cotton produced from gnnng, of 50 per centum
of the averace centra market prce per pound of nt cotton, but n no event ess
than 5 cents per pound. If the cotton was harvested durng a crop year wth
res ect to whch the ta s n effect, the ta sha appy eren f the gnnng
occurs after the e praton of such crop year.
Subsecton (b) of secton 4 of that ct provdes, n part:
The average centra market prce, per pound of nt cotton, sha be the aver-
age prce per pound of bass -nch mddng spot cotton on the 10 spot
cotton markets (desgnated by the Secretary of grcuture) as determned and
procamed from tme to tme by the Secretary of grcuture. The average
centra market prce determned and procamed sha be the base for determn-
ng the rate of the ta unt a dfferent average centra market prce for nt
cotton s determned and procamed by the Secretary of grcuture.
The Secretary of grcuture, actng under and pursuant to sub-
secton (b) of secton I of the ct approved pr 21, 1934, reatng m
to the ta on the gnnng of cotton, has determned and procamed.
as of October 21,1935, the average centra market prce of nt cotton
to be 10.90 cents per pound.
The rate of ta on the gnnng of cotton, effectve as of the frst
moment of October 21,1935, s 5.45 cents per pound.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 9,1935.
Stephen . Gbbons,
ctng Secretary of the Treasury.
I -30-7 1
T. D. 45 7
ont Reguatons No. 2, reatng to gfnners nformaton re-
turns prescrbed under the ct approved pr 21, 1934 (48 Stat.,
508), by the Commssoner of Interna Revenue wth the approva
of the Secretary of grcuture and the Secretary of the Treasury.
Paragraph . Secton 13 of the ct approved pr 21, 1934
(48 Stat., 598), provdes:
(a) persons, n whatever capacty actng, ncudng producers, gnners,
processors of cotton, and common carrers, havng Informaton wth respect to
cotton produced, may be requred to make a return n regard thereto, settng
forth the amount of cotton devered, the name and address of the person who
devered sad cotton, the amount of nt cotton produced therefrom, and any
other and further nformaton whch the Commssoner, wth the approva of
the Secretary of the Treasury and the Secretary of grcuture, sha by
reguatons prescrbe as necessary for the proper admnstraton of the tar.
ny person requred to make such return sha render a true and accurate
return to the Commssoner.
(b) ny person wfuy fang or refusng to fe such a return, or fng
a wfuy fase return, sha be guty of a msdemeanor, and upon convcton
thereof sha be punshed by a fne of not more than 1,000 or by Imprson-
ment not e ceedng one year, or both.
Pursuant to the above-quoted provsons of aw, the foowng
reguatons are hereby prescrbed:
rtce 1. very gnner sha make an nformaton return of a cotton
gnned durng each caendar month. separate nformaton return sha
be made for each pant where cotton s gnned. The nformaton return sha
show wth respect to each bae or other quantty of cotton gnned (a) the
date gnned, ( ) the name of the owner of the cotton, (o) the county n whch
the cotton was produced, (4) the sera number of the certfcate of taggng
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509
Msc.
ssued (certfyng to the attachment of a bae tag thereto), or the sera
number of the en card attached thereto, (e) the actua weght of the nt
cotton gnned, (f) the sera number on each porton of the cotton ta -e emp-
ton certfcate surrendered, or the dentfyng etter of the respectve affdavt
on G. T. orm 10 , revsed, (g) the amount n pounds represented by the
porton of the e empton certfcate surrendered wth respect thereto, or the
weght n pounds shown n the affdavt referred to, and (h) the quantty
of ta abe cotton (dfference between the actua weght of nt cotton gnned
and the amount n pounds represented by the e empton certfcate, or shown
In the affdavt).
bt. 2. The nformaton return sha be prepared on a copy of G. T. orm
103, revsed, desgnated Gnner s nformaton return. Such return sha be
sgned and sworn to before an offcer authorzed to admnster oaths, by the
gnner, f an ndvdua, or, n other cases, by an e ecutve offcer of the
concern. The nformaton return, propery fed out, sgned and sworn to,
sba be fed wth the Gnner s monthy return on G. T., orm 103, revsed,
wth the coector for the dstrct wthn whch the pace of gnnng s stuated,
on or before the ast day of the month foowng the month for whch the
return s made.
bt. 3. The nformaton returns requred to be fed wth the coector under
these reguatons sha be maed prompty by hm to such offcers or agents of
the Department of grcuture as the Secretary of grcuture may specfy.
bt. 4. gnner who wfuy fas or refuses to fe an nformaton return
as heren requred, or who fes a wfuy fase return, s guty of a msde-
meanor and abe to a fne of not more than 1,000, or mprsonment not
e ceedng one year, or both.
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 27, 1935.
. . Waace,
Secretary of grcuture.
pproved uy 18, 1935.
T. . COOLT O ,
ctng Secretary of the Treasury.
I -30-7 12
Mm.4349
Instructons regardng taggng mport cotton, reeased en cot-
ton, bangs of sweepngs, pckngs, sampe, oose and recondtoned
cotton, and repacng ost tags.
Treasury Department,
Offce or Commssoner or Interna Revenue,
Washngton, I). C, une 29,1035.
Coectors of Interna Revenue and Others Concerned:
There s no admnstratve need that a specay desgned or co-
ored tag be furnshed for taggng mport cotton and, therefore, such
cotton reeased from customs custody or contro w be tagged wth
tags desgned for use on domestc cotton for the partcuar crop year.
ccordngy, mport cotton reeased from customs custody or contro
durng the crop year une 1,1935, to and ncudng Mav 31,193 , w
be tagged wth 1935-3 (red) cotton bae tags. The new seres
1935-3 domestc certfcates of taggng w be used n such cases.
The 1934-35 cotton bae tags and certfcates of taggng shoud bo
used n taggng en cotton of the 1934-35 crop year reeased to pro-
ducers and n repacng ost, destroyed, or stoen tags on 1934-35 or
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Regs. 7, rt. I.
510
pror crop year cotton. The 1934-35 tags and certfcates of taggng
w be used n taggng bangs of accumuatons of cotton sweepngs
and pckngs, sampe and oose cotton, recondtoned damaged cot-
ton, etc., that were gnned durng the 1934-35 and/or pror crop year.
angs of such cotton that can not be dentfed as havng been
gnned durng the 1934-35 and/or pror crop year and whch may
contan or be m ed wth ke cotton gnned durng the 1935-3 crop
year shoud be tagged wth 1935-3 tags supported by the 1935-3
seres certfcates or taggng.
Correspondence n regard to the contents of ths mmeograph
shoud refer to the number thereof and to the symbo C.
Guy T. everng,
Commssoner.
D R L LCO OL DMINISTR TION CT.
Reguatons 7, rtce I: Scope of regua- I -51-7870
tons. T. D. 4 14
Ctrus-frut wne and brandy.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Sectons 11, 12, 13, 14, and 15, of the edera coho dmnstra-
ton ct, approved ugust 29, 1935, read as foows:
Sec. 11. Secton 10 of the Revenue ct of 1918, as amended (U. S. C, Snpp.
II, tte 2 , secton 1310), s amended by addng at the end thereof the
foowng new paragraph:
The provsons of the nterna-revenue aws appcabe to natura wne sha
appy n the same manner and to the same e tent to ctrus-frut wnes whch
are the product of norma acohoc fermentaton of the uce of sound rpe
ctrus frut (e cept emons and mes), wth or wthout the addton of dry
cane, beet, or de trose sugar (contanng, respectvey, not ess than 95 per
centum of actua sugar, cacuated on a dry bass) for the purpose of perfectng
the product accordng to standards, but wthout the addton or abstracton
of other substances, e cept as may occur n the usua cear treatng of carfy-
ng or agng.
Sec. 12. Secton 12 of the Revenue ct of 1918, as amended (U. S. C, Supp.
II, tte 2 , secton 1301), s amended to read as foows:
Sec. 12. That under such reguatons and offca supervson and upon
the gvng of such notces, entres, bonds, and other securty as the Comms-
soner, wth the approva of the Secretary, may prescrbe, any producer of
wnes defned under the provsons of ths tte may wthdraw from any frut
dstery or speca bonded warehouse grape brandy, or wne sprts, for the
fortfcaton of such wnes on the premses where actuay made, and any pro-
ducer of ctrus-frut wnes may smary wthdraw ctrus-frut brandy for
the fortfcaton of ctrus-frut wnes on the premses where actuay made:
Provded, That there sha be eved and assessed aganst the producer of such
wnes or ctrus-frut wnes a ta (n eu of the nterna-revenue ta now
Imposed thereon by aw) of 20 cents per proof gaon of grape brandy, ctrns-
frut brandy, or wne sprt whenever wthdrawn and hereafter so used by hm
n the fortfcaton of such wnes or ctms-frut wnes durng the precedng
month, whch assessment sha be pad by hm wthn 10 months from the
date of notce thereof: Provded further, That nothng contaned n ths secton
sha be construed as e emptng any wnes, ctrus-frut wnes, cordas, queurs,
or smar compounds from the payment of any ta provded for n ths tte.
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511
Regs. 7, rt. I.
ny such wnes or ctrus-frut wnes may, under such reguatons as the
Secretary may prescrbe, be sod or removed ta free for the manufacture
of vnegar, or for the producton of deacohozed wnes contanng ess than
one-haf of 1 per centum of acoho by voume.
The ta es mposed by ths secton sha not appy to deacohozed wnes
contanng ess than one-haf of 1 per centum of acoho by voume.
Sec 13. Secton 13 of the Revenue ct of 1918, as amended (U. S. C, Supp.
, tte 2 , secton 1300(a) (2)), s amended by nsertng after grape brandy
a comma and the foowng: or contanng ctrus-frut wne fortfed wth
ctrus-frut brandy.
Sec. 14. Secton 42 of the ct entted n ct to reduce the revenue and
equaze dutes on mports, and for other purposes, approved October 1, 1890,
as amended (T . S. C, Supp. II, tte 2 , secton 1302(a)), s amended by
nsertng at the end thereof the foowng new paragraph:
The provsons of ths secton and secton 43 sha appy to the use of ctrus-
frut brandy n the preparaton of fortfed ctrus-frut wnes n the same man-
ner and to the same e tent as such provsons appy to the use of wne sprts
n the fortfcaton of sweet wnes, e cept that no brandy (other than a ctrus-
frut brandy) may be used n the fortfcaton of ctrus-frut wne and a
ctrus-frut brandy prepared from one knd of ctrus frut may not be used for
the fortfcaton of a ctrus-frut wne prepared from another knd of ctrus
frut or for the fortfcaton of a wne prepared from any frut other than
ctrus frut
Sec. 15. Secton 3255 of the Revsed Statutes, as amended (U. S. C, Supp. II,
tte 2 , secton 117 ), s amended to read as foows:
Sm 3255. The Commssoner of Interna Revenue, wth the approva of the
Secretary of the Treasury, may e empt dsters of brandy made e cusvey from
appes, peaches, grapes, oranges, pears, pneappes, aprcots, berres, pums, paw-
paws, persmmons, prunes, fgs, cherres, dates, or ctrus fruts (e cept emons
and mes) from any provson of the nterna-revenue aws reatng to the manu-
facture of sprts, e cept as to the ta thereon, when n hs |udgment t may seem
e pedent to do so: Provded, That where, n the manufacture of wne or ctrus-
frut wne, artfca sweetenng has been used, the wne, or the frut pomace
resduum thereof, or the ctrus-frut wne may be used n the dstaton of
brandy or ctrus-frut brandy, as the case may be, and such use sha not prevent
the Commssoner of Interna Revenue, wth the approva of the Secretary of
the Treasury, from e emptng such dster from any provson of the nterna-
revenue aws reatng to the manufacture of sprts, e cept as to the ta thereon,
when n hs |udgment t may seem e pedent to do so: nd provded further,
That the dsters mentoned n ths secton may add to not ess than 500
gaons (10 barres) of grape cheese not more than 500 gaons of a sugar sou-
ton made from cane, beet, starch, or corn sugar, 95 per centum pure, such sou-
ton to have a saccharne strength of not to e ceed 10 per centum, and may
ferment the resutant m ture on a wnery or dstery premses, and such
fermented product sha be regarded as dstng matera.
In accordance wth these provsons of aw, wne made from ctrus
frut (e cept emons and mes) may be produced under the same
reguatons appyng to grape wne. The statute mts the fortfca-
ton of ctrus-frut wne to fortfcaton wth ctrus-frut brandy
made from the same frut, or wth ta -pad gran or other ethy
acoho.
Ctrus-frut brandy made from ctrus frut (e cept emons and
mes) may be produced, warehoused, and used under the same regua-
tons appyng to brandy produced from other fruts.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 14, 1935.
T. . Cootdge,
ctng Secretary of the Treasury.
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512
LI UOR T ING CT O 1934.
I -47-7824
Ct. D. 103
speca e cse ta es revsed statutes .qcor ta ng act op 1934
decson ok court.
1. Reta and Whoesae Lquor Deaers Immunty of State
In|uncton ganst Coecton of Ta es ursdcton of
edera Court.
There was no error n the acton of the Dstrct Court of the
Unted States In hodng that t had |ursdcton of a case Invovng
speca e cse ta es assessed aganst the State of Pennsyvana for
storng quor and carryng on ts sae through State quor stores,
and n dsmssng a b for an n|uncton aganst coecton of
such ta es. The State had an adequate remedy at aw, and the
ta es were egay payabe.
2. Decson fftrked.
Decson of the Dstrct Court, Mdde Dstrct of Pennsyvana
(9 ed. Supp., 272, Ct D. 958, C. . 1 -1, 503), affrmed.
Unted States Crcut Court of ppeas fob the Thrd Crcut.
Commonweath of Pennsyvana e t. re. Chares . Margott, ttorney Genera,
appeant, v. Wam . ye, ctng Coector of Interna Revenue, and ames
L. O Tooe and Leo C. Mundy, Coectors of Interna Revenue, appeees.
ppea from the Dstrct Court of tbe Unted States for the Mdde Dstrct of
Pennsyvana.
efore uffnqton, Wooey, and Davs, Crcut udges.
September 1 , 1935
OPINION.
uffnoton, .: In ths case the Commonweath of Pennsyvana fed a b
In a State court aganst tbe coector of Interna revenue, seekng to en|on
the atter from enforcng coecton of Unted States ta es assessed aganst that
State for carryng on the sae of quors through ts State quor stores and an
e cse ta upon the quor the State had n store. On fng the b, the State
court granted the n|uncton prayed for. On appcaton of the coector, the
case was removed to the court beow and, on moton of the State to remand
on the ground the court beow had no |ursdcton, the dstrct court refused
so to do, on the ground that t had |ursdcton of the edera queston Invoved
and on the merts dsmssed the b on two prncpes one that the State
had adequate remedy at aw, vz, payng the contested ta es and brngng sut
for the recovery of tbe same because aegedy egay assessed and for the
further reason that under the cases of Oho v. everng (292 U. S., 3 0) and
South Carona v. Unted States (199 U. S., 437), the ta es were egay payabe.
Thereupon the Commonweath took ths appea, assgnng as error tbe refusa to
remand and the dsmssa of the b. ndng no error n the court s acton,
the |udgment s affrmed.
I -2 -7577
T. D. 45 1
ottng dsted sprts.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstnct Supervsors, Coectors of Interna Revenue, and Other
Concerned:
bottng tanks.
(1) ffectve u 1, 1935, dsters, propretors of acoho pants,
and propretors of nterna revenue bonded warehouses, ntendng to
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513
Msc.
botte dsted sprts after ta payment and remova from bond,
must provde n ther ta -pad or free bottng warehouses one or
more bottng tanks of such sze and constructon as may be approved
by the dstrct supervsor. ach bottng tank w be marked
ottng Tank No. , foowed by a sera number and the
capacty of the tank n wne gaons.
(2) ach tank must be provded wth a gass gauge or be mounted
on scaes, approved by the dstrct supervsor, by whch the contents
of the tank n wne gaons may be accuratey and precsey deter-
mned at any tme. Dstrct supervsors w not approve bottng
tank gauge gasses or scaes that have not been tested and found to
be strcty accurate, as herenafter provded.
(3) The dstrct supervsor w deta an offcer to e amne care-
fuy each bottng tank to see that t s constructed n strct com-
pance wth these reguatons. The offcer w aso test the accu-
racy of the scae or gauge gass requred to be provded for the tank,
and f t s found that the same are not strcty accurate, or f any
porton of the equpment does not conform to these reguatons, he
w not recommend approva of the tank unt the proper changes
are made. The test for accuracy must be an actua one, and t s
suggested that the same be made by fng the tank wth water and
drawng off severa precse quanttes, observng after each wth-
drawa that the quantty remanng s correcty ndcated by the
scaes or gauge gass and that the quantty wthdrawn agrees wth
that ndcated by the scaes or gauge gass.
(4) When the offcer s satsfed that the bottng tank or tanks and
the attachments thereto are propery constructed, as above requred,
he w so report to the dstrct supervsor, n wrtng, and w se-
curey attach to each such tank a certfcate on orm 244. No tank or
attachment thereto sha be used unt such certfcate has been at-
tached and the tank and/or attachment thereto has been approved.
(5) dsted sprts to be botted by dsters, propretors of
acoho pants and nterna revenue bonded warehouses, must be
botted from bottng tanks heren prescrbed.
ORM 230.
( ) Persons ntendng to botte sprts under ths Treasury dec-
son w gauge the sprts and prepare orm 230, n dupcate, st-
ng thereon each package of sprts to be botted and gvng a of the
data caed for by the form, as ndcated by the headngs of the
coumns and nes thereof and nstructons prnted thereon.
(7) separate report on orm 230 must be prepared for each ot
of sprts botted. Where more than one bottng tank s provded,
one ot of sprts may, however, be run nto more than one bottng
tank. The bottng of sprts from any vesse, tank, or receptace
other than a desgnated and approved bottng tank, s strcty
forbdden.
(8) The person proposng to botte sprts hereunder w cut out
wth a sharp nstrument that porton of the ta -pad stamp on each
package of sprts whch shows the sera number of the stamp, the
name of the dster, the proof gaons n the package, and the
sera number of the package. These cut out portons of stamps w
be securey attached to a sup of paper n such manner that the data
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514
thereon may be ready e amned and sad sp of paper bearng the
cut out stamps w be securey attached to one copy of orm 230.
(9) oth copes of orm 230 w be submtted to the dstrct
supervsor for approva. The dstrct supervsor w e amne the
ta -pad stamps attached to one copy of orm 230, and f he fnds
that the sprts to be botted have been awfuy ta -pad, and
orm 230 propery prepared, he w approve the forms and return
them to the person bottng sprts under ths Treasury decson,
who w attach one copy of the form to the board on the bottng
tank provded therefor. Upon competon of bottng, the botter
w mark on each copy of orm 230 the sera numbers of the cases
botted, and w remove the copy of orm 230 from the bottng
tank, whch must be retaned as a permanent record at the pant,
avaabe at a tmes for nspecton by Government offcers. The
remanng copy, wth the ta -pad stamp strps attached, w be
forwarded to the dstrct supervsor.
(10) In order to factate the operatons of botters under ths
Treasury decson, the dstrct supervsor may authorze the nvest-
gator or nspector n charge ocated n another cty, or the Govern-
ment offcer assgned to the pant, to approve orms 230 when,
n hs opnon, such may be done wthout danger to the revenue.
M R ING O C S S.
(11) ach case of dsted sprts fed at a bottng estabsh-
ment under ths Treasury decson must be numbered seray begn-
nng wth No. 1 for the frst case fed. In addton to the sera
number, each case w be marked on one sde wth the knd of
sprts, the wne gaons, proof, and proof gaons contaned theren,
and the date when fed. There w aso be marked on the same
sde of the case bearng the sera number, the name of the ds-
ter, propretor of the ndustra acoho pant or nterna revenue
bonded warehouse, foowed by the proper desgnaton, as dster,
propretor of ndustra acoho pant or bonded warehouse, and hs
address.
(a) dster who s aso a rectfer or whoesae quor deaer
may use the regstry number of the dstery, preceded by the etter
D, and foowed by a symbo ndcatng the coecton dstrct
If desred, the dster may, as to unrectfed sprts ony, pace hs
name and address on the cases, foowed or preceded by the word
Dster.
(b) In eu of the names and addresses of propretors of ndustra
acoho pants or nterna revenue bonded warehouses heren requred
to be paced on cases of dsted sprts, there may be substtuted the
numbers assgned by the ureau of Interna Revenue, preceded by a
symbo representng the cass of warehouse, and foowed by the
recognzed abbrevaton of the coecton dstrct.
(c) The coecton dstrct may be represented by recognzed
abbrevatons, such as, 2-N. Y.. y., etc.
(d) In addton to the marks requred to be paced on case9 of
botted dsted sprts, there may aso be paced thereon the name
and address of the whoesae quor deaer who purchases the sprts,
preceded by the words. otted for, or otted e pressy for.
(e) The sera number, and the name of the propretor of the bot
tng estabshment (or s|7mbo and number f used n eu thereof),
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515
Msc.
and knd of sprts w be marked on each case wth back, durabe
coorng matera, n etters and fgures not ess than fve-eghths of
an nch n heght.
(12) The sera numbers and other marks requred to be paced on
cases of botted dsted sprts sha not be removed therefrom or
obscured, or obterated before the contents thereof have been re-
moved, but when empted, a such marks and sera numbers sha be
effaced and obterated by the person removng the contents there-
from.
C IN T OR GO RNM NT O IC RS.
(13) In order to safeguard the keys to Government ocks, to
factate the transfer of such keys from one offcer to another, and
to provde a secure pace for keepng other Government property,
such as seas, stamps, records, etc., the propretor of each dstery,
ndustra acoho pant and nterna revenue bonded warehouse w
provde a meta cabnet of adequate strength and sze, equpped wth
stapes for the nserton of a ock. ach cabnet must be approved
by the dstrct supervsor as to constructon, ocaton, and securty,
and sha be nstaed on or before uy 1, 1935.
(14) Where a cabnet or other secure pace for the safe-keepng
of keys, seas, stamps, records, etc.| has prevousy been provded,
whch, n the opnon of the dstrct supervsor, affords adequate
protecton for the keys, seas, etc., the supervsor may authorze the
contnued use of such cabnet or other secure pace of safe-keepng
n eu of the cabnet specfed above.
(15) The cabnet sha be ocked wth a saght sea ock, the key
to whch sha reman at a tmes n the possesson of the Govern-
ment offcer assgned to duty at the pant, or the dstrct supervsor.
Government offcers must not eave the cabnet open, e cept n ther
mmedate presence, nor gve the key thereof to anyone, e cept
another Government offcer authorzed to receve t.
(1 ) On and after uy 1, 1935, or pror thereto, f a cabnet for
Government offcers s nstaed and approved, dsters and propre-
tors of ndustra acoho pants or nterna revenue bonded ware-
houses, ntendng to botte dsted sprts after ta payment, may
urchase stamps ndcatng ta payment of dsted sprts, requred
y Tte II, of the Lquor Ta ng ct of 1934, n antcpaton of ther
need. Requston for such stamps on orm 428 w be submtted
to the dstrct supervsor, who, after approva, w wrte thereon
the name and address of the storekeeper-gauger n charge of the ds-
tery, ndustra acoho pant, or bonded warehouse, and w re-
turn the form to the appcant. The appcant w then forward the
orm 428, wth remttance for the stamps, to the coector of nterna
revenue. The coector w forward the stamps by regstered ma
to the storekeeper-gauger named on the orm 428, who w mme-
datey pace them n the Government cabnet. In nstances where
t s mpractca to shp arge quanttes of strp stamps by regstered
ma t s permssbe to make the shpment by e press, provded that
a return recept s procured n each case. The e pense of forwardng
the stamps by regstered ma or e press to the storekeeper-gauger
w be borne by the appcant.
(17) Supervsors w not assgn addtona storekeeper-gaugers
to take custody of stamps and the Government cabnet, but such dutes
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51
w devove upon the storekeeper-ganger n charge at the dstery,
ndustra acoho pant, or nterna revenue bonded warehouse, when
the ta -pad bottng pant s ad|acent thereto, or n cose pro mty
therewth.
(18) t the begnnng of busness under ths procedure, nventory
of a stumps on hand w be made |onty by the storekeeper-gauger
and the propretor of the bottng estabshment. The stamps w
be devered to the storekeeper-gauger, who w gve the propretor
a recept therefor. s sprts are botted, the storekeeper-gauger w
dever to the propretor of the estabshment the requred stamps for
aff ng to the bottes of sprts that have been ta -pad.
(19) The storekeeper-gauger w keep a detaed day record of
stamps n record boo No. 2115. The storekeeper-gauger w enter
n the book the number of each denomnaton devered to hm by the
propretor, as requred by paragraph 21, the number of each denom-
naton receved durng the month, by dates, and the number of each
denomnaton used durng the month, showng the dates on whch
they were used.
(20) t the cose of each month, or wthn fve days thereafter,
the storekeeper-gauger w prepare a report on orm 182, n trp-
cate, showng the number of each denomnaton on hand at the be-
gnnng of the month, the number of each denomnaton receved
durng the month, the number of each denomnaton used durng the
month and the number of each denomnaton on hand at the end of
the month. One copy of the report w be mmedatey forwarded
to the dstrct supervsor, one copy w be furnshed to the propretor
of the estabshment, and the storekeeper-gauger w retan one copy
on fe n the Government cabnet.
(21) If the propretor empoys a commerca prntng concern to
prnt the data requred to be paced on the stamps, the storekeeper-
Sauger w, upon wrtten request of the propretor, dever to hm
e number of each denomnaton requested for such purpose. The
request must show the name and address of the prntng concern to
whom they are to be sent. The storekeeper-gauger w keep a rec-
ord of a stamps devered to the propretor for prntng. The
record must show the number of each denomnaton, the date, name
and address of the prnter, and upon return to hm after prntng,
the storekeeper-gauger w enter the date thereof, notng whether
the proper number of each denomnaton has been returned to hm.
(22) Strp stamps denotng ta payment may be stored n the
cabnet used by propretors of nterna revenue bonded warehouses
for the custody of botted-n-bond strp stamps, provded that the
cabnet s aways ocated on the bonded premses and s convenent
and accessbe to the Government offcer.
(23) Dstrct supervsors w not assgn storekeeper-gaugers to
supervse operatons or have charge of strp stamps at bottng
pants whch are not ad|acent to, or n cose pro mty wth, a ds-
tery, acoho pant, or bonded warehouse. Propretors of such
bottng pants w obtan and use strp stamps under the provsons
of Treasury Decson 4418 C. . III-1, .522 , as amended T. D.
4429, C. . III-1, 527 T. D. 44 4, C. . III-2, 425 T. D. 44 ,
C. . III-2, 423 , and Mmeograph 4203, and w render reports
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517 Msc.
on orm 9 . Propretors of such warehouses w not be requred
to provde the cabnet for Government offcers heren prescrbed for
a dstery, ndustra acoho pant, and nterna revenue bonded
warehouse.
ORM 0 .
(24) In every nstance where strp stamps have been paced n
charge of the storekeeper-gauger, the rectfer or propretor of a
bottng estabshment w not be requred to render orm 9 .
Gut T. everng,
Commssoner of Interna Revenue.
pproved une 25, 1935.
L. W. Robert, r.,
ctng Secretary of the Treasury.
I -34-7 7
T. D.4580
Mutated or mssng strp stamps.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
Dstrct Supervsors and Others Concerned:
1. Whoesae quor deaers and reta quor deaers who have n
ther possesson bottes of dsted sprts on whch the stamps re-
qured by Tte II of the Lquor Ta ng ct of 1934 have been
mutated or upon whch no stamps are aff ed, may purchase stamps
to aff to such contaners n accordance wth the condtons heren
set forth.
2. ny such deaer havng bottes of dsted sprts on whch the
stamps are so mutated that they can not agan be aff ed n ther
entrety or to whch no stamps are aff ed, wmake a report thereof,
under oath, to the dstrct supervsor. In hs report the deaer w
state the cause of mutaton or absence of the stamps, and submt
evdence that the sprts are ta -pad. Such evdence may consst of
the nvoces coverng the purchase of such sprts, n addton to
other avaabe documents. The deaer w at the same tme make
appcaton on orm 428 to the dstrct supervsor for the stamps
requred to repace those mutated or mssng. The dstrct super-
vsor w approve the requston orm 428 f he s satsfed from
the evdence submtted that the ta has been pad on the sprts,
and f the mutaton or absence of stamps has been satsfactory
e paned.
3. When bottes of dsted sprts on whch the stamps are so
mutated that they can not agan be aff ed n ther entrety or to
whch no stamps are aff ed, are found by nspectors on the premses
of any whoesae quor deaer or reta quor deaer, and concernng
whch report has not been made to the dstrct supervsor by the
deaer, the nspector w make a report thereof n accordance wth
Mm. . T. No. 39. Such bottes of dsted sprts w be paced
under detenton and the deaer nstructed to hod them unt further
advsed.
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Regs. 15, rt. L
518
4. When bottes of dsted sprts are paced under detenton by
reason of the mutaton or absence of strp stamps, the deaer shoud
be nformed by the nspector that upon makng an offer n compro-
mse n a sutabe amount, requston on orm 428 may be sub-
mtted to the dstrct supervsor for stamps to be aff ed to the bottes.
The deaer w submt, together wth orm 428, a statement, under
oath, showng the cause of mutaton or absence of the stamps and
the requred evdence that the sprts are ta -pad.
5. orms 428, approved n accordance wth ths Treasury decson,
w be forwarded to te coector of nterna revenue by the dstrct
supervsor, together wth remttance receved from the appcant for
the stamps. The coector w send the stamps to the dstrct super-
vsor, who w forward them to the appcant, ether by ma or
by an nspector, together wth nstructons n regard to markng
and aff ng them to the bottes.
. If the supervsor n any case s n doubt from the evdence sub-
mtted whether the sprts are ta -pad, he w cause the necessary
nqures to be made to ascertan the facts.
Gut T. everng,
Commssoner of Interna Revenue.
pproved ugust 20, 1935.
T. . CooLDO ,
ctng Secretary of the Treasury.
LI UOR CONTROL CT O 1934.
Reguatons 15, rtce I: Pant construe- I -48-7837
ton and equpment. T. D. 4 08
mendment of rtce I, Reguatons 15.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Reguatons 15, concernng rectfcaton of sprts and wnes, ap-
proved uy 30, 1934, s hereby amended by addng at the end of
rtce I thereof, a new paragraph, as foows:
In any nstance where the nterests of the Government w not be |eopardzed,
and where by reason of the unusua processes used n the rectfcaton and
bottng of speca products, such as sparkng wnes, rock and rye, gn rckey,
etc., t s mpractcabe to equp processng and bottng tanks wth gass
gauges or to mount the tanks on weghng scaes, the Commssoner may e empt
the rectfer from such requrements. In any case n whch e empton s
granted under the precedng sentence, the ta sha be pad on the contents
of the bottes.
Guy T. everng,
Commssoner.
pproved November 2 , 1935.
T. . Coodge,
ctng Secretary of the Treasury.
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519
Regs. 18, rt. II.
T ON RM NT D M LT LI UORS.
Reguatons 18, rtce II: onds. I -48-7838
T. D.4C09
rewer s bond, orm 15G , prescrbed. mendment of paragraph
15, rtce II, Reguatons 18.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
Secton 333 , Revsed Statutes, as amended by the ct of pr 29,
188 (24 Stat., 15), provdes:
very brewer, on fng notce as aforesad of hs ntenton to commence or
contnue busness, sha e ecute a bond to the Unted States, to be
approved by the coector of the dstrct, n a sum equa to three tmes the
amount of the ta whch, n the opnon of the coector, sad brewer w be
abe to pay durng any one month, and condtoned that he sha pay, or
cause to be pad, as heren provded, the ta requred by aw on a beer, ager-
beer, ae, porter, and other fermented quors made by or for hm, before
the same s sod or removed for consumpton or sae, e cept as herenafter
provded and that he sha keep, or cause to be kept, a book, n the manner
and for the purposes herenafter specfed, whch sha be open to nspecton by
the proper offcers, as by aw requred and that he sha n a respects fath-
fuy compy, wthout fraud or evason, wth a requrements of aw reatng
to the manufacture and sae of any mat quors aforesad and he sha
e ecute a new bond once In four years and whenever requred so to do by sad
coector In the amount above named and condtoned as above provded, whch
bond sha be n eu of any former bond or bonds of such brewer n respect
to a abtes accrung after ts approva by sad coector.
Secton 202(a), Tte II, of the Lquor Law Repea and nforce-
ment ct (Pubc 347, Seventy-fourth Congress), approved ugust
27, 1935, provdes:
The ct of March 22, 1923 (48 Stat., 1 ), entted n ct to provde revenue
by the ta aton of certan nonnto catng quors, and for other purposes,
Is hereby repeaed.
In vew of the above-quoted sectons of aw, a new brewer s bond,
orm 15 , s hereby prescrbed.
Subdvsons (b), (c), ( /), (m), ( ), (r). and ( ), of paragraph
15, rtce II, Reguatons 18, reatng to the manufacture and ta -
payment of fermented mat quors, approved October 25, 1934, are
hereby amended to read as foows:
( ) The pena sum of brewer s bond ( orm 15 ), requred by secton 333 ,
Revsed Statutes, to cover the manufacture of fermented mat quors, must be
equa to three tmes the amount of the ta (1. e., 15 per barre) whch, n the
opnon of the dstrct supervsor, the brewer w be abe to pay durng any
one month.
(o) cept as otherwse heren specfcay provded, any brewer who engages
In the manufacture for sae of fermented mat quors must, for each pace at
whch such manufacturng Is carred on, e ecute a separate bond ( orm 15 )
n a pena sum cacuated at the rate provded by aw (three tmes the ta )
wth corporate surety, Indvdua suretes, or supported by the depost of bonds
or notes of the Unted States as coatera securty n a sum equa at ther par
vaue to the amount of the pena bond requred to be furnshed. If the monthy
producton of fermented mat quors s such that the pena sum of the bond
under secton 333 , Revsed Statutes, e ceeds 100,000, the brewer sha gve
bond (aso on orm 15 ) to cover such e cess producton, whch addtona
bond may be gven wthout surety or coatera securty.
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Regs. 18, rt. II.
520
(0) bonds sha be prepared and e ecuted In trpcate and devered to
the dstrct supervsor for the dstrct In whch the brewery premses are o-
cated. onds so devered w be approved by the dstrct supervsor If the
brewer has In a respects comped wth the appcabe aw and reguatons.
One copy of the bond (the orgna) w be forwarded to the Deputy Comms-
soner, coho Ta Unt, for acceptance on behaf of the Unted States, and
one copy to the prncpa. The other copy w be retaned by the dstrct
supervsor.
(m) Where there Is a change n propretorshp a new bond must be fed.
Where there Is a change n the ocaton of the brewery premses, a new bond or
a consent of surety ( orm 1533) on the e stng bond, or bonds, must be fed.
Consent of surety, orm 1533, sha be prepared and e ecuted n trpcate by
the obgors wth the same formaty and proof of authorty to e ecute as
requred for the e ecuton of bonds. The procedure governng the dsposton
of the orgna and copes of bonds as provded In these reguatons sha appy
to the approva and dsposton of consents of surety.
new bond w be requred n case of the death or nsovency of any surety
ou any bond, or n any case where the securty of the Government becomes
mpared n whoe or n part for any reason whatever. new bond must be
gven at the e praton of the fourth year. When t s desred to Increase the
pena sum of a bond, orm 1 , a suppementa or strengthenng bond (aso on
orm 15 ) must be gven, provded the suretes thereon are the same as on
the orgna bond If the suretes are not the same a new bond coverng the
entre abty w be requred.
(q) Where a brewer s bond ( orm 150 ) Is fed to supersede a bond or
bonds of the same or a pror seres and there s no record of voaton of aw
or reguaton by the brewer, the dstrct supervsor sha, after approva of
the supersedng bond, prepare orm 1490, Notce of bond termnaton, n
quadrupcate (n quntupcate f there are two suretes), and forward the
orgna copy to the deputy commssoner, one copy to each obgor on the bond,
and retan one copy to be fed wth the bond to whch t reates. Where assess-
ments have been made aganst the brewer, the dstrct supervsor w not Issue
orm 1490 unt a statement has been obtaned from the coector of nterna
revenue that such assessments have been pad.
(r) Upon recept of an appcaton for the reease of a bond ( orm 15 ),
or of a brewer s bond of a pror seres, the dstrct supervsor w e amne hs
records to ascertan whether there s any outstandng abty aganst the bond.
If and when the dstrct supervsor s satsfed that there s no outstandng
abty aganst a bond, the reease of whch has been apped for, he w pre-
pare orm 1491, Notfcaton of reease of bond, n quadrupcate (n qun-
tupcate f there are two suretes), and forward the orgna copy to the deputy
commssoner, one copy to each obgor on the bond, and retan one copy to be
fed wth the bond to whch t reates. Where an offer In compromse of cv
abty or an appcaton for remsson, or cam for abatement of ta es, has
been sent to the deputy commssoner, and notce of fna acton has not been
receved, the dstrct supervsor w not take any acton toward the reease of
the bond unt such notce has been receved, and a statement has been obtaned
from the coector of nterna revenue that the ta nvoved and a outstandng
assessments, f any, have been pad.
The provsons of Treasury Department Crcuar No. 1 1, revsed ebruary ,
1935, and these reguatons sha appy to brewer s bonds to be superseded or
reeased where bonds or notes of the Unted States have been deposted wth
the Government by brewers as coatera securty In eu of surety or suretes,
and to the dsposton of bonds or notes so deposted.
The bonds or notes deposted as coatera securty wth an outstandng
brewer s bond, and wth respect to whch no voaton has been charged, may be
used to secure a new supersedng bond on orm 15 by approprate descrpton
of such coatera n the new bond.
(u) The fu name of each person sgnng bonds, powers of attorney, con-
sents of surety, and other wrtten nstruments, or papers requred of brewers
sha be egby wrtten (preferaby typed) n the headng or body of each such
nstrument or paper.
In the case of a copartnershp, the trade name of the frm, foowed by the
names of a the members thereof, sha be shown. In the case of a corpora-
ton, there sha be shown the corporate name, the name of the State under
the aws of whch It s Incorporated, and the ocaton of the prncpa offce
or pace of busness.
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521
Regs. 18, Par. 21.
n Indvdua brewer e ecutng such nstruments sha sgn hs name thereto
In hs usua sgnature, or an attorney-n-fact, duy empowered by hm, may
sgn n hs behaf. In the case of a copartnershp, the frm name sha be typed
or wrtten, foowed by the word y and the usua sgnatures of a partners
or the sgnature of any partner or other person hodng a power of attorney
authorzng hm to e ecute bonds or other nstruments on behaf of the partner-
shp, a copy of whch power of attorney must be attached to such bonds or
other Instruments. In the case of a corporaton, the corporate name sha be
typed or wrtten, foowed by the word y and the sgnature and tte of
each offcer e ecutng the document for the corporaton, who must be duy
authorzed to act for the corporaton. The nstrument sha show the mpres-
son of the corporate sea and sha be supported by an authentcated copy of
tne document conferrng authorty upon each offcer to e ecute the nstrument
The sgnature of each person e ecutng such nstrument sha be wtnessed by
two persons, who sha attach ther sgnatures as such, e cept where e ecuton
of the nstrument s acknowedged before an offcer duy authorzed to admn-
ster oaths, or n the case of a corporate nstrument, when the sea of the
corporaton s aff ed and attested by ts proper offcer.
Subdvsons (d), (e), (/), and ( ), of paragraph 15, are hereby
repeaed. Subdvsons ( ), ( ), (k) (I), ( ), (o), (p), ( ), (t),
and (v), of paragraph 15, reman unchanged.
rewers may fe bond ony on orm 15 , and bond forms of any
ror seres may not be fed hereafter by them. owever, brewers
onds of any pror seres whch have aready been fed and ap-
proved, f n suffcent pena sums, cacuated at the rate provded
by aw (three tmes the ta ), need not be repaced by bonds on
orm 15 . ut f a new bond on orm 15 s fed m eu of a
bond or bonds of any pror seres prevousy fed and approved, such
new bond may be accepted.
Weght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 2 , 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 18, Pabagbaph 21. I -45-7793
T. D.4599
Canceaton and coecton of beer stamps.
Teeasuey Depabtment,
Offce of Commssoneb of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Paragraph 21 of Reguatons 18, as amended by Treasury Decson
4544 C. . I -1, 510 , s hereby further amended to read as
foows:
Par. 21. (a) t such tme each day when no more beer s to be run through
the meter for bottng, the brewer w make a report on orm 139, prepared
n trpcate. Report of meter readngs on orm 139 w be made from the
contnuous counter. The brewer w, at the same tme, cance the number
of beer stamps correspondng to the quantty of beer metered for ta payment,
n the manner prescrbed for the canceaton of stamps for barres or kegs
of fermented mat quor. The set back counter may be used by the brewer
for checkng contnuous counter readngs, and upon competon of the day s run
for bottng and canceaton of stamps, t must be set at zero. The brewer
w mmedatey attach the canceed stamps to one copy of orm 139, to be
devered to the nspector who vsts the brewery and takes the meter readng.
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Regs. 3, rt. 24.
522
One copy of each orm 139 w be attached to orm 103 by the brewer, and
w be transmtted by hm to the dstrct supervsor. The thrd copy w
be retaned by the brewer as a part of hs Government record, to be kept ava-
abe for nspecton by offcers of ths ureau. The nspector, havng satsfed
hmsef by an nspecton of the stamps that they are suffcent to cover the ta
due on the beer passed through the meter for ta payment as ndcated by orm
139, and that they have been propery canceed by the brewer, w, n the pres-
ence of the brewer, further cance and deface the stamps so devered, by drv-
ng through them a de or punch, n such manner as to cut from the center of
each stamp a pece thereof not ess than one-haf nch square, and w sgn
the recept on the three copes of orm 139.
(b) The meter w be read, and orm 139, wth canceed stamps attached,
w he taken up from the brewer by any nspector vstng the brewery to
make a master meter check, or on speca Inspecton, or on monthy nspecton.
(c) brewer, or hs authorzed agent, may, n person, dever orms 139,
wth canceed stamps attached to one copy, to a desgnated nspector at the
offce of the dstrct supervsor. When orms 139 and the canceed stamps are
devered n person to an nspector n the offce of the supervsor, the nspector,
havng satsfed hmsef by an nspecton of the stamps, that they are suffcent
to cover the ta due on the beer passed through the meter for ta payment
as ndcated by orm 139, and that they have been propery canceed by the
brewer, w, n the presence of the brewer, or hs authorzed agent, further
cance and deface the stamps so devered, by drvng through them a de or
punch, In such manner as to cut from the center of each stamp a pece thereof
not ess than one-haf Inch square, and w sgn the recept on the three copes
of orm 139. One copy of orm 139, together wth the canceed stamps, w he
retaned by the nspector and w be transmtted by hm to the bonded accounts
dvson of the supervsor s offce. Two copes of the recepted orm 139 w
be devered to the brewer, one of whch w be attached to and submtted wth
the monthy report, orm 103, and the second copy retaned as a part of the
brewer s permanent record and avaabe for the nspecton of vstng offcers.
(d) rewers w avod, as far as practcabe, submttng ndvdua beer
stamps to nspectors. Sheets of stamps, as ssued by the coector of nterna
revenue, shoud, where possbe, be kept ntact. y proper fodng, a stamps
comprsng the sheet may be smutaneousy perforated by the brewer and the
same procedure foowed by nspectors at the tme the stamps are further can-
ceed and defaced. Stamps of the arger denomnatons shoud be used, to fac-
tate handng and e amnaton.
Wrght Matthews,
ctng Commssoner of Interna- Revenue.
pproved November 5, 1935.
osephne Roche,
ctng Secretary of the Treasury.
INDUSTRI L LCO OL.
Reguatons 3( coho), rtce 24: Change I -38-7708
of persons nterested n busness. T. D. 4588
Transfer of materas n process and sprts by dsters and pro-
pretors of ndustra acoho pants to successors.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
ffectve October 1, 1935, no dster or propretor of an ndus-
tra acoho pant dscontnung operatons sha transfer materas
n process or fnshed or unfnshed sprts to a successor. mash
and beer sha be used and a sprts sha be entered nto warehouse
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523
Regs. 3, rt. 24.
pror to mdnght of the day precedng the commencement of opera-
tons by the successor. Untreated, basc materas, such as gran,
mea, and moasses, may be transferred to such successor.
The successor of a dster or propretor of an ndustra acoho
pant sha not commence operatons unt a documents requred for
s quafcaton as such dster or propretor of an ndustra
acoho pant have been revewed and approved n the offce of the
Deput 7 Commssoner of the coho Ta Unt.
Gut T. eyerng,
Commssoner of Interna Revenue.
pproved September 18, 1935.
T. . COOLIDO ,
ctng Secretary of the Treasury.
Reguatons 3( Icoho), rtce 24: Change I -40-7722
of persons nterested n busness. T. D. 4589
Treasury Decson 4588 page 522, ths uetn amended.
Thea8U T Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
The effectve date of Treasury Decson 4588, reatng to transfer
of materas n process and sprts by dsters and propretors of
ndustra acoho pants to successors, s hereby e tended from
October 1, 1935, to November 1, 1935.
Gut T. everng,
Commssoner of Interna Revenue.
pproved October 2, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 3( coho), rtce 24: Change I -45-778
of persons nterested n busness. T. D. 4597
Revocaton of Treasury Decson 4588 page 522, ths uetn
Treasurt Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
Treasury Decson 4588, sub|ect Transfer of materas n process
and sprts by dsters and propretors of ndustra acoho pants
to successors, approved September 18, 1935, s hereby revoked .
Wrght Matthews,
ctng Commssoner.
pproved October 30, 1935.
. Morgenthau, r.,
Secretary of the Treasury.
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Regs. 3, rt. 14 .
524
Reguatons 3( coho), rtce 14 : Genera I -4 -7839
provsons governng use of specay de- T. D. 4 07
natured acoho.
rtce 14 , Reguatons 3, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
The thrd paragraph of artce 14 , Reguatons 3, s amended to
read as foows:
Products made from specay denatured acoho, such as bay rum, ac
vegeta, har toncs, shampoos, otons, perfumes, toet water, and smar prep-
aratons must be put up and sod by the manufacturer thereof n contaners
not e ceedng 1 gaon n capacty, e cept that the supervsor may, n any case
where t Is shown to hs satsfacton that saes n arger packages to egtmate
trade are necessary n the proper conduct of the busness of any permttee,
e empt such permttee from ths requrement. Such preparatons may be sod
ony to barber shops, beauty parors, beauty and barber suppy deaers, genera
reta stores, whoesae and reta drug stores, and utmate consumers, e cept
that the supervsor may, n any case where t s shown to hs satsfacton that
saes to others are necessary In the proper conduct of egtmate busness,
e empt such permttee from ths requrement.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved November 25, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
Reguatons 3( coho), rtce 14 : Genera I -33-7 54
provsons governng use of specay dena- T. D. 4577
tured acoho.
Sae and shpment of propretary sovents.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. G.
To Dstrct Supervsors and Others Concerned:
rtce 14 of Reguatons No. 3, as amended by Treasury Decson
1 (Pro.), dated ugust 2, 1933, and Treasury Decson 4524, dated
ebruary 1 ,1935 C. . I -1, 525 , s further amended by addng
after the thrd paragraph thereof the foowng paragraphs:
Propretary sovents produced from specay denatured acoho, ormua
No. 1, may be sod by the producers thereof ony to deaers or other producers
of such sovents for sae, or to users for sovent or other manufacturng pur-
poses. Packages of such propretary sovents contanng more than 5 wne ga-
ons sha be of meta ony, and sha have embossed thereon the sera numbers
and ermt number or symbo of the producer thereof or the producer for
whom the packages are fed, such as are prescrbed by artce 111, as amended
by Treasury Decson No. 9, wth respect to competey denatured acoho.
efore packages are fed by one producer of propretary sovents for another
producer, permsson must frst be obtaned therefor from the Commssoner.
Upon wrtten authorzaton of the Commssoner, shpments of propretary
sovents may be made by the producers thereof In raroad tank cars, or n tank
wagons or tank trucks owned and operated by such producers, to (1) other
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525
Mso.
producers of propretary sovents, and (2) to actua users for sovent or manu-
facturng purposes and not for resae provded that, n the case of raroad tank
car shpments, the vendee has raroad sdng factes on hs premses for recev-
ng such tank car shpments.
When propretary sovents are sod by the producer thereof to another pro-
ducer, compete records of these transactons must be mantaned by the
actua producer and the vendee producer. Users of propretary sovents who
receve such sovents n tank cars, tank wagons, or tank trucks, must mantan
compete records of the recept and actua use thereof. The records heren
prescrbed must be kept avaabe for nspecton by nterna revenue offcers.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 8, 1935.
T. . Coodge,
ctng Secretary of the Treasury-
I -33-7 57
T. D.4578
Revsng specay denatured acoho formua 38- , 39. 39- .
39- , and 40 n ppend to Reguatons o. 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors, Chemsts n Charge, uthorzed Chemsts,
and Others Concerned:
ffectve October 1, 1935, specay denatured acoho ormuae
Nos. 38- , 39, 39- , 39- , and 40 n ppend to Reguatons No. 3
are revsed to read as foows:
SP CI LLY D N TUR D LCO OL ORMUL NO. 38- .
To every 100 gaons of 190 proof ethy acoho add a tota of 10
pounds of a m ture of two or more of the U. S. P. os and sub-
stances sted beow:
Camphor chor thymo eucaypto guaaco mentho crystas
o of bay o of bergamot o of cassa or cnnamon o of ctron-
ea o of coves or eugeno o of eucayptus o of avender o of
mustard (voate) o of peppermnt o of pne or pne needes
o of rosemary o of sassafras o of spearmnt o of thyme o
of turpentne o of wntergreen or methy sacyate phenos
pheny sacyate saf ro. specfc gravty not ess than 1.09 and not
more than 1.110 at 1 C. thymo.
nyone desrng to use the above formua must specfy n the app-
caton whch substances from the above st are seected to make up
the 10 pounds of denaturants requred. nyone desrng to use 10
f nds of ony one of the above denaturants must request the prv-
ege from the Department, settng out the denaturant and the reasons
for the partcuar request so that the matter may be taken under
advsement. Upon appcaton the substtuton of other essenta os
or substances for those sted above w be gven consderaton pro-
vded they are effcent denaturants and t s concusvey shown that
none of the denaturants sted or any combnatons thereof are sats-
factory for the manufacture of any partcuar product.
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Msc. 52
SP CI LLY D N TUR D LCO OL ORMUL NO. 39.
To every 100 gaons of 190 proof ethy acoho add 9 pounds of
sodum sacyate or sacyc acd U. S. P. and 1.25 gaons N. .
fud e tract of quassa and s gaon of denaturng grade tertary
buty acoho.
SP CI LLY D N TUR D LCO OL ORMUL NO. 39- .
To every 100 gaons of 190 proof ethy acoho add 0 ounces of
any one of the foowng U. S. P. akaods or sats: unne, qunne
bsuphate, qunne hydrochorde, cnchondne or cnchondne su-
phate and 8 gaon of denaturng grade tertary buty acoho.
SP CI LLY D N TUR D LCO OL ORMUL NO. 30- .
To every 100 gaons of 190 proof ethy acoho add 2 gaons
of dethyphthaate and gaon of denaturng grade tertary buty
acoho.
SP CI LLY D N TUR D LCO OL ORMUL NO. 40.
To every 100 gaons of 190 proof ethy acoho add 3 ounces of the
akaod brucne or brucne suphate and 8 gaon of denaturng
grade tertary buty acoho.
Where specfcatons for the essenta os or other substances men-
toned above are not gven n the U. S. Pharmacopoea or the p-
pend to Reguatons No. 3, hgh grade commercay pure products
are requred.
SP CI IC TIONS OR T RTI RY UTYL LCO OL.
Denaturng grade tertary buty acoho sha consttute ts bnary
azeotrope wth water whch s the constant bong m ture contan-
ng between 87 per cent and 89 per cent tertary buty acoho, and
s a qud at ordnary temperatures.
Odor. Peasant sghty camphorke.
Resdua odor. None.
Specfc gravty 20 /20 . 0.810 to 0.820.
Coor. Water whte.
cdty (free acd as acetc acd). Less than 0.003 per cent.
Dstaton range. When 100 cc. are dsted accordng to the
. S. T. M. method, D2 8-31T, none shoud come over beow 78 C.
and none above 82 C. More than 90 per cent shoud dst over
between 79.5 and 80.5 C.
Nonvoate matter. Less than 0.005 per cent.
Identfcaton test. Pace 5 drops of a souton contanng 01
1 per cent of tertary buty acoho n ethy acoho n a test tube
contanng 2 cc. of Denge s reagent. The m ture s then heated
|ust to bong and then removed from the fame. yeow precp-
tate shoud be produced.
Guy T. everng,
Commssoner of Interna Revenue.
pproved ugust 13, 1935.
T. . Coodge,
ctng Secretary of th/ . Treasury.
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527
Msc.
I -30-7 13
T. D. 45
Copes of reports of pants and warehouses appcatons for ta -
free acoho and approva of bonds, and reease of suretes thereon.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Dstrct Supervsors and Others Concerned:
1. ffectve ugust 1, 1935, propretors of dsteres and ware-
houses, ndustra acoho pants, denaturng pants, and warehouses,
rectfyng pants, breweres, and wneres and storerooms, and Gov-
ernment offcers assgned thereto, w furnsh dstrct supervsors one
copy ess than the number now requred to be furnshed of a day
reports. Ths ncudes reports or ndvdua transactons, such as
reports of the gaugng of quors, memoranda of shpments, appca-
tons for gaugng and wthdrawa of quors, etc. Monthy reports
w contnue to be submtted n dupcate to the dstrct supervsors.
2. ereafter, the concurrence of the Deputy Commssoner of the
coho Ta Unt w not be requred n the approva, by the dstrct
supervsor, of appcatons ( orm 1447) for permts to use ta -free
acoho by the severa States and Terrtores or any muncpa sub-
dvson thereof, or for the use of any scentfc unversty or coege
of earnng, any aboratory for use e cusvey n scentfc research,
or for use n any hospta or sanatorum. orms 1147 w be fed
(n dupcate) wth the proper dstrct supervsor. ppcatons for
ta -free wthdrawas by the Unted States, or any governmenta
agency thereof, w contnue to be fed drect wth the Deputy Com-
mssoner of the coho Ta Unt. Copes of such appcatons need
not be forwarded to or fed wth the dstrct supervsor, nor sha the
approva of such offcer be requred.
3. ereafter, the concurrence of the Deputy Commssoner of the
coho Ta Unt w not be requred n the approva, by the dstrct
supervsor, of bonds, ncudng supersedng bonds, and consents of
suretes to changes theren, requred under the provsons of nterna
revenue aws. Tte III of the Natona Prohbton ct, and regu-
atons ssued pursuant thereto and reease of suretes as to future
abty on such bonds. Dstrct supervsors w contnue to submt
a bonds, and consents of suretes as to changes theren, after ap-
prova thereof, to the Deputy Commssoner for submsson to the
Commssoner of ccounts and Deposts, Secton of Surety onds,
Treasury Department, for approva of the suretes. In addton such
bonds and consents of suretes as are fed n connecton wth the
approva of the estabshment of pants and warehouses, and subse-
quent changes n ther constructon, w be acted upon by the Deputy
Commssoner. Dstrct supervsors, before reeasng suretes on
bonds as to future abty, w make a compete e amnaton of
records to determne whether there s any outstandng abty, n
accordance wth admnstratve procedure prescrbed by the Deputy
Commssoner of the coho Ta Unt.
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528
4. Reguatons and Treasury decsons are amended n so far as
they are n confct wth the provsons hereof.
Wrght Matthews,
ctng Commssoner of Interna Revenue.
pproved uy 18,1935.
. MORG NT U, r.,
Secretary of the Treasury.
SOCI L S CURITY CT.
I -42-7751
Under the provsons of the Soca Securty ct, the ureau of
Interna Revenue s charged ony wth coectng the ta es mposed
under Tte III, wth respect to empoyment, and the ta mposed
under Tte I on empoyers of eght or more. The ta es mposed
under Tte III do not become effectve unt anuary 1, 1937, and
the ta mposed under Tte I does not become effectve unt an-
uary 1, 193 . Reguatons desgned to assst ta payers n sovng
the probems presented by these ta es w be prepared and made
avaabe for the pubc pror to the effectve date of such ta es.
The Soca Securty ct provdes that the Soca Securty oard
w admnster the provsons of the ct reatng to grants to States
for od-age assstance, unempoyment nsurance, edera od-age
benefts, etc.
Inqures reatng other than to the ta es mposed under ths ct
shoud be addressed to the Soca Securty oard, Washngton, D. C.
I -52-7880
T. D. 4C1
cse ta Imposed by Tte I of the Soca Securty ct-
Records to be mantaned.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph . Secton 901 (Tte I ) of the Soca Securty ct
provdes, n part:
On and after anuary 1, 1930, every empoyer (as defned In secton 907)
sha pay for each caendar year an e cse ta , wth respect to havng nd-
vduas n hs empoy, .
Par. . Secton 902 (Tte I ) of the Soca Securty ct pro-
vdes :
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 hn (before the date of fng hs return for the ta abe year) Into an
unempoyment fund under a State aw. The tota credt aowed to a ta -
payer under ths secton for a contrbutons pad nto unempoyment funds
wth respect to empoyment durng such ta abe year sha not e ceed 90
per centum of the ta aganst whch t s credted, and credt sha be aowed
ony for contrbutons made under the aws of States certfed for the ta abe
year as provded In secton 903.
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Msc.
Par. C. Secton 905 (Tte I ) of the Soca Securty ct pro-
vdes, n part:
(a) The ta mposed by ths tte sha be coected by the ureau of
Interna Revenue unfer the drecton of the Secretary of the Treasury and
sha be pad nto the Treasury of the Unted States as nterna-revenue
coectons.
(b) Not ater than anuary 31, ne t foowng the cose of the ta abe
year, each empoyer sha make a return of the ta under ths tte for such
ta abe year. ach such return sha contan such nformaton
and be made In such manner as the Commssoner of Interna Revenue, wth
the approva of the Secretary of the Treasury, may by reguatons prescrbe.
provsons of aw (Incudng penates) appcabe n respect of the ta es
mposed by secton 00 of the Revenue ct of 192 , sha. In so far as not
nconsstent wth ths tte, be appcabe n respect of the ta mposed by
ths tte.
Pah. D. Secton 907 (Tte I ) of the Soca Securty ct pro-
vdes, n part:
When used n ths tte
(a) The term empoyer does not Incude any person uness on each of
some 20 days durng the ta abe year, each day beng In a dfferent caendar
week, the tota number of Indvduas who were In hs empoy for some
porton of the day (whether or not at the same moment of tme) was eght
or more.
(b) The term wages means a remuneraton for empoyment, ncudng
the cash vaue of a remuneraton pad n any medum other than cash.
(c) The term empoyment means any servce, of whatever nature, per.
formed wthn the Unted States by an empoyee for hs empoyer, e cept
(1) grcutura abor
(2) Domestc servce In a prvate home
(3) Servce performed as an offcer or member of the crew of a vesse on
the navgabe waters of the Unted States
(4) Servce performed by an ndvdua In the empoy of hs son, daughter,
or spouse, and servce performed by a chd under the age of 21 n the
empoy of hs father or mother
(5) Servce performed n the empoy of the Unted States Government or
of nny nstrumentaty of the Unted States
( ) Servce performed n the empoy of a State, a potca subdvson
thereof, or an nstrumentaty of one or more States or potca subdvsons
(7) Servce performed n the empoy of a corporaton, communty chest,
fund, or foundaton, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes, or for the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch nures to
the beneft of any prvate sharehoder or ndvdua.
(d) The term State agency means any State offcer, board, or other au-
thorty, desgnated under a State aw to admnster the unempoyment fund
n such State.
(e) The term unempoyment fund means a speca fund, estabshed
under a State aw and admnstered by a State agency, for the payment of
compensaton.
(f) The term contrbutons means payments requred by a State aw
to be made by an empoyer nto un unempoyment fund, to the e tent that
such payments are made by hm wthout any part thereof beng deducted or
deductbe from the wages of ndvduas n hs empoy.

Pah. . Secton 908 (Tte I ) of the Soca Securty ct pro-
vdes :
The Commssoner of Interna Revenue, wth the approva of the Secretary
of the Treasury, sha make and pubsh rues and reguatons for the enforce-
ment of ths tte, e cept sectons 903. 904, and 910.
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530
Pah. . Secton 1101(a) (Tte I) of the Soca Securty ct -
provdes, n part:
When used n ths ct
(1) The term State (e cept when used In secton 531) ncudes aska,
awa, and the Dstrct of Coumba.
(2) The term Unted States when used In a geographca sense means
the States, aska, awa, and the Dstrct of Coumba.
(3) The term person means an ndvdua, a trust or estate, a partnershp,
or a corporaton.
(4) The term corporaton ncudes assocatons, ont-stock companes,
and nsurance companes.
Pah. G. Secton 1102 (Tte I) of the evenue ct of 192 pro-
vdes :
(a) very person abe to any ta mposed by ths ct, or for the coecton
thereof, sha keep such records, render under oath such statements, make
such returns, and compy wth such rues and reguatons, as the Comms-
soner, wth the approva of the Secretary, may from tme to tme prescrbe.
(b) Whenever n the |udgment of the Commssoner necessary he may requre
any person, by notce served upon hm, to make a return, render under oath
such statements, or keep such records as the Commssoner deems suffcent
to show whether or not such person s abe to tn .
(c) The Commssoner, wth the approva of the Secretary, may by regua-
ton prescrbe that any return requred by any nterna revenue aw (e cept
returns requred under ncome or estate ta aws) to be under oath may, f
the amount of the ta covered thereby s not n e cess of 10, be sgned or
acknowedged before two wtnesses nstead of under oath.
(d) ny oath or affrmaton requred by the provsons of ths ct or regua-
tons made under authorty thereof may be admnstered by any offcer authorzed
to admnster oaths for genera purposes by the aw of the Unted States or of
any State, Terrtory, or possesson of the Unted States, wheren such oath or
affrmaton s admnstered, or by any consuar offcer of the Unted States.
Par. . Secton 1114(a) (Tte I) of the Revenue ct of 192
provdes:
(a) ny person requred under ths ct to pay any ta , or requred by aw or
reguatons made under authorty thereof to make a return, keep any records,
or suppy any nformaton, for the purposes of the computaton, assessment, or
coecton of any ta mposed by ths ct, who wfuy fas to pay such ta ,
make such return, keep such records, or suppy such nformaton, at the tme
or tmes requred by aw or reguatons, sha, n addton to other penates pro-
vded by aw, be guty of a msdemeanor and, upon convcton thereof, be fned
not more than 10,000, or mprsoned for not more than one year, or both,
together wth the costs of prosecuton.
Pursuant to the above-quoted provsons of aw, the foowng regu-
atons are hereby prescrbed wth respect to the records to be man-
taned for the purposes of the e cse ta mposed by Tte I of the
Soca Securty ct:
rtce 1. s used n these reguatons, the terms defned n paragraphs D
and , above, sha have the respectve meanngs theren assgned to them.
rt. 2. (a) very person sub|ect to ta under the ct sha, durng the caendar
year 193 or any caendar year thereafter, for each such caendar year, keep
such permanent records as are necessary to estabsh:
(1) The tota amount of remuneraton payabe to hs empoyees In cash or In
a medum other than cash, showng separatey, (a) tota remuneraton payabe
wth respect to servces e cepted by secton 907(c), ( ) tota remuneraton pay-
abe wth respect to servces performed outsde of the Unted States, (c) tota
remuneraton payabe wth respect to a other servces.
(2) The amount of contrbutons wth respect to empoyment durng the
caendar year pad by hm nto any State unempoyment fund, showng sep-
aratey, (a) payments made and not deducted (or deductbe) from the remunera-
ton of empoyees, ( ) payments made and deducted (or deductbe) from the
remuneraton of empoyees, (c) payments made wth respect to servces e cepted
by secton 907(c).
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531 Regs. 7 , rt. 1.
(3) Such other nformaton as w enabe the Commssoner to determne
whether such person s sub|ect to the ta , and, f sub|ect to the ta , the amount
thereof.
( ) No partcuar method of accountng or form of record s prescrbed. ach
person may adopt such records and such method of accountng as may best meet
the requrements of hs own busness, provded that they ceary and accuratey
show the nformaton requred above, and enabe hm to make a proper return on
the prescrbed form.
(c) Records are not requred to show the number of Indvduas empoyed
on any day, but must show the tota amount of remuneraton actuay pad dur-
ng each caendar month and the number of ndvduas empoyed durng each
caendar month or durng each such esser perod as the empoyer may eect.
(d) ny person who empoys ndvduas durng any caendar year but who
consders that he s not an empoyer sub|ect to the ta (see paragraph D, above),
shoud be prepared to estabsh by proper records (ncudng, where necessary,
records of the number of persons empoyed each day) that he s not an empoyer
sub|ect to the ta .
bt. 3. records requred by these reguatons sha be kept safe and
ready accessbe at the prncpa pace of busness of the person requred to
keep such records, or at such other pace or paces as the Commssoner, upon
wrtten appcaton by the person concerned, may approve. Such records sha
at a tmes be open for nspecton by nterna revenue offcers, and sha be pre-
served for a perod of at east four years from the due date of the ta for the
caendar year to whch they reate.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 20, 1935,
. MoRG NT U. r.,
Secretary of the Treasury.
T RI CT O 1930.
Reguatons 7 , rtce 1: Shpment or de- I -52-7882
verv restrcted. T. D. 4 17
S STOR S.
Reguatons 7 . reatng to shpment or devery of manufactured
tobacco, snuff, cgars, or cgarettes for use as sea stores wthout
payment of Interna-revenue ta under secton 317 of the Tarff ct
of 980, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton. D. C.
To Coectors of Interna Revenue and Others Concerned:
rtce 1 of Reguatons 7 , approved ebruary 1 ,1935, s amended
by strkng out onv and by addng at the end thereof a new para-
graph readng as foows:
The shpment or devery of manufactured tobacco, snuff, cgars, and cgarettes
under secton 317 of the Tarff ct of 1930, herenafter referred to n these
reguatons as sea stores, may aso be made for consumpton of such artces
beyond the |ursdcton of the nterna-revenue aws of the Unted States: (a)
on arcraft cearng through customs en route to paces beyond the |ursdcton
of the nterna-revenue aws of the Unted States ( ) on arcraft operatng on
a reguar schedue n trade between one (customs) great dstrct of the Unted
States and another such great dstrct, when the schedue requres operaton
outsde the |ursdcton of the nterna-revenue aws of the Unted States.
Gut T. everng,
Commssoner of Interna Revenue.
pproved December 20, 1935.
T. . Coodge,
ctng Secretary of the Treasury.
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532
T INSON CT (PU LIC, NO. 135, S NTY-T IRD
CONGR SS).
Secton 3. I -27-758
I. T. 2903
Where orders aggregatng In e cess of 10,000 for wedng
eectrode whch w become a component part of a nava vesse
or nava arcraft ure paced wth a subcontractor by a nava
contractor, subsectons (c) and (e) of secton 3 of the nson
ct (48 Stat, 503) are appcabe and the subcontractor w be
requred to agree to the mtaton of proft prescrbed by secton
3(b) of that ct.
Inqury s made reatve to the appcabty of the provsons of
the nson ct, approved March 27, 1934 (Pubc, No. 135, Seventy-
thrd Congress, . R. C 04, 48 Stat., 503), to orders receved by the
M Company, a subcontractor, from companes engaged n performng
nava contracts under that ct.
Secton 3 of the ct reads as foows:
Sec. 3. The Secretary of the Navy s hereby drected to submt annuay
to the ureau of the udget estmates for the constructon of the foregong
vesses and arcraft and there s hereby authorzed to be approprated such
sums as may be necessary to carry nto effect the provsons of ths ct:
Provded, That no contract sha be made by the Secretary of the Navy for
the constructon and/or manufacture of any compete nava vesse or ar-
craft, 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 Secre-
tary of the Navy upon the competon of the contract
(b) To pay nto the Treasury proft, as herenafter provded sha be
determned 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 If 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 nvovng 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 fore-
gong 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
Income, 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
consderaton n connecton wth the edera ncome ta returns of the con-
tractor 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 tho Treasury In 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: Pro-
vded, That n 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
now 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
tho award e ceeds 10,000.
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533
Msc.
The product for whch the M Company as subcontractor has re-
ceved orders from companes engaged n performng nava contracts
s wedng eectrode, consstng of a pece of stee wre whch s
covered wth certan coatng materas, then fused by an eectrc arc
nto a |ont, and on coong |ons together two peces of meta. The
wedng eectrode w become a component part of a nava vesse or
nava arcraft.
It s hed that where orders for ths product aggregatng n e cess
of 10,000 are paced wth the M Company by a nava contractor sub-
sectons (c) and (e) of secton 3 of the nson ct are appcabe and
the M Company as a subcontractor w be requred to agree to the
mtaton of proft prescrbed by secton 8(b) of that ct.
Secton 3. I -43-77 0
I. T. 2930
ppcabty of secton 3 of the nson ct (48 Stat., 503) to
certan cases.
dvce s requested reatve to the appcabty to certan cases
of secton 3 of the nson ct (48 Stat., 503), whch provdes as
foows:
Sec. 3. The Secretary of the Navy s hereby drected to submt annuay to
the ureau of the udget estmates for the constructon of the foregong ves-
ses and arcraft and there s hereby authorzed to be approprated such sums
as may be necessary to carry nto effect the provsons of ths ct: Provded,
That no contract sha be made by the Secretary of the Navy for the construc-
ton and/or manufacture of any compete nava vesse or arcraft, or any por-
ton thereof, heren, heretofore, or hereafter authorzed uness the contractor
agrees
(a) To make a report, as herenafter descrbed, under oath, to the Secre-
tary 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
Interna revenue aws to coect edera ncome 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 nvovng an amount In e cess
of 1.0,000 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 Income bears to the contract prce.
copy of such report sha be transmtted to the Secretary of the Treasury
for consderaton n connecton wth the edera ncome ta returns of the
contractor for the ta abe year or years concerned.
The method of ascertanng te amount of e cess proft to be pad nto
the Treasury sha be determned by the Secretary of the Treasury n agree-
ment wth the Secretary of the Navy and made avaabe to the pubc. The
method Intay f ed upon sha be so determned on or before une 30, 1034:
Provded, That n any case where an e cess proft may be found to be owng to
the Unted States In consequence hereof, the Secretary of the Treasury sha
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Msc.
534
aow credt for any edera ncome 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.
The questons on whch rungs are requested are sfated and
answered beow:
(1) rm ( ) receves a contract from the Navy n e cess of 10,000 and
paces an order wth ( ) for equpment n e cess of 10,000 and does not
show on the order that ths Is for a Navy contract, athough, by correspondence
and other nformaton Is aware that ths equpment appes on a Navy con-
tract wth . Does ths consttute a subcontract
It shoud aso be stated that the contract between the Navy and
ncudes an agreement to make no subcontract uness the sub-
contractor agrees to the condtons prescrbed n the nson ct.
The answer to the queston presented s n the affrmatve. It
may be added that t s the duty of the Navy contractor to notfy
hs subcontractor that the subcontract s sub|ect to the condtons
prescrbed n the ct and t s ncumbent upon the subcontractor to
ascertan whether the provsons of the nson ct are appcabe n
hs case.
(2) We are recevng orders for materas used n shp constructon for the
Unted States Navy and sub|ect to the nson ct. We are desrous of ob-
tanng your Interpretaton of ths ct wth regard to our status as subcon-
tractors. s an e ampe, take the case of a prvate shpyard pacng an order
wth a manufacturer of condensers, who In turn woud purchase the condenser
tubes from us woud we come under the |ursdcton of the ct In the event
ths order from the condenser manufacturer e ceeds ten thousand ( 10,000)
doars
Ths queston s answered n the affrmatve. In ths case the pro-
vsons of the ct are appcabe to the contract, subcontract, or a
subdvson thereof.
(3) We are at the present tme recevng orders for materas from the
prvate shpyards havng contracts for the constructon of Unted States Navy
vesses under the nson ct. We desre your Interpretaton as to whether
or not orders not covered by a banket contract, nor for ke materas, each
ndvdua order not e ceedng ten thousand ( 10,000) doars, but In the
aggregate nvovng more than ths sum, woud come under the terms of the
nson ct.
It s mpractcabe to attempt a defnte answer to ths queston,
whch depends argey upon utmate fndngs and the partcuar
facts n each case. s a genera proposton, however, the answer
s n the negatve, provded each of the orders s an actua bona
fde separate and dstnct contract or subcontract and not a subd-
vson made for the purpose of evadng the provsons of the nson
ct.
(4) We are desrous of obtanng your nterpretaton regardng contracts
whch we have wth the Unted States Navy Department under the nson ct,
as to whether or not we woud be consdered contractors In ths Instance. so
whether or not the suppers of materas used n the fabrcaton of our prod-
ucts woud be consdered subcontractors, and, therefore, sub|ect to the terms
and condtons of the nson ct.
Generay speakng, secton 3 of the nson ct s appcabe to
any contract or subcontract whch s over 10,000 n amount and for
the constructon and/or manufacture of any compete nava vesse
or arcraft| or any porton thereof, ncudng tems, such as fabrcat-
ng materas, whch become a component part of an artce or
artces constructed and/or manufactured under the ct.
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535
Msc.
MISC LL N OUS.
I -31-7 31
Doube ta aton Conventon and protoco between the Unted
States of merca and rance Sgned at Pars, pr 27, 1932
ratfcaton advsed by the Senate of the Unted States, une 15,
1932 ratfed by the Presdent of the Unted States, uy 25, 1932
ratfed by rance, pr 8, 1935 ratfcatons e changed at Pars,
pr 9, 1935 procamed by the Presdent of the Unted States,
pr 1 , 1935.
Y T PR SID NT O T UNIT D ST T S OP M RIC PROCL M TION.
Whereas a conventon between the Unted States of merca and
the rench Repubc to reguate certan questons reatve to doube
ta aton, and a protoco reatng thereto, were sgned by ther re-
spectve penpotentares at Pans on pr 27, 1932| the orgna of
whch conventon and protoco, beng n the ngsh and rench
anguages, are word for word as foows:
The Presdent of the Unted States of merca and the Presdent of the
rench Repubc beng desrous of reguatng certan questons reatve to
doube ta aton, have decded to concude a conventon on that sub|ect, and for
that purpose they have apponted as ther respectve penpotentares:
The Presdent of the Unted States of merca,
Mr. Water . dge, mbassador traordnary and Penpotentary of
the Unted States of merca to rance.
The Presdent of the rench Repubc,
M. ndr Tardeu, Member of the ouse of Representatves, Presdent of
the Counc of Mnsters, Mnster for oregn ffars, Of cer of the Legon
of onour,
who, havng communcated to one another ther fu powers found n good
and due form, have agreed upon the foowng artces
rtce 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 n respect of such profts aocabe to ther permanent estabshments
n the atter State.
No account sha be taken, n 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 re-
qured 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 ts
natona egsaton and sub|ect to the measures of appea provded n 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 same prncpe appes mutats mutands to rench enterprses havng
permanent estabshments n the Unted States.
rtce III.
Income whch an enterprse of one of the contractng States derves from
the operaton of arcraft regstered In such State and engaged n transporta-
ton between the two States s ta abe ony n the former State.
rtce I .
When an mercan enterprse, by reason of ts partcpaton In the man-
agement or capta of a rench enterprse, makes or mposes on the atter, n
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53
ther commerca or fnanca reatons, condtons dfferent from those whch
woud be made wth a thrd enterprse, any profts whch shoud normay
have appeared n the baance sheet of the rench enterprse, but whch haTe
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 com-
merca profts, Incorporated n the ta abe profts of the rench enterprse.
The same prncpe appes mutats mutands, In the event that profts are
dverted from an mercan enterprse to a rench enterprse.
rtce .
mercan corporatons whch mantan n rance permanent estabshments
may. n derogaton of artce 3 of the decree of December , 1872, eect to pay
the ta on ncome from securtes on three-fourths of the profts actuay de-
rved from such estabshments, the Industra and commerca profts beng
determned n accordance wth rtce I.
n mercan corporaton whch wshes to pace tsef under the regme of
the precedng paragraph must make a decaraton to that effect at the ureau
of Regstraton wthn s months after the date upon whch ths agreement
becomes effectve or wthn s months after the creaton of Its estabshment
n rance. The eecton made for one estabshment appes to a the estab-
shments of such corporaton. ny such eecton Is Irrevocabe.
rtce I.
n nercan corporaton sha not be sub|ect to the obgaton prescrbed
by artce 3 of the decree of December , 18T2, by reason of any partcpa-
ton n the management or n the capta of, or any other reatons wth, a
rench corporaton, If such mercan corporaton and rench corporaton con-
form to the requrements of the present artce. In such case, the ta on
ncome from securtes contnues to be eved, In conformty wth rench
egsaton, on the dvdends, nterest and a other products dstrbuted by
the rench enterprse but It s moreover e gbe, If the occason arses,
and sub|ect to the measures of appea appcabe n the case of the ta on
Income from securtes, on the profts whch the mercan corporaton derves
from the rench corporaton under the condtons prescrbed n rtce I .
n mercan corporaton whch wshes to pace tsef under the regme of
the precedng paragraph must make a decaraton to that effect at the ureau
of Regstraton |onty wth the Interested rench corporaton, wthn s
months after the date upon whch ths agreement becomes effectve or wthn
s months after the acquston of the partcpaton or the commencement of
the reatons of a nature to enta the appcaton of artce 3 of the decree of
December , 1872. ny such eecton s Irrevocabe.
mercan corporatons whch have not made the decaraton and whch
are sub|ected to the provsons of artce 3 of the decree of December , 1872,
sha en|oy the benefts of artces 27, 28 and 29 of the rench aw of uy
31, 1920, and artce 25 of the rench aw of March 19, 1928, under the same
condtons as renc corporatons.
rtce II.
Compensaton pad by one of the contractng States to ts ctzens for abor
or persona servces performed n the other State s e empt from ta n the
atter State.
rtce III.
War pensons pad by one of the contractng States to persons resdng
n the terrtory of the other State are e empt from ta In the atter State.
rtce I .
The foowng casses of Income 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 In the former State:
(a) amounts pad as consderaton for the rght to use patents, secret
processes and formuas, trade marks and other anaogous rghts
(b) ncome receved as copyrght royates
(c) prvate pensons and fe annutes.
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537
Mso
ktob .
Ths agreement sha be ratfed and the Instruments of ratfcaton e changed
at Pars as soon as possbe.
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.
mercan corporatons whch pror to May 1, 1930, have not had ther a-
bty to ta under artce 3 of the decree of December , 1872, fnay deter-
mned, and whch make the decaraton prescrbed n rtce I of the present
conventon, sha not be sub|ect to the appcaton of artce 3 of the decree
of December , 1872, for any years precedng the comng Into force of the
agreement.
In wtness whereof, the respectve penpotentares have sgned the above
artces, both n the ngsh and rench anguages, and have hereunto aff ed
ther seas.
Done n dupcate at Pars, on the 27th of pr, 1932.
sea Water . dge,
sea ndbe Tardeu.
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 penpo-
tentares, duy authorzed by ther respectve Governments, have agreed, aa
foows:
(1) The ta es referred to In ths agreement are: ,
(a) for the Unted States:
the edera ncome ta but It s understood that rtce I does not e empt
from ta (1) compensaton for abor or persona servces performed In the
Unted States (2) ncome derved from rea property ocated n the Unted
States, or from any nterest n such property, ncudng rentas and royates
therefrom, and gans from the sae or the dsposton thereof (3) dvdends
(4) Interest.
(b) or rance:
n rtces I, II, III and I , the ta on Industra and commerca profts
(Impot sur es benefces ndustres et commercau )
n rtces III, and I, the ta on ncome from securtes (ImpOt sur es
revenus des vaeurs moberes)
n rtces II, III and I , the ta on wages and saares, pensons and
fe annutes (Impdt sur es tratements et saares, pensons et rentes vnge-
res), and other scheduar ta es (ImpOts cetuares) approprate to the type of
Income specfed In 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 such State.
(3) s used n ths agreement:
(a) The term permanent estabshment Incudes branches, mnes and o
wes, factores, workshops, warehouses, offces, agences, and other f ed paces
of busness, but does not Incude a subsdary corporaton.
When an enterprse of one of the States carres on busness In the other
State through an agent estabshed there who s authorzed to contract for
ts account, t 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
In the atter State.
(b) The term enterprse ncudes every form of undertakng whether
carred on by an ndvdua, partnershp (socdte1 en nom coectf), corporaton
(soc W 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
47318 30 18
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538
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 Unted States.
(e) The term rench enterprse Is defned n the same manner, mutats
mutands, as the term mercan enterprse.
(f) The mercan corporatons mentoned In rtces and I are those
whch, owng to ther form of organzaton, are sub|ect to artce 8 of the
decree of December , 1872. The present agreement does not modfy the
regme of abonnement for securtes.
(g) The term Unted States, when used In a geographca sense, ncudes
ony the States and the Terrtores of aska and awa, and the Dstrct of
Coumba.
(h) The term rance, when used n a geographca sense, ndcates the
country of rance, e cusve of gera and the Coones.
Done n dupcate at Pars, the 27th of pr, 1932.
Water . dge.
ndre Taedfu.
nd whereas, the sad conventon and protoco have been ratfed
on both parts, and the ratfcatons of the two Governments were
e changed at Pars on the 9th day of pr, 1935
nd whereas, t s 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
dav of anuary, 193
ow, 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, 193 .
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 1 th day of pr n the year
of our Lord one thousand nne hundred and thrty-fve,
sea and of the Independence of the Unted States of merca
the one hundred and ffty-nnth.
rankn D. Roosevet.
y the Presdent:
Corde u,
Secretary of State.
I -41-7739
. R. 3979. PU LIC, NO. 2 2, S NTY- OURT CONGR SS.
n ct To safeguard the estates of veterans derved from pay-
ments of penson, compensaton, emergency offcers retrement pay
and Insurance, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 21
of the Word War eterans ct, 1924, as amended (U. S. C, Supp.
II, tte 38, sec. 450), s hereby amended to read as foows:

Sec. 3. Payments of benefts due or to become due sha not be
assgnabe, and such payments made to, or on account of, a benefc-
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Msc.
ary 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 con-
taned as to ta aton e tend to any property purchased n part or
whoy out of such payments. Secton 4747 of the Revsed Statutes
and secton 22 of the Word War eterans ct, 1924, are hereby
repeaed, and a other cts nconsstent herewth are hereby mod-
fed accordngy. The provsons of ths secton sha not be con-
strued to prohbt the assgnment by any person, to whom converted
nsurance sha be payabe under Tte III of the Word War
eterans ct, 1924, of hs nterest n such nsurance to any other
member of the permtted cass of benefcares.
Sec. 4. If any provson, sentence, or cause of ths ct or the
appcaton thereof to any person or crcumstances, s hed nvad,
the remander of ths ct, and the appcaton of such provson to
other persons or crcumstances, sha not be affected thereby.
Sec. 5. That ths ct sha take effect and be n force from and
after ts passage, but the provsons hereof sha appy to payments
made heretofore under any of the cts mentoned heren.
pproved ugust 12, 1935.
I -2 -7574
. R 021. PU LIC, NO. 7 , S NTY- OURT CONGR SS.
n ct to provde addtona home-mortgage reef, to amend the
edera ome Loan ank ct, the ome Owners Loan ct of
1933, and the Natona ousng ct, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 8. The frst sentence of secton 13 of the edera ome Loan
ank ct, as amended, s amended to read as foows: ny and
a notes, debentures, bonds, and other such obgatons ssued by
any bank, and consodated edera ome Loan ank bonds and
debentures, sha be e empt both as to prncpa and nterest from a
ta aton (e cept surta es, estate, nhertance, and gft ta es) now
or hereafter mposed by the Unted States, by any Terrtory, de-
pendency, or possesson thereof, or by any State, county, munc-
paty, or oca ta ng authorty.
pproved May 28, 1935.
I 2-7752
. R. 72 0. PU LIC, NO. 271, S NTY- OURT CONGR SS.
n ct To provde for the genera wefare by estabshng a
system of Indera od-age benefts, and by enabng the severa
States to make more adequate provson for aged persons, bnd
persons, dependent and crpped chdren, materna and chd we-
fare, pubc heath, and the admnstraton of ther unempoyment
compensaton aws to estabsh a Soca Securty oard to rase
revenue and for other purposes.
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540
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,
TITL III. T S WIT SP CT TO MPLOYM NT.
INCOM T ON MPLOY S.
Sec. 801. In addton to other ta es, there sha be eved, co-
ected, and pad upon the ncome of every ndvdua a ta equa to
the foowng percentages of the wages (as defned n secton 811)
receved by nm after December 31, 193 , wth respect to empoy-
ment (as defned n secton 811) after such date:
(1) Wth respect to empoyment durng the caendar years 1937,
1938, and 1939, the rate sha be 1 per centum.
(2) Wth respect to empoyment durng the caendar years 1940,
1941, and 1942, the rate sha be 1 2 per centum.
(3) Wth respect to empo|ment durng the caendar years 1943,
1944, and 1945, the rate sha be 2 per centum.
(4) Wth respect to empoyment durng the caendar years 194 ,
1947, and 1948, the rate sha be 2y2 per centum.
(5) Wth respect to empoyment after December 31, 1948, the rate
sha be 3 per centum.
D DUCTION O T ROM W G S.
Sec. 802. (a) The ta mposed by secton 801 sha be coected by
the empoyer of the ta payer, by deductng the amount of the ta
from the wages as and when pad. very empoyer requred so to
deduct the ta s hereby made abe for the payment of such ta , and
s hereby ndemnfed aganst the cams and demands of any person
for the amount of any such payment made by such empoyer.
(b) If more or ess than the correct amount of ta mposed by sec-
ton 801 s pad wth respect to any wage payment, then, under regu-
atons made under ths tte, proper ad|ustments, wth respect both
to the ta and the amount to be deducted, sha be made, wthout
nterest, n connecton wth subsequent wage payments to the same
ndvdua by the same empoyer.
D DUCTI ILITT ROM INCOM T .
Sec. 803. or the purposes of the ncome ta mposed by Tte I of
the Revenue ct of 1934 or by any ct of Congress n substtuton
therefor, the ta mposed by secton 801 sha not be aowed as a
deducton to the ta payer n computng hs net ncome for the year
n whch such ta s deducted from hs wages.
CIS T ON MPLOY RS.
Sec. 804. In addton to other ta es, every empoyer sha pay an
e cse ta , wth respect, to havng ndvduas n hs empoy, equa to
the foowng percentages of the wages (as defned n secton 811)
pad by hm after December 31, 193 , wth respect to empoyment
(as defned n secton 811) after such date:
(1) Wth respect to empoyment durng the caendar years 1937,
1938, and 1939, the rate sha be 1 per centum.
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(2) Wth respect to empoyment durng the caendar years 1940,
1941, and 1942, the rate sha be y2 per centum.
(3) Wth respect to empoyment durng the caendar years 1943,
1944 and 1945, the rate sha he 2 per centum.
(4) Wth respect to empoyment durng the caendar years 194 ,
1947, and 1948, the rate sha be 2y2 er centum.
(5) Wth respect to empoyment after December 31, 1948, the rate
sha be 3 per centum.
D USTM NT O MPLOY S T .
Sec. 805. If more or ess than the correct amount of ta mposed
by secton 804 s pad wth respect to any wage payment, then, under
reguatons made under ths tte, proper ad|ustments wth respect to
the ta sha be made, wthout nterest, n connecton wth subse-
quent wage payments to the same ndvdua by the same empoyer.
R UNDS ND D ICI NCI S.
Sec. 80 . If more or ess than the correct amount of ta mposed
by secton 801 or 804 s pad or deducted wth respect to any wage
payment and the overpayment or underpayment of ta can not be
ad|usted under secton 802(b) or 805 the amount of the overpayment
sha be refunded and the amount of the underpayment sha be co-
ected, n such manner and at such tmes (sub|ect to the statutes of
mtatons propery appcabe thereto) as may be prescrbed by
reguatons made under ths tte.
COLL CTION ND P YM NT O T S.
Sec. 807. (a) The ta es mposed by ths tte sha be coected by
the ureau of Interna evenue under the drecton of the Secretary
of the Treasury and sha be pad nto the Treasury of the Unted
States as nterna-revenue coectons. If the ta s not pad when
due, there sha be added as part of the ta nterest (e cept n the
case of ad|ustments made n accordance wth the provsons of sec-
tons 802(b) and 805) at the rate of one-haf of 1 per centum per
month from the date the ta became due unt pad.
(b) Such ta es sha be coected and pad n such manner, at such
tmes, and under such condtons, not nconsstent wth ths tte
(ether by makng and fng returns, or by stamps, coupons, tckets,
books, or other reasonabe devces or methods necessary or hepfu
n securng a compete and proper coecton and payment of the ta
or n securng proper dentfcaton of the ta payer) as may be pre-
scrbed by the Commssoner of Interna Revenue, wth the approva
of the Secretary of the Treasury.
(c) provsons of aw, ncudng penates, appcabe wth
respect to any ta mposed by secton 00 or secton 800 of the
Revenue ct of 192 , and the provsons of secton 07 of the Revenue
ct of 1934, sha, n so far as appcabe and not nconsstent wth
the provsons of ths tte, be appcabe wth respect to the ta es
mposed by ths tte.
(d) In the payment of any ta under ths tte a fractona part
of a cent sha be dsregarded uness t amounts to one-haf cent or
more, n whch case t sna be ncreased to 1 cent.
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542
RUL S ND R r. TION .
Sec. 808. The Commssoner of Interna Revenue, wth the ap-
prova of the Secretary of the Treasury, sha make and pubsh
rues and reguatons for the enforcement of ths tte.
L O ST MPS Y POSTM ST RS.
Sec. 809. The Commssoner of Interna Revenue sha furnsh to
the Postmaster Genera wthout prepayment a sutabe quantty of
stamps, coupons, tckets, books, or other devces prescrbed by the
Commssoner under secton 807 for the coecton or payment of any
ta mposed by ths tte, to be dstrbuted to, and kept on sae by, a
post offces of the frst and second casses, and such post offces of the
thrd and fourth casses as (1) are ocated n county seats, or (2)
are certfed by the Secretary of the Treasury to the Postmaster
Genera as necessary to the proper admnstraton of ths tte. The
Postmaster Genera may requre each such postmaster to furnsh
bond n such ncreased amount as he. may from tme to tme deter-
mne, and each such postmaster sha depost the recepts from the
sae of such stamps, coupons, tckets, books, or other devces, to the
credt of, and render accounts to, the Postmaster Genera at such
tmes and n such form as the Postmaster Genera may by regua-
tons prescrbe. The Postmaster Genera sha at east once a month
transfer to the Treasury as nterna-revenue coectons a recepts
so deposted together wth a statement of the addtona e pend-
tures n the Dstrct of Coumba and esewhere ncurred by the
Post Offce Department n performng the dutes mposed upon sad
Department by ths ct, and the Secretary of the Treasury s hereby
authorzed and drected to advance from tme to tme to the credt
of the Post Offce Department from appropratons made for the
coecton of the ta es mposed by ths tte, such sums as may be
requred for such addtona e pendtures ncurred by the Post
Offce Department.
P N LTI S.
Sec. 810. (a) Whoever buys, ses, offers for sae, uses, transfers,
takes or gves n e change, or pedges or gves n pedge, e cept as
authorzed n ths tte or n reguatons made pursuant thereto, any
stamp, coupon, tcket, book, or other devce, prescrbed by the Com-
mssoner of Interna Revenue under secton 807 for the coecton or
payment of any ta mposed by ths tte, sha be fned not more
than 1,000 or mprsoned for not more than s months, or both.
(b) Whoever, wth ntent to defraud, aters, forges, makes, or
counterfets any stamp, coupon, tcket, book, or other devce pre-
scrbed by the Commssoner of Interna Revenue under secton 807
for the coecton or payment of any ta mposed by ths tte, or
uses, seS| ends, or has n hs possesson any such atered, forged, or
counterfeted stamp, coupon, tcket, book, or other devce, or makes,
uses, ses, or has n hs possesson any matera n mtaton of the
matera used n the manufacture of such stamp, coupon, tcket, book,
or other devce, sha be fned not more than 5,000 or mprsoned not
more than fve years, or both.
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543
Msc.
D INITIONS.
Sec. 811. When used n ths tte
(a) 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 3,000 has
been pad to an ndvdua by an empoyer wth respect to empoy-
ment durng any caendar year, s pad to such ndvdua by such
empoyer wth respect to empoyment durng such caendar year.
(b) The term empoyment means any servce, of whatever
nature, performed wthn the Unted States by an empoyee for hs
empoyer, e cept
(1) grcutura abor
(2) Domestc servce n a prvate home
(3f Casua abor not n the course of the empoyer s trade or
busness
(4) Servce performed by an ndvdua who has attaned the
age of 5
(5) Servce performed as an offcer or member of the crew of a
vesse documented under the aws of the Unted States or of any
foregn country
( ) Servce performed n the empoy of the Unted States Govern-
ment or of an nstrumentaty of the Unted States
(7) Servce performed n the empoy of a State, a potca sub-
dvson thereof, or an nstrumentaty of one or more States or
potca subdvsons
(8) Servce performed n the empoy of a corporaton, communty
chest, fund, or foundaton, organzed and operated e cusvey for
regous, chartabe, scentfc, terary, or educatona purposes, or
for the preventon of cruety to chdren or anmas, no part of the
net earnngs of whch nures to the beneft of any prvate sharehoder
or ndvdua.
TITL I . T ON MPLOY RS O IGnT OR MOR .
IMPOSITION O T
Sec. 901. On and after anuary 1,193 , every empoyer (as defned
n secton 907) sha pay for each caendar year an e cse ta , wth
respect to havng ndvduas n hs empoy, equa to the foowng
percentages of the tota wages (as defned n secton 907) payabe by
hm (regardess of the tme of payment) wth respect to empoyment
(as defned n secton 907) durng such caendar year:
(1) Wth respect to empoyment durng the caendar year 193
the rate sha be 1 per centum
(2) Wth respect to empoyment durng the caendar year 1937
the rate sha be 2 per centum
(3) Wth respect to empoyment after December 81, 1937, the
rate sha be 3 per centum.
CR DIT G INST T .
Sec. 902. The ta payer may credt aganst the ta mposed by
secton 901 the amount of contrbutons, wth respect to empoyment
durng the ta abe year, pad by hm (before the date of fng hs
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544
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, and credt sha be
aowed ony for contrbutons made under the aws of States certfed
for the ta abe year as provded n secton 903.
C TI IC TION O ST T L WS.
Sec. 903. (a) The Soca Securty oard sha approve any State
aw submtted to t, wthn 30 days of such submsson, whch t
fnds provdes that
(1) compensaton s to be pad through pubc empoyment
offces n the State or such other agences as the board may approve
(2) No compensaton sha be payabe wth respect to any day
of unempoyment occurrng wthn two years after the 1st day of
the frst perod wth respect to whch contrbutons are requred
(3) money receved n the unempoyment fund sha mmed-
atey upon such recept be pad over to the Secretary of the Treasury
to the credt of the Unempoyment Trust und estabshed by secton
904
(4) money wthdrawn from the Unempoyment Trust und
by the State agency sha be used soey n the payment of compen-
saton, e cusve of e penses of admnstraton
(5) Compensaton sha not be dened n such State to any other-
wse egbe ndvdua for refusng to accept new work under any
of the foowng condtons: ( ) If the poston offered s vacant
due drecty to a strke, ockout, or other abor dspute ( ) f the
wages, hours, or other condtons of the work offered are substan-
tay ess favorabe to the ndvdua than those prevang for
smar work n the ocaty (C) f as a condton of beng em-
poyed the ndvdua woud be requred to |on a company unon
or to resgn from or refran from |onng any bona fde abor
organzaton
( ) the rghts, prveges, or mmuntes conferred by such
aw or by acts cone pursuant thereto sha e st sub|ect to the power
of the egsature to amend or repea such aw at any tme.
The board sha, upon approvng such aw, notfy the governor of
the State of ts approva.
(b) On December 31 n each ta abe year the board sha certfy
to the Secretary of the Treasury each State whose aw t has pre-
vousy approved, e cept that t sha not certfy any State whch,
after reasonabe notce and opportunty for hearng to the State
agency, the board fnds has changed ts aw so that t no onger
contans the provsons specfed n subsecton (a) or has wth respect
to such ta abe year faed to compy substantay wth any such
provson.
(c) If, at any tme durng the ta abe year, the board has reason
to beeve that a State whose aw t has prevousy approved, may
not ba certfed under subsecton (b), t sha prompty so notfy
the governor of such State.

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545
Msc.
DMINISTR TION, R UNDS, ND P N LTI S.
Sec. 905. (a) The ta mposed by ths tte sha be coected by
the ureau of Interna Revenue under the drecton of the Secretary
of the Treasury and sha be pad nto the Treasury of the Unted
States as nterna-revenue coectons. If the ta s not pad when
due, there sha be added as part of the ta nterest at the rate of
one-haf of 1 per centum per month from the date the ta became
due unt pad.
(b) Not ater than anuary 31, ne t foowng the cose of the
ta abe year, each empoyer sha make a return of the ta under
under oath, sha be fed wth the coector of nterna revenue for
the dstrct n whch s ocated the prncpa pace of busness of the
empoyer, or, f he has no prncpa pace of busness n the Unted
States, then wth the coector at atmore, Md., and sha con-
tan such nformaton and be made n such manner as the Comms-
soner of Interna Revenue, wth the approva of the Secretary of
the Treasury, may by reguatons prescrbe. provsons of aw
(ncudng penates) appcabe n respect of the ta es mposed by
secton 00 of the Revenue ct of 192 , sha, n so far as not ncon-
sstent wth ths tte, be appcabe n respect of the ta mposed
by ths tte. The Commssoner may e tend the tme for fng the
return of the ta mposed by ths tte, under such rues and regua-
tons as he may prescrbe wth the approva of the Secretary or the
Treasury, but no such e tenson sha be for more than 0 days.
(c) Returns fed under ths tte sha be open to nspecton n
the same manner, to the same e tent, and sub|ect to the same pro-
vsons of aw, ncudng penates, as returns made under Tte II
of the Revenue ct of 192 .
(d) The ta payer may eect to pay the ta n four equa nsta-
ments nstead of n a snge payment, n whch case the frst nsta-
ment sha be pad not ater than the ast day prescrbed for the
fng of returns, the second nstament sha be pad on or before the
ast day of the thrd month, the thrd nstament on or before the
ast day of the s th month, and the fourth nstament on or before
the ast day of the nnth month, after such ast day. If the ta
or any nstament thereof s not pad on or before the ast day of
the perod f ed for ts payment, the whoe amount of the ta unpad
sha be pad upon notce and demand from the coector.
(e) t the request of the ta payer the tme for payment of the ta
or any nstament thereof may be e tended under reguatons pre-
scrbed by the Commssoner wth the approva of the Secretary of
the Treasury, for a perod not to e ceed s months from the ast day
of the perod prescrbed for the payment of the ta or any nsta-
ment thereof. The amount of the ta n respect of whch any e -
tenson s granted sha be pad (wth nterest at the rate of one-haf
of 1 per centum per month) on or before the date of the e praton
of the perod of the e tenson.
(f) In the payment of any ta under ths tte a fractona part
of a cent sha be dsregarded uness t amounts to one-haf cent or
more, n whch case t sha be ncreased to 1 cent.
ach such return sha be made
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54
INT RST T COMM C .
Sec. 90 . No person requred under a State aw to make payments
to an unempoyment fund sha be reeved from compance there-
wth on the ground that he s engaged n nterstate commerce, or
that the State aw does not dstngush between empoyees engaged
n nterstate commerce and those engaged n ntrastate commerce.
D INITIONS.
Sec. 907. When used n ths tte
(a) The term empoyer does not ncude any person uness
on each of some 20 days durng the ta abe year, each day beng u
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 8 or more.
(b) The term wages means a remuneraton for empoyment,
ncudng the cash vaue of a remuneraton pad n any medum
other than cash.
(c) The term empoyment means any servce, of whatever
nature, performed wthn the Unted States by an empoyee for hs
empoyer, e cept
(1) grcutura abor
(2) Domestc servce n a prvate home
(3) Servce performed as an offcer or member of the crew of a
vesse on the navgabe waters of the Unted States
(4) Servce performed by an ndvdua n the empoy of hs
son, daughter, or spouse, and servce performed by a chd under
the age of 21 n the empoy of hs father or mother
(5) Servce performed n the empoy of the Unted States Govern-
ment or of an nstrumentaty of the Unted States
( ) Servce performed n the empoy of a State, a potca subd-
vson thereof, or an nstrumentaty of one or more States or potca
subdvsons
(7) Servce performed n the empoy of a corporaton, communty
chest, fund, or foundaton, organzed and operated e cusvey for
regous, chartabe, scentfc, terary, or educatona purposes, or
for the preventon of cruety to chdren or anmas, no part of the
net earnngs of whch nures to the beneft of any prvate sharehoder
or ndvdua.
(d) The term State agency means any State offcer, board, or
other authorty, desgnated under a State aw to admnster the
unempoyment fund n such State.
(e) The term unempoyment fund means a speca fund, estab-
shed under a State aw and admnstered by a State agency, for
the payment of compensaton.
() 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 deductbe from the wages of ndvduas n hs
empoy.
(g) The term compensaton means cash benefts payabe to
ndvduas wth respect to ther unempoyment.
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547
Msc.
RUL S ND R GUL TIONS.
Sec. 908. The Commssoner of Interna Revenue, wth the ap-
prova of the Secretary of the Treasury, sha make and pubsh rues
and reguatons for the enforcement of ths tte, e cept sectons 903,
904, and 910.
LLOW NC O DDITION L CR DIT.
Sec. 909. (a) In addton to the credt aowed under secton 902,
a ta payer may, sub|ect to the condtons mposed by secton 910,
credt aganst the ta mposed by secton 901 for any ta abe year
after the ta abe year 1937, an amount, wth respect to each State
aw, equa to the amount, f any, by whch the contrbutons, wth
respect to empoyment n such ta abe year, actuay pad by the ta -
payer under such aw before the date of fng hs return for such
ta abe year, s e ceeded by whchever of the foowng s the esser
(1) The amount of contrbutons whch he woud have been re-
qured to pay under such aw for such ta abe year f he had been
sub|ect to the hghest rate appcabe from tme to tme throughout
such year to any empoyer under such aw or
(2) Two and seven-tenths per centum of the wages payabe by
hm wth respect to empoyment wth respect to whch contrbutons
for such year were requred under such aw.
(b) If the amount of the contrbutons actuay so pad by the
ta payer s ess than the amount whch he shoud have pad under the
State aw, the addtona credt under subsecton (a) sha be reduced
proportonatey.
(c) The tota credts aowed to a ta payer under ths tte sha
not e ceed 90 per centum of the ta aganst whch such credts are
taken.
CONDITIONS O DDITION L CR DIT LLOW NC .
Sec. 910. (a) ta payer sha be aowed the addtona credt
under secton 909, wth respect to hs contrbuton rate under a State
aw beng ower, for any ta abe year, than that of another empoyer
sub|ect to such aw, ony f the board fnds that under such aw
(1) Such ower rate, wth respect to contrbutons to a pooed
fund, s permtted on the bass of not ess than three years of com-
pensaton e perence
(2) Such ower rate, wth respect to contrbutons to a guaranteed
empoyment account, s permtted ony when hs guaranty of em-
poyment was fufed n the precedng caendar year, and such
guaranteed empoyment account amounts to not ess than 7y per
centum of the tota wages payabe by hm, n accordance wth such
guaranty, wth respect to empoyment n such State n the precedng
caendar year
(3) Such ower rate, wth respect to contrbutons to a separate
reserve account, s permtted ony when ( ) compensaton as been
payabe from such account throughout the precedng caendar year,
and ( ) such account amounts to not ess than fve tmes the argest
amount of compensaton pad from such account wthn any one of
the three precedng caendar years, and (C) such account amounts
to not ess than 71/ per centum of the tota wages payabe by hm
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548
(pus the tota wages payabe by any other empoyers who may be
contrbutng to such account) wth respect to empoyment n such
State n the precedng caendar year.
(b) Such addtona credt sha be reduced, f any contrbutons
under such aw are made by such ta payer at a ower rate under
condtons not fufng the requrements of subsecton (a), by the
amount bearng the same rato to such addtona credt as the
amount of contrbutons made at such ower rate bears to the tota
of hs contrbutons pad for such year under such aw.
(c) s used n ths secton
(1) The term reserve account means a separate account n an
unempoyment fund, wth respect to an empoyer or group of em-
poyers, from whch compensaton s payabe ony wth respect to the
unempoyment of ndvduas who were n the empoy of such em-
poyer, or of one of the empoyers comprsng the group.
(2) The term pooed fund means an unempoyment fund or
any part thereof n whch a contrbutons are mnged and und-
vded, and from whch compensaton s payabe to a egbe n-
dvduas, e cept that to ndvduas ast empoyed by empoyers wth
respect to whom reserve accounts are mantaned by the State agency,
t s payabe ony when such accounts are e hausted.
(3) The term guaranteed empoyment account means a sepa-
rate account, n an unempoyment fund, of contrbutons pad by
an empoyer (or group of empoyers) who
( ) guarantees n advance 30 hours of wages for each of 40
caendar weeks (or more, wth one weeky hour deducted for each
added week guaranteed) n 12 months, to a the ndvduas n hs
empoy n one or more dstnct estabshments, e cept that any such
ndvdua s guaranty may commence after a probatonary perod
(ncuded wthn 12 or ess consecutve caendar weeks), and
( ) gves securty or assurance, satsfactory to the State agency,
for the fufment of such guarantes,
from whch account compensaton sha be payabe wth respect to
the unempoyment of any such ndvdua whose guaranty s not
fufed or renewed and who s otherwse egbe for compensaton
under the State aw.
(4) The term year of compensaton e perence, as apped to
an empoyer, means any caendar year throughout whch compen-
saton was payabe wth respect to any ndvdua n hs empoy
who became unempoyed and was egbe for compensaton.

TITL I. G N R L PRO ISIONS.
D INITIONS.
Sec. 1101. (a) When used n ths ct
(1) The term State (e cept when used n secton 31) ncudes
aska, awa, and the Dstrct of Coumba.
(2) The term Unted States when used n a geographca sense
means the States, aska, awa, and the Dstrct of Coumba.
(3) The term person means an ndvdua, a trust or estate, a
partnershp, or a corporaton.
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549
IMec.
(4) The term corporaton ncudes assocatons, |ont-stock com-
panes, and nsurance companes.
(5) The term sharehoder ncudes a member n an assocaton,
|ont-stock company, or nsurance company.
( ) The term empoyee ncudes an offcer of a corporaton.
(b) The terms ncudes and ncudng when used n a defn-
ton contaned n ths ct sha not be deemed to e cude other thngs
otherwse wthn the meanng of the term defned.
(c) Whenever under ths ct or any ct of Congress, or under
the aw of any State, an empoyer s requred or permtted to deduct
any amount from the remuneraton of an empoyee and to pay the
amount deducted to the Unted States, a State, or any potca sub-
dvson thereof, then for the purposes of ths ct the amount so
deducted sha be consdered to have been pad to the empoyee at the
tme of such deducton.
(d) Nothng n ths ct sha be construed as authorzng any
edera offca, agent, or representatve, n carryng out any of the
provsons of ths ct, to take charge of any chd over the ob|ecton
of ether of the parents of such chd, or of the person standng n
oco parents to such chd.
RUL S ND R GUL TIONS.
Sec. 1102. The Secretary of the Treasury, the Secretary of Labor,
and the Soca Securty oard, respectvey, sha make and pubsh
such rues and reguatons, not nconsstent wth ths ct, as may
be necessary to the effcent admnstraton o the functons wth whch
each s charged under ths ct.
S P R ILITY.
Sec. 1103. If any provson of ths ct, or the appcaton thereof
to any person or crcumstance, s hed nvad, the remander of the
ct, and the appcaton of such provson to other persons or crcum-
stances sha not be affected thereby.
R S R TION O POW R.
Sec. 1104. The rght to ater, amend, or repea any provson of
ths ct s hereby reserved to the Congress.
S ORT TITL .
Sec. 1105. Ths ct may be cted as the Soca Securty ct.
pproved ugust 14, 1935.
I -38-7702
. R. 7 17. PU LIC, NO. 305, S NTY- OURT CONGR SS.
n ct To provde for the sound, effectve, nnd unnterrupted op-
eraton of the bankng system, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the ankng ct of 1935.
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550
TITL I D R L D POSIT INSUR NC .
Sec. 101. Secton 12 of the edera Reserve ct, as amended
(U. S. C, Supp. II, tte 12, secton 2 4), s amended to read as
foows:
Sec. 12I. (a) There s hereby created a edera Depost Insurance Corpora-
ton (herenafter referred to as the Corporaton ) whch sha nsure, as here-
nafter provded, the deposts of n banks whch are entted to the benefts of
Insurance under ths secton, and whch sha have the powers herenafter
granted.

(1)
(8) s soon as possbe after the cosng of an nsured bank, the Corpora-
ton, f t fnds that t s advsabe and n the nterest of the depostors of the
cosed bunk or the pubc, sha organze a new natona bank to assume the
Insured deposts of such cosed bank and otherwse to perform temporary the
functons herenafter provded for.
(0) Notwthstandng any other provson of aw the new bank, ts
franchse, property, and ncome sha be e empt from a ta aton now or here-
after mposed by the Unted States, by any Terrtory, dependency, or possesson
thereof, or by any State, county, muncpaty, or oca ta ng authorty.

(p) notes, debentures, bonds, or other such obgatons ssued by the Cor-
poraton sha be e empt, both as to prncpa and nterest, from a ta aton
(e cept estate and Inhertance ta es) now or hereafter mposed by the Unted
States, by any Terrtory, dependency, or possesson thereof, or by any State,
county, muncpaty, or oca ta ng authorty. The Corporaton, ncudng ts
franchse, ts capta, reserves, and surpus, and ts ncome, sha be e empt
from a ta aton now or hereafter mposed by the Unted States, by any Terr-
tory, dependency, or possesson thereof, or by any State, county, muncpaty,
or oca ta ng authorty, e cept that any rea property of the Corporaton sha
be sub|ect to State, Terrtora, county, muncpa, or oca ta aton to the same
e tent accordng to ts vaue as the other rea property s ta ed.

pproved ugust 23, 1935.
I -38-7703
. R. 7858. PU LIC, NO. 39 , S NTY- OURT CONGR SS.
n ct To amend an ct entted n ct to estabsh a unform
system of bankruptcy throughout the Unted States, approved
uy 1, 1898, and cts amendatory thereof and suppementary
thereto.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subdvson
(1) of subsecton (e) of secton 77 of the ct of uy 1, 1898,
entted n ct to estabsh a unform system of bankruptcy
throughout the Unted States, as amended, be, and s hereby,
amended to read as foows:
(e) (1) pan of reorganzaton sha not be confrmed unt t has been
accepted n wrtng, whether before or after the fng of the petton or answer
under ths secton, and such acceptance sha have been fed n the proceedng
by or on behaf of credtors hodng two-thrds n amount of the cams of
each cass whose cams have been aowed and woud be aT cted by the pan
and by or on behaf of stockhoders of the debtor hodng a ma|orty of the
stock of each cass: Profted, hovcerer, That such acceptance sha not be
requste to the confrmaton of the pan by any credtor or cass of credtors,
(a) whose cams are not affected by the pan, or (b) f the pan makes prov-
son for the payment of ther cams n cash In fu, or (c) f prov-
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551
Msc.
son Is made n the pan for the protecton of the nterests, cams, or ens
of such credtor or cass of credtors n the manner provded n subdvson (b),
cause (5), of ths secton: nd provded further, That such acceptance sha
not be requste to the confrmaton of the pan by any stockhoder or cass
of stockhoders (1) If the udge sha have determned ether that the debtor
Is nsovent, or that the nterests of such stockhoder or stockhoders w not
be affected by the pan, or (2) f provson s made u the pau for the protec-
ton of the nterests of such stockhoder or cass of stockhoders n the manner
provded n subdvson (b), cause (4), of ths secton. Wth such acceptance
there sha be set forth, verfed n such manner as the |udge sha requre,
what, If any, contracts of the debtor are e ecutory u whoe or n part, and
what une pred eases have been re|ected and surrendered. Wth such accept-
ance there sha be fed a statement, verfed n such manner a3 the |udge sha
requre, showng what, f any, cams and shares of stcck have been purchased
or transferred by those acceptng the pan after the commencement or n con-
tempaton of the proceedng, and the crcumstances of such purchase or trans-
fer: Provded, however, That f the |udge s satsfed that by reason of the
number of securtes outstandng and the e tent of the pubc deang theren
the preparaton of such a statement woud be mpractca, he may drect that t
be not fed. If the Unted States of merca Is a credtor or stockhoder, the
Interests or cams thereof sha be deemed to be affected by the pan, and the
Secretary of the Treasury Is hereby authorzed to accept or re|ect a pan n
respect of the nterests or cams of the Unted States. If, n any reorganzaton
proceedng under ths secton, the Unted States s a credtor on cams for
ta es or customs dutes (whether or not the Unted States has any other Inter-
est n, or cam aganst, the debtor, ns credtor or stockhoder), no pan whch
does not provde for the payment thereof sha be confrmed by the |udge
e cept upon the acceptance of a esser amount by the Secretary of the Treasury
certfed to the court: Provded, That f the Secretary of the Treasury sha
fa to accept or re|ect a pan for more than 00 days after recept of wrtten
notce so to do from the court to whch the pan has been proposed, accom-
paned by a certfed copy of the pan, hs consent sha be concusvey
presumed.
pproved ugust 29, 1935.
I -39-7715
. R. 7908. PU LIC, NO. 874, S NTY- OURT CONGR SS.
n ct To e empt from ta aton offca compensaton of certan
foregn representatves and to provde for the deductbty from
ncome of certan dvdends on preferred stock owned by the
Unted States or nstrumentates thereof.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That secton 11 of
the Revenue ct of 1934 reatng to e cusons from gross ncome
s amended by addng at the end thereof a new subsecton readng
as foows:
(h) Compensaton op mpoyees of oregn Governments.- Wages, fees,
or saary of an empoyee of a foregn government (ncudng a consuar or
other offcer, or a nondpomatc representatve) receved as compensaton for
offca servces to such government
(1) If such empoyee s not a ctzen of the Unted States and
(2) If the servces are of a character smar to those performed by em-
poyees of the Government of the Unted States In foregn countres and
(3) If the foregn government whose empoyee s camng e empton grants
an equvaent e empton to empoyees of the Government of the Unted States
performng smar servces n such foregn country.
The Secretary of State sha certfy to the Secretary of the Treasury the
names of the foregn countres whch grant an equvaent e empton to the
empoyees of the Government of the Unted States performng servces In such
foregn countres, and the character of the servces performed by empoyees
of the Government of the Unted States n foregn countres.
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552
Sbo. 2. The provsons of secton 1 sha be retroactvey apped
n computng ncome under the provsons of the Revenue ct of
1934 and pror Revenue cts, or any of such cts as amended, sub-
|ect to the statutory perod of mtatons propery appcabe to
such cts.
Sec. 3. Tte I of the Revenue ct of 1934, reatng to ncome ta ,
s amended by addng after secton 120 a new secton readng as
foows:
Sbo. 121. Deducton of Dvdends Pad on Certan Preferred Stock of
Certan Corporatons. In computng the net Income, for any ta abe year
begnnng after December 31, 1934, of any natona bankng assocaton, or of
any bank or trust company organzed under the aws of any State, Terrtory,
possesson of the Unted States, or the Cana Zone, or of any other bankng
corporaton engaged n the busness of ndustra bankng and under tbe
supervson of a State bankng department or of the Comptroer of the Cur-
rency, or of any ncorporated domestc nsurance company, there sha be
aowed as a deducton from gross ncome, n addton to deductons otherwse
provded for n ths tte, any dvdend (not ncudng any dstrbuton a
qudaton) pnd, wthn such ta abe year, to the Unted States or to any
nstrumentaty thereof e empt from edera ncome ta es, on the preferred
stock of the corporaton owned by the Unted States or such nstrumentaty.
pproved ugust 27, 1935.
I -39-771
. R. 8 ,r. PU LIC, NO. 399, S NTY- OURT CONGR SS.
n ct To estabsh a retrement system for empoyees of car-
rers sub|ect to the Interstate Commerce ct, and for other pur-
poses.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

MPTION.
Seo. 10. No annuty payment sha be assgnabe or be sub|ect to
any ta or to garnshment, attachment, or other ega process under
any crcumstances whatsoever, nor sha the payment thereof be
antcpated.
pproved ugust 29, 1935.
I -39-7717
. R. 8C52. PU LIC, NO. 400, S NTY- OURT CONGR SS.
n ct To evy an e cse ta upon carrers and an ncome ta
upon ther empoyees, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,
D INITIONS.
Secton 1. That as used n ths ct
(a) The term carrer means any e press company, seepng-
car company, or carrer by raroad, sub|ect to the Interstate Com-
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Msc.
merce ct, and any company whch may be drecty or ndrecty
owned or controed thereby or under common contro therewth, and
whch operates any equpment or factes or performs any servce
(other than truckng servce) n connecton wth the transportaton
of passengers or property by raroad, or the recept, devery, eeva-
ton, transfer n transt, refrgeraton or cng, storage, or handng
of property transported by raroad, and any recever, trustee, or
other ndvdua or body, |udca or otherwse, when n the possesson
of and operatng the busness of any such carrer : Provded,
however, That the term carrer sha not ncude any street, nter-
urban, or suburban eectrc raway, uness such raway s operatng
as a part of a genera steam-raroad system of transportaton, but
sha not e cude any part of the genera steam-raroad system of
transportaton now or hereafter operated by any other motve power.
The Interstate Commerce Commsson s hereby authorzed and
drected upon request of the Commssoner of Interna Revenue or
upon compant of any party nterested to determne after hearng
whether any ne operated by eectrc power fas wthn the terms
of ths provso.
(b) The term empoyee means (1) each person who at or after
the enactment hereof s n the servce of a carrer, and (2) each
offcer or other offca representatve of an empoyee organzaton,
heren caed representatve, who before or after the effectve
date has performed servce for a carrer, who s duy desgnated and
authorzed to represent empoyees under and n accordance wth the
Raway Labor ct. and who, durng, or mmedatey foowng
empoyment by a carrer, was or s engaged n such representatve
servce n behaf of such empo|rees.
(c) person sha be deemed to be n the servce of a carrer
whenever he may be sub|ect to ts contnung authorty to supervse
and drect the manner of rendton of hs servce, for whch servce
he receves compensaton.
(d) The term compensaton means any form of money remun-
eraton for actve servce, receved by an empoyee from a carrer,
ncudng saares and commssons, but sha not ncude free trans-
portaton nor any payment receved on account of sckness, dsabty,
or other form of persona reef.
(e) The term effectve date means March 1, 193 .
(f) The term enactment means the date on whch ths ct
may be approved by the Presdent or be fnay passed.
INCOM T ON MPLOY S.
Sec. 2. In addton to other ta es, there sha be eved, coected,
and pad upon the ncome of every empoyee, 3 2 per centum or
the compensaton of such empoyee (e cept a representatve) not n
e cess of 300 per month, receved by hm after the effectve date.
D DDCTION O T ROM W G S.
Sec. 3. (a) The ta mposed by secton 2 of ths ct sha be
coected by the empoyer of the ta payer, by deductng the amount
of the ta from the compensaton of the empoyee as and when pad.
very empoyer requred so to deduct the ta s hereby made abe
for the payment of such ta and s hereby ndemnfed aganst the
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554
cams and demands of any person for the amount of any such pay-
ment made by such empoyer.
(b) If more or ess than the correct amount of ta mposed by
secton 2 s pad wth respect to any compensaton payment, then,
under reguatons made under ths ct by the Commssoner 01
Interna Revenue, proper ad|ustments, wth respect both to the ta
and the amount to be deducted, sha be made, wthout nterest, n
connecton wth subsequent wage payments to the same empoyee by
the same empoyer.
CIS T ON C RRI RS.
Sec. 4. In addton to other ta es, every carrer sha pay an
e cse ta of 3y2 per centum of the compensaton not n e cess of
300 per month pad by t to ts empoyees after the effectve date.
D USTM NT O T .
Sec. 5. If more or ess than the correct amount of the ta mposed
by secton 4 s pad, wth respect to any compensaton payment, then,
under reguatons made by the Commssoner of Interna Revenue,
proper ad|ustments wth respect to the ta sha be made, wthout
nterest, n connecton wth subsequent e cse-ta payments made
by the same empoyer.
R UNDS ND D ICI NCI S.
Sec. . If more or ess than the correct amount of the ta mposed
by sectons 2 or 4 of ths ct s pad or deducted wth respect to
any compensaton payment and the overpayment or underpayment
of the ta can not be ad|usted under sectons 3 or 5, the amount of
the overpayment sha be refunded, or the amount of the underpay-
ment sha be coected n such manner and at such tmes (sub|ect
to the statute of mtatons propery appcabe thereto) as may be
prescrbed by reguatons under ths ct as made by the Comms-
soner of Interna Revenue.
INCOM T ON MPLOY S1 R PR S NT TI .
Sec. 7. In addton to other ta es, there sha be eved, coected,
and pad upon the compensaton of each empoyees representatve
receved by such representatve an ncome ta of 7 per centum
annuay upon that porton of the compensaton of such empoyees
representatve not n e cess of 300 per month. The compensaton
of a representatve for the purpose of ascertanng the ta thereon
sha be determned accordng to such rues and reguatons as the
Commssoner of Interna Revenue sha deem |ust and reasonabe
and as near as may be sha be the same compensaton as f the
representatve were st n the empoy of the ast former carrer.
COLL CTION ND P YM NT O T S.
Sec. 8. (a) The ta es mposed by ths ct sha be coected by the
Commssoner of Interna Revenue and sha be pad nto the Treas-
ury of the Unted States as nterna-revenue recepts. If the ta es
are not pad when due, there sha be added as part of the ta
(e cept n the case of ad|ustments made n accord wth the pro-
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555
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vsons of ths ct) nterest at the rate of per centum per annum,
or for any part of a month, from the date the ta became due unt
pad.
(b) Such ta es sha be coected and pad quartery n such
manner and under such condtons not nconsstent wth ths ct
as may be prescrbed bv the Commssoner of Interna Revenue.
(c) provsons of aw, ncudng penates, appcabe wth
respect to any ta mposed by secton 00 or secton 800 of the
Revenue ct of 192 , and the provsons of secton 07 of the Rev-
enue ct of 1934, n so far as appcabe and not nconsstent wth
the provsons of ths ct, sha be appcabe wth respect to the
ta es mposed by ths ct.
(d) In the payment of any ta under ths ct a fractona part
of a cent sha be dsregarded uness t amounts to one-haf cent or
more, n whch case t sha be ncreased to 1 cent.
COURT URISDICTION.
Sec. 9. The severa dstrcts courts of the Unted States and the
Supreme Court of the Dstrct of Coumba, respectvey, sha have
|ursdcton to entertan an appcaton and to grant approprate
reef n the foowng cases whch may arse under the provsons
of ths ct:
(a) n appcaton by the Commssoner of Interna Revenue
to compe an empoyee or other person resdng wthn the |urs-
dcton of sad court or a carrer sub|ect to servce of process wthn
sad |ursdcton, to compy wth any obgatons mposed on sad
empoyee, other person, or carrer under the provsons of ths ct.
(b) The |ursdcton heren specfcay conferred upon the sad
edera courts sha not be hed e cusve of any |ursdcton other-
wse possessed by sad courts to entertan actons at aw or suts n
equty n ad of the enforcement of rghts or obgatons arsng
under the provsons of ths ct.
P N LTI S.
Sec. 10. ny person or any carrer whch sha wfuy fa or
refuse to make any report n accordance wth ths ct requred by
the Commssoner of Interna Revenue n the admnstraton of ths
ct, or whch sha knowngy make any fase or frauduent state-
ment or report n response to any report or statement requred by
ths ct sha be punshed on convcton by a fne of not ess than
100 nor more than 10,000.
SOCI L S CURITY CT.
Sec. 11. The term empoyment, as defned n subsecton (b)
of secton 811 of Tte III of the Soca Securty ct, sha not
ncude servce performed n the empoy of a carrer as defned n
subdvson (a) of secton 1 of ths ct.
T RMIN TION O T S.
Sec. 12. The ta es mposed by ths ct sha not appy to any
compensaton receved or pad after ebruary 28, 1937.
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55G
S P R ILITY.
Sec. 13. If any provson of ths ct, or the appcaton thereof
to any person or crcumstance, s hed nvad, the remander of the
ct, and the appcaton of such provson to other persons or
crcumstances sha not be affected thereby.
pproved ugust 29, 1935, 3 p. m.
I -39-7718
. It. 8974. PU LIC, NO. 407, S NTY- OUUT CONGR SS.
u ct To provde revenue, equaze ta aton, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That ths ct may
be cted as the Revenue ct of 1935.
tte . ncome and e cess r-rofts ta es.
Sec 101. Surta es on ndvduas.
Secton 12(b) of the Revenue ct of 1934 s amended by strkng
out a after the bracket
,080 upon surta net ncomes of 44,000 and upon surta net ncomes n
e cess of 44,000 and not n e cess of 50,000, 27 per centum n addton of
such e cess.
and nsertng n eu thereof the foowng:
7,700 upon surta net ncomes of 50,000 and upon surta net ncomes n
e cess of 50,000 and not n e cess of 5 ,000, 31 per centum n addton of
such e cess.
9,5 0 upon surta net ncomes of 5 ,000 and upon surta net ncomes n
e cess of 5 ,000 and not n e cess of 2,000, 35 per centum n addton of
such e cess.
11, 0 upon surta net ncomes of 2,000 and upon surta net ncomes n
e cess of 2,000 and not n e cess of 8,000, 39 per centum n addton of
such e cess.
14,000 upon surta net Incomes of 8,000 and upon surta net ncomes n
e cess of 8,000 and not n e cess of 74,000, 43 per centum n addton of
such e cess.
1 ,580 upon surta net ncomes of 74,000 and upon surta net ncomes n
e cess of 74,000 and not n e cess of 80,000, 47 per centum n addton of
such e cess.
19,400 upon surta net ncomes of 80,000 and upon surta net ncomes n
e cess of 80,000 and not n e cess of 90,000, 51 per centum n addton of
such e cess.
24,500 upon surta net ncomes of 90,000 and upon surta net ncomes n
e cess of 90,000 and not n e cess of 100,000, 55 per centum n addton of
such e cess.
30,000 upon surta net ncomes of 100,000 and upon surta net ncomes n
e cess of 100,000 and not n e cess of 150,000, 58 per centum n addton of
such e cess.
59,000 upon surta net ncomes of 150,000 and upon surta net ncomes n
e cess of 150,000 and not n e cess of 200,000, 0 per centum n addton of
uch e cess.
89,000 upon surta net Incomes of 200,000 and upon surta net ncomes n
e cess of 200,000 and not n e cess of 250,000, 2 per centum In addton of
such e cess.
120,000 upon surta net ncomes of 250,000 and upon surta net ncomes
n e cess of 250,000 and not n e cess of 300,000, 4 per centum n addton
of such e cess.
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152,000 upon surta net ncomes of 300,000 and upon surta net Incomes n
e cess of 300,000 and not n e cess of 400,000, per centum n addton of
such e cess.
218,000 upon surta net ncomes of 400,000 and upon surta net ncomes n
e cess of 400,000 and not In e cess of 500,000, 8 per centum n addton of
such e cess.
28 ,000 upon surta net Incomes of 500,000 and upon surta net ncomes n
e cess of 500,000 and not n e cess of 750,000, 70 per centum n addton of such
e cess.
4 1,000 upon surta net ncomes of 750,000 and upon surta net ncomes
n e cess of 750,000 and not n e cess of 1,000,000, 72 per centum n addton
of such e cess.
41,000 upon surta net ncomes of 1,000,000 and upon surta net ncomes
n e cess of 1,000,000 and not n e cess of 2,000,000, 73 per centum n addton
of such e cess.
1,371,000 upon surta net ncomes of 2,000,000 and upon surta net ncomes
n e cess of 2,000,000 and not n e cess of 5,000,000, 74 per centum n addton
of such e cess.
3,591,000 upon surta net ncomes of 5,000,000 and upon surta net ncomes
In e cess of 5,000,000, 75 per centum n addton of such e cess.
Sec. 102. Income ta es on corporatons.
(a) Secton 13(a) of the Revenue ct of 1934 s amended to read
as foows:
(a) Rate of Ta . There sha be eved, coected, and pad for each ta abe
year upon the net ncome (n e cess of the credt aganst net ncome provded n
secton 2 ) of every corporaton, a ta as foows:
Upon net ncomes not n e cess of 2,000,12 per centum.
250 upon net ncomes of 2,000 and upon net Incomes n e cess of 2,000 and
not n e cess of 15,000,13 per centum n addton of such e cess.
1,940 upon net ncomes of 15,000 and upon net ncomes n e cess of 15,000
and not n e cess of 40,000, 14 per centum n addton of such e cess.
5,440 upon net ncomes of 40,000 and upon net ncomes In e cess of 40,000,
15 per centum n addton of such e cess.
(b) Secton 141(c) of the Revenue ct of 1934 s amended by
strkng out e cept that there sha be added to the rate of ta pre-
scrbed by secton 13(a) a rate of 2 per centum, but the ta at such
ncreased rate sha be consdered as mposed by secton 13(a) and
by nsertng n eu thereof the foowng: e cept that the rate of
ta sha be 15 per centum, n eu of the rates prescrbed by sec-
ton 13(a), but the ta at such rate of 15 per centum sha be
consdered as mposed by secton 13(a).
_ (c) Secton 23 of the Revenue ct of 1934 (reatng to deduc-
tons from gross ncome) s amended by addng at the end thereof
a new subsecton as foows:
(r) Chabtabu: and Other Contrbutons by Corporatons. In the case
of a corporaton, contrbutons or gfts made wthn the ta abe year to or
for the use of a domestc corporaton, or domestc trust, or domestc com-
munty chest, fund, or foundaton, organzed and operated e cusvey for
regous, chartabe, scentfc, terary, or educatona purposes or the pre-
venton of cruety to chdren (but n the case of contrbutons or gfts to a
trust, chest, fund, or foundaton, ony f such contrbutons or gfts are to
be used wthn the Unted States e cusvey for such purposes), no part of
the net earnngs of whch Inures to the beneft of any prvate sharehoder
or Indvdua, and no substanta part of the actvtes of whc s carryng
on propaganda, or otherwse attemptng, to nfuence egsaton to an amount
whch does not e ceed 5 per centum of the ta payer s net ncome as computed
wthout the beneft of ths subsecton. Such contrbutons or gfts sha be
aowabe as deductons ony f verfed under rues and reguatons prescrbed
by the Commssoner, wth the approva of the Secretary.
(d) Secton 204(c) of the Revenue ct of 1934 (reatng to deduc-
tons from gross ncome by nsurance companes other than fe or
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558
mutua) s amended by addng at the end thereof a new paragraph
as foows:
(10) Chartabe, and so forth, contrbutons, as provded In secton 23 (r).
(e) Secton 232 of the Revenue ct of 1934 (reatng to deductons
aowed foregn corporatons) s amended by nsertng (a) In
Genera. before the begnnng of the secton and by nsertng
at the end thereof the foowng new subsecton:
(b) Chabtabe, and so fobth, Contbbutons. The so-caed chartabe
contrbuton deducton aowed by secton 23(r) sha be aowed whether or
not connected wth ncome from sources wthn the Unted States.
(f) Secton 144 of the Revenue ct of 1934 (reatng to payment
of corporaton ncome ta at source) s amended by nsertng after
the words a ta equa to 13 per centum the foowng: thereof
wth respect to a payments of ncome made before anuary 1, 193 ,
and equa to 15 per centum thereof wth respect to a payments of
ncome made after December 31, 1935.
(g) Secton 143(a)(1) of the Revenue ct of 1934 (reatng to
wthhodng of nterest on ta -free covenant bonds) s amended by
strkng out cause ( ) thereof and nsertng n eu thereof the
foowng:
( ) In the case of such a foregn corporaton, 13 per centum wth respect
to a payments of nterest made before anuary 1, 193 , and 15 per centum
wth respect to a payments of nterest made after December 31, 1935, and.
(h) Secton 23(p) of the Revenue ct of 1934 (reatng to the
deducton of dvdends receved by corporatons) s amended by
strkng out the words the amount and nsertng n eu thereof
the foowng: 90 per centum of the amount.
() Secton 144 of the Revenue ct of 1934 s amended by strkng
out the perod at the end thereof and nsertng a coon and the fo-
owng: Provded further, That n the case of the payment, after
December 31, 1935, of dvdends of the cass wth respect to whch
a deducton s aowed by secton 23(p), the deducton and wth-
hodng provded for n ths secton sha aso appy to 10 per centum
of the amount of the payment: Provded further, That the Com-
mssoner, under rues and reguatons prescrbed by hm wth the
approva of the Secretary, may authorze wthhodng under ths
secton and secton 143(a) (1) ( ), n cases where the ta payer has
a ta abe year endng on any other date than December 31, at the
rate of 13 per centum (ana, n the case of payments of dvdends
wth respect to whch wthhodng s requred, may authorze such
payments to be made wthout wthhodng) unt the begnnng of
the ta payer s frst ta abe year whch begns after December 31,
1935.
Sec. 103. Income ta on fe nsurance companes.
Sectons 201(b) (1) and (2) of the Revenue ct of 1934 are
amended by strkng out 13 per centum of and nsertng n
eu thereof a ta at the rates specfed n secton 13 upon.
Sec. 104. Income ta on nsurance companes other than fe
or mutua.
Sectons 204(a) (1) and (2) of the Revenue ct of 1934 are
amended by strkng out 1334 per centum of and nsertng n eu
thereof a ta at the rates specfed n secton 13 upon.
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559
Msc.
Sec. 105. Capta stock ta .
(a) or each year endng une 30, begnnng wth the year endng
une 30, 193 , there s hereby mposed upon every domestc corpo-
raton wth respect to carryng on or dong busness for any part of
such year an e cse ta of 1.40 for each 1,000 of the ad|usted
decared vaue of ts capta stock.
(b) or each year endng une 30, begnnng wth the year endng
une 30, 193 , there s hereby mposed upon every foregn corpo-
raton wth respect to carryng on or dong busness n the Unted
States for any part of such year an e cse ta equvaent to 1.40 for
each 1,000 of the ad|usted decared vaue of capta empoyed n the
transacton of ts busness n the Unted States.
(c) The ta es mposed by ths secton sha not appy
(1) to any corporaton enumerated n secton 101 of the Revenue
ct of 1934, as amended
(2) to any nsurance company sub|ect to the ta mposed by sec-
ton 201, 204, or 207 of such ct, as amended.
(d) very corporaton abe for ta under ths secton sha make
a return under oath wthn one month after the cose of the year
wth respect to whch such ta s mposed to the coector for the
dstrct n whch s ocated ts prncpa pace of busness or, f t has
no prncpa pace of busness n the Unted States, then to the co-
ector at atmore, Md. Such return sha contan such nformaton
and be made n such manner as the Commssoner wth the approva
of the Secretary may by reguatons prescrbe. The ta sha, wth-
out assessment by the Commssoner or notce from the coector, be
due and payabe to the coector before the e praton of the perod
for fng the return. If the ta s not pad when due, there sha be
added as part of the ta nterest at the rate of per centum per an-
num from the tme when the ta became due unt pad. pro-
vsons of aw (ncudng penates) appcabe n respect of the
ta es mposed by secton 00 of the Revenue ct of 192 sha,
n so far as not nconsstent wth ths secton, be appcabe n
respect of the ta es mposed by ths secton. The Commssoner
may e tend the tme for makng the returns and payng the ta es
mposed by ths secton, under such rues and reguatons as he may
prescrbe wth the approva of the Secretary, but no such e tenson
sha be for more than 0 days.
(e) Returns requred to be fed for the purpose of the ta mposed
by ths secton sha be open to nspecton n the same manner, to
the same e tent, and sub|ect to the same provsons of aw, ncudng
penates, as returns made under Tte II of the Revenue ct of 192 .
(f) or the frst year endng une 30 n respect of whch a ta s
mposed by ths secton upon any corporaton, the ad|usted decared
vaue sha be the vaue, as decared by the corporaton n ts frst
return under ths secton (whch decaraton of vaue can not be
amended), as of the cose of ts ast ncome-ta ta abe year endng
at or pror to the cose of the year for whch the ta s mposed by ths
secton (or as of the date of organzaton n the case of a corporaton
havng no ncome-ta ta abe year endng at or pror to the cose of
the year for whch the ta s mposed by ths secton). or any
subsequent year endng une 30, the ad|usted decared vaue n the
case of a domestc corporaton sha be the orgna decared vaue
pus (1) the cash and far market vaue of property pad n for
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5 0
stock or shares, (2) pad n surpus and contrbutons to capta, (3)
ts net ncome, (4) the e cess of ts ncome whoy e empt from tho
ta es mposed by Tte I of the Revenue ct of 1934, as amended,
over the amount dsaowed as a deducton by secton 24(a) (5) of
such tte, and (5) the amount of the dvdend deducton aowabe
for ncome ta purposes, and mnus ( ) the vaue of property ds-
trbuted n qudaton to sharehoders, ( ) dstrbutons of earnngs
or profts, and (C) the e cess of the deductons aowabe for ncome
ta purposes over ts gross ncome ad|ustment beng made for each
ncome-ta ta abe year ncuded n the perod from the date as of
whch the orgna decared vaue was decared to the cose of ts ast
ncome-ta ta abe year endng at or pror to the cose of the year
for whch the ta s mposed by ths secton. The amount of such
ad|ustment for each such year sha be computed (on the bass of a
separate return) accordng to the ncome ta aw appcabe to such
year. or any subsequent 3 ear endng une 30, the ad|usted de-
cared vaue n the case of a foregn corporaton sha be the orgna
decared vaue ad|usted (for the same ncome-ta ta abe years as
n the case of a domestc corporaton), n accordance wth regua-
tons prescrbed by the Commssoner wth the approva of the Secre-
tary, to refect ncreases or decreases n the capta empoyed n the
transacton of ts busness n the Unted States.
(g) or the purpose of the ta mposed by ths secton there sha
be aowed n the case of a corporaton organzed under the Chna
Trade ct, 1922, as a credt aganst the ad|usted decared vaue of
ts capta stock, an amount equa to the proporton of such ad|usted
decared vaue whch the par vaue of the shares of stock of the
corporaton, owned on the ast day of the ta abe year by (1) per-
sons resdent n Chna, the Unted States, or possessons of the
Unted States, and (2) ndvdua ctzens of the Unted States or
Chna wherever resdent, bears to the par vaue of the whoe number
of shares of stock of the corporaton outstandng on such date. or
the purposes of ths subsecton shares of stock of a corporaton
sha be consdered to be owned by the person n whom the equtabe
rght to the ncome from such shares s n good fath vested and as
used n ths subsecton the term Chna sha have the same
meanng as when used n the Chna Trade ct, 1922.
(h) The capta stock ta mposed by secton 701 of the Revenue
ct of 1934 sha not appy to any ta payer wth respect to any year
after the year endng une 30,1935.
Sec. 10 . cess-profts ta .
(a) There s hereby mposed upon the net ncome of every corpora-
ton for each ncome-ta ta abe year endng after the cose of the
frst year n respect of whch t s ta abe under secton 105, an
e cess-profts ta equa to the sum of the foowng:
per centum of such porton of ts net ncome for such ncome-ta
ta abe year as s n e cess of 10 per centum and not n e cess of 15
per centum of the ad|usted decared vaue
12 per centum of such porton of ts net ncome for such ncome-
ta ta abe year as s n e cess of 15 per centum of the ad|usted
decared vaue.
(b) The ad|usted decared vaue sha be determned as provded
n secton 105 as of the cose of the precedng ncome-ta ta abe
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Msc.
year (or as of the date of organzaton f t had no precedng ncome-
ta ta abe year). If the ncome-ta ta abe year n respect of
whch the ta under ths secton s mposed s a perod of ess than
12 months, such ad|usted decared vaue sha be reduced to an
amount whch bears the same rato thereto as the number of months
n the perod bears to 12 months. or the purposes of ths secton
the net ncome sha be the same as the net ncome for ncome ta
purposes for the year n respect of whch the ta under ths secton
s mposed, e cept that there sha be deducted the amount of ncome
ta mposed for such year by secton 13 of the Revenue ct of 1934,
as amended.
(c) provsons of aw (ncudng penates) appcabe n
respect of the ta es mposed by Tte I of the Revenue ct of 1934,
as amended, sha, n so far as not nconsstent wth ths secton, be
appcabe n respect of the ta mposed by ths secton, e cept that
the provsons of secton 131 of that tte sha not be appcabe.
(d) The e cess-profts ta mposed by secton 702 of the Revenue
ct of 1934 sha not appy to any ta payer wth respect to any
ncome-ta ta abe year endng after une 30, 193 .
Sec. 107. Ta abe tears to whch appcabe.
The amendments made by sectons 101, 102 (e cept subsectons
(f), (g), and () thereof), 103, and 104 sha appy ony n the case
of ta abe years begnnng after December 31, 1935.
Sec. 108. Credt aowed Chna Trade ct corporatons.
(a) Secton 2 1(a) of the Revenue ct of 1934 s amended to
read as foows:
(a) owance of Credt. or the purpose ony of the ta es mposed by
secton 13 of ths ct and secton 10 of the Revenue ct of 1935 there sha
be aowed, n the cose of a corporaton organzed under the Chna Trade
ct, 1022, n addton to the credt provded n secton 2 , a credt aganst
the net ncome of an amount equa to the proporton of the net ncome derved
from sources wthn Chna (determned n a smar manner to that provded
n secton 119) whch the par vaue of the shares of stock of the corporaton
owned on the ast day of the ta abe year by (1) persons resdent In Chna,
the Unted States, or possessons of the Unted States, and (2) ndvdua
ctzens of the Unted States or Chna wherever resdent, bears to the par
vaue of the whoe number of shares of stock of the corporaton outstandng
on such date: Provded, That n no case sha the dmnuton, by reason of
such credt, of the ta mposed by such secton 13 (computed wthout regard
to ths secton) e ceed the amount of the speca dvdend certfed under
subsecton (b) of ths secton and n no case sha the dmnuton, by reason
of such credt, of the ta mposed by such secton 10 (computed wthout regard
to ths secton) e ceed the amount by whch such speca dvdend e ceeds the
dmnuton permtted by ths secton n the ta mposed by such secton 13.
(b) The amendment made by subsecton (a) sha appy, wth
respect to the ta mposed by secton 13 of the Revenue ct of 1934,
as amended, ony n the case of ta abe years begnnng after Decem-
ber 31, 1935.
Sec. 109. Persona hodno companes.
(a) Secton 351(a) of the Revenue ct of 1934 s amended to read
as foows:
(a) Imposton of Ta . There sha be eved, coected, and pad, for each
ta abe year, upon the undstrbuted ad|usted net ncome of every persona
hodng company a surta equa to the sum of the foowng:
(1) 20 per centnm of the amount thereof not In e cess of 2,000 pus
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5 2
(2) 30 per centum of the amount thereof In e cess of 2,000 and not In
e cess of 100,000 pus
(3) 40 per centum of the amount thereof n e cess of 100,000 and not n
e cess of 500,000 pus
(4) 50 per centum of the amount thereof n e cess of 500,000 and not n
e cess of 1,000,000 pus
(5) CO per centum of the amount thereof n e cess of 1,000,000.
(b) Secton 351(b) (2) (C) of such ct s amended by strkng out
the perod at the end thereof and nsertng n eu thereof a comma
and the foowng: and dstrbutons (not n compete or parta
qudaton and not a dvdend as denned n secton 115) made
durng the ta abe year out of earnngs or profts of such year.
(c) The amendments made by ths secton sha appy ony n the
case of ta abe years begnnng after December 31, 1935.
Sec. 110. Corporate qudatons.
(a) Secton 112(b) of the Revenue ct of 1934 s amended by
addng after paragraph (5) a new paragraph readng as foows:
(G) change n Lqudaton. No gan or oss sha be recognzed upon
the recept by a corporaton of property (other than money) dstrbuted In
compete qudaton of another corporaton, f the corporaton recevng such
property on such e change was on the date of the enactment of the Revenue
ct of 1935 and has contnued to be at a tmes unt the e change. In contro
of such other corporaton. s used n ths paragraph compete qudaton
ncudes any one of a seres of dstrbutons by a corporaton n compete
canceaton or redempton of a Its stock n accordance wth a pan of
qudaton under whch the transfer of the property under the qudaton s to
be competed wthn a tme specfed n the pan, not e ceedng fve years from
the cose of the ta abe year durng whch s made the frst of the seres of
dstrbutons under the pan. If such transfer of property s not competed
wthn the ta abe year the Commssoner may requre of the ta payer, as a
condton to the nourecognton of gan under ths paragraph, such bond, or
waver of the statute of mtatons on assessment and coecton, or both, as he
may deem necessary to Insure the assessment and coecton of the ta If the
transfer of the property s not competed In accordance wth the pan. Ths para-
graph sha not appy to any qudaton f any dstrbuton n pursuance thereof
has been made before the date of the enactment of the Revenue ct of 1935.
(b) Secton 112(c) (1) of the Revenue ct of 1934 s amended by
strkng out or (5) and nsertng n eu thereof (5), or ( ).
(c) Secton 112(e) of the Revenue ct of 1934 s amended by
strkng out subsecton (b) (1) to (5) and nsertng n eu thereof
subsecton (b) (1) to ( ).
(d) Secton 112() of the Revenue ct of 1934 s amended by
strkng out (4), or (5) and nsertng n eu thereof (4), (5), or
(G), and bv strkng out (3) or (5) and nsertng n eu thereof
(3). (5), or ( ).
(e) The amendments made by ths secton sha appy ony n the
case of ta abe years begnnng after December 31, 1935.
tte amendments to estate ta .
Sec. 201. state ta rates.
(a) Secton 401(b) of the Revenue ct of 1932, as amended, s
amended to read as foows:
(b) The tentatve ta referred to n subsecton (a)(1) of ths secton sha
equa the sum of the foowng percentages of the vaue of the net estate:
Upon net estutes not n e cess of 10,000, 2 per centum.
200 upon net estates of 10,000 and upon net estates n e cess of 10,000
and not n e cess of 20,000, 4 per centum n addton of such e cess.
000 upon net estates of 20,000 and upon net estates n e cess of 20,000
and not n e cess of 30,000, G per centum n addton of such e cess.
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Msc.
1,200 upon net estates of 30,000 and upon net estates n e cess of 30,000
and not n e cess of 40,000, 8 per centum n addton of such e cess.
2,000 upon net estates of 40,000 and upon net estates n e cess of 40,000
and not n e cess of 50,000, 10 per centum n addton of such e cess.
3,000 upon net estates of 50,000 and upon net estates n e cess of 50,000
and not n e cess of 70,000, 12 per centum n addton of such e cess.
5,400 upon net estates of 70,000 and upon net estates n e cess of 70,000
and not n e cess of 100,000, 14 per centum n addton of such e cess.
9, 00 upon net estates of 100,000 and upon net estates n e cess of 100,000
and not n e cess of 200,000, 17 per centum n addton of such e cess.
2 , 00 upon net estates of 200,000 and upon net estates n e cess of 200,-
000 and not n e cess of 400,000, 20 per centum In addton of such e cess.
, 00 upon net estates of 400,000 and upon net estates n e cess of
400,000 and not n e cess of 00,000, 23 per centum n addton of such
e cess.
112, 00 upon net estates of 00,000 and upon net estates n e cess of
00,000 and not In e cess of 800,000, 2 per centum n addton of such
e cess.
1 4, 00 upon net estates of 800,000 and upon net estates n e cess of
800,000 and not n e cess of 1,000,000, 29 per centum In addton of such
e cess.
222, 00 upon net estates of 1,000,000 and upon net estates n e cess of
1,000,000 and not n e cess of 1,500,000, 32 per centum n addton of such
e cess.
382, 00 upon net estates of 1,500,000 and upon net estates n e cess of
1,500,000 and not n e cess of 2,000,000, 35 per centum n addton of such
e cess.
557, 00 upon net estates of 2,000,000 and upon net estates n e cess of
2,000,000 and not n e cess of 2,500,000, 38 per centum n addton of such
e cess.
747, 00 upon net estates of 2,500,000 and upon net estates n e cess of
2,500,000 and not n e cess of 3,000,000, 41 per centum n addton of such
e cess.
952, 00 upon net estates of 3,000,000 and upon net estates n e cess of
3,000,000 and not In e cess of 3,500,000, 44 per centum n addton of such
e cess.
1,172, 00 upon net estates of 3,500,000 and upon net estates n e cess of
3,500,000 and not n e cess of 4,000,000, 47 per centum n addton of such
e cess.
1,407, 00 upon net estates of 4,000,000 and upon net estates n e cess of
4,000,000 and not n e cess of 4,500,000, 50 per centum In addton of such
e cess.
1, 57, 00 upon net estates of 4,500,000 and upon net estates In e cess of
4,500,000 and not n e cess of 5,000,000, 53 per centum n addton of such
e cess.
1,922, 00 upon net estates of 5,000,000 and upon net estates n e cess of
5,000,000 and not n e cess of ,000,000, 5 per centum n addton of such
e cess.
2,482, 00 upon net estates of ,000,000 and upon net estates n e cess of
,000,000 and not n e cess of 7,000,000, 59 per centum n addton of such
e cess.
3,072, 00 upon net estates of 7,000,000 and upon net estates n e cess of
7,000,000 and not In e cess of 8,000,000, 1 per centum n addton of such
e cess.
3, 82, 00 upon net estates of 8,000,000 and upon net estates n e cess of
8,000,000 and not In e cess of 9,000,000, 3 per centum n addton of such
e cess.
4,312, 00 upon net estates of 9,000,000 and upon net estates n e cess of
9,000,000 and not n e cess of 10,000,000, 5 per centum n addton of such
e cess.
4,9 2, 00 upon net estates of 10,000,000 and upon net estates n e cess of
10,000,000 and not n e cess of 20,000,000, 7 per centum n addton of such
e cess.
11, 2,G00 upon net estates of 20,000,000 and upon net estates n e cess
of 20,000,000 and not n e cess of 50,000,000, 9 per centum n addton of
such e cess.
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5 4
32,3 2, 00 upon net estates of 50.000,000 and upon net estates In e cess of
50,000,000, 70 per centum n addton of such e cess.
(b) Secton 401(c) of the Revenue ct of 1932 (reatng to the
e empton for the purposes of the addtona estate ta ) s amended
by strkng out 50,000 and nsertng n eu thereof 40,000.
(c) Secton 403 of the Revenue ct of 1932, as amended (reatng
to the requrement for fng return under such addtona estate ta ),
s amended by strkng out 50,000 and nsertng n eu thereof
40,000.
(d) The amendments made by ths secton sha be effectve ony
wth respect to transfers of estates of decedents dyng after the
date of the enactment of ths ct.
Sec. 202. state ta auaton.
(a) Secton 302 of the Revenue ct of 192 , as amended, s
amended by addng a new subdvson as foows:
( ) If te e ecutor so eecta upon bs return (f fed wthn the tme pre-
scrbed by aw or prescrbed by the Commssoner n pursuance of aw), the
vaue of the gross estate sha be determned by vaung a the property n-
cuded theren on the date of the decedent s death as of the date one year after
the decedent s death, e cept that (1) property ncuded n the gross estate on
the date of deat and, wthn one year after the decedent s death, dstrbuted
by the e ecutor (or, n the case of property ncuded n the gross estate under
subdvson (e), (d), or (f) of ths secton, dstrbuted by the trustee under
the nstrument of transfer), or sod, e changed, or otherwse dsposed of. sha
be ncuded at ts vaue as of the tme of such dstrbuton, sae, e change, or
other dsposton, whchever frst occurs, nstead of ts vaue as of the date one
year after the decedent s death, and (2) any nterest or estate whch s affected
by mere apse of tme sha be ncuded at ts vaue as of the tme of death
(nstead of the ater date) wth ad|ustment for any dfference n ts vaue as
of the ater date not due to mere apse of tme. No deducton under ths tte
of any tem sha be aowed If aowance for such tem Is n effect gven by
the vauaton under ths subdvson. Wherever n nny other subdvson or
secton of ths tte or n Tte II of the Revenue ct of 1932, reference s
made to the vaue of property at the tme of the decedent s death, such refer-
ence sha be deemed to refer to the vaue of such property used In determnng
the vaue of the gross estate. In case of un eecton made by the e ecutor un-
der ths subdvson, then for the purposes of the deducton under secton
303(a)(3) or secton 303(b)(3), any bequest, egacy, devse, or transfer enu-
merated theren sha be vaued as of the date of decedent s death wth ad|ust-
ment for any dfference n vaue (not due to mere apse of tme or the occur-
rence or nonoccurence of a contngency) of the property as of the date one
year after the decedent s death (substtutng the date of sae or e change n
the case of property sod or e changed durng such 1-year perod).
(b) The amendment made by ths secton sha be effectve ony
wth respect to transfers of estates of decedents dyng after the date
of the enactment of ths ct.
Sec. 203. state ta Due date.
(a) Secton 305(a) of the Revenue ct of 192 s amended to read
as foows:
(a) The ta mposed by ths tte sha be due and payabe 15 months after
the decedent s death, and sha be pad by the e ecutor to the coector.
(b) Secton 305(c) of the Revenue ct of 192 s amended to read
as foows:
(c) If the tme for the payment s thus e tended there sha be coected, as
a part of such amount, nterest thereon at the rate of per centum per annum
from the e praton of three mouths after the due date of the ta to the
e praton of the perod of the e tenson.
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Mso.
(c) The amendments made by ths secton sha be effectve ony
wth respect to transfers of estates of decedents dyng after the date
of the enactment of ths ct.
tte amendments to gft ta .
Sec. 301. Gft ta rates.
(a) The gft-ta schedue set forth n secton 502 of the Revenue
ct of 15)32, as amended, s amended to read as foows:
Upon net gfts not n e cess of 10,000, 1 per centum.
150 upon net gfts of 10,000 and upon net gfts n e cess of 10,000 and not
n e cess of 20,000, 3 per centum n addton of such e cess.
150 upon net gfts of 20,000 and upon net gfts n e cess of 20,000 and
not n e cess of 30,000, 4 per centum n addton of such e cess.
900 upon net gfts of 30,000 and upon net gfts n e cess of 30,000 and not
n e cess of 40,000, per centum n addton of such e cess.
1,500 upon net gfts of 40,000 and upon net gfts n e cess of 40,000 and
not n e cess of 50,000, 7 per centum n addton of such e cess.
2,250 upon net gfts of 50,000 and upon net gfts n e cess of 50,000 and
not n e cess of 70,000, 9 per centum n addton of such e cess.
4,050 upon net gfts of 70,000 and upon net gfts n e cess of 70,000 and
not n e cess of 100,000, 10 /4 per centum n addton of such e cess.
7,200 upon net gfts of 100,000 and upon net gfts n e cess of 100,000
and not In e cess of 1200,000. 12 per centum n addton of such e cess.
19,950 upon net gfts of . 200,000 and upon net gfts n e cess of 200,000
and not n e cess of 400,000, 15 per centum n addton of such e cess.
49,950 upon net gfts of 400.000 and upon net gfts n e cess of 400,000
and not n e cess of 00,000, 17 er centum n addton of suc e cess.
84,450 upon net gfts of 00,000 and upon net gfts n e cess of 00,000
and not n e cess of 800,000, 19 /| per centum n addton of suc e cess.
123,450 upon net gfts of S00,000 and upon net gfts n e cess of 800,000
and not n e cess of 1,000,000, 21 per centum n addton of such e cess.
1 ,950 upon net gfts of 1,000,000 and upon net gfts n e cess of 1,000,000
nnd not n e cess of 1,500,000, 24 per centum n addton of suc e cess.
28 ,950 upon net gfts of 1,500,000 and upon net gfts n e cess of 1,500,000
and not n e cess of 2,000,000, 2 per centum n addton of suc e cess.
418,200 upon net gfts of 2,000,000 and upon net gfts n e cess of 2,000,000
and not In e cess of 2 500,000, 28 per centum n addton of such e cess.
5 0,700 upon net gfts of 2,500,000 and upon net gfts n e cess of 2,500,000
and not n e cess of 3,000,000, 30 per centum In addton of such e cess.
714,450 upon net gfts of 3,000,000 and upon net gfts n e cess of 3,000,000
and not n e cess of 3,500,000, 33 per centum In addton of such e cess.
879 450 upon net gfts of 3,500,000: and upon net gfts n e cess of 3,500,000
and not n e cess of 4,000,000, 3514 per centum n addton of such e cess.
1,055,700 upon net gfts of 4,000,000 and upon net gfts n e cess of
4,000,000 and not n e cess of 4,500,000, 37 per centum In addton of such
e cess.
1,243,200 upon net gfts of 4,500,000 and upon net gfts n e cess of
4,500,000 and not In e cess of 5,000,000, 39 per centum In addton of such
e cess.
1,441,950 upon net gfts of 5,000,000 and upon net gfts In e cess of
5,000,000 and not n e cess of ,000,000. 42 per centum n addton of such
e cess.
1,8 1,950 upon net gfts of ,000,000 and upon net gfts n e cess of
,000,000 and not n e cess of 7,000,000, 44 per centum In addton of such
e cess.
2,304,450 upon net gfts of 7,000,000 and upon net gfts n e cess of 7,000,-
000 and not n e cess of 8,000,000. 45 per centum n addton of such e cess.
2,7 1,950 upon net gfts of 8,000,000 and upon net gfts n e cess of
8,000,000 and not n e cess of 9,000,000, 47 per centum n addton of such
e cess.
3,234,450 upon net gfts of 0,000,000 and upon net gfts In e cess of 0,000,-
000 and not n e cess of 10,000,000, 48 per centum n addton of such e cess.
3,721,950 upon net gfts of 10,000,000 and upon net gfts n e cess of
10,000,000 and not n e cess of 20,000,000, 50 per centum n addton of such
e cess.
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5
8,740,950 upon net gfts of 20,000,000 and upon net gfts n e cess of
20,000,000 and not In e cess of 50,000,000, 51 per centum n addton of
such e cess.
24,271,950 upon net gfts of . .0,000,000 and upon net gfts In e cess of
50,000,000, 52 /2 per centum n addton of such e cess.
(b) Secton 505(a)(1) of the Revenue ct of 1932 (reatng to
the specfc e empton for gft-ta purposes) s amended by strkng
out 50,000 and nsertng n eu thereof 40,000.
(c) The amendments made by subsectons (a) and (b) of ths
secton sha be apped n computng the ta for the caendar year
193 and each caendar year thereafter (but not the ta for the
caendar year 1935 or a prevous caendar year), and such amend-
ments sha be apped n a computatons n respect of the caendar
year 1935 and prevous caendar years for the purpose of computng
the ta for the caendar year 193 or any caendar year thereafter.
TITL I MISC LL N OUS PRO ISIONS.
Sec. 401. mendments to Tte I of Revenue ct of 1932.
(a) Secton 20(3) of the Revenue ct of 1932, as amended, s
amended to read as foows:
(3) for the e cusve use of the Unted States, any State, Terrtory of the
Unted States, or any potca subdvson of the foregong, or the Dstrct of
Coumba.
(b) Secton 21(a)(3) of the Revenue ct of 1932, as amended,
s amended to read as foows:
(3) to a manufacturer, producer, or mporter, n the amount of ta pad
by hm under ths tte wth respect to the sae of any artce to any vendee,
f the manufacturer, producer, or mporter has n hs possesson such evdence
as the reguatons may prescrbe that on or after the 1st day of the second
month foowng the date of the enactment of the Revenue ct of 1935
( ) such artce was, by any person
(I) resod for the e cusve use of the Unted States, any State, Terrtory
of the Unted States, or any potca subdvson of the foregong, or the
Dstrct of Coumba
() used or resod for use as fue suppes, shp s stores, sea stores, or egt-
mate 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 racfc ports of
the Unted States or between the Unted States and any of ts possessons
() n the case of products embraced n paragraph (2) of secton 17(c),
ns amended, used or resod for use otherwse than as fue for the propuson of
motor vehce, motor boats, or arpanes, and otherwse than n the producton
of such fue: Provded, horcvcr. That no credt or refund sha be aowed or
made under ths paragraph n the case of saes or uses of products commony
or commercay known or sod as gasone, Incudng casnghead and natura
gasone
(v) n the case of ubrcatng os, used or resod for nonubrcatng pur-
poses.
( ) The manufacturer, producer, or mporter has repad or agreed to repay
the amount of such ta to the utmate vendor or has obtaned the consent
of the utmate vendor to the aowance of the credt or refund.
(c) Secton 21(c) of the Revenue ct of 1932, as amended, s
amended to read as foows:
(c) Interest sha he aowed at the rate of per centum per annum wth
respect to any amount of ta under ths tte credted or refunded, e cept that
no nterest sha be aowed wth respect to any amount of ta credted or
refunded under the provsons of subsecton (a) hereof, and e cept that no
nterest sha be aowed for any perod pror to the 1st day of the second
month foowng the date of the enactment of the Revenue ct of 1935.
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Msc.
(d) The amendments made by ths secton sha become effectve
on the 1st day of the second month foowng the date of the enact-
ment of ths ct.
Sec. 402. Compensatory ta on products or certan os.
Durng any perod after the thrteth day after the date of the
(1) a processng ta s n effect under secton 02 2 of the Revenue
ct of 1934, or
(2) an mport ta s n effect under secton 01(c)(8) of the
Revenue ct of 1932, as amended,
there s hereby mposed upon any artce (not wthn the scope
of ether such ta ) manufactured or produced whoy or n chef
vaue from any one or more of the os sub|ect to ether such ta ,
when such artce s mported nto the Unted States from any
foregn country or from any possesson of the Unted States or from
the hgh seas, a compensatory ta equvaent to the ta whch woud
be payabe under such secton 02 2 or 01(c)(8) upon such o or
os f mported nto the Unted States or f processed n the Unted
States. The ta mposed by ths secton sha be eved, coected, and
pad n the same manner as a duty mposed by the Tarff ct of 1930,
and sha be treated, for the purposes of a provsons of aw (e cept
secton 33 of such ct) not nconsstent wth ths secton, as a duty
mposed by such ct. ta es coected under ths secton on
account of coconut o produced from materas whoy of Phppne
growth or producton, sha be hed as a separate fund and pad to
the treasury of the Phppne Isands, but f at any tme the
Phppne Government provdes by any aw for any subsdy to be
pad to the producers of copra, coconut o, or aed products, no
further payments to the Phppne treasury sha be made under
ths secton.
Sec. 403. Speca e cse ta on carryng on quor busness.
The speca e cse ta mposed by secton 701 of the Revenue ct
of 192 (U. S. C, Tte 2 , secton 20 ) sha not appy wth respect to
carryng on busness after une 30, 1935.
Sec. 404. Interest on denquent ta es.
Notwthstandng any provson of aw to the contrary, nterest
accrung durng any perod of tme after the date of the enact-
ment of ths ct upon any nterna-revenue ta (ncudng amounts
assessed or coected as a part thereof) or customs duty, not pad
when due, sha be at the rate of per centum per annum.
Sec. 405. Decaratory |udgments as to ta es.
(a) Paragraph (1) of secton 274d of the udca Code (Pubc,
No. 343. Seventy-thrd Congress) s amended by addng after the
words actua controversy the foowng: (e cept wth respect
to edera ta es).
(b) The amendment made by subsecton (a) of ths secton sha
appy to any proceedng now pendng n any court of the Unted
States.
Sec. 40 . aure to fe returns.
In the case of a faure to make and fe an nterna-revenue ta
return requred by aw, wthn the tme prescrbed by aw or pre-
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5 8
scrbed by the Commssoner n pursuance of aw, f the ast date
so prescrbed for fng the return s after the date of the enactment
of ths ct, f a 25 per centum addton to the ta s prescrbed by
e stng aw, then there sha be added to the ta , n eu of such
25 per centum: 5 per centum f the faure s for not more than 30
days, wth an addtona 5 per centum for each addtona 30 days
or fracton thereof durng whch faure contnues, not t e ceed 25
per centum n the aggregate.
Sec. 407. Ta es on crude petroeum.
ffectve on the 1st day of the frst caendar month foowng
the date of the enactment of ths ct, sectons 04 and 05 of the
Revenue ct of 1934 (reatng to ta es on producton attd refnng
of crude petroeum) are amended by strkng out 1/10 of 1 cent
per barre wherever appearng theren and nsertng n eu thereof
1/25 of 1 cent per barre.
tte v genera provsons.
Sec. 501. Defntons.
a) When used n 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.
(3) The term domestc when apped to a corporaton or part-
nershp means created or organzed n the Unted States or under
the aw of the Unted States or of any State or Terrtory.
(4) The term foregn when apped bo a corporaton or part-
nershp means a corporaton or partnershp whch s not domestc
(5) The term stock ncudes the share n an assocaton, |ont-
stock company, or nsurance company.
( ) The term sharehoder ncudes a member n an assoca-
ton, |ont-stock company, or nsurance company.
(7) The term Unted States when used n a geographca
sense ncudes ony the States, the Terrtores of aska and awa,
and the Dstrct of Coumba.
8) The term Secretary means the Secretary of the Treasury.
9) The term Commssoner means the Commssoner of In-
terna Revenue.
(10) The term coector means coector of nterna revenue.
(b) The terms ncudes and ncudng when used n a defn-
ton contaned n ths ct sha not be deemed to e cude other thngs
otherwse wthn the meanng of the term defned.
Sec. 503. ffectve date of ct.
If any provson of ths ct, or the appcaton thereof to any
person or crcumstances, s hed nvad, the remander of the ct,
and the appcaton of such provsons to other persons or crcum-
stances, sha not be affected thereby.
Sec. 503. ffectve date of ct.
cept as otherwse provded, ths ct sha take effect upon ts
enactment.
pproved ugust 30, 1935, at p. m.
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I -43-77G2
. R. 9100. PU LIC, NO. 402, S NTY- OURT CONGR SS.
n ct To stabze the btumnous coa-mnng ndustry and pro-
mote ts nterstate commerce to provde for cooperatve marketng
of btumnous coa to evy a ta on btumnous coa and provde
for a drawback under certan condtons to decare the producton,
dstrbuton, and use of btumnous coa to be affected wth a
natona pubc nterest to conserve the btumnous coa resources
of the Unted States to provde for the genera wefare, and for
other purposes and provdng penates.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

T ON ITUMINOUS CO L.
Sec. 3. There s hereby mposed upon the sae or other dsposa of
a btumnous coa produced wthn the Unted States an e cse ta
of 15 per centum on the sae prce at the mne, or n the case of captve
coa the far market vaue of such coa at the mne, such ta , sub|ect
to the ater provsons of ths secton, to be payabe to the Unted
States by the producers of such coa, and to be payabe monthy for
each caendar month, on or before the frst busness day of the second
succeedng month, and under such reguatons, and n such manner,
as sha be prescrbed by the Commssoner of Interna Revenue:
Provded, That n the case of captve coa produced as aforesad, the
Commssoner of Interna Revenue sha f a prce therefor at the
current market prce for the comparabe knd, quaty, and sze of
coas n the ocaty where the same s produced: Provded further,
That any such coa producer who has fed wth the Natona
tumnous Coa Commsson hs acceptance of the code provded
for n secton 4 of ths ct, and who acts n compance wth the
provsons of such code, sha be entted to a drawback n the form
of a credt upon the amount of such ta payabe hereunder,
equvaent to 90 per centum of the amount of such ta , to be aowed
and deducted therefrom at the tme settement therefor s requred,
n such manner as sha be prescrbed by the Commssoner or
Interna Revenue. Such rght or beneft of drawback sha appy
to a coa sod or dsposed of from and after the day of the
producer s fng wth the commsson hs acceptance of sad code
n such form of agreement as the commsson may prescrbe. No
producer sha by reason of hs acceptance of the code provded for
n secton 4 or of the drawback of ta es provded n secton 3 of ths
ct be hed to be precuded or estopped from contestng the
consttutonaty of any provson of sad code, or ts vadty as
appcabe to such producer.

Sec. 7. provsons of the aw, ncudng penates and refunds,
reatng to the coecton and dsposton of nterna revenue ta es,
sha, n so far as appcabe and not nconsstent wth the provsons
of ths ct, be appcabe wth respect to ta es mposed under ths
ct.

47318 3 19
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570
Sec. 19. The term btumnous coa as used n ths ct sha
ncude a btumnous, sembtumnous, and subbtumnous coa and
gnte. The term producer sha ncude a persons, frms, asso-
catons, corporatons, trustees, and recevers engaged n mnng btu-
mnous coa. The term captve coa sha ncude a coa pro-
duced at a mne for consumpton by the producer or by a subsdary
or affate thereof, or for use n the producton of coke or other forms
of manufactured fue by such producer or subsdary or affate.
Sec. 20. Secton 3 of ths ct sha become effectve on the 1st day
of the thrd caendar month after the enactment of ths ct, uness
the commsson sha not at that tme have formuated the code and
forms of acceptance for membershp theren, n whch event secton
3 of ths ct sha become effectve from and after the date when the
commsson sha have formuated the code and such forms for accept-
ance, whch date sha be promugated by ecutve order of the
Presdent of the Unted States. other sectons of ths ct sha
become effectve on the day of the approva of ths ct.
Sec. 21. Ths ct sha cease to be n effect and any agences estab-
shed thereunder sha cease to e st on and after four years from
the date of the approva of ths ct.

Sec. 23. Ths ct may be cted as the tumnous Coa Conser-
vaton ct of 1935.

pproved ugust 30, 1935.
I -33-7 55
RUL S O PR CTIC OR T UNIT D ST T S O RD O T
PP LS. R IS D TO ULY 1, 1935.
These rues are promugated pursuant to authorty of secton 907(a) of the Revenue
ct of 1024. as amended by secton 01 of the Revenue ct of 1928, whch provdes a
part that The proceedngs af the oard and ts dvsons sha be conducted n accordance
wth such rues of practce and procedure (other than rues of evdence) as the oard may
prescrbe and n accordance wth the rues of evdence appcabe n courts of equty of
the Dstrct of Coumba.
uu 1. usness ours.
The offce of the oard at Washngton, D. C, wU be open each busness day
from 9 o cock a. m. to 4.30 o cock p. m.
Rue 2. dmsson to Practce.
regster w be mantaned by the oard n whch w be entered the names
of a persons entted to practce before the oard. Corporatons and frms
w not be admtted or recognzed.
The foowng casses of persons whom the oard fnds, upon consderaton
of ther appcatons, to be ctzens of the Unted States, of good mora char-
acter, and to possess the requste quafcatons to represent others may be
admtted to practce before the oard:
(a) ttorneys at aw who are admtted to practce before the Supreme
Court of the Unted States or the hghest court of any State or Terrtory or the
Dstrct of Coumba.
( ) Certfed pubc accountants duy quafed under the aw of any State
or Terrtory or the Dstrct of Coumba.
u appcaton under oath for admsson to practce sha be addressed to
the Unted States oard of Ta ppeas, Washngton, D. C., and must state
the name, resdence address, and offce address of the appcant, the appcant s
connecton as a member or assocate of any frm of attorneys or accountants,
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the names of any professona socetes of whch appcant s a member, and the
tme and pace of hs admsson to the bar, or quafcaton as a certfed
pubc accountant. The appcaton of an attorney at aw sha aso state
whether the appcant has ever been suspended or dsbarred from practce as an
attorney n any court or before any department or agency of the Unted
States. The appcaton of a certfed pubc accountant sha aso state
whether appcant has been suspended or e peed from any professona so-
cety or socety of certfed pubc accountants, whether hs rght to practce
as a certfed pubc accountant as ever been suspended or revoked n any
|ursdcton and whether appcant has ever been suspended or dsbarred from
practce before any department or agency of the Unted States. Such app-
caton sha be accompaned by a certfcate of the cerk of the court n whch
the appcant s admtted to practce to the effect that he has been so admtted
and s n good standng or a certfcate by the proper State, Terrtora, or
Dstrct authorty to the effect that the appcant s a certfed pubc account-
ant n good standng, duy quafed and entted to practce n such State
or Terrtory or the Dstrct of Coumba. ach appcant sha take an oath
n the form prescrbed by the oard.
The oard may, n ts dscreton, deny admsson to, suspend, or dsbar any
person who, t fnds, does not possess the requste quafcatons to represent
others, or s ackng n character, ntegrty, or proper professona conduct. n
attorney or certfed pubc accountant who has been admtted to practce may
be dsbarred ony after he has been afforded an opportunty to be heard.
The oard sha have the rght at any tme to requre a statement, under
oath, of the terms and crcumstances of any contract of empoyment of an at-
torney or certfed pubc accountant wth the ta payer he represents.
ny ndvdua ta payer or member of a ta payer partnershp may appear
for hmsef or such partnershp upon adequate dentfcaton to the oard.
ta payer corporaton may be represented by a bona fde offcer of the cor-
poraton upon permsson granted, n ts dscreton, by the oard or the dvson
sttng.
orms for use n makng appcaton for admsson to practce w be
furnshed upon request.
papers fed wth the oard sha be ether prnted or typewrtten, and f
typewrtten sha be on cne sde of pan whte paper ony, whch sha be
not more than 8 /| nches wde and 11 nches ong, weghng not ess than 10
pounds to the ream, foo base 17 by 22 nches, and fastened on the eft sde.
Copes sha be egbe, but may be on any weght paper. If prnted, they sha
be n 10 or 12 pont type, on good ungazed paper, 5 nches wde by 9 nches
ong, wth nsde margn not ess than 1 nch wde, and wth doube-eaded
te t and snge-eaded quotatons. Ctatons sha be n tacs.
cept when otherwse provded n these rues, a sgned orgna and four
conformed copes of a papers sha be fed. Wherever any paper s fed n
more than one proceedng (as a moton to consodate proceedngs or n pro-
ceedngs aready consodated), one addtona copy sha be fed for each
addtona proceedng.
proceedng sha be ntated by fng wth the oard a petton, as pro-
vded n rues , 7, and 8. The petton sha be compete n tsef so as fuy
to nform the oard of the ssues to be presented. It sha contan:
(a) capton n the foowng form:
ue 4. orm and Stye of Papers.
Rue 5. Intaton of a Proceedng Petton.
UNIT D ST T S O RD O T rP LS.
Commssoner of Interna Revenue, respondent.
v.
, pettoner,
petton.
( ) Proper aegatons showng |ursdcton In the oard,
(c) statement of the amount of the defcency or abty, as the case may
be , determned by the Commssoner, the nature of the ta , the perod for
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572
whch determned, and the amount thereof (as neary as may be computed) In
controversy.
(d) Cear and concse assgnments of each and every error whch the pet-
toner aeges to have been commtted by the Commssoner n the determna-
ton of the defcency. Issues n respect of whch the burden of proof s by
statute paced upon the Commssoner w not be deemed to be rased by the
pettoner n the absence of assgnments of error n respect thereof. ach
assgnment of error sha be numbered.
(c) Cear and concse numbered statements of the facts upon whch the
pettoner rees as sustanng the assgnments of error, e cept those assgn-
ments of error n respect of whch the burden of proof s by statute paced upon
the Commssoner.
(/) prayer, settng forth reef sought by the pettoner.
(g) The sgnature of the pettoner or that of hs counse. The sgnature
of counse sha be n ndvdua and not n frm name. The name and mang
address of the pettoner or of counse sha be typed or prnted mmedatey
foowng the sgnature.
verfcaton by the pettoner provded that where the pettoner s so-
|ournng outsde the Unted States or s a nonresdent aen, the petton may
be verfed by a duy apponted attorney n fact, who sha attach to the pet-
ton 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.
In the case of estates, trusts, or other fducares, the petton sha be sgned
by counse or by one or more of the fducares and sha be verfed by one or
more of the fducares. ma|orty of the fducares sha ether sgn or
verfy the petton.
The sgnature and the verfcaton to the petton sha be consdered the
certfcate of those performng these acts that there s good ground for the
I etton, that the proceedng has not been nsttuted merey for deay, and s
not frvoous.
copy of the notce of defcency or abty, as the case may be , wth
accompanyng statements, f any, so far as matera to the ssues set out n
the assgnments of error, sha be appended to the petton.
(See orm No. 2.)
Rue . Desgnaton or Partes.
The proceedng sha be brought by and n the name of the person aganst
whom the Commssoner determned the defcency or abty, as the case may
be , or by and In the fu descrptve name of the fducary egay entted to
Insttute a proceedng on behaf of such person. If an ndvdua, the fu
gven name and surname sha be set forth In the capton. If a marred woman,
her gven name sha be used. If a fducary, both the names of the fducary
and of the estate, trust, or other person for whom he acts sha be used. In the
event of a varance between the name set forth n the notce of defcency or
abty and the correct name, a statement of the reasons for such varance
sha be set forth n the petton.
The proper capton sha be paced on a papers fed.
Rue 7. ng or Petton.
n orgna and four cear copes of the petton, ether prnted or typewrtten
as provded n rue 4, sha be fed wth the oard at Washngton, D. C. The
copes of the petton sha be conformed to the orgna by the pettoner.
aure to fe a suffcent number of copes, as provded n ths rue, or to
conform to the requrements of rue 5 or of rue 8, sha be ground for dsmssa
of the proceedng.
Rue 8. ee for ng Petton.
fee of 10, whch shoud accompany the petton, s hereby mposed for
the fng of any petton.
Rue 11. Docket.
Upon recept of the petton the proceedng w be docketed and assgned a
number and the partes notfed thereof. Ths number sha be paced by ta
partes on a papers thereafter fed n the proceedng.
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Rue 12. Sebvce on the Commssoner.
Upon fng of a petton and the copes, as prescrbed n rue 7, the cerk w
serve a copy upon the Commssoner.
The Commssoner sha not be requred to answer any petton uness and
unt he has been served wth a copy thereof as heren provded.
Servce of a copy of the petton on the Commssoner, or a person desgnated
by hm, sha suffce n eu of process.
Rue 14. nswer.
fter servce upon hm of a copy of the petton, the Commssoner sha
have 0 days wthn whch to fe an answer or 45 days wthn whch to move
n respect of the petton. The answer sha be so drawn as fuy and com-
petey to advse the pettoner and the oard of the nature of the defense.
It sha contan a specfc admsson or dena of each matera aegaton of
fact contaned n the petton and a statement of any facts upon whch the
Commssoner rees for defense or for affrmatve reef or to sustan any ssue
rased n the petton n respect of whch ssue the burden of proof s, by
statute, paced upon the Commssoner. ach paragraph contaned n the
answer sha be numbered to correspond wth the paragraphs of the petton. n
orgna and four copes of the answer sha be fed, of whch the orgna
sha be sgned by the Commssoner or hs counse and the copes conformed
by hm.
The cerk w serve one copy of the answer upon the pettoner or hs
counse of record by regstered ma.
Rue 15. Repy.
If the answer of the Commssoner sets forth facts upon whch he rees
for affrmatve reef, or contans a statement of the facts upon whch he
rees to sustan an ssue n respect of whch the burden of proof Is paced
upon hm by statute, the pettoner sha, wthn 45 days after a copy of such
answer s maed to hm or hs counse of record by regstered ma, fe a repy
whch sha contan a specfc admsson or dena of each matera aegaton of
fact contaned n the answer and sha set forth any facts upon whch he rees
for defense. ach paragraph contaned n the repy sha be numbered to cor-
respond wth the paragraphs of the answer. n orgna and four copes of
the repy sha be fed, of whch the orgna sha be sgned by the pettoner
or hs counse and the copes conformed by hm.
The cerk w erve one copy of the repy upon the Commssoner.
Rue 1 . onder of Issue.
proceedng sha be deemed at Issue upon the fng of the answer uness
a repy s requred under rue 15, n whch event the proceedng sha be deemed
at ssue upon the fng of the repy.
Rue 17. mended and Suppementa Peadngs.
The pettoner may, as of course, amend hs petton at any tme before
answer s fed. fter answer s fed, a petton may be amended ony by
consent of the Commssoner or on eave of the oard.
Upon moton made, the oard may, n ts dscreton, at any tme before the
concuson of the hearng, permt a party to a proceedng to amend the peadngs
to conform to the proof. motons to amend, made pror to the hearng,
must be accompaned by the proposed amendments or amended peadng.
When motons to amend are granted at the hearng, the amendment or amended
peadng sha be fed at the hearng or wth the oard wthn such tme as
may be f ed.
Rue 18. Peadngs Genera.
further and better statement of the nature of the cam or defense, or
of any matter stated n any peadng, may be ordered n any proceedng.
ach and every matera aegaton of fact set out In the petton and not
dened n the answer, or set out n the answer and not dened n the repy,
where a repy Is requred by these rues, sha be deemed to be admtted.
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If no repy a requred by these roes, each and every matera aegaton of
fact set out In the answer sha be deemed to be dened.
ny new or affrmatve matter contaned n the repy sha be deemed to
be dened.
Rue 19. tensons op Tme.
Contnuances, e tensons of tme (e cept for the fng of the petton and
e cept as otherwse provded n these rues), and ad|ournments may be
ordered by the oard on ts own moton or may be granted by It In Its ds-
creton on moton of ether party fed n wrtng and showng good and
suffcent cause therefor.
Rue 20. Servce on Counse.
Servce of any peadng, order, or notce upon any counse of record sha
be deemed servce thereof upon the party. When at any tme there are two
or more counse of record for a pettoner, servce sha be made upon the
one whose appearance was frst entered of record, uness he has otherwse
requested by wrtng fed wth the oard, n whch event servce sha be
upon such other counse of record as may be desgnated by hm.
In case there s no counse of record for a pettoner, servce sha be made
upon the pettoner.
Rue 21. Substtuton ob Wthdrawa of Counse Notce of ppearance.
No wthdrawa of counse of record n any proceedng sha be permtted
uness he gves prompt and tmey notce of such wthdrawa to the oard
and to hs cent: Provded, That In any event, the oard may, n ts ds-
creton, wthhod permsson. Where the petton s not subscrbed by counse,
or counse has wthdrawn, counse subsequenty appearng for the pettoner
sha mmedatey fe a notce of appearance, whch sha ncude statements
of hs admsson to practce before the oard and of the mang address of
such counse.
Notce of a change n the mang address of counse or pettoner sha
be prompty fed wth the oard n each pendng proceedng affected thereby.
Rue 24. Caendabs.
(a) Genera caendar. proceedngs w, as of course, be paced upon
the genera caendar when at ssue.
( ) Crcut caendar. proceedng whch s at ssue may, n the dscreton
of the oard and upon tmey moton, be paced upon the crcut caendar for
hearng outsde Washngton.
(c) Day caendar. The cerk w, from tme to tme as drected by the
charman, prepare a day caendar of the proceedngs to be heard n Washngton
and esewhere.
(d) Reserve caendar. proceedng whch s at ssue may be paced on
the reserve caendar for good cause shown, as for e ampe, to awat the decson
of the Supreme Court n a case pendng.
Rue 25. Notce of earng.
When a proceedng has been paced upon the day caendar the cerk w,
not ess than 15 days n advance, notfy the partes of the pace where and
the date when t w be caed upon the day caendar.
Rut |o 27. Ca of Caendar and ssgnment fob earng.
The day caendar of proceedngs to be heard at Washngton w be caed
at 9.80 a. m. The day caendar of proceedngs to be heard esewhere w be
caed at the tme ndcated n the notce of hearng. Proceedngs w be
assgned therefrom for hearng n due course.
Rue 29. Submsson Wthout Pebsona ppearance,
proceedng n whch ssue as been |oned, n whch no ssue of fact s
rased, or n whch evdence of contested facts has been submtted other than
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575
Msc.
by ora hearng before the oard, or one n whch there s a contested moton
not predcated on nn ssue of fact, and both partes are not present n person
or by counse at the tme of hearng, w be regarded as submtted on the part
of the absent party or partes. refs may be fed n eu of persona appear-
ance, but the oard may, n ts dscreton, requre appearance for argument.
Testmony taken by deposton w not be consdered unt offered and re-
ceved n evdence.
Where there s a |onder of Issue on questons of fact, the provsons of ths
rue reatve to submsson wthout argument sha not reeve the party upon
whom rests the burden of proof from adducng ut the hearng proper evdence
In support of the ssues. Statements n the petton, e parte affdavts, and
brefs do not consttute evdence. aure to adduce evdence n support of
the matera facts aeged n the petton and dened by the Commssoner In
hs answer w be ground for dsmssa.
Rue 30. urden of Proof.
The burden of proof sha be upon the pettoner, e cept as otherwse pro-
vded by statute and e cept that n respect of any new matter peaded In
hs answer, t sha be upon the respondent.
Rue 31. Dsmssa.
proceedng may be dsmssed for cause upon moton of ether party or
upon the oard s moton.
Rue 32. Motons.
Motons must be tmey. If a moton, other than one reatng to the recept
of evdence durng tra, s made oray durng tra, the maker thereof sha
prompty reduce t to wrtng and fe t wth the oard uness the member
presdng drects otherwse. Motons sha be prepared n the form and
stye prescrbed by rue 4. The cerk w serve a copy of each moton upon
the opposte party. Motons w be acted upon as |ustce may requre and
may, n the dscreton of the oard, be paced upon the day caendar for
argument.
The fng of a moton sha not consttute cause for postponement of a
hearng from the date set.
Rue 35. refs.
The fng of brefs sha be n accordance wth the drectons of the mem-
ber presdng at the hearng. If a 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 on a of the Issues as to whch he has the burden
of proof the opposte party sha have 75 days after the day on whch the
hearng was concuded wthn whch to fe a bref on a such ssues
and the frst party sha have 90 days after the day on whch the hearng
was concuded wthn whch to fe a bref for the purpose of repyng to that
of hs opponent. No moton for e tenson of any of these perods sha be
fed In any case. Shoud ether party desre to fe a bref after the e -
praton of the prescrbed perod, that party sha prepare and attach the
orgna and requste number of copes of hs proposed bref to a moton
askng eave of the oard to fe the bref and settng forth reasons for the
request. The grantng of any such moton w effect a correspondng e ten-
son of the tme for fng any subsequent bref provded for n ths rue.
fter a bref has been fed, the cerk w serve a copy of t upon the oppo-
ste party.
If brefs are typewrtten, an orgna and 4 copes sha be fed If prnted,
20 copes. very bref sha contan on ts front fyeaves a tabe of con-
tents wth page references, suppemented by a st of a ctatons, aphabet-
cay arranged as to cases cted, together wth references to pages. The form
of a brefs sha be as foows:
(a) statement of the nature of the ta and how the proceedng comes
before the oard.
( ) concse statement of the facts by the party havng the burden of
proof, wth references to the pages of the transcrpt or to the e hbts reed
upon n support of each statement. If the other party dsagrees wth ths
statement, he must state n ths part of hs bref each correcton whch he
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Msc.
57
deems necessary In hs opponent s statement, wth references to the pages
of the transcrpt r to the e hbts whch he rees upon n support of each
proposed correcton.
(c) concse statement of the ponts upon whch the party rees.
( /) The argument.
Rue 37. Substtuton of Pabtes.
In the event of the death of a pettoner or for other cause, the oard may
order the substtuton of the proper partes. In event of mstake n the name
or tte of a proper party the oard may order substtuton of the proper name
or tte n any proceedng before the oard.
Motons for substtuton shoud be accompaned by a proper certfcate of the
court or offca havng custody of the record showng the nterest of the party
substtuted. In the event of a change of name of a corporaton or other party
pettoner, a moton to amend the peadngs to show such change shoud be fed,
accompaned by a certfed copy of the certfcate, decree, or other document,
effectng such change, certfed by the offca havng custody of such document
Rue 38. Stpuatons.
The partes may, by stpuaton n wrtng, In dupcate, fed wth the oard
or presented at the hearng, agree upon any facts nvoved n the proceedng.
Rue 39. vdence.
The rues of evdence appcabe In courts of equty of the Dstrct of Coum-
ba sha govern the admsson or e cuson of evdence before the oard or any
of ts dvsons.
Rue 40. Transcrpts of Proceedngs.
earngs before the oard or ts dvsons sha be stenographcay reported
and a transcrpt thereof sha be made f, n the opnon of the oard or of the
dvson hodng the hearng, a permanent record of the hearng Is deemed
necessary. Transcrpts sha be supped to the partes and to the pubc by the
offca reporter at such rates as may be f ed by contract between the oard and
the reporter.
Rue 43. Documentary vdence.
(a) When books, records, papers, or documents have been receved In ev-
dence, a copy thereof or of so much thereof as may be matera or reevant may,
In the dscreton of the dvson hodng the hearng, be substtuted therefor.
( ) fter the decson of the oard n any proceedng has become fna the
oard may, upon moton of ether party, permt the wthdrawa by the party
entted thereto of orgnas of books, documents, and records, and of modes,
dagrams, and other e hbts, Introduced In evdence before the oard or any
dvson or the oard may, on ts own moton, make such other dsposton
thereof as t deems advsabe.
Rue 44. Subpenas.
(a) ow ssued. The party desrng a subpena must make a tmey appca-
ton therefor, n wrtng.
( ) ppcaton for. The appcaton sha state the name and address of
each wtness requred, the tme and pace at whch and the person before whom
he s to appear, and whether he may desgnate some one to appear n hs pace.
n orgna and two conformed copes sha be fed.
(See orm No. 3.)
(c) or producton of documents. If evdence other than ora testmony Is
requred, such as documents or wrtten data, the appcaton sha set forth the
specfc matter to be produced and suffcent facts to ndcate that such matter
s reasonaby necessary to estabsh the cause of acton or defense of the
appcant.
(d) Servce and proof. The oard w not serve subpenas, but w eave
servce to be procured by the party makng the appcaton. Servce may be
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577
Msc.
made by any ctzen of the Unted States over the age of 21 years and com-
petent to be a wtness, and not a party to or n any way nterested n the
proceedng. Proof of servce may be made by affdavt.
Rue 45. Depostons.
Depostons may be taken n accordance wth the foowng rues:
(a) ppcaton to take. When ether party proposes to take a deposton,
a verfed appcaton, wth two conformed copes, sha be fed wth the oard
settng forth the foowng:
(1) The name and post-offce address of the wtness whose deposton s pro-
posed to be taken.
(2) The sub|ect matter or matters concernng whch the wtness s to testfy,
together wth a statement of the reasons why t s desred to take the depos-
tons and why the wtness shoud not be requred to appear personay and
testfy at the hearng.
(3) The tme and pace of takng the deposton and the name, post-offce
address, and offca desgnaton of an ndvdua competent to admnster oaths
under the Revenue ct of 102 before whom t Is proposed that the deposton
sha he taken.
(See orm No. 5.)
(b) Order for. Upon recept of such appcaton, the cerk w serve a copy
thereof on the opposte party, and aow a reasonabe tme for ob|ecton thereto.
Thereafter, the oard w, n ts dscreton, make an order, copy of whch w
be maed or devered to the partes or ther counse, wheren the oard w
name the wtness whose deposton s to be taken and specfy the tme when,
the pace where, and the offcer before whom the wtness s to testfy, but such
tme and pace and the offcer before whom the deposton s to be taken, so
specfed n the oard s order, may or may not be the same as those named n
the appcaton to the oard. The appcant sha thereupon make a necessary
arrangements for the takng of the depostons and sha furnsh the offcer
before whom they are to be taken wth a copy of the order above mentoned.
(c) y stpuaton. t any tme after ssue s |oned the partes or ther
counse may, by stpuaton duy sgned and fed, take depostons. In such
cases the stpuaton sha state the name and address of each wtness, the
tme when and the pace where such depostons w be taken, and the name,
address, and offca tte of the offcer before whom t s proposed to take the
deposton. In such cases no order to take such deposton w be ssued,
but such deposton sha be taken and returned by the offcer n accordance
wth the rues of the oard.
( ) Manner of takng. ach queston propounded to the wtness must be
recorded and hs answers must be taken down n hs own words.
Ob|ectons to questons or answers sha be e pcty but brefy and con-
csey stated, but no comment, e panaton, or argument of any knd sha be
recorded nether sha there be recorded any comment, e panaton, or argu-
ment by e amnng counse. ny matter reported n voaton of ths rue
may be suffcent cause for the suppresson of the deposton.
Rue 4 . Genera Provsons as to Depostons.
(a) Other wtnesses to be e cuded. t the request of ether party a person
whom ether e pects or ntends to ca as wtness n the same case or n any
kndred case sha be e cuded from the room where the testmony of a wtness
Is beng taken. If such person remans n the room or wthn hearng of the
e amnaton after such request has been made, he sha not thereafter be ad-
mtted to testfy n the case or any kndred case e cept by the consent of the
party who requested hs e cuson.
( ) Oath. Wtnesses must be sworn or affrmed before any questons are
put to them.
(c) Depostons to be snned. The testmony of the wtness when transcrbed
sha be read over to or by hm and be sgned by hm.
(d) What return must show. In hs return the offcer must show that the
wtness was propery sworn or affrmed and that the questons and answers
were taken down n hs presence.
(See orm No. .)
(e) Sheets to be attached. The offcer must so fasten the sheets of the dep-
oston that they can not be tampered wth. e must spare no pans to re-
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Msc.
578
turn to tbe oard the e act testmony he has taken. e hbts most be
carefuy marked so as to be capabe of Identfcaton and when practcabe
must be attached to the deposton.
(f) Capton. The offcer must state In the capton of the deposton the
cause n whch It was taken, the pace and date of takng, the name of the
wtness, the party by whom caed, and the names of partes and counse
present, and In the body of the deposton must show by whom the wtness was
e amned and cross-e amned.
(g) uafcaton of offcer. In no case sha a deposton be taken before
any person who has any offce connecton or busness empoyment wth the ta -
payer or hs counse e cept by consent of partes and when no other offcer s
avaabe, and n hs certfcate to such deposton such offcer sha so certfy.
( ) Return of. The offcer must Incose the orgna depostons and e hbts,
together wth two copes of the depostons, In a seaed packet, wth postage or
charges prepad, and drect and ma or e press the same to the Unted States
oard of Ta ppeas, Washngton, D. C. In each case the orgna of tbe
depostons must be drected and maed or e pressed to the oard. The offcer
may, upon wrtten request, dever a copy of the depostons to ether or to both
of the partes, or to ther representatves, n eu of sendng such copes to the
oard as above provded. If one or both of the requred copes are devered
by the offcer takng the depostons, he sha attach to hs return the wrtten
request of the party or partes, or of ther counse to whom such copy or copes
were devered, and sha state n hs certfcate of return the fact of devery by
hm of such copy or copes. If copes of the depostons are devered by the
offcer takng the same, no servce of copes of such depostons upon the paty
or hs counse of record w be made by the oard.
U) Lmtaton on tme for appcaton to take. ppcatons to take depos-
tons must be fed at east 30 days pror to the date set for the hearng of
the proceedng and such depostons must be competed and fed wth the oard
at east 10 days pror to the hearng: Provded, Such appcatons w not be
regarded as suffcent ground for the grantng of a contnuance from the date
or pace of the hearng theretofore set, uness the proceedng sha have been
at ssue ess than 0 days and the moton for contnuance sha have been fed not
ess than 20 days pror to sad date of hearng: Provded further. That under spe-
ca crcumstances, and for good cause shown, the oard may otherwse order.
()) The deposton of any wtness sha not consttute a part of the record
unt receved n evdence. (See rue 29.)
Rum 47. Dspostons on Wrtten Interrogatores.
Depostons may be taken In the dscreton of the oard on wrtten Interrog-
atores In substantay the same manner as provded In rues 43 and 4 for
depostons on ora e amnatons. The nterrogatores must be fed wth the
appcaton n trpcate and a copy thereof w be served upon, or maed to,
the opposte party by the cerk. Wthn 10 days after such notce such opposte
party may fe wth the oard hs ob|ectons, f any, to such nterrogatores,
together wth any cross-nterrogatores he desres to propose. If he fe cross-
nterrogatores, they sha be fed wth the oard n trpcate and one copy
thereof w be forwarded to the opposte party, or hs counse, who sha wthn
10 days thereafter fe hs ob|ectons, f any, to such cross-nterrogatores. No
ob|ectons to the nterrogatores or cross-nterrogatores w be consdered at the
hearng uness taken before the order for the takng of the deposton ssues.
When a deposton s taken upon wrtten Interrogatores and cross-nterroga-
tores nether the counse for the ta payer nor for the Commssoner, nor any
person other than the wtness, a stenographc reporter, and the offcer takng
tbe deposton sha be present at the e amnaton of the wtness, whch fact
sha be certfed by the offcer takng the deposton, who sha n such case
propound the Interrogatores and cross-nterrogatores to the wtness In ther
order and reduce tbe testmony to wrtng n the wtness s own words.
Depostons obtaned n foregn countres must be taken on wrtten nterroga-
tores.
Rue 50. Settement.
When the oard determnes the ssues n any proceedng and wthhods dec-
sons of the defcency or overpayment for ater computaton, the partes sha,
f they are n agreement as to the amount of the defcency or overpayment, n
accordance wth the report of the oard, fe wth the oard an orgna and
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579
Msc.
two copes of a computaton showng the amount for entry of decson forthwth.
If the partes are not n agreement as to the amount to be entered n the
decson, ether of them may fe wth the oard a computaton of the defcency
or overpayment beeved by hm to be n accordance w .h the report of the
oard. The cerk w serve a copy thereof upon the opposte party and w
thereupon pace the matter upon the day caendar for hearng n due course and
gve the usua notce. If the opposte party fas to fe ob|ecton, accompaned
by an aternatve computaton, wthn fve days pror to the date of such hear-
ng, or any contnuance thereof, the defcency or overpayment shown n the
computaton aready submtted sha be taken to be correct and decson thereon
w be entered. If the partes submt dfferent computatons and amounts,
they w be afforded an opportunty to be heard thereon on the date f ed, and
the oard w determne the correct defcency or overpayment and enter ts
decson.
ny hearng under ths rue w be confned strcty to the consderaton of
the correct computaton of the defcency or overpayment resutng from the
report aready made, and no argument w be heard upon or consderaton gven
to the ssues or matters arendy dsposed of by such report or of any new ssues.
Ths rue s not to be regarded as affordng an opportunty for rehearng or
reconsderaton.
Rue 51. Costs Preparaton op Record on Revew.
Immedatey after the contents of a record on revew have been setted or
agreed to, the cerk w notfy the pettoner of the costs and charges for the
preparaton, comparson, and certfcaton of sad records such charges to be
determned n accordance wth the provsons of an ct of Congress entted
n ct to provde fees to be charged by cerks of the dstrct courts of the
Unted States, approved ebruary 11, 1925 (43 Stat., 857-858 U. S. C. .,
Tte 28, sectons 548-54).
No transcrpt w be certfed and transmtted to the appeate court unt
the cost and charges therefor have been pad.
pettoner for revew who requests the cerk to certfy but not to prepare
documents for transmsson to a Unted States Crcut Court of ppeas or to
the Unted States Court of ppeas for the Dstrct of Coumba sha furnsh
the cerk wth the copy of the documents to be certfed.
Rue 52. Costs Prntnq of Record on Revew.
In each proceedng for revew of a decson of the oard by the Unted
States Crcut Court of ppeas for the Second Crcut when revew s sought
by the Commssoner of Interna Revenue, the cerk of the oard sha, mmed-
atey after the contents of the record on revew, as requred by rue 35 of the
court, have been setted or agreed upon, make avaabe to the Commssoner,
or hs counse, the record of the oard n the proceedng. The Commssoner
sha cause the record to be prnted. Twenty-fve copes of the prnted record
sha be devered to the cerk of ths oard for certfcaton and for fng wth
the cerk of the Crcut Court of ppeas. The cerk of the oard sha serve
three copes of the prnted record upon counse for the ta payer.
Rue 53. Copes of oard Records kes for urnshng.
pan or a certfed copy of any document, record, entry, or other paper
may be had upon appcaton to the oard, the fee to be charged and coected
therefor to be determned n accordance wth the provsons of te ct of
Congress entted n ct to provde fees to be charged by cerks of the dstrct
courts of the Unted States, approved ebruary 11, 1925 ( 43 Stat., 857-853
U. S. C. , Tte 28, sectons 548-54).
Rue CO. ees and Meage.
The foowng s from the Revenue ct of 192 :
Sec. 909. (a) ny wtness summoned or whose deposton Is taken under
secton 908 sha receve the same fees and meage as wtnesses n courts of the
Unted States. Such fees and meage and the e penses of takng any such
deposton sha he pad as foows:
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580
(1) In the ease of wtnesses for the Commssoner, such payments sha be
made by the Secretary out of any moneys approprated for the coecton of
nterna-revenue ta es, and may be made n advance.
(2) In the case of any other wtnesses, such payments sha be made, sub-
|ect to rues prescrbed by the oard, by the party at whose nstance the
wtness appears or the deposton s taken.
(b) Ts secton sha take effect as of une 2, 1924, n the case of fees,
meage, or e penses accrued pror to, but remanng unpad at the tme of,
the enactment of the Revenue ct of 1920.
No wtness, other than one for the Commssoner, sha be requred to testfy
n any proceedng before ths oard unt he sha have been tendered the fees
and meage to whch he s entted n accordance wth the above provson of
aw.
Rue 1. Computaton of Tme Sundays and odays.
Whenever these rues prescrbe a tme for the performance of any act, Sun-
days and ega hodays n the Dstrct of Coumba sha count |ust as any
other days, e cept that when the tme prescrbed for the performance of an
act e pres on a Sunday or a ega hoday n the Dstrct of Coumba, such
tme sha e tend to and ncude the ne t succeedng day that s not a Sunday
or suc a ega hoday: Provded, That when the tme for performng any
act s prescrbed by statute nothng n these rues sha be deemed to be a
mtaton or e tenson of the statutory tme f ed.
The foowng-named days are ega hodays wthn the Dstrct of Coumba:
New Tear s Day, anuary 1 (U. S. C. ., Tte 5, secton 87).
Washngton s rthday, ebruary 22 (U. S. C. ., Tte 5, secton 87).
Inauguraton Day, every fourth year (48 Stat., 879).
Decoraton Day, May 80 (U. S. C. ., Tte 5, secton 87).
ourth of uy (U. S. C. ., Tte 5, secton 87).
Labor Day, frst Monday n September (U. S. C. ., Tte 5, secton 87).
Thanksgvng Day, day procamed by Presdent (secton 993, R. S., reatng
to Dstrct of Coumba).
Chrstmas Day, December 25 (U. S. C. ., Tte 5, secton 87).
When ega hodays fa on Sunday the ne t day sha be a hoday (22
Stat., 1).
Rue 2. Spkca ssessment.
(a) If some of the ssues rased by the petton nvove secton 327 or secton
828 of the Revenue ct of 1918 or of 1921 or secton 210 of the Revenue ct
of 1917, as the case may be , and some do not nvove such sectons, the hearng
may, n the dscreton of the oard, on moton, be mted In the frst nstance
to tra of the ssues whch do not Invove such sectons.
( ) hearng may, n the dscreton of the oard, on moton, be had, mted
to the tra of the ssue whether the pettoner s entted to have Its ta
determned as provded n secton 328 or secton 210, as the case may be .
(c) If the oard decdes that the pettoner Is entted to have ts ta
determned as provded n secton 328 or secton 210, as the case may be ,
the respondent sha wthn 0 days after such decson fe wth the oard an
orgna and two copes of a proposed redetermnaton showng the method
of the computaton. If, wthn 20 days after servce by the cerk upon the
pettoner of a copy of such proposed redetermnaton, the partes are unabe
to agree upon the amount of ta , ether party may move, or the oard may upon
ts own moton order, that the proceedng be paced upon the day caendar for
further hearng, at whch ether party may submt proof of the correct amount
of ta and defcency or overpayment.
(d) If from the peadngs or otherwse t appears of record before the oard
that te partes agree that pettoner s entted to have ts ta determned as
provded n secton 328 or secton 210, as the case may be , and the ony ssue
s as to the correct amount of the ta so determned, the proceedng w be
paced upon the day caendar n due course for hearng, at whch ether party
may submt proof of the correct amount of the ta and defcency or over-
payment.
Rue 70. ffectve Date.
These rues sha become effectve uy 1, 1935, supersedng pror edtons
and amendments.
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581
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PP NDI .
ORMS.
These forms are sub|ect to amendment as crcumstances may render neces-
sary.
No. 2. Petton.
No. 3. ppcaton for subpena.
No. 5. ppcaton for order to take depostons.
No. . Certfcate on return of depostons.
(Note. Read rue 4 of the rues of practce of the oard and carefuy
observe the requrements thereof as to form, sze, and stye of papers.)
No. 2. P TITION.
(See rues 4, 5, , 7, and 8.)
Unted States oard of Ta ppeas. , pettoner,
Docket No.
.
Commssoner of Interna Revenue, respondent.
P TITION.
The above-named pettoner hereby pettons for a redetermnaton of the
defcency set forth by the Commssoner of Interna Revenue In hs notce of
defcency ( ureau symbos) dated , 19 , and as a bass
of bs proceedng aeges as foows:
1. The pettoner s (set forth whether ndvdua, corporaton, fducary, etc.,
as provded n rue C) wth prncpa offce (or resdence) at
(Street.)
(Cty.) (State.)
2. The notce of defcency (a copy of whch s attached and marked hbt
) was maed to the pettoner on , 19
3. The ta es n controversy are (ncome, profts, estate, or gft) ta es for the
(caendar or fsca year) year 19 and n the amount of doars (state
as e acty as possbe the amount n dspute).
4. The determnaton of ta set forth n the sad notce of defcency s based
upon the foowng errors: ( numerate specfcay the assgnments of error n
a concse manner and avod peadng facts whch propery beong n the suc-
ceedng paragraph.)
5. The facts upon whch the pettoner rees as the bass of ths proceedng
are as foows: ( ere set forth aegatons of the facts reed upon but not the
evdence n ordery and ogca sequence, wth subparagraphs ettered, so as
fuy to nform the oard of the ssues to be presented and to enabe the Com-
mssoner to admt or deny each specfc aegaton.)
Wherefore, the pettoner prays that ths oard may hear the proceedng and
(here state the reef desred).
(Sgned)
(Pettoner or counse.)
(Post-offce address.)
County of
State1 ok
, beng duy sworn, says that he s the pet-
toner (f a corporaton, or fducary, state tte of offce or trust of person ver-
fyng and that he s duy authorzed to verfy the foregong petton) above
named that he has read the foregong petton, or had the same rend to hm,
and s famar wth the statements contaned theren, and that the facts stated
are true, e cept as to those facts stated to be upon nformaton and beef, and
those facts he beeves to be true.
(Sgned)
Subscrbed and sworn to before me ths day of ,
19
(Sgned)
sea (Offca tte.)
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382
No. 3. PPLIC TION OR SU P N .
, pettoner,
v.
Commssoner of Interna Revenue, respondent.
Docket No.
To the Unted States oard of Ta ppeas:
ppcaton s hereby made for the ssuance of a subpena for the attendance
before
(The Unted States oard of Ta ppeas or the name and offca tte of the,
person authorzed to take depostons.)
at on
at o cock m. of the foowng persons whose ora testmony
Is desred on behaf of the n the above-
(Pettoner or respondent.)
entted proceedng:
N M . DDR SS.
Dated , 19
(Sgned)
(Post-ofve address).
No. 5. PPLIC TION OR ORD R TO T D POSITIONS.
(See rues 45, 4 , and 47.)
Unted States oard of Ta ppeas. , pettoner,
.
Commssoner of Interna Revenue, respondent.
Docket No.
PPLIC TION OR ORD R TO T D POSITIONS.
To the Unted States oard of Ta ppeas:
1. ppcaton s hereby made by the above-named t
(Pettoner or respondent.)
for an order to take the deposton of the foowng-named person :
N M O WITN SS. POST-O IC DDR SS.
(a)
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2. It Is desred to take the depostons of the persons above named and each
of then for the foowng reasons:
(a) w testfy to the foowng matera matters:
(S t forth brefy the matter upon whch sad wtness w be caed to testtfy.)
(b) w testfy to the foowng matera matters:
(c) w testfy to the foowng matera matters:
(d) w testfy to the foowng matera matters:
3. The reasons why desres to take the
(Pettoner or respondent.)
testmony of the above-named persons rather than have them appear personay
and testfy before the oard are as foows: (State specfcay reasons for
each wtness.)
4. It s desred to take the testmony of
(Names of wtnesses.)
on the day of . 19 , at the hour of o cock m.
( date suffcenty n advance of the day set for henrncr of the proceedngs to enabe the
deposton to be competed and ded wth the oard at east 10 days pror to the hearng.)
before n the cty of
(State name and tte of offca.)
State of at room
(Gve number of room, street number, and
name of budng.)
5. That s a
(Name of offca before whom depostons are to be taken.)
, who has no offce connecton or busness empoy-
(Gve offca tte.)
ment wth the pettoner or hs counse.
Dated , 19 .
(Sgned) ,
(Pettoner or counse.)
(Post-offce address.)
State of g.
County of /
, beng duy sworn, says that the fore-
(Pettoner or counse.)
gong appcaton for order to take depostons s made n good fath and for
the reasons theren stated and that the same s not made for purposes of deay.
(Sgned)
Subscrbed and sworn to before me ths day of ,
19 .
(Sgned)
(Offca tte.)
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No. . C RTI IC T ON R TURN.
To the Unted States oard of Ta ppeas:
I, , the person named n the foregong order
to take depostons, hereby certfy:
1. That I proceeded, on the day of , . D. 19 ,
at te offce of , n the cty of ,
State of , at o cock m., under the sad
order and n the presence of and
the counse of the respectve partes, to take the foowng
depostons, vz:
, a wtness produced on behaf
of the
(Pettoner or respondent.)
, a wtness produced on behaf
of the
(Pettoner or respondent.)
, a wtness produced on behaf
of the
(Pettoner or respondent.)
2. That each wtness was e amned under oath at such tmes and paces
as condtons of ad|ournment requred, and that the testmony of each wtness
(or hs answers to the nterrogatores fed) was taken stenographcay and
reduced to typewrtng by me or under my drecton.
3. That after the testmony of each wtness had been reduced to wrtng the
transcrpt of that testmony was read and sgned by the wtness n my presence,
and that each wtness acknowedged before me that hs testmony was n a
respects truy and correcty transcrbed.
4. That, after the sgnng of the deposton n my presence, no ateratons or
changes were made theren.
5. That I have no offce connecton or busness empoyment wth the pettoner
or hs attorney e cept that of , ob|ecton to whch was
(State connecton.)
waved by both partes to the proceedng.
sea
(Sgnature of person takng deposton.)
(Offca tte.)
(Post-offce address.)
Notb. Ths form when propery e ecuted shoud be attached to and bound wth the
transcrpt precedng the frst page thereof. It shoud then be ncosed n a seaed enveop
and addressed to Unted States oard of Ta ppeas, Washngton, D. C.
I -38-77(M
conference and practce requrements, bureau of nterna revenue,
revsed |uy, 1915.
uafcatons fob Conference.
I. Conferences may be accorded ony to ta payers or ther duy authorzed
representatves. ny Indvdua ta payer, or member of a partnershp, e ecutor
or admnstrator of an estate, trustee of a trust, or offcer of a corporaton, or
fuy authorzed reguar empoyee of an ndvdua, partnershp, estate, trust,
or corporaton may appear for hmsef or for such ndvdua, partnershp,
estate, trust, or corporaton soey upon adequate dentfcaton. Ths rue
aso appes to an ndvdua, a partnershp, an estate or trust, or a corporaton
wth respect to the abty of the ndvdua, partnershp, estate or trust, or
corporaton as a transferee of property of a ta payer and to a fducary wth
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585
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respect to the abty of the fducary under secton 34 7 of the Revsed
Statutes. other persons appearng as attorneys or agents, ncudng attor-
neys or agents of transferees or fducares, must e hbt evdence that the re-
qurements of Department Crcuar No. 230 (revsed), whch contans the stat-
utes and reguatons governng practce before the Treasury Department, have
been comped wth, and must aso conform wth the foowng requrements:
Power or ttorney to be ed and vdence of nroment to e Submtted
efore Recognton Is ccorded.
II. No attorney or agent representng a camant or other person before any
of the offces of the ureau of Interna Revenue sha appear or be recognzed
n any case, matter, cam, or other proceedng or busness pendng n such
offce uness the attorney or agent representng the camant presents and fes
a power of attorney, or a certfed copy thereof, from hs prncpa n proper
form authorzng hm to prosecute the case, cam, or matter n queston.
Such power of attorney sha aways be fed and evdence of enroment sub-
mtted before such attorney or agent s recognzed. In the event, however,
that an attorney or agent presents hmsef for conference who s not famar
wth ths requrement, or who can show that he has not had reasonabe oppor-
tunty to obtan a power of attorney from hs cent, or who has not apped
for enroment, but s abe to produce such evdence as w reasonaby convnce
the ureau s representatve that he has authorty to represent the ta payer,
such attorney or agent may be heard wth the understandng that a power
of attorney n proper form and evdence of enroment w be prompty
forwarded to the ureau, and that unt such power of attorney and evdence
of enroment sha have been fed the ponts rased at the conference by such
attorney or agent w not be consdered.
Power of ttorney to e ed Pror to na Determnaton of Ta
Labty.
III. No power of attorney w be accepted whch s fed after fna deter-
mnaton of the ta abty, uness the power of attorney rectes that the
prncpa s cognzant of such settement and of the amount of defcency or
overassessment determned. (See aso tte Checks n payment of refunds,
paragraph heren.)
Power of ttorney Requrements.
I . ny power of attorney offered n evdence n any case w be accepted
ony f t s n reguar form. Ony one power of attorney sha be n effect n
any case and there sha be ncuded n such power of attorney the names and
addresses of a attorneys or agents to whom the ta payer has deegated
authorty to represent hm.
a. technca anguage unnecessary.
It s consdered necessary In a cases that the power of attorney contan
anguage to convey the prncpa s Intenton, though not necessary n strcty
ega form.
b. attestaton of e ecuton of nstrument or wtnesses thereto.
The power of attorney must be e ecuted before a notary pubc, or, n eu
thereof, wtnessed by two dsnterested ndvduas. The notara sea must be
aff ed uness such sea s not requred under the aws of the State wheren the
power of attorney s e ecuted. No attorney or agent as notary pubc sha
take acknowedgments, admnster oaths, certfy papers, or perform any offca
act n connecton wth matters pendng before the ureau In whch he Is em-
poyed as counse, attorney, or agent, or n whch he may be n any way
Interested. (See ct of une 29, 190 , 34 Stat., 22.)
c. e tent of authorty deegated.
The authorty deegated to an attorney or agent In a power of attorney
enumeratng certan specfc acts whch may be done w be consdered mted
to those acts.
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58G
( ) PR SS UT ORITY R UIR D O C RT IN CTS.
press nuthorty to do the foowng acts must be granted and shown n
the power of attorney or such acts w be consdered beyond the scope of the
agent s authorty:
1. To receve but not to ndorse and coect checks n settement of any
refund. (See secton 3-477 of Revsed Statutes, whch prohbts assgnments of
cams or portons thereof, and tte Checks n payment of refunds, para-
graph heren.)
2. To deegate authorty or to substtute another agent or attorney.
3. To e ecute consents agreeng to a ater determnaton and assessment of
ta es than s provded by statute of mtatons.
4. To e ecute cosng agreements reatve to the ta abty.
5. To e ecute wavers of the restrctons on the assessment and coecton of
defcences In ta .
D. SIGN TUR O GR NTOR.
The power of attorney shoud be sgned as foows:
a. In the case of an ndvdua ta payer, by such Indvdua.
. In the case of any ta abe year for whch a |ont return was made by a
husband and wfe, by both husband and wfe, e cept that ether spouse may
sgn for the other f duy authorzed n wrtng so to act.
c. In the case of a partnershp, cther by a members or In the name of the
partnershp by one of the partners duy authorzed to act.
d. In the case of a corporaton, by an offcer of the corporaton havng author-
ty to bnd same and be attested by the secretary of the corporaton over the
corporate sea.
1. power of attorney granted by a corporaton shoud state whether or not
the corporaton as a sea, and the sea shoud be aff ed to the power n
a cases where one s used by the corporaton. If the power of attorney shows
that the corporaton has no sea, a certfed copy of a resouton duy passed
by the board of drectors of the corporaton gvng Its offcers authorty to sgn
the same shoud be submtted.
2. If the offcer who sgns the power of attorney s aso secretary, another
offcer of the corporaton, preferaby the presdent, vce presdent, or treasurer,
must aso sgn the nstrument so that two dfferent ndvduas sgnatures
w appear thereon.
e. In the case of an assocaton, the sume requrements sha appy as n the
case of a corporaton.
f. Speca cases:
If the ta payer s
Dssoved,
Insovent,
Deceased,
or has a smar status, the addtona requrements begnnng wth paragraph
I heren shoud be foowed.
. C RTI IC TION O COPI S O POW RS O TTORN Y ND ID NC IL D IN
CONN CTION T R WIT .
The certfcaton of copes of powers of attorney or papers or documents fed
n connecton therewth, must be made by a notary pubc, or other proper
offca, who shoud state that he has personay compared the copy wth the
orgna and fnds t to be a true and correct copy. Ths certfcaton appes
to a copes of powers of attorney and reated papers, Incudng prnted and
photostatc copes.
Substtuton of ttorneys ob gents.
. Substtuton of attorneys or agents may be effected ony where the power
of attorney, under whch the attorney or agent of record s actng, e pressy
confers the rght of substtuton. Such attorney or agent, f n good standng
before the Department, may, by a duy e ecuted substtute power of attorney,
substtute another or others n hs stead. The urenu reserves the rght to
refuse recognton to a substtuted attorney or agent where, n ts opnon,
such substtuton w ony deay the fna ad|ustment of the case. urther-
more, the ureau w not accept a substtute power of attorney granted by an
attorney or agent, who s actng under a substtute power of attorney from
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587
Msc.
the attorney or agent of record, uness specfc authorty s granted In the
prncpa s power of attorney to the attorney or agent of record to pass on to
hs substtute the rght of substtuton. (See aso tte Checks n payment
of refunds, paragraph heren.)
New Power of ttorney Requred When New or ddtona ttorneys oa
gents Retaned.
I. In any case n whch a power of attorney has been fed and the ta payer
subsequenty desres to authorze other or addtona attorneys or agents to
represent hm before the ureau wth respect to the same case, a new power
of attorney must be fed, whch sha ncude the names of a attorneys or
agent9 who are authorzed to act for such ta payer. Such new power of
attorney sha contan a cause specfcay revokng any and a powers of
attorney prevousy fed wth respect to the same case. The revocaton of an
authorty to prosecute a matter before the ureau sha n no case be effectve,
so far as the ureau s concerned, before due notce In wrtng has been
gven the ureau, and the fng of evdence of notfcaton of the revocaton
to the attorney or agent whose power has been revoked. Where consderaton
of a matter has been hed n abeyance awatng the furnshng of evdence for
whch a ca has been made on an attorney or agent, faure on hs part to
take acton thereon wthn three months from the date on whch consderaton
of the matter was suspended may be deemed by the admnstratve offcer
before whom the case s pendng cause for refusa to further recognze the
authorty of the attorney or agent. Such admnstratve offcer sha, however,
gve wrtten notce of such refusa to the cent of such attorney or agent, and
sha state brefy the reason such acton has been taken.
vdence Requred to Substantate acts eged n Conferences.
II. No reducton n ta es proposed nor Increases In aowance of cams
ha be made uness the evdence upon whch such acton s taken s sub-
mtted In wrtng and n verfed form. evdence e cept that of a suppe-
mentary or ncdenta character sha be submtted over the sworn sgnature
of the ta payer.
The sworn statement of facts must be submtted at east fve days before
the conference date e cept as herenafter provded, and must meet a the
ssnes rased by the ureau whch the ta payer desres to contest. If the
sworn statement of facts s not submtted at east fve days before the confer-
ence, then It must be accompaned by a sworn statement settng out specfcay
the reasons for not havng comped wth the 5-day rue. Nothng heren sha
precude the ta payer from submttng addtona or supportng evdence wthn
a reasonabe tme after the conference.
very affdavt, agreement, bref, or statement of facts prepared or fed by
an attorney or agent as argument or evdence n the matter of a cam or ta
matter pendng before the ureau sha have thereon a statement sgned by
such attorney or agent showng whether or not he prepared such document and
whether or not the attorney or agent knows of hs own knowedge that the
facts contaned theren are true.
Conference to be Prearranged.
III. Conferences wth ta payers or ther representatves w not ordnary
be hed wthout prevous arrangement. Cases n whch ta payers or ther
representatves can submt some unusua reason for requestng an mmedate
conference wthout prevous arrangement w be gven consderaton by heads
of dvsons n the ureau, wbo may, f the crcumstances warrant, make an
e cepton to the rue.
In order that the case under consderaton may be cosed at one conference,
f at a possbe, the requrements of paragraph II of ths crcuar to the
effect that the bref submtted n advance of conference must meet a Issues
rased w be strcty enforced, and another conference w not be granted on
the same case e cept to meet new ssues rased by the ureau n the course
of the frst conference whch coud not have been antcpated pror to such
conference.
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588
Recognton of Unenroed mpoyees of uafed ttorneys ob gents.
I . Unenroed empoyees of enroed attorneys or agents w not be recog-
nzed n any matter by offces of the ureau e cept for the purpose of fng
pa|ers or securng nformaton s to the status of cases. Recognton for the
atter purpose w be gven ony when the empoyee presents n each case
wrtten authorty from hs empoyer to act as the htter s substtute n obtan-
ng the nformaton desred regardng status and when the power of attorney
of hs empoyer n each case provdes for the substtuton of such empoyee.
To factate recognton of suc-h empoyees, t s requested that the empoyee
present at the tme of makng nqury concernng any case the recept for the
power of attorney ssued to hs empoyer by the ta payer n that case and the
recept for the substtute power of attorney ssued to htn. (These recepts
are furnshed when the powers of attorney are fed.)
Poweks of ttorney anb nroment Requred of gents and ttorneys
andng Mattees by Correspondence.
. Where recognton s desred through correspondence wth the Depart-
ment, enroment and power of attorney requrements must be met by attorneys
or agents even though no actua appearance s made before the Department.
If a proper power of attorney s fed authorzng ony one of the foowng
acts by the attorney or agent, enroment w not be requred:
uthorty to sgn but not to prosecute any cam of the ta payer.
uthorty to nspect or receve copes of returns where ecutve order or
reguatons permt such acton by agent.
The Commssoner reserves the rght to wthhod makng the above e ceptons
n any specfc case.
If the power of attorney authorzes the attorney or agent to do one or both
of the above acts and some other act or acts, enroment w be consdered
necessary, notwthstandng that the agent or attorney does not e pect to use
a of the power conferred upon hm.
Letters rrangng Conferences to dvse of Requrements.
I. Letters arrangng conferences w apprse the ta payer or hs repre-
sentatve of the requrements as to powers of attorney, the necessty of beng
enroed to practce before the Department, and to whom he shoud appy for
enroment, uness t s known that the addressee s aware of the requrements.
Owng to the e pense nvoved, t w not be the practce, e cept n rare cases,
to Incorporate the above requrements In teegrams. Where suffcent tme
ntervenes between the date of the teegram and the conference the teegram
w be confrmed by etter and conference requrements stated.
Practtoners Must Conduct Themseves n an thca Manner.
II. ttorneys or agents representng ta payers before the ureau are e -
pected at a tmes to conduct themseves In an ethca manner, and w be
hed strcty accountabe for the wthhodng of known matera nformaton or
for any deberatey fase or mseadng statement.
or gross msconduct the Commssoner may refuse to recognze any person
as an attorney or agent n any partcuar case.
ttemptng to nfuence the conduct of any offca or empoyee of the ureau
n any case or other proceedng pendng before the ureau by the use of
threats, fase accusatons, duress, or by the offer of any speca nducement or
promse of advantage, or by the bestowng of gfts or favors upon offcas or
empoyees before whom an attorney or agent Is appearng, s consdered grounds
for dsbarment from practce before the Treasury Department.
ffect of Prevous Connecton wth the Treasury Department.
III. No enroed attorney or agent sha be permtted to appear before the
Treasury Department n connecton wth any matter to whch such attorney
or agent gave persona consderaton or as to the facts of whch he ganed
persona knowedge whe n the servce of the Treasury Department. Lke-
wse no such enroed attorney or agent sha ad or assst another n any
such matter, and no attorney or agent sha receve assstance n any such
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589
Msc.
matter from one formery In the servce of the Treasury Department who
possesses such persona knowedge.
No former offcer, cerk, or empoyee of the Treasury Department sha act
as attorney or agent, or as the empoyee of an attorney or agent, In any matter
or controversy pendng n such Department durng the perod of hs empoy-
ment theren wthn two years after the termnaton of such empoyment
uness e sha frst obtan the wrtten consent thereto of the Secretary of
the Treasury or hs duy authorzed representatve. Ths consent w not
be granted uness t appears (1) that such empoyment s not prohbted by
Tte 5, secton 99, Unted States Code, or otter aw, or by the reguatons
of the Treasury Department (2) that the appcant was not, durng the
perod of two years mmedatey precedng tte date of appcaton, empoyed
In the partcuar secton (departmenta or fed) n whch was pendng the
matter or controversy, to hande whch consent s sought. In the event that
the appcant formery occuped an admnstratve poston, such as head of
a bureau, unt, dvson, or secton, or was empoyed as a revewer or conferee
or n an advsory capacty, such appcant w be requred to fe an affdavt
to the effect that he has no knowedge of the facts nvoved n such natter
or controversy whch was ganed by hm whe he was empoyed n the Depart-
ment, and that he s not now assocated wth, and w not be assocated
wth any former empoyee who has ganed knowedge of the case whe
empoyed by the Treasury Department. The statements contaned n such
affdavt sha not be suffcent f dsproved by an e amnaton of the fes
and records pertanng to the case. ppcatons for consent shoud be drected
to the secretary of the Commttee on nroment and Dsbarment on orm
901 and shoud state the former connecton wth the Department of the
appcant and Identfy the matter or controversy n whch the appcant
desres to appear. The appcant sha be prompty advsed as to hs prvege
to appear In the partcuar matter or controversy, and ths notce sha be
fed by hm n the record of the case.
Instructons fob ecuton of Power of ttorney n Speca Cases Whch
Must e Met n ddton to Genera Requrements.
I . Dssoved partnershp. power of attorney to act wth respect to mat-
ters Invovng the affars of a dssoved partnershp must be sgned by a of the
former partners. In case some of the partners are dead, ther ega represent-
atves must sgn n ther stead. (See paragraph II.) If, however, under the
aws of the partcuar State, the survvng partners at the tme of the e ecuton
of the power of attorney have e cusve rght to the contro and possesson of the
frm s assets for the purpose of wndng up ts affars, ther sgnatures aone
w be suffcent. If ony the survvng partners sgn the power of attorney,
a copy of the pertnent provsons of the State aw under whch they cam
authorty, e cusve of the ega representatves of the deceased partners,
shoud be noted and ctaton gven thereto.
. Dssoved corporaton. If a qudatng trustee, or trustee under dsso-
uton, has been apponted, or f a trustee derves authorty under a statute
of the State n whch the corporaton was organzed, the power of attorney
shoud be e ecuted by such trustee. If there s more than one trustee, a
must |on uness t s estabshed that ess than a have authorty to act n the
premses. The power of attorney must be accompaned by a copy of the nstru-
ment under whch the trustee derves hs authorty, propery authentcated, or
f the authorty s derved under a State statute, the statute shoud be cted
and quoted, and an affdavt by a thrd party, settng forth the facts requred
by the statute as a precedent to the vestng of the authorty n sad trustee
must be furnshed. It must aso appear n the case of any trustee that hs
authorty has not been termnated. If there s no trustee, then a power of
attorney e ecuted before a notary pubc by a suffcent number of ndvduas to
make up a representaton of a ma|orty n the votng stock of the corporaton
at the date of dssouton w be accepted for purposes of conference and corre-
spondence reatng to the ta abty n the partcuar case. Such nstrument
must show the tota number of outstandng shares of votng stock at the date
of dssouton and the number hed by each sgnatory to the power of attor-
ney. The nstrument must aso contan postve averments as to the none -
stence of any trustee, and the date of dssouton must appear.
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590
I. Insovent ta payer. certfcate from the court havng |ursdcton
over the nsovent shoud he furnshed showng the appontment and quafca-
ton of the trustee or recever, and t shoud appear that the authorty has not
termnated. In cases pondng before a dstrct court of the Unted States an
authentcated copy of the order approvng the bond of the trustee w meet
ths requrement. If an attorney as twen apponted under authorty of court
for the trustee or recever, a copy of the court order appontng such attorney
(where e s to represent the trustee) shoud be furnshed. If no attorney
has been apponted, the trustee or recever shoud e ecute the power of attor-
ney, the acknowedgment or wtnessng thereof to be the same as n the case
of an ndvdua, and the above-descrbed evdence showng the appontment
of the trustee or recever furnshed therewth. If the trustee or recever does
not wsh to appont an attorney, he w be recognzed upon estabshng hs
authorty n the manner above descrbed.
II. Deceased ta payer. The e ecutor or admnstrator shoud e ecute
the power of attorney, whch must be accompaned by a short-form certfcate
(or authentcated copes of etters testamentary or etters of admnstraton)
showng that hs authorty s n fu force and effect at the tme such ev-
dence s submtted. The e ecutor or admnstrator w be recognzed n hs
own rght f he does not wsh to appont an attorney or agent, upon submsson
of the above-descrbed court certfcate, and such e ecutor or admnstrator s
not requred to be enroed to practce. In the event that the e ecutor has been
dscharged and a trustee under the w s actng, the power of attorney must
come from the trustee, and evdence of the dscharge of the e ecutor and of
the appontment of the trustee must be submtted wth the power of attorney.
In such cases, where the e ecutor s dscharged and the estate s dstrbuted
to the resduary egatees, the power of nttorney must come from the resduary
egatee or egatees, and be accompaned by a statement from the court cert-
fyng to the dscharge of the e ecutor and namng the resduary egatees and
ndcatng the proper share to whch each s entted. In the event that the
decedent ded ntestate and the admnstrator had been dscharged or none
was ever apponted, the power of attorney must come from the dstrbutees
and be accompaned by evdence of the dscharge of the admnstrator, f one
had been apponted, and affdavts and such other evdence as can be adduced
tendng to show the reatonshp to the deceased of the sgnatores to the power
of attorney and the rght of each of them to the respectve shares camed
under the aw of the domce of the deceased.
III. Guardans and other fducares apponted by a court of record.
The power of attorney shoud be e ecuted by the fducary and must be accom-
paned by a court certfcate or court order showng that such fducary has
been apponted and that hs appontment has not been termnated.
I . Trustee under deed, decaraton, etc. Powers of attorney must be
e ecuted by the trustee and be accompaned by documentary evdence of the
authorty of the trustee to act. Such evdence may be ether a copy of the
trust nstrument, propery certfed, or a certfed copy of e tracts from the
trust nstrument, showng
a. Date of nstrument.
. That t s or s not of record n any court
c. The benefcares.
d. The appontment of the trustee, the authorty granted, and such other
nformaton as may be necessary to show that such authorty e tends to
edera ta matters.
e. That the trust has not been termnated, and that the trustee apponted
thereby s st actng.
Sef-servng affdavts by the trustee n ts connecton are not acceptabe.
In the event that the trustee apponted n the orgna trust nstrument s no
onger actng and has been repaced by another trustee, documentary evdence
of the nppontment of the new trustee must be submtted. In cases where there
are more than one trustee apponted, a must |on, uness t s shown that ess
than a have authorty to act.
. Checks n payment of refunds. The ureau s not bound to dever
any check n payment of refund of Interna revenue ta es, penates, or nter-
est to a representatve of any ta payer actng under authorty evdenced by a
power of attorney. owever, t w be the genera pocy of the ureau to
ma such checks In care of an enroed attorney or agent who has fed power
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591
Msc.
of attorney from the prncpa, specfcay authorzng hm to receve but not
to Indorse such check, provded that such power of attorney sha have been
fed n suffcent tme for the secton or dvson preparng the certfcate
of overassessment to show thereon the mang address as care of the
attorney or agent. Where an attorney or agent has more than one address,
request to ma the check to another address than s shown n the power of
attorney w not be granted uness the address shown n the power of attorney
Is no onger that of the attorney or agent. In the event that a power of
attorney s fed specfcay authorzng more than one attorney or agent to
receve checks on the ta payer s behaf, and such attorneys or agents have
dfferent addresses, the ureau w not ma the check n care of any of the
attorneys or agents named n the power of attorney but w ma the check
drect to the ta payer, uness a statement Is furnshed, sgned by a of the
attorneys or agents named n the power of attorney, requestng that the check
be maed n care of one of ther number. urthermore, t w be the pocy
of the ureau not to ma checks n payment of refunds to an attorney or agent
who hods authorty to receve such check by reason of a substtute power of
attorney obtaned from the attorney or agent desgnated by the ta payer.
Where there s a contest between members of a dssoved frm or between two
or more attorneys or agents actng under the same power of attorney as to
whch one s entted to prosecute a matter pendng before the ureau or to
receve a draft, warrant, or check, the cent ony sha thereafter be recog-
nzed, uness the members or survvors of the dssoved frm, or the contestng
attorneys or agents, fe an agreement sgned by a desgnatng whch of them
sha be entted to prosecute such matter or to receve the sad draft, warrant,
or check. In no case sha the devery of a fna draft, warrant, or check to
the cent be deayed more than 0 days by reason of faure to fe such
agreement.
Requbements ppcabe to ed Offces.
I. The foregong conference and practce requrements appy to a offces
n the Interna Revenue Servce.
Gut T. evekno,
Commssoner.
I -43-77 1
Mm. 438
Conference and practce requrements of the ureau of Interna
Revenue, as revsed uy, 1935, amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, October 1 ,1935.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
Dstrct Supervsors, Offcers and mpoyees of the ureau of
Interna Revenue, and Others Concerned:
The conference and practce requrements of the ureau of Interna
Revenue, revsed uy, 1935, are hereby amended by emnatng from
page 4 the paragraph numbered 5, readng as foows:
5. To e ecute wavers of the restrctons on the assessment and coecton of
defcences n ta .
Under the conference and practce requrements as so amended,
e press authorty to e ecute such wavers need not be granted n
powers of attorney.
Inqures regardng the foregong shoud refer to the number of
ths mmeograph and to the symbos IT: : RR.
Guy T. everng,
Commssoner.
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Msc.
592
I -35-7 77
Mm. 43 9
Procedure wth respect to submttng nqures to the ureau
of Interna Revenue regnrdng ta abty.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C, ugust 2 f, 1935.
Offcas and mpoyees of the ureau of Interna Revenue, Coec-
tors of Interna Revenue, Interna Revenue gents n Charge, and
Others Concerned:
The ureau s recevng a arge number of requests from ta -
payers and ther counse for rungs whch reate to the character
and e tent of ta abtes resutng from prospectve as dstn-
gushed from consummated transactons. cept upon specfc au-
thorzaton by the Commssoner of Interna Revenue or as ndcated
n (a) beow, the estabshed pocy of not compyng wth such
requests w contnue to be foowed. Rungs w contnue to be
made ony under the foowng crcumstances:
(a) The transacton must be competed and not merey proposed
or panned, e cept where the aw or reguatons provde for a deter-
mnaton by the Commssoner of the effect of a proposed transacton,
for ta purposes, as n the case of a transfer comng under the
provsons of sectons 901-904 of the Revenue ct of 1932, or an
e change comng under the provsons of secton 112() of the
Revenue ct of 1934.
( ) The compete facts reatve to the transacton, together wth
abstracts from contracts, or other documents, necessary to present
the compete facts, must be gven.
(c) The names of a the rea partes nterested (not dummes
used n the transacton) must be stated regardess of who presents
the queston, whether an nterested party, attorney, accountant, ta
servce, or other representatve.
(d) request for a rung must be sgned by the ta payer, or n
case he s represented by an attorney or agent, the request must be
accompaned by propery e ecuted power of attorney. anks, how-
ever, w not be requred to furnsh powers of attorney wth respect
to nqures affectng ther depostors.
copy of a rung addressed to a ta payer w not be furnshed
to hs attorney or agent uness the ureau s specfcay authorzed
to do so by the ta payer.
Gut T. everng,
Commssoner.
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593
Msc.
OL OM RG RIN .
I -2 -757
MS. 1 4
Schedue of oeomargarne produced and matera used durng the month of
May, 1935, as compared wth Man, 193-.

May, 193S.
May, 1934.
Pounds.
1 30, 105, 5 3
Pounds.
18,024,572
Ingredent schedue (or uncoored oeomargarne:
30,054,178
17.937,235
100
5.5
9.329.970
13,729,043
300
3,312,848
40,553
7, 784, 53
92,280
3,2 9
,950, 01
251, 154
1,417, 177
213,222
17 . 019
342, 12
1,727.004
4,800
17,755
149, 517
193
Mk
4,098,2 2
509,329
1,2 9,399
347,302
32,832
179, 938
Sat
1,100, 095
,433
12,59
Tota
32,859, 020
to, m, m
232,919
241,420
Tota wthdrawn ta -pad
0, 102
4ft 250
Ingredent schedue for coored oeomargarne:
Coconut o
74,724
259
34, 211
422
1, 5
,800
5 ,43
3,885
1, 0
22
17, 02
33
,112
2 5
55,771
327
71.823
22,257
4, 144
, 20
1,1 0
2, 58
20,317
15
54
Coor
Cottonseed o
Mk .... . I::::::::::::::::::::::::::::::::::::::::::::
Oeo o
Oeo stock
Pennut o
Sat
11,000
Tota
2 9, 219
311,523
Of the amount produced, 14,4 1 pounds were reworked.
Of the amount produced, 13,212 pounds were reworked.
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Msc.
594
I -30-7 18
MS. 1 5
(Schedue of oeomargarne produced and materas used durng the month of
une, 1933, as compared wth une, 1934.
une, 1935.
une. 1934.
Pcvnd.
1 25,01 ,509
Pot/m.
13,729,272
Tota wthdrawn ta -pad
25.205,777
14, 153, 2 1
Ingredent schedue for uncoored oeomargarne:
SO
70S
4.518.239
3, 2.855
2 ,040
11.400.9 3
,31 ,358
83.777
2, 30
5,92 .754
205, 2
1,138.905
173, W
199.580
271,125
1,387.308
3,387
13.527
59,4 0
97
Mk
3,382.345
39.927
Sat
1,980.437
295.787
148,918
113.217
834.421
4.394
17.593
27.2 3,417
15. 24.971
24 , 245
21 . 397
Ingredent schedue for coored oeomargarne:
34,342
38.494
Cottonseed o
71,19
247
28.3 5
289
70,815
3,334
80,589
,250
1,570
599
17,0 2
17
24,0 0
188
55.17
121
78,30
21. 4
102,358
7,029
1,995
998
21,502
8
141
Dervatve of gycerne
Mk
Neutra ard
Oeo o
Oeo searne
Oeo stock
Sat..
Soda (benr.oate of)
14,500
Tota
294,833
313,44
Of the amount produced, 30.570 pounds were reworked.
1 Of the amount produced, 13,984 pounds were reworked.
1 Of too amount produced, 384 pounds were reworked.
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595
Msc.
I -35-7 75
MS. 1
Schedue of oeomargarne produced and materas used durng the month of
uy, 1935, as compared wth uy, 1934.
uy, 1935.
uy, 1934.
Tota producton of uncoored oeomargarne
Pounds.
1 21,278.823
Pounds.
1 ,157,901
Tota wthdrawn ta -pad._ _ _._
21,588, 524
1 , 294,914
Ingredent schedue for uncoored oeomargarne:
10. 2 7,774
335
,295,511
1,475
4,104, 358
3 ,70
9
Lecthn
5, 793, 018
57.523
1,497
4,437. 257
135.041
834.901
217, 411
13Z8S
183, 118
1,137, 339
2, 83
12,973
121,725
Mk
3,837, 792
03. 43
Neutra ard...
1,920, 01
239,527
198,997
141,482
974,4 1
Oeo stearne
Peanut o
8esame o
. 85
Soya boon o _ .
Sugar
15,792
390
egotabe o
Tota
23,335,14 1 18, 274. 43
190,251 204,814
Tota wthdrawn ta -pad
24,492 1 48,370
Ingredent schedue for coored oeomargarne:
58,250
210
2 ,429
294
51, 772
3,084
5 .913
2, 100
7,825
145
13,238
18
20
20,31
179
45,14
149
2,509
19, 202
73,2 2
,320
1.9 8
2,505
1 ,925
11
180
Coor
Mk....
Oeo stearD
Oeo stock
Peanut o ...........
Sat
Sugar
9.920
Tota...
230,198
247, 92
1 Of the amount produced, ,837 pounds were reworked.
Of the amount produced, 20,290 pounds were reworked.
1 Of the amount produced, 43 pounds were reworked.
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Msc.
59
I -39-7720
MS. 1 7
Schedue of oeomargarne produced and materas used durng the month
of ugust, 19S5, as compared wth ugust, 19 -
ugust, 1S35.
ugust, 1934.
Pounds.
25,473, 757
Pound .
21,715,911
25,2 ,0 1
21,99 . 42
Ingredent schedue for uncoored oeomargarne:
3.309
7.740.442
,200.257
49.41
12,984, 32
,3 0. 34
72,391
1.918
5.281,504
112.753
822, 141
232.739
1 . 757
218.374
1,35 ,199
4,990
132
Mk
5,093.302
4 3.519
2.311.905
317.r
252,84
304.312
1,348. 117
15.509
73,973
880
2 .475
27. 704, 514
24,120,470
319.120
310.3S
27,444
5S.4S0
Ingredent schedue for coored oeomargarne:

15
71,402
33
42,235
392
89. 52
1.993
131.05
2,7 5
4.990
379
10,740
25
24,712
302
79,458
219
90. M
28.372
115.5S3
a715
4,127
4S2
2 ,182
11
20,750
252
382,752
mm
Of the amount produced, 0,282 pounds were reworked.
Of the amount produced, 30.5 4 pounds were reworked.
Of the amount produced, 512 pounds were reworked.
Of the amount produced, 400 pounds were reworked.
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597
Msc.
I -43-77
MS. 1 8
Schedue of oeomargarne produced and materas used durng the month of
September, 1935, ag compared wth September, 93. t.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue for uncoored oeomargarne:
utter
Coconut o
Corn o
Cottonseed o
Dervatve of gycerne -
Lecthn ---
Mk.
Neutra ard
Oeo o
Oeo stearno
Oeo stock
m kerne o
anut o
t
Sesame o
Soda (benzoate of).
Soya bean o
Tota
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue for coored oeomargarne:
utter
Coconut o
Coor
Cottonseed o -
Dervatve of gycerne
Lecthn
Mk
Neutra ard
Oeo o..
Oeo stearne.
Oeo stock
Peanut o...
Sat
Soda (benzoate of)
o..
Tota.
September,
1935.
Pounds.
I 31, 92,571
31,12 , 581
92,150
420
9 . 288
89,704
2,123
4 5, 82
134,153
214, 3 9
240, 770
1 ,341
330,527
343, 452
40,870
24,587
18, 29
188,328
34,247, 537
1 2, 20
33,018
79,270
127
18,912
111
1
48,948
,2 7
2 ,511
2,930
230
11,00
15
2,750
197,078
1 Of the amount produced, 14,219 pounds were reworked.
Of the amount produced, 17,100 pounds were reworked.
Of the amount produced, 1,280 pounds were reworked.
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598
I M8-783
MS. 1 9
Schedue of oeomargarne produced and materas used durng the month of
October, 1935, as compared cth October, 1934.
1
October,
1935.
October,
1934.
Pound).
32,080,195
Pounds.
12 ,344.194
Tota wthdrawn ta -pad.
31.4 3,529
27,004, 20
Ingredent schedue for uncoored oeomargarne:
309,214
1 ,285,902
784
.328,448
Corn o
,58 ,989
87, 815
1,243
,4 1,492
149,2 0
1,254, 801
238.338
190, 748
7.244,50
3,598
743
Lecthn
Mk
,137,09
381,171
Oeoo
1,871,4
297,525
153,3 3
1.550
295,828
Oeo stock
Pam o
421,021
1, 7.774
7,8 5
1 , 99
334,82
Sat
1,551.991
Soya bean o
10,241
egetabe o
12,072
200
Tota..
34, 014, 881
29.349, 18
Tota producton of coored oeomargarne
181,259
(7 R
Ingredent schedue for coored oeomargarne:
35,502
54.705
Coconut o
5,827
141
22.951
139
44,4 8
5,239
31. 39
713
2.430
3, 214
13.715
31
31,103
244
77,541
144
27,458
15,29
3 ,730
3.350
Coor
Cottonseed o
Dervatve of gycerne -
Mk..
Neutra ard.
Oeostock.. .
M
Peanut o _
2.79
13,7 1
18
0
25
Sat
Soda (benzoate of)
egetabe o
Soya bean o
4
Tota
210,511
209.52
1 Of the amount produced, 52,533 pounds were reworked.
1 Of the amount produced, 20,798 pounds were reworked.
1 Of the amount produced, 5 0 pounds were reworked.
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MS. 170
I -52-7883
Schedue of oeomargarne produced and materas used durng the month of
November, 1935, as compared wth November, 193 .
November,
1935.
November,
1934.
Pound .
Pound .
28, 38, 793
Tota producton of uncoored oeomargarne
1 33,807,8 7
Ingredent schedue for uncoored oeomargarne:
34, 47.030
28,085,1 2
9 , 74
100
Coconut o _
15,197, 704
352
8, 2 , 554
95,343
1.250
,753,090
172, 742
1,459, 724
235, 84
204, 0
12,745,834
Mk
7,277. 59
3, 775
991
,50 .SS3
344,051
1,724,44
217, 584
159,283
13,550
35 , 57
1,718,024
Oeo o
329,104
1,754,088
7,8 5
17,084
232, 40
at
10, 71
egetabe o
739
Tota
35,584, 5 4
31.139. 54
Tota producton of coored oeomargarne
153,920
1C9, 755
Tota wthdrawn ta -pad
44.774
7.9 2
Ingredent schedue for coored oeomargarne:
utter..
35
Dervatve of gycerne
7 ,911
118
22,733
1 0
34, 349
,458
22,014
500
1,51
41, 45
137
45,0
154
45.541
13,109
39,942
510
780
300
2,813
11,324
21
7
Mk
Pam o
1 9
11, 35
23
at
oda (benzoateof)
vegetabe ST :
17 ,475
201,452
Of the amount produced, 20,921 pounds were reworked.
1 Of the amount produced, 24,794 pounds were reworked.
Of the amount produced. 37 pounds were reworked.
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TO CCO.
I -27-7585
T. 12
Statement of manufactured tobacco produced, by casses, durng the month of
pr, 1935, as compared wth pr, 1934.

pr, 1934.
pr, 1935.
pr, 1934.
pr, 1935.
Pound .
Pound .
Pound .
15,443,238
Pug
, M. 85
3 . 455
400.383
5,351,414
41 , 3
232. 159
Smokng
15,151.399
Twst
ne-cut chewng
3, 00,853
3.507, 13
Tota
24.984, 14
24, 58,740
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I -31-7 32
T.13
Statement of manufactured tobacco produced, by casses, durng the month
of May, 1935, as compared tcth May, 1934.

May, 1935.
May, 1934.
May, 1935.
May, 1934.
Pound .
Pound .
Pounds.
4,007, 391
17,211,919
Pound .
4,004,534
15,871,85
PU
5,229,941
483, 194
419,359
,125,535
3S3.802
410,594
Twst
Smokng
np-mt phpwnff
Tota
27,351,804
25.79 ,321
Not. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
T -35-7 74
T.14
Statement of manufactured tobacco produced, by casses, durng the month of
une, 1935, as compared wth une, 1934.
une, 1935.
une, 1934.
une, 1935.
une, 1934.
Pound .
Pound .
Pound .
15,558,44
Pound .
18. 52.(1
Pug
4, 999. 85
499. 735
415,214
4.851,128
447,394
41 .1 5
Twst
ne-cut chewng
Tota
25,481, 7
2 ,822, 57
4,008,515
4,4 5,904
Not. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report
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Mso.
I -40-7728
T. 15
Statement of manufactured tobacco produced, by casses, durng the month of
uy, 19S5, as compared wth uy, 1934.
uy, 1935.
uy, 1934.
uy, 1935.
uy, 1934.
Pounds.
Pounds.
Pounds.
18,489,045
Pounds.
1 ,029,8 9
Pug
.385,519
4 5,9 2
4 2,485
5,228,899
402, 577
379.00
Twst
ne-cut chewng
Tota
2 ,437,238
25,501,448
Scrap chewng
3, 34,237
3,4 1,097
Nok. These fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
I -44-777
T. 1
Statement of manufactured tobacco produced, by casses, durng the month of
ugust, 1935, as compared toth ugust, 1984.
Pug
Twst
ne-cut chewng.
ugust,
1915.
ugust,
IS34.
Pounds.
Pounds.
5,323,258
481,7 0
4 5,195
,824, 0
4 4,10
48 ,404
1
Scrap chewng..
Smokng...
Tota
ugust,
1935.
Pounds.
4,071,020
17,157,344
ugust,
1934.
Pounds.
8,980,1 3
17,5 4,923
, 25
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
I -49-7849
T. 17
Statement of manufactured tobacco produced, by casses, durng the month of
September, 1935, as compared wth September, 1934.
Septem-
ber, 1935.
Septem-
ber, 1934.
Septem-
ber, 1935.
Septem-
ber, 1934.
Pounds.
Pounds.
Pounds.
1 , 402, 951
Pounds.
15,33 ,534
Pug
5, 11 , 55
472,713
433,741
5, 005, 480
3 7,442
352,415
Smokng.
Twst
3, 72,901
3, 1 8,433
Tota _
2 ,098,9 1
24,230,304
Note. These fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
47318 3 20
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Msc.
02
1 I -52-7878
Dsbarments and suspensons from practce before Treasury Department of atorney
and agents 2
DIS RM NTS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the dsbarment from further practce be-
fore the Treasury Department of the foowng-named attorneys and
agents:
Name.
ddress.
Data of
dsbarment.
en, W. S
rown, Cyde ...
urns, ames
Cathrae, Wam M
Chaken. rank D.-
Davdson, Robert...
Dorenkamp, enry
Dyke, L. M
conn, braham
tng, Cfford ....
rench, rederck W.
dorham, red ., r
Green, Chares
ackett, Chauncey.
offmann, rthur .
ent, Robert C, r..
rssoff, braham..
Los ngees, Caf.
Roanoke, a
Phadepha, Pa..
usts, a
New York, N. T_
Detrot, Mch....
LousvUe, y...
Daas, Te
ormery Toedo,
Oho, now De-
trot, Mch.
ammond, Ind.-
ormery North
ast, Pa., ater
Redwood Cty,
Caf., now
Tampa, a.
rand Rapds,
Mch.
Phadepha, Pa..
ormery Wash-
ngton, D. C,
now Provnce-
town, Mass.
11 West orty-
second Street,
New York,
N. Y.
eacon, N. Y
ormery New
York, N.Y., now
Long ranch,
LoR
N. .
Mar. 3a 1834
ug. 1 ,1934
une 1,1934
May 17,1 34
May 8,1 34
Mar. 28,1934
May 4,1934
Sept. ,1934
May 29,1934
une 14,1934
ug. 3,1834
Mar. ,1935
ug. 29, 1935
May 18,1934
pr. 30,1935
Mar. ,1935
pr. 10,1934
Charged wth havng been convcted n Stat
court for msappropraton of funds. Charges
found proved.
Charged wth knowngy preparng a fase n-
come ta return for a ta payer. Charges
found proved.
Charged wth makng fase ncome ta returns
for hmsef. Charges found proved.
Charged wth knowngy preparng frauduent
Income ta returns for ta payers. Charges
found proved.
Charged wth faure to fe ncome ta returns
and to pay Income ta es for two years.
Charges (bund proved.
Charged wth Issung worthess checks to a
coector of Interna revenue In payment of
ta es, and wth other offenses. Charges
found proved.
Charged wth preparng a fase edera ncome
ta return for a ta payer and wth havf
been convcted n Unted States
court for preparng such fase
Charges found proved.
Charged wth makng a fase ncome return
for hmsef. Charges found proved.
Charged wth knowngy fng protest contan-
ng fase statement of facts n a ta case for
ta payer and makng fase statement of facts
before a conference on such ta case. Charges
found proved.
Charged wth feonousy msappyng funds o
bankng corporaton. Charges found proved.
Charged wth ssung and obtanng money on
worthess checks, and wth havng been con-
vcted on such charges n a State court.
Charges found proved.
Charged wth gross neggence n fang to fe
ncome ta returns whch he was empoyed
to prepare and fe, and wth un|ustfabe
faure to surrender upon request records of
ta payer. Charges found proved.
Charged wth havng been dsbarred by a court
of record. Charges found proved.
Charged wth havng been dsbarred as an
attorney by the Supreme Court of the Ds-
trct of Coumba. Charges found proved.
Cha-ged wth havng been convcted of ar-
ceny, In State court. C arges found proved.
Charged wth havng been convcted of secret-
ng a person wth ntent to e tort money
and pecunary gan. Charges found proved.
Charged wth havng been dsbarred by the
Supreme Court of New York for professona
msconduct. Charges found proved.
Ths rung (7878) ncudes aso rungs Nos. 7575, 7587, 758 , 7 04, 7 17, 7 33, 7 48, 7 5 , 7 , 7 7 , 78S3,
7 94, 7705, 7719, 7730, 7740, 7753, 77 3, 7778, 7790, 7802, 7825, 7835, 7850, 7859, and 78 8. These rungs have
been thus consodated because pubcaton of each one separatey woud be argey dupcaton.
1 Ths st ncudes a attorneys and agents whose dsbarment from practce before the Treasury Depart-
ment was pubshed dutng the 12-month perod ended December 31, 1935, and a suspensons In effect
durng the -month perod uy 1-December 31, 1935, ncusve. It does not ncude those barred from
practce by reason of dsapprova of ther appcaton for enroment.
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03
Mso.
Name.
Lackey, Carence .
Landrcau, Norman
.
Leavtt, en|amn D
Mannng, nthony
eronous.
McLaurn, Syvester
L.
Ober, arry-
O ren, ugh .
O Tooe, rthur ...
Posner, acob D
Rosewater, . W...
Rowe, omer W...
Schmt, Chares...
Sverstrom, Samue
D.
Smth, Roy L
taunng, ndreas
ragh.
Tnkoff, PaysofT.
ddress.
ormery St. Lous,
Mo., now ast
St. Lous, 111.
Washngton D. C.
Chcago, III
ormery New
York, N. Y.,
ater outon,
Mane.
Washngton, D. C
ormery oston,
Mass., now
rookne,
Mass.
Rochester, N. Y..
ersey Cty, N. .
New York, N. Y.
Ceveand, Oho.
ormery Md-
and, Te ., ater
rownfed, Te
San rancsco,
Caf.
Chcago, 111.
Greensboro, N. C.
ormery St. Pau,
Mnn., now
ose, Idaho.
Chcago, D
Date of
dsbarment.
eb. 2 ,1934
Mar. ,1935
Mar. .193S
ug. 24,1934
eb. 20,1934
une 27,1935
pr. 10,1934
pr. 10,1934
une 14,1934
ug. 2,1934
eb. 2 ,1934
May 4,1934
May 8,1934
Sept. 4,1934
May 3,1934
Nov. 23,1934
Cause.
Charged wth havng been ndcted and con-
vcted for makng fase ncome ta returns
for a ta payer. Charges found proved.
Charged wth havng been convcted of em-
bezzement. Charges found proved.
Charged wth knowngy preparng a fase
ncome ta return for a ta payer. Charges
found proved.
Charged wth knowngy preparng a fase
edera ncome ta return for a ta payer.
Charges found proved.
Charged wth havng been dsharred as attor-
ney by the Supremo Court of the Dstrct of
Coumba. Charges found proved.
ChargeO wth havng a certfcate as certfed
pubc accountant canceed. Charges found
proved.
Charged wth recevng money to ad|ust the
ncome ta abty of two cents and ap-
propratng such funds to hs own use.
Charges found proved.
Charged wth havng been convcted n State
court for msappropraton of funds. Charges
found proved.
Charged wth havng been convcted for fraud-
uent use of the Unted States mas. Charges
found proved.
Charged wth preparng fase returns for two
years for a ta payer, and wth convcton n
Unted States dstrct court on such charges.
Charges found proved.
Charged wth appropratng money beongng
to a Natona arm Loan ssocaton to hs
own use. Charges found proved.
Charged wth havng been convcted and sen-
tenced n Unted States dstrct court for
conspracy to voate the Natona Prohb-
ton ct. Charges found proved.
Charged wth knowngy preparng and Sng
fase cam for refund and procurng pay-
ment of such fase cam for a ta payer.
Charges found proved.
Charged wth knowngy preparng fase re-
turns for ta payers. Charges found proved.
Charged wth msappropratng funds and wth
havng been dsbarred from practce as attor-
ney by the Supreme Court of Mnnesota.
Charges found proved.
Charged wth havng been ndcted and con-
vcted n the Unted States dstrct court for
knowngy preparng a frauduent ncome ta
return. Charges found proved.
SUSP NSIONS.
The Secretary of the Treasury, after due notce and opportunty
for hearng, has ordered the suspenson from practce before the
Treasury Department for the perod stated n each case of the
foowng-named attorneys and agents:
Name.
ddress.
Perod of
suspenson.
Cause.
anchard, Chares
.
Coumbus, Oho..
1 year, from
uy 13, 1934.
ound guty of gross neggence for fng er-
roneous persona ncome ta returns.
rtey, red
ormery Wash-
ngton, D. C,
nowMam. a.
5 years, from
ug. 3, 1934.
Charged wth fang to fe ncome ta re-
turns for the years 1925 to 1930, ncusve.
Charges found proved.
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Msc.
04
R SIGN TIONS ROM NROLLM NT TO PR CTIC OR T TR SURY
D P RTM NT.
The foowng-named persons have tendered ther resgnatons
from enroment to practce before the Treasury Department. The
Commttee on nroment and Dsbarment has accepted ther resg-
natons and ordered ther names strcken from the ro of attorneys
and agents enroed to practce before the Treasury Department.
They are therefore no onger entted to practce before the Treasury
Department.
Name.
Curwn, Lowe
Danes. Nathan
Dehay, r., T.
Gaoway, T.
Ockman, ernard
efand, bert
ackson, Sdney D
apan, Davd
ower, Samue
reger, en|. 8 __
Latn, Car
Mase, Water
Mannng, . Webster..
McDane, Robert L._
O Donne, ae
Perdue, dward..
Red, arry R
Rorer, Wam Russe
chro, S. Lawrence...
Soan. M. D
Sobe, Leo.. _
Spky, braham
Werner, Irvng...
ddress.
ormery South end, Ind now
Ceveand, Oho.
New York, N. Y
ormery Tyer, Te ., now Marsha,
Te.
Los ngees, Caf
New York, N. Y
New York, N. Y...
Corpus Chrst. Te
ormery New Y ork, N. Y., now Ph-
adepha, Pa.
New York, N. Y.
New York, N. Y
New York, N. Y.
New York, N. Y
Washngton, D. C
Oakand. Caf
Memphs, Tenn
New Rochee. N. Y
ormery Mansfed, Oho, now Lake-
wood, Oho.
Phadepha, Pa
ormery York, Pa., now Detrot,
Mch.
ernon, Te
New York, N. Y
New York, N. Y
ron , N. Y
Desgnaton.
gent..
gent
ttorney.
gent-
gent..
gent..
gent..
gent..
gent.
gent
gent
gent
gent
gent
gent
Date of
acceptance.
uy 1 ,1935
uy 1 ,1935
uy 11,1935
uy 1 ,1935
une 28,1835
uy 1 ,1935
uy 1 ,1935
une 21,1935
uy 1 ,1935
uy 1 ,1955
uy 1 ,1933
uy 19, 1935
uy 23.1935
ug. 9,1935
ug. 2,1935
uy 19,1935
uy 1 ,1935
uy 19,1935
uy 18,1935
uy 1 ,1935
uy 1 ,1935
uy 30,1935
ug. U1935
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IND .
ng
No.
.
ccountng perod, accruas, decedent s return
dmssons. (See Msceaneous ta es.)
ffated corporatons:
Determnaton of affaton, aeged nvadty of contracts
nvovng stock transfer
Intercompany dvdends, consodated net oss computaton,.
Losses, sae of stock, change of ownershp durng ta abe year_
Net oss deducton
coho:
Denatured
ormua 38- , 39, 39- , 39 , and 40 n ppend to
Reguatons 3, revsed
Propretary sovents, sae and shpment, reguatons
amended
Lquor ta . (See Ta es: Lquor.)
Ta -free, appcaton for
en Property Custodan, sae of property of a nonresdent
enemy, estate ta abty
ens, departure from Unted States, certfcate of compance
mony, note payments gven n eu of, nterest deducton
mendments:
Conference and practce requrements, ureau of Interna
Revenue, revsed uy, 1935
Reguatons 3 ( coho), artce 14
Reguatons 15, rtce I
Reguatons 18-
Paragraph 15
Paragraph 21
Reguatons 42, artces 1, 8, 25, and 39
Reguatons 43, artce 57
Reguatons 44 (1934)
rtce 24
rtce 28
rtce 33
rtce 34
rtce 43
rtce 84
Reguatons 44 (1934), artce 2
Reguatons 4
rtce 1
rtce 17
rtce 71
rtce 7 )4
Reguatons 49, artces 18 and 24
Reguatons 2, artces 81 and 85
Reguatons 4, Chapters III, III, and I .
Reguatons 5, artces 81 and 85
Reguatons 9-
rtces 81 and 85
rtce 1307 added
775
7784
7772
7727
7771
7 57
7 54
7 13
7 11
7775
7 72
77 1
17 54
7S39
7837
7838
7793
7 27
7 28
780
7807
7808
7809
7810
7811
7 24
7025
7812
7814
7813
7749
7875
7 42
7875
7875
7 71
( 05)
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0
Rung
No.
mendments Contnued.
Reguatons 71, artce 2
Reguatons 74
rtces 971 and 975
rtce 1258 added
Reguatons 7 , artce 1
Reguatons 77
rtces 971 and 975
rtce 1258 added
Reguatons 79, artce 8 2 added..
Reguatons 80, artce 105 added.
Reguatons 81
rtce 12
rtce 1
rtce 2 -
Reguatons 84 (1935)
rtces 2, 9, 10, 11, 1 , and 18.
rtce 27
rtce 30 -
Reguatons 85, artce 1
Reguatons 8 -
rtce 13-1
rtce 23(d)
rtce 23(e)-3
rtce 23(1)
rtce 23(m)-1
rtce 23(o)-
rtce 51-1
rtce 112(g)-2
rtce 115-5
rtce 142-1.
rtce 143-4
rtce 14 -1
rtce 147-2
rtce 181-1 ---
rtce 203(a) (8)-
rtce 204(a)-
rtce 213-1
rtce 214-1
rtce 322-3
rtce 322-8 added
Treasury Decsons
4275
4359..
4549..
4579
4588
459 , artce 31
Word War eterans ct, 1924, secton 21
mortzaton, baseba-payer contracts
nnutes:
Carrers retrement system, e empton
cess of cost over payments receved durng annutant s fe-
tme, oss deducton
Premums pad on empoyees past servce fe annutes, de-
ducton
rkansas saes ta
ssessments:
Credtng coectors accounts n cases of, aganst severa per-
sons coverng same ta abty
Ta es. Uee Ta es.)
7 95
7 95
78 2
7 95
7 95
7 95
7 95
7 95
7 95
1/7 95
78 4
7 95
7775
7 95
7 95
7855
7 95
7 95
7 95
7 95
7 71
774
7 85
7 53
7884
7722
7792
7739
77S0
771
7 1
7 38
7710
7 71
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07
ssgnments:
Partnershp earnngs
Profts from partnershp n qudaton
ttorneys and agents, dsbarments and suspensons
utomobes:
Insurance company, e empton
Parts or accessores. (See Manufacturers e cse ta es.)
wards:
Condemnaton, e empton
M ed Cams Commsson, ncome
.
ad debts:
Reserves
Worthess notes, tte guaranty company, year deductbe
ae tags:
Cotton
Destructon of, reguatons amended
porters not requred to remove, reguatons amended.
Import, reeased en cotton, etc., nstructons
Lost, repacement
ankng ct of 1935
ankruptcy ct of 1898, amendment
anks:
edera ome Loan, nterest on bonds of, e empton
Payments to temporary edera depost nsurance fund, treat-
ment
eer, canceaton and coecton of stamps, reguatons amended.
tumnous Coa Conservaton ct of 1935:
cerpts from
Reguatons reatng to
mended
onds:
pprova and reease of suretes thereon
rewer s ( orm 15 ) prescrbed
Dscount, unamortzed on retrement, deducton
Dstrbuton to purcasng company, reorganzaton
Issuance e penses, deducton
Losses from sae ot e change, mtaton
Premums pad on retrement, deducton
Purchase and retrement, ncome
Reease of edera ta en, reguatons amended
Shrnkage osses, deaer n securtes
Unted States savngs, ncrement n vaue, when reported
Wthhodng of nterest on. (See Wthhodng ta at source.)
rewer s bond ( orm 15 ) prescrbed
roadcastng, eectrca transcrptons used n
rokers, nformaton returns
udng and oan assocatons:
Dstrbutons
Capta gan or oss
Instament sharehoders
Informaton returns, dvdend payments
ureau of Interna Revenue:
Conference and practce requrements, revsed u , 1935
mended
Inqures regardng ta abty, procedure
usness e penses:
anks, payments to temporary edera depost Insurance fund.
aseba-payer contracts
Rung
No.
7799
7 89
7878
7843
7822
7758
7759
7821
7700
77 4
77 4
7 12
7 12
7702
7703
7574
7828
7793
77 2
7791
7792
7 13
7838
7803
7701
7803
7872
7803
7582
774
7798
7852
7838
7774
7580
7723
7873
7820
7704
77 1
7 77
7828
7780
G
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08
usness e penses Contnued.
Commssons pad on saes of securtes
Contrbuton to raroad retrement fund_
Interest, accrua bass, when deductbe
Stock saes, commssons and prntng e penses
usness eagues, e empton
C.
Caforna:
Communty property and ncome
State compensaton nsurance fund, offcer and empoyees,
compensaton
Canada, duty on mnng company profts, uebec mnng act,
credt for
Capta gans and osses:
Dstrbutons by budng and oan assocatons
Property acqured by bequest or under ntestate aw
Stock acqured through e cercse of opton, sae of
Capta stock ta :
Corporatons dstngushed from other organzatons, Regu-
atons 4 (1934) amended
Decared vaue, deducton, fsca yeaT return
emptons, Reguatons 4 (1934) amended
Returns, e tenson of tme for fng
Treasury stock resae, retrement, etc., ad|ustments
Carrers:
Contrbutons to raroad retrement fund, busness e pense
deducton
cse ta on
Retrement annuty payments, e empton
Certfcate of compance, departng aen
Chamber of commerce operatng traffc bureau, e empton
Char tabe:
Contrbutons, deducton by corporatons
Trust, e empton
Cgarette stamp ta , Okahoma
Ctrus-frut wne and brandy, reguatons coverng
Cosng agreements. (See Ta es: na determnaton and assess-
ment.)
Coa Conservaton ct. (See tumnous Coa Conservaton
ct.)
Coorado:
Inhertance ta , addtona 10 per cent for od age penson
fund, deducton
Saes ta
Transfer of stock from guardan to ward
Commssons, saes of securtes, busness e pense deducton
Commodty:
Credt Corporaton, advances receved by cotton producers
under cotton agreements
change, e empton
Communty property and ncome, Caforna, agreement between
husband and wfe
Compensatng ta :
M ture of backstrap moasses and nvert sugar or other
sugars
Reguatons, amendment of. (See mendments.)
Rce, reguatons
Rye, reguatons
Rung
No.
7 98
7795
773
7822
7 50
7 2
7 20
7 37
7723
7845
7770
7734
7 42
770
7 42
7 05
7593
7795
7717
771
7775
7 70
7815
7829
7S31
7 87
7870
7732
7 59
7714
7 98
77 8
7 50
7 2
7 44
445
7805 I 453
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.
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s
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#
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e
09
Compensaton:
ddtona
Premums pad on empoyees past servce fe annutes
Stock purchase, nstament contracts, dvdends
Corporate offcers and empoyees, Informaton returns
oregn government empoyees, e empton
State offcers and empoyees. (See State.)
Conference and practce requrements, ureau of Interna Rev-
enue, revsed uy, 1935
mended
Connectcut:
cse ta
Transfer of stock from guardan to ward
Consodated returns. (See Returns.)
Constructve recept:
Dstrbutons, budng and oan assocaton, nstament
sharehoders
Dvdends, edera savngs and oan assocaton, nstament
sharehoders
Partnershp earnngs, assgnment of.
Payments on note gven n eu of amony
Consumers ta , Okahoma, deducton
Contracts:
aseba-payer, busness e penses
Navy, nson ct
ppcaton of secton 3 to certan cases
cess profts
Contrbutons:
Chartabe, corporatons, deducton
Raroad retrement fund, e pense deducton
Corporatons:
Chartabe contrbutons by, deducton
Dstrbutons n qudaton
change of stock
Ta refund receved after reorganzaton
Informaton returns
Compensaton pad offcers and empoyees, stock hod-
ngs
Dvdend payments.
Cotton:
ae
Destructon of, reguatons amended
porter not requred to remove, reguatons amended.
Destroyed after beng put n process
oor stocks ta . (See oor stocks ta .)
Gnner s nformaton return, reguatons
Gnnng ta
Rate as of une 18, 1935
Rate as of October 21, 1935
Lnt, 1935-3 crop, used n producer s househod, ta e emp-
ton, reguatons amended
Processng ta , postponement of payment
Producers, advances receved under cotton agreements
Taggng mport cotton, reeased en cotton, etc. repacement
of ost tags
Court decsons:
mercan Tte Co. v. Commssoner
nderson Century ssocaton v
achmann, mmerch Co., Inc., v. Unted Sates
atmore Oho Raroad Co. v. Commssoner
Rung
No.
7 38
7591
7742
7715
7704
77 1
779
7714
7873
7590
(7 89
7799
7 72
7841
7780
77 0
758
7815
7795
7815
7854
7745
7744
7742
17729
7820
77 4
77 4
7 92
7 1
759
7804
7800
/7 14
7 15
77 8
7 12
7 00
7 43
7 51
7822
G
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3
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10
Court decsons -Contnued.
Danckcr v. Commssoner
ecker v. St. Lous Unon Trust Co. et a
erks County Trust Co. et a. v. Commssoner
ss v. Commssoner
ohue v. ComwMtoner
owers ree-port Te as Co. v
urdck v. Commssoner
urns v. Commssoner
Canaday, Inc., v. Commssoner
Cannon cf a . . Nchoas
Centenna ourng Ms Co. v. erhus
Century ssocaton v. ./Inderson
Chapman Commssoner v
Cty an t armers Trust Co. everng v
Cark v. Commssoner
Cfton Manufacturng Co. v. Unted Sates
Commssoner mercan Tte Co. v
Commssoner atmore fc Oho Raroad Co. v
Commssoner ancker v
Commssoner erks County Trust Co. et a. v
Commssoner f/ss v
Commssoner othwe v
Commssoner urdck v
Commssoner urns v
Commssoner Canaday, Inc., v
Commssoner v. Chapman
Commssoner Cark
Commssoner Cran c a.
Commssoner Crane et a.
Commssoner v. Cummngs
Commssoner Darby
Commssoner Dbbee v
Commssoner v. Dyer
Commssoer mery v
Commssoner armve O ertzer Co. v.
Commssoner fn e( o. v r
Commssoner rst Seatte De ter orton Natona ank
et a. v
Commssoner ynn v
Commssoner r/z e( a/, v
Commssoner Gardner-Denver Co. v
Conmssoncr ohnstone v
Commssoner Longyear v .
Commssoner Marbce Corporaton of merca, Ltd., v
Commssoner Marne Transport Co. v
Commssoner Mc ccy v
Commssoner Mente et a. v
Commssoner v. e us
Co7 mssoncr Newman et a.
Commssoner Prescott v
Commssoner v. Robertson
Commssoner Rossmoore v
Commssoner Sherman
Commssoner Shoenbcrg v
Commssoner Sbcrman Sons v
Commssoner Smpson v
Commssoner Wancss Iron Co. v
Commssoner Wheeock et a. v .
Commssoner U oZrerne Petroeum Corporaton v
Co stanm Unted States v
Cran et a. v. Commssoner
Crane et a. v. Commssoner
78 5
7855
7798
7571
7734
7 22
7 99
7701
7854
7 23
7801
7 43
7 3
7S4
7 39
7 10
7 00
7822
78 5
7798
7571
7734
7 99
7701
7854
7 3
7 39
7 40
7 73
7770
7734
7845
7830
7799
7821
772
7747
7758
7 81
7591
787
7 72
7784
7759
7845
7744
78
78 7
7745
7 3
7 89
7 2
7874
7727
7773
7599
7785
7592
7877
G
e
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r
a
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d

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#
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11
Court decsons- Contnued.
Cummngs Commssoner v
Dante Ta v..---
Darby v. Commssoner
Dbbee v. Commssoner
Dougas v. Wcus
Dyer Commssoner v
mery v. Commssoner
after v. Unted States
armve O ertzer Co. v. Commssoner
nk e a. v. Commssoner
rst Natona ank of oston et a Unted States v
rst Seatte De ter oron Natona ank et a. v. Commssoner
sher ourng Ms Co. v. erhus
ynn v. Commssoner
ordyce et a. v. eve ng
ounders Genera Corporaton v. Ioey
reeport Te as Co. v. owers
rtz et a. v. Commssoner
Gardner-Denver Co. v. Commssoner
Garand Coa Mnng Co. v. everng
Geers et a. amson v
emhoz everng v
everng v. Cty ank armers Trust Co
everng ordyce et a. v
everng Garand Coa Mnng Co. v
everng v. emhoz
everng v. Lee --
everng Newaygo Portand Cement Co. v --.
everng Rand v
everng v. SI. Lous Unon Trust Co
everng Seeey v
everng ondermuh v
oey ounders Genera Corporaton v
oruff v. Unted States
ovey Co. v. Unted Sates
amson v. Geers et a
ohnstone v. Commssoner
esterson et a Unted States v
ye et a Margott v
Lee everng v
Longyear v. Commssoner
Marbete Corporaton of merca, Ltd., v. Commssoner
Margott v. ye e a
Marne Transport Co. v. Commssoner
Mc eey v. Commssoner
Mente et a. v. Commssoner
Moore v. Unted Staes
Nevus Commssoner v
Newaygo Portand Cement Co. v. everng
Newman et a. v. Commssoner
Nchoas Cannon e a v
Page Regents of the Unversty System of Georga v
Perce- rrow Motor Car Co. v. Unted Staes
Poor et a Whte v.
Prescott v. Commssoner
Rand v. everng
Raybestos-Manhattan, Inc., v. Unted States
Regents of the Unversty System of Georga v. Page
Rtzve ourng Ms v. erhus
Robertson Commssoner
7770
7713
7734
7845
7844
7830
7799
7 11
7821
772
7845
7747
7801
7758
7783
7833
7 22
7 81
7591
7582
7584
7847
784
7783
7582
7847
7845
773
/7725
17845
785
77 9
7570
7833
75 9
7 90
7584
787
7879
7824
7845
7 72
7784
7824
7759
7845
7744
7583
78
773
78 7
7 23
7594
7 82
7848
7745
/7725
17845
7834
7594
7801
7 3
G
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12
Rung
No.
Court decsons Contnued.
Rose v. Trust Co. of Georga
Rossmoore v. Commssoner
St. Lous Unon Trust Co. e a. ecker v
St. Lous Unon Trust Co. Ieverng v
Seeey v. 1 etterng
Sherman v. Commssoner
Shoeuberg v. Commssoner
SUberman Sons v. Commssoner
Smpson v. Commssoner
Stone et a. Whte v
Ta v. Dante -
Trust Co. of Georga Rose v
Unted States Dachmann, mmerch Co., Inc., v
Unted States Cfton Manufacturng Co. v
Unted States v. Constantne
Unted States aber v
Unted Staes v. rst Natona Dank of oston et a
Unted States oruff v
Unted States ooey Co. v
Unted States v. eserson et a
Unted States Moore v
Unted States Perce- rron- Motor Car Co. v --
Unted States Raybestos-Manhattan, Inc., v
erhus Centenna ourng Ms Co. v
erhus sher ourng Ms Co. v.. -
erhus Rtzve ourng Ms v
ondrrmuh v. Ieverng
Waness Iron Co. v. Commssoner
Wheeock et a. v. Commssoner
Whe v. Poor et a
Whte v. Stotc et a
Wcuts Dougas
Woverne Petroeum Corporaton v. Commssoner .
Coverngs of and contaners for toet preparatons, meanng of_-
Credt or refund:
Cahs
Mnors, New York
Suffcency .
Credtng coectors accounts n cases of assessments aganst
severa persons coverng same ta abty
Refunds on e ports, grcutura d|ustment ct ---
Ta pad on urey tobacco used n manufacture of chewng
tobacco
Credts:
ganst net ncome, assessment payments to temporary ed-
era depost nsurance fund
Ta es, foregn
uebec, duty on annua profts of mnng companes
Span, smar credt requrement
Crude petroeum. ( S cc Msceaneous ta es.)
D.
Deaer n securtes:
Dstngushed from foor trader
Inventores
Decedents, nterest accrued at date of death, credt for ta wth-
hed, treatment
Deaware:
Lquor ta
Transfer of stock from guardan to ward
Denatured acoho, products made from, sze desgnated on con-
taners
7 52
7 89
7855
785
77 9
7 2
7874
7727
7773
7712
7713
7 52
7 51
7 10
7877
7 11
7845
75 9
7 90
7879
7583
7 82
7834
7801
7S01
7801
7570
7599
7785
7848
7712
7844
7592
7 02
7 09
7 22
7 71
7789
77 5
7828
7 37
75 8
77 9
7798
775
7 07
7714
7839 1
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17
.ds-
mssng strp stamps.
f|ant dscontnued, transfer of materas to successor
.ant. (See Ta es: Coecton. )
dvdends:
onds, new, ssued n eu of bonds acqured by purchase
mpoyees stock-purchase pan, addtona compensatonT
traordnary, testamentary trust, edera and State aw..
edera savngs and oan assocatons, nstament share-
hoders
oregn corporatons, wthhodng
Informaton returns
udng and oan assocaton
Corporatons
Intercompany, consodated net oss computaton
Lqudatng
Lqudaton
Dstrbutons of ta refund after reorganzaton.
change of stock _
Ta refund receved after reorganzaton
Preferred stock of banks, nsurance companes, etc., owned by
Unted States or nstrumentates, deducton
Doube ta aton, conventon and protoco, Unted States and
rance
Dues. (See Msceaneous ta es: Dues.)
.
ectrca energy. (See Manufacturers e cse ta es.)
states and trusts:
Decedent s estate durng admnstraton
Income
Current dstrbuton, ta abty
Speca bond, approva date cose of admnstraton
perod, ta abty.
state ta :
Gross estate
Lfe nsurance, premums pad from communty ncome,
rght to change benefcary
Nonresdent
onds, nonresdent aen, ncuson of
Ctzen, property sod by en Property Custodan,
deducton mtaton ...
Decedent, power of appontment, stock n domestc
corporaton
Rea estate
Dstrct of Coumba, sub|ect to admnstratve
e penses
Dstrct of Coumba and Mssour, equtabe con-
verson.
78 7
7787
7 11
78
7713
7713
342
353
359
350
35
35
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#
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14
state ta -Contnued.
Gross estate Contnued.
Transfers
In contempaton of death
In trust
Genera power of appontment e ercsed by
w
To take effect at death
Reguatons, amendment of. (See mendments.)
stoppe:
ssessment agreement among affates, recovery
Changng year n whch ncome reported
Deprecaton deducton, statute of mtaton
Interest deducton, accrua bass
cess-profts ta :
Reguatons reatng to, 1935 ct
Returns, fsca year 193 , capta stock vaue, change n
orm 1120
changes, gan or oss. (See Gan or oss.)
cse ta . (Sec Ta es.)
empt corporatons:
utomobe nsurance company
usness eagues, commodty e change
Chamber of commerce operatng traffc bureau
Chartabe trusts
Organzed for busness actvty, gans nurng to e empt cor-
poraton
Schoo, prncpa stockhoder and trustee wth power to regu-
ate own saary
Soca cubs
empt ncome:
nnutes under carrers retrement system
Compensaton, foregn government empoyees
Condemnaton award and nterest
ees, notares pubc
Interest
ond, edera ome Loan anks
Obgatons of edera Depost Insurance Corporaton..
State ncome. (See State.)
eterans pensons, compensaton, etc
porters of oeomargarne ta abe as whoesae deaers
ports, refund of processng ta on
tenson of tme:
ng of returns
Capta stock ta
Mutua nsurance companes, caendar year 1934
Payment of ta , mutua nsurance companes, caendar year
1934
.
edera:
coho dmnstraton ct, ctrus-frut wne and brandy,
reguatons coverng
Depost Insurance Corporaton
Obgatons of, e empton
Temporary fund, payments to, treatment
ome Loan anks, nterest on bonds of, e empton
Rung
No.
7855
784
7847
7848
787
17855
785
7 22
7734
7785
773
7881
770
7843
7 50
7 70
17829
7831
7 08
7781
7818
771
7715
7822
75 7
7574
7702
7739
7 2
7789
7 05
(7588
7 88
/7588
7 88
7870
7702
7828
7574
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e
15
edera Contnued.
Reserve ct, amendment
Savngs and oan assocatons, dvdends credted to nsta-
ment sharehoders
Ta ens. (See Lens.)
| notares pubc, ta abty
ucares, returns. See Returns.)
oor stocks ta ( grcutura d|ustment ct):
Cotton, yarn hed for manufacture nto coth
Sugar hed n transt or n storage, for use n manufacture
or for sae, e empton
oregn:
Corporatons, dvdends, wthhodng ta at source
Governments, empoyees compensaton, e empton
orm 15 , rewer s bond, prescrbed
rance, doube ta aton, conventon and protoco wth Unted
States
urs. (See Manufacturers e cse ta es.)
G.
Gan or oss:
ass
d|usted, deprecaton aowed and aowabe, de-
ducton
ar market vaue of stock, opnon evdence, burden of
proof
Transfer of partnershp assets, evdence
Dstrbuton of bonds, reorganzaton, dvdend
change of
Stock
Convertbe bond rue
Dstrbuton n qudaton
or stock, reorganzaton
Instament obgatons transmtted by death
Sae and e change, reorganzaton
Saes-
Instament, transmsson of nstament obgaton,
consttutonaty .
Property acqured by bequest or under ntestate aw
Stock acqured through e ercse of opton warrants
Gasone. (See Ta es: Motor vehce fue.)
(See ahn Manufacturers e cse ta es.)
Gft ta es, Reguatons 79 amended, artce 8)4 added
Gnuers, nformaton returns
.
ogs, processng of. (See Processng ta .)
omestead, en for edera ta es
usband and wfe:
Persona e empton, separate returns
Stock oss, mtaton on deducton, |ont return
Tenants by entretes, ta es and nterest
ypothetca questons
I.
Inos, ta sae, rea estate, oss deducton
Industra acoho pant, dscontnued, transfer of materas to
successor
Informaton returns. (See Returns.)
Rung
No.
7702
7590
75 7
7573
7 45
7819
7715
7838
7 31
7853
7 3
7 81
7701
78 5
7 52
7745
7 39
7583
7747
7 73
7845
7770
7 71
7 1
7584
7757
7782
7711
7 77
7743
f7708
7722
1778
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1
Rung
No.
Inhertance ta es, State. (See Ta es: State Inhertance.)
Inspecton of returns, reguatons governng
Instament saes, nstament obgatons transmtted by death,
gan or oss
Insurance companes:
Lfe, reserves, deductons, reguatons amended
Mutua (other than fe)
tenson of tme, fng returns, payment of ta , ca-
endar year 1934
Returns
Tte, earned premums, ncome, reserves under State aw,
deducton .-
Insurance poces, sezure sae under warrant dstrant
Interest:
ccrua bass, when deductbe
onds
edera ome Loan anks, e empton
Wthhodng. (See Wthhodng ta at source.)
Condemnaton award, e empton
edera Depost Insurance Corporaton, obgatons of, e -
empton
Insurance companes, fe, deductons, reguatons amended.
Nonresdent aen s ncome from trust funds
Note payments gven n eu of amony, deducton
Stock subscrpton prce reducton, deducton
Ta es
Defcences, e tenson of tme, 1935 ct, correspondence
nstructons
Instaments, e tenson of tme, 1935 ct, correspondence
nstructons
Inventores:
Deaers n securtes
oor trader of stock e change
auaton bass, reguatons
Issuance e penses, bonds. (See onds.)
7 01
17 31
)7 84
17 85
7583
7 23
7875
17588
7 83
7 21
ont returns, death of spouse durng ta abe year.
.
entucky motor vehce fue ta
L.
Lens, edera ta es:
Decedent s property n hands of admnstrator
omestead
Reease of, reguatons amended
Lmtaton perod:
Suts
Procedure under Tucker ct
Recovery of ta es
Cam for refund
Wavers
ssessment, vountary payment pror to
Coecton, vountary payment before assessment.
ecuted after statutory perod
773
7574
7822
7702
7875
7570
7 72
7822
7755
7755
7798
77 9
7 82
7571
7 0
7 S0
7584
774
7 51
7 90
75 9
75 9
7 10
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17
Lquor:
Deaers-
State mmunty, n|uncton aganst ta coecton, courts
|ursdcton
oatng State aw, speca e cse ta es, consttutonaty.
Pants and warehouses, copes of reports
Ta , Deaware
Loans, advances receved by cotton producers under agreements..
Losses:
nnuty contract, e cess of cost over payments receved
durng annutant s fetme
Debt pad by note, when deductbe
Deducton n subsequent year
Shrnkage, bonds, deaer n securtes
Stock-
Sae and repurchase
vdence, burden of proof
Saes
ffated corporaton, change of ownershp durng
ta abe year
nd resae through controed corporaton
Commssons and prntng e penses
Cost reduced by dvdend payment
Or e changes, deducton mtaton
ont return
Ta saes, rea estate, Inos
Lousana:
Motor vehce fue ta
Notares pubc, compensaton r
Lubrcatng o. (See Manufacturers e cse ta es.)
M.
Manufacturers e cse ta es:
ttempted rescsson of a sae -.
utomobe parts or accessores, measured and cut from raw
or buk matera
ffectve perod
ectrca energy, reguatons amended
urs, whoesae and reta repar |obs
Gasone
Lubrcatng o used n producton of product sod as
motor fue
Produced
rom natura gas, ad|ustments for e panson, con-
tracton, or osses
Recovered from natura gas
Lubrcatng o used n producton of a motor fue
Phonograph records, eectrca transcrptons moton-pcture
records of sound-on-dsk type
Reguatons, amendment of. (See mendments.)
Saes to State or potca subdvsons
Toet preparatons, etc.
Coverngs and contaners, meanng of
Permanent wave soutons, S. T. 488 modfed
Rung
No.
7824
/7877
7879
7 13
7 07
77 8
7 1
7 40
7759
7798
7874
7725
7727
7830
7822
7727
7872
7782
7743
7598
75 7
7823
7 24
7 25
.7 27
7 27
7748
7788
7 41
7749
7788
7774
/780
7812
7 02
7 4
G
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18
Rung
No.
Maryand, transfer of stock from guardan to ward
Mchgan, motor vehce fue ta
Mnes, god, depeton aowance, percentage method, eecton...
Msceaneous ta es:
dmssons
thetc games conducted by State unversty, vadty
of ta
cess charge by cub for obtanng tckets for members.
Crude petroeum, producers ta on, reguatons amended
Dues, oca cub
ffectve perod
Reguatons, amendment of. (.See mendments.)
Stamp ta es
Oeomargarne, whoesae deaers, e porters ta abe as...
Sver buon, saes and transfers
Purchase of futures contract on foregn e change by
Unted States resdent offsettng sae
Ta abty of Unted States resdent wth respect
to London buon deaer s proft on a futures
contract
Stock, transfer from guardan to ward, Coorado, Con-
nectcut, Deaware, Maryand, rgna, and Ws-
consn
Stock, transfer of rght to receve
Teegraph, etc., factes
Transportaton of o by ppe ne
Msssspp, motor vehce fue ta
M ed Cams Commsson award, ncome
Moton pcture records. (.See Manufacturers e cse ta es.)
Motor vehce fue:
entucky
Lousana. _
Mchgan.
Msssspp.
Nevada
rgna
N.
Nava contracts, nson ct, e cess profts
Net osses, affated corporatons
Nevada, motor vehce fue ta
New ersey, property ta es, accrua date
New Me co saes ta
New York Cty saes ta
New York, refund cam fed by mnor, vadty
Nonresdent:
ens, nterest on trust funds
Ctzen, property sod by en Property Custodan.
North Dakota saes ta
Notares pubc, fees, ta abty
Notes:
Debt pad by, oss deducton
Payments gven n eu of amony, nterest deducton.
Worthess, tte guaranty company, year deductbe
7714
78 1
7797
7594
7750
7749
7 43
7 27
7 2
7 30
7 30
7714
/7833
7834
7 27
7 27
175 5
1.75
(7758
7759
7 00
7598
78 1
(75 5
75
7 48
7842
758
7711
7 48
7 9
7817
7579
7 09
7570
7 11
7 49
75 7
7 40
7 72
7700
G
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19
o.
Okahoma:
Cgarette stamp ta
Consumers ta
Oeomargarne:
porters ta abe as whoesae deaers
Schedue of producton and materas used
May, 1935 and 1934
une, 1935 and 1934
uy, 1935 and 1934
ugust, 1935 and 1934 ..
September, 1935 and 1934
October, 1935 and 1934
November, 1935 and 1934
P.
Pam o. (See Processng ta es.)
Paper fabrc and tape, renforced. See Processng ta es.)
Partnershps:
Dstrbutve shares, assgnment durng qudaton, by whom
reported
arnngs dstrbuted, under contract, to corporaton, to whom
ta ed
Lmted, Te as
Transfer of assets, evdence, gan or oss bass.
Parte or accessores, automobe. (See Manufacturers e cse
ta es.)
Penates. (See Ta es: Penates.)
Pensons, od age, Coorado, addtona 10 per cent nhertance ta ,
deducton
Persona e empton, marred person, separate return
Phadepha, property ta es, accrua date
Phonograph records. (.See Manufacturers e cse ta es.)
Premums:
onds. (Sec onds.)
mpoyees past servce fe annutes, deducton
Processng ta :
Cotton
Destroyed after beng put n process
Postponement of ta payment
ogs, saughtered by producer and served to patrons of hs
restaurant
In|uncton aganst coecton
Pam o, Pam o resdue, ta abty as combnaton or
m ture
Paper fabrc and tape, renforced
Refunds upon e portatons, when aowabe
Rce, reguatons governng
Rye, reguatons
Sugarcane, Treasury Decson, 4549 amended
, Sut n equty, n|uncton
Tobacco
Credt or refund, ta on urey tobacco
Reguatons
Used n manufacture of ong-cut for both chewng and
smokng
Wheat-
Produced by State nsttuton, custom mng for to. .
Reguatons
Treasury Decson 4579 amended.
Rung
No. 1
7 87
7841
7 2
757
7 18
7 75
7720
77
783
7883
7 89
7783
7589
7 81
7732
7757
7 3
7 38
7 92
7 14
7 15
7 93
7801
7737
7858
7789
/7 03
1.7 9
7805
7 53
7801
77 5
7 5
7857

7 91
7738
7 5
7884
G
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Property ta es. (See Ta es.)
Pubcty of returns

uebec, duty on annua profts of mnng companes, credt

R.
Raroad retrement fund, contrbutons to, deducton
Rectfers, botte equpment, e empton
Refunds. (See Credt or refund.)
Reorganzaton:
ankruptcy, confrmaton and acceptance
Dstrbuton of bonds, dvdends -
Gan or oss, sae and e change
Rescsson of sae, attempt to rescnd a competed sae
Reserves:
ad debts
Insurance companes, fe, deductons, reguatons amended.
Tte nsurance company, State requrement, deducton
Retrement annutes, carrers e empton
Returns:
Consodated
ffaton determnaton
ssessment agreement among affates, evdence
Net oss computaton, ntercompany dvdends, emna-
ton of
Dupcate ncome ta returns
cess-profts ta , fsca year 193 , capta stock vaue, change
n orm 1120
tenson of tme for fng
Capta stock ta
Mutua nsurance companes, caendar year 1934
ducary, fng requrements
usband and wfe
Stock osses, mtaton on deducton
Tenants by entretes, ta es, and nterest deducton
Informaton
rokers
udng and oan assocatons, dvdend payments
Corporatons-
Compensaton pad offcers and empoyees
Dvdend payments
dnners
Inspecton of, reguatons governng
ont
Death of spouse durng ta abe year
Stock osses, mtaton on deducton
Mutua nsurance companes (other than fe)
Pate for fng, Unted States ctzen n rgn Isands
Revenue ct of 1935
Revocaton, Treasury Decson 458S
Rce. (See Processng ta Compensatng ta .)
Royates, mnng, subease of State schoo ands, e empton
Rues of practce. oard of Ta ppeas, effectve uy 1, 1935...
Rungs, request for
Rye. (See Processng ta es.)
78 9
7 37
7795
7837
7703
7701
7747
7572
7821
7875
7 00
771
7784
7 22
7772
78 9
770
7 05
7588
7 88
78 4
7782
7711
7580
7820
7742
7729
7 1
7 01
7 34
7 84
.7 85
7571
7782
7 21
78 3
7718
778
7599
7 55
G
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21
s.
Saes:
ttempted rescsson neffectua
Denquent ta es, rea estate, Inos, oss deducton
Gan or oss
Instament, transmsson of nstament obgaton,
consttutonaty
Property acqured by bequest, statutory constructon..
Instament. (See Instament saes.)
Securtes, commssons on, busness e pense deducton
Stock-
cqured through e ercse of opton warrants, capta gan
ffated corporaton, change of ownershp durng ta -
abe year, oss deducton
Sae and repurchase, osses. (See Losses.)
Ta . (See Ta es.)
Sea stores, shpments or devery of manufactured tobacco, etc.,
for use as
Sver buon, saes and transfers. (See Msceaneous ta es:
Stamp ta es.)
Soca cubs:
Dues. (See Msceaneous ta es: Dues.)
empton. (See empt corporatons.)
Soca Securty ct
ureau s |ursdcton ,
Records to be mantaned
Span, ta es, smar credt requrements
Stamp ta es. (See Msceaneous ta es.)
State:
thetc games conducted by State unversty, not govern-
menta functon
Compensaton nsurance fund of Caforna, offcers and em-
poyees, compensaton
Income, mnng royates, subease of schoo auds, e empton
Offcers and empoyees, compensaton
Notares pubc, Lousana
Payment by Unted States, ta abty, years pror to 1934
State compensaton nsurance fund of Caforna
Year 1933, appcaton of artce 11 -2, Reguatons 8 _
Stock:
change of
Convertbe bond rue, gan or oss
Dstrbuton n qudaton, ncome
Gan or oss
Stock for stock, reorganzaton, gan or oss
ar market vaue, opnon evdence, burden of proof, gan or
oss bass
Losses
ont return, mtaton on deducton
Sae or e change, mtaton
Sae and repurchase, osses. (See Losses.)
Saes-
cqured through e ercse of opton warrants, capta
gan
nd resae, oss deducton
Commssons and prntng e penses, deducton
Subscrpton prce reducton, nterest deducton
Transfer from guardan to ward, Coorado, Connectcut, De-
aware, Maryand, rgna, and Wsconsn, stamp ta a-
bty
Sugar:
Compensatng ta on. (See Compensatng ta .)
oor stocks ta on. (See oor stocks ta .)
7572
7743
7 73
7845
7 98
7770
7727
7882
7752
7751
7880
75 8
7594
7 20
7599
75 7
7733
7 20
7733
7 52
7745
78 5
7 39
7 3
7782
7872
7770
7830
7822
7822
7714
372
154
200
209
59
20
307
531
539
528
528
138
395
130
227
130
134
130
134
214
225
215
2
217
15
15S
20
233
29S
298
402
G
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1
3
-
0
1
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2
2

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4
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4
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22
Sugarcane. (See Processng ta .)
Suts:
Coecton of ta es, processng ta es, n|unctons
Lmtaton perod. (.See Lmtaton perod: Sute.)
Recovery of ta es, cam for refund
Lmtaton .
Suffcency
Suspensons. (See ttorneys and agents.)
r.

Ta abe perod, termnaton by Commssoner, reguatons

amended
Ta es:
rkansas saes ta
ssessment-
Consodated returns, agreement among affates
Defcences. (.See Ta es: Defcences.)
Lmtaton perod. (See Lmtaton perod.)
tumnous coa, reguatons
Reguatons amended
Cgarette stamp, Okahoma
Coecton, dstrant
Decedent s property n hands of admnstrator
Lfe nsurance poces
Coorado nhertance ta
Coorado saes ta
Connectcut e cse ta
Cotton-
Gnnng-
ffectve date
Rate of ta as of October 21, 1935.-
Processng, postponement of payment of ta
Credts. (.See Credts.)
Defcences, assessment, transferee, no pror assessment
aganst transferor
state, assessments aganst severa persons coverng same
abty, coectors temporary credt reef
cse
Carrers and empoyees
Connectcut
Imposed by Tte I of the Soca Securty ct
na determnaton and assessment, cosng agreement,
determnaton of ta for perod ess than year
oregn
Credt for. (.See Credts.)
Span, smar credt requrement
Gft, assessments aganst severa persons coverng same
abty, coectors temporary credt reef
Income, assessments aganst severa persons coverng same
abty, coectors temporary credt reef
Inhertance, Coorado
Interest. (.See Interest: Ta es.)
Len for edera ta es. (.See Lens: edera ta es.)
Lnt cotton, 1935-3 crop, used n producer s househod,
e empton
Lquor, Deaware
Motor vehce fue
entucky
Lousana
Mchgan
Rung
No.
7801
7 90
7 22
7775
7710
7 22
7791
7792
7 87
7 80
7 23
7732
7 59
779
759
7804
17 14
7 15
7758
7 71
7717
779
7880
7592
75 8
7 71
7 71
7732
7800
7 07
7 0
7598
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23
Ta es Contnued.
Motor vehce fue Contnued.
Msssspp
Nevada
rgna
New Me co saes ta
New York Cty saes ta
North Dakota saes ta
Okahoma consumers ta
Payment, postponement under grcutura d|ustment ct,
reguatons amended
Penates, faure to fe returns
state s abty
Transferee s abty
Procedure respectng nqures submtted to the ureau of
Interna Revenue
Property
New ersey
Phadepha
Saes-
rkansas
Coorado
New Me co
New York Cty
North Dakota
Utah
Utah saes ta
Teegraph, etc., factes. (See Msceaneous ta es.)
Tenants by entretes, ta es and nterest deducton n separate
returns
Te as, mted partnershp
Tte guaranty company, worthess notes, year deductbe
Tobacco:
Processng ot. (.See Processng ta .)
Statement of manufactured, produced, by casses
pr, 1935 and 1934
May, 1935 and 1934
une, 1935 and 1934..
uv, 1935 and 1934
ugust, 1935 and 1934
September, 1935 and 1934
Toet preparatons. (.See Manufacturers e cse ta es.)
Transferred assets, cams aganst:
ssessment aganst transferee, mtaton
Transferee s abty for denquency penates
Transportaton of o by ppe ne. (See Msceaneous ta es.)
Trusts:
Chartabe, e empton
Income
Payment n eu of amony, grantor s ta abty
Ta abe to benefcary, sut to recover ta pad by
trustee-benefcary, set-off
Revocabe, grantor s ta abty, consttutonaty
Testamentary, e traordnary cash dvdends, edera and
State aw ---
Unted States oard of Ta ppeas:
Decsons of
Lst of acquescenccs and nonacquesccnces.
ndnga of fact
Rues of practce, effectve uy 1, 1935 ..
175 5
75
7 48
7842
7817
7579
7 49
7841
7707
7832
7832
7 77
7 9
7 3
7710
7 59
7817
7579
7 49
7 79
7 79
7711
7589
7700
7585
7 32
7 74
7728
777(5
7849
7758
7832
(7829
7831
7844
7712
7773
7 99
7871
7747
7 55
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24
Rung
No.
Page.
Unted States savngs bonds, ncrement n vaue, when reported..
Utah saes ta
.
eterans, e empton of compensaton, payments, etc
nson ct:
Contracts under. (.Sec Contracts.)
cess profts on, nava contract
rgn Isands, resdent ctzen of Unted States, returns
rgna:
Motor vehce fue ta
Transfer of stock from commttee of an ncompetent to such
person
W.
Wavers. (See Lmtaton perod: Wavers.)
Wheat. (See Processng ta .)
Wsconsn, transfer of stock from guardan to ward-
Wthhodng ta at source:
Dvdends, foregn corporatons
Interest, bonds, ta -free covenant, credt n decedent s return
7852
7 79
7739
758
78 3
7842
7714
7714
7819
775
100
83
538
532
109
9
402
402
139
102
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