Treasury D

Interna Revenue uetn

Cumuatve uetn 19 7-1
NU RY- UN 19 7
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SP CI L TT NTION d t d to the cautonary notce on ths page that pub-
shed rungs of the ureau do not have the force and effect
Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 19 7-1
NU RY- UN 19 7
IN T IS ISSU
Page
Introductory Notes
Contents - I
Rungs Nos. 12 66-12580
Ta Court of the Unted States. The, formery Unted
ates oard of Ta ppeas . . 1-5
ncome I . -
Part I ( . Interna Revenue Code and . 1938
ct)
Part II (1937 and 1936 cts) 10 08
Part I (1935 and 193 or Pror cts) . 10 -112
poyment Ta es 113-12
...scctneous Ta es
state . es 125-153
Saes Tr- s. Stamp Ta es, etc 15 -180
Msce|nec ungs ... 181-218
Legsaton . . 119-222
Inde 222-231
The rung report t Interna Revenue uetn are for the nformato- ad ther counse aa
showng the trend of offn opnon n the admnstraton of the ureau of Inter veu .e rungs other than
Treasury Decsons hare none of the force or effect of Treasury Decsons an-, do - the Department to
amy nterpretaton of the aw whch has not been formay approved and prom1 |e Secretary of the
Treasury. ach rung embodes the admnstratve appcaton of the aw and csoas to the entre
state of facts upon wb h a partcuar case rests., It s especay to be noted that esnt w not neces-
sary be reached n ... ase uness a the matera facts are dentca wth those orted c #. s t s
not aways feasbe to pnbsu a compete t ement of the facts underyng each rufc. t .ere can be |.| assurance
that any new case s dentca wth the rept ed case. s bearng out ths dstncton, t may be observed that the
rungs pubshed from tme to tme may a, near to reverse rungs prevousy pub 1 d.
Offcers of the urean of Interna Reve. e are especay cattnncd aganst teat , a concuson n any case
anerey on the bass of smarty to a pubshed rung, ana shoud base ther |udgment on the appcaton of a
pertnent provsons of the aw and Treasury Decsons to a the facts n each . These rungs shoud be used
as ads n studyng the aw and ts forma constructon at made n the rega and Treasury Decsons pre-
vousy ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, It s the r cy of the ureau of Interna
Revenue to pubsh a rungs and decsons, ncudng opnons of the Chef Counse for the ureau of Interna
Revenue, whch, because the announce a rung or decson n a nove queston or upon a queston n regard
to whch there e sts no prevousy pubshed rung or her reasons, are of each mportance as
to be of genera nterest. It a aso the pocy of tht ,.. n ungs 01 decsons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed | t L-.on. In many nstances opnons
f the Chef Counse for the ...an of Interna Revenue are not u genera nterest because they announce no
new rnng or new constructon of the revenue aws bat smpy appy rungs aready made pub c 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 Chef Counse for the ureau of Interna
Revenue are not consecutve. No unpubshed rung or decson w be cted or reed upon by any offcer or
empoyee of the ureau of Interna Revenue as a precedent n the dsposton of other cases. Uness otherwse
specfcay ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
croa Rev
Chef Counse for the urean of Interna
UNIT D ST T S GO RNM NT PRINTING OFFIC : W S INGTON : 19 7
Far sae by SaMwrntendent of Documents. U. S. Government Prntng Offce, Washngton 25. D. C.
See back of tte for prces
LI R RY
UNI RSITY OF C LIFORNI
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The Interna Revenue uetn servce for 19 7 w consst of b-
weeky buetns and semannua cumuatve buetns.
The bweeky 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 6 months.
The compete uetn servce may be obtaned, on a subscrpton
bass, from the Superntendent of Documents, Government Prntng
Offce, Washngton 25, D. C, for 2.50 per year; foregn, 3.75. Snge
copes of the bweeky uetn, 10 cents each.
New subscrbers and others desrng to obtan the 1919, 1920, and
1921 Income Ta Servce may do so from the Superntendent of Docu-
ments at prces as foows: Dgest of Income Ta Rungs No. 19
(contanng dgests of a rungs appearng n Cumuatve uetns
1 to 5, ncusve), 50 cents per copy; Cumuatve uetns Nos. 1 to 5,
contanng n fu a rungs pubshed snce pr, 1919, to and ncud-
ng December, 1921, as foows: No. 1, 30 cents; No. 2, 25 cents; No. 3,
30 cents; No. , 30 cents; No. 5, 25 cents.
Persons desrng to obtan Saes Ta Cumuatve uetns for
uy-December, 1921, may procure them from the Superntendent of
Documents at 5 cent s per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 19 6, ncusve, may do so at prces as foows:
Year.
Cumuatve uetn.
Frst 6 months.
Second 6 months
Prce (cents).
1922.
1923.
192 .
1925.
1920.
1927.
1928.
1929.
1930.
1931.
1932.
1933.
193 .
1933.
1936.
1937.
1938.
1939.
1910.
19 1.
19 2.
19 3.
19 .
19 5.
19 6.
19 7.
1-1
II-
III- 1
I - 1
-
I-1
II-1
III-1
I -1
-
I-1
II-1
III 1
I -1
-I
1937- 1
1938- 1
1939-1
Part 1
Part 2
19 0- 1
19 1- 1
19 2- 1
12
II-2
III- 2
I - 2
-2
I-2
I1-2
III-2
I -2
-2
I-2
II-2
III- 2
I - 2
-2
1937- 2
1938- 2
1939- 2
19 0- 2
19 1- 2
19 2- 2
19 6-1
1917-1
19 6-2
0. SO
30. 0
50.50
0,35
0.30
0, 0
35. 50
50. 55
80. 50
65.30
30. 55
30,50 .
50,60
50,50
65, 5
eo.so
60,50
60
50
1
30,60
5,60
0.60
1.25
1.50
1.00
60,75
ouse, Senate, and conference reports on revenue bs from October 3, 1913, to Revenue
ct of 1938, Incusve; and on amendments thereto.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-192 ), 60 cents; Dgest No. 17
(1925), 25 cents; Dgest No. 21 (1926), 15 cents; Dgest No. 22 (1925-
1927), 35 cents; and Dgest (ncome ta rungs 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 25, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn 19 7-1, n addton to
a decsons of the Treasury Department (caed Treasury Decsons)
pertanng to Interna Revenue matters, contans opnons of the
Chef Counse, and rungs and decsons pertanng to ncome, estate,
gft, saes, capta stock, e cess profts, empoyment, soca securty,
and msceaneous ta es, and egsaton affectng the revenue statutes,
as ndcated on the tte page of ths uetn, pubshed n the bweeky
uetns (19 7, Nos. 1 to 13, ncusve) for the perod anuary 1 to
une 30, 19 7. It aso contans a cumuatve st of announcements
reatng to decsons of The Ta Court of the Unted States, formery
Unted States oard of Ta ppeas, pubshed n the Interna
Revenue uetn Servce from anuary 1 to une 30, 19 7.
Income Ta rungs are prnted n three parts. The rungs n
Part 1 are prnted as Part I, (Interna Revenue Code) and
(Revenue ct of 1938), the aw headngs correspondng wth the
sectons of the Code, as amended, and the 1938 ct, respectvey, and
the reguatons headngs correspondng wth the secton headngs of
Reguatons 111 or 103 and the artce headngs of Reguatons 101.
Rungs under the Revenue cts of 1937 and 1936 are prnted as Part
II, the aw headngs correspondng wth the secton headngs of those
cts and the reguatons headngs correspondng wth the artce head-
ngs of Reguatons 9 . Rungs under the Revenue cts of 1935 and
193 or pror cts arc prnted as Part III, the aw headngs corre-
spondng wth the secton headngs of the Revenue ct of 193 and the
reguatons headngs correspondng wth the artce headngs of
Reguatons 86.
Rungs under Ttes III and I of the Soca Securty ct and
under Subchapters and C, Chapter 9, of the Interna Revenue
Code n force pror to anuary 1, 19 0, are pubshed under artce
headngs of Reguatons 91 and 90, respectvey; rungs under Sub-
chapters and C, Chapter 9, of the Code n force on or after anuary
1, 19 0, are pubshed under the secton headngs of Reguatons 106
and 107, respectvey; rdngs under the Carrers Ta ng ct of 1937
and under Subchapter , Chapter 9, of the Code, are pubshed under
the artce headngs of Reguatons 100; and rungs under Tte III
of the Revenue ct of 1936 Ta on un|ust enrchment are coded
under the sectons of that ct and the artce headngs of Reguatons
95.
R I TIONS.
The foowng abbrevatons are used throughout the uetn:
, , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
. R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
cm|
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I
. T. oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
C. S. T. Capta Stock Ta Dvson. /
C. T. Ta es on mpoyment by Carrers.
D. C. Treasury Department crcuar.
m. T. Ta es mposed by the Soca Securty ct, the Carrers Ta ng ct
of 1937, and Subchapters , , and C of the Interna Revenue Code.
. P. C. cess Profts Ta Counc rung or memorandum.
. T. state Ta Dvson.
G. C. M. Genera Counse s, ssstant Genera Counse s, or Chef Counse s
memorandum.
I. R. . Interna Revenue uetn.
I. R. C. Interna Revenue Code.
I. T Income Ta Unt.
M, N, , Y, Z, etc. The names of corporatons, paces, or busnesses, accord-
ng to conte t.
Mn. Mmeographed etter.
MS. or M. T. Msceaneous Dvson.
O. or L. O. Soctor s aw opnon.
O. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op.- Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. Ta es on mpoyment by others than carrers.
T. Tobacco Dvson.
T. . M. dvsory Ta oard memorandum.
T. . R. dvsory Ta oard recommendaton.
T. C Ta Court of the Unted States.
T. D. Treasury decson.
and y are used to represent certan numbers, and when used wth the word
doars represent sums of money.
NNOUNC M NT R L TING TO D CISIONS OF T T COURT OF T UNIT D
ST T S, FORM RLY NOWN S T UNIT D ST T S O RD OF T PP LS.
In order that ta payers and the genera pubc may be nformed
whether the Commssoner has acquesced n a decson of The Ta
Court of the Unted States, formery known as the Unted States
oard of Ta ppeas, dsaowng a defcency n ta determned by
the Commssoner to be due, announcement w be made n the b-
weeky Interna Revenue uetn at the earest practcabe date.
Notce that the Commssoner has acquesced or nonacquesced n a
decson of The Ta Court reates ony to the ssue or ssues decded
adversey to the Government. Decsons so acquesced n shoud be
reed upon by offcers and empoyees of the ureau of Interna
Revenue as precedents n the dsposton of other cases.
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CUMUL TI CONT NTS.
Rung.
Treasury Decsons:
SMS
55 9
5550
5551
5552
5553 .
565
5555
5656
5557
6558
5550
5560
6561
6662
5563
656
6666
Court decsons:
1679
1680
1681
1683
1683
168
1686
Chef Counse s memoranda:
25053
Ta Court of Unted States:
10 9
1053
1057
1368
2063
2712
2761
283
3737..
3738..
3767..
3821..
3963..
058..
13 ..
189..
206..
38 ..
07..
5150..
6151..
5316.
5 57.
5 72.
6583.
8779.
5811.
5933.
Rung No.
19 7-1-12 69
19 7- -12 93
19 7-6-12507
19 7-6-12508
19 7-0-12513
19 7-7-12518
19 7-8-12530
19 7-8-12528
19 7-9-125 2
19 7-9-125 1
19 7-9-125 0
19 7-9-125
19 7-10-125 8
19 7-11-12558
19 7-11-12559
19 7-11-12560
19 7-12-12568
19 7-12-12567
19 7-2-12 76
19 7-3-12 85
19 7-6-12509
19 7-9-1253
19 7-10-12550
19 7-10-125 9
19 7-12-1256
19 7-10-125 7
19 7-8-12525
19 7-11-12557
19 7-13-12575
19 7-8-1252
19 7-8-1252
19 7-8-1252
19 7-6-1250
19 7-6-1250
19 7-12-12561
19 7-9-12532
19 7-8-1252
19 7-2-12 73
19 7-7-1251
19 7-10-125 5
19 7-10-12 55
19 7-9-12532
19 7-8-1252
19 7-11-1255
19 7-10-125 5
19 7-12-12561
19 7-12-12561
19 7-6-1250
19 7-11-1255
10 7-11-1255
19 7-11-1255
1917-11-1255
19 7-9-12532
19 7-7-1251
19 7-11-1255
19 7-12-12561
19 7-2-12 73
19 7-7-1251
19 7-5-12 96
19 7-12-12561
19 7-12-12561
19 7-12-12561
19 7-2-12 73
19 7-9-12532
19 7-9-12532
19 7-2-12 73
19 7- -12188
19 7- -12 88
19 7-1-12188
Page.
37
172
183
185
39
181
186
S3
170
168
167
160
72
160
165
156
IN)
121
109
118
196
26
10
,17
8
16
II
CM

3
2
2
3
1
2

3
3
1
I
1
3,1
3
5
3
2
a

3
3
1
3
1
5
6
5
1
5
Rung.
Ta Court of Unted States-
Contnued.
59 6
6007
0152
6151 -
615
6389
6397
6 70
66 9
6660...
86 7
6666
6995
70 2
70 3
70 6 -
7132
7200
726
7308
7310
73 1
7 00
7501
7503
750 --
7500
7 29
7707
78(8
7906
8015 --
8063
8139
8189
829
8 62
853 -
8563 -
868 -
8697 - -
885
8861.
8996.
906 .
9093.
9206
9317
9 8
9518
10993 .
11358. .
37 ( ) . .
759..
6 99. .
50 90 .
100561.
1095SO
Offce decsons (I. T.).
3831
3832
3833
383
3835
3836
3837
3838
Rung No.
Page.
19 7-1-12 88
3
19 7-6-1250
2
19 7-10-125 5

19 7-10-125 5

19 7-10-125 5
3
19 7-13-12572
5
19 7-12-12561

19 7-13-12572
2
19 7-5-12196

19 7-5-12 96

19 7-7-1251
3
19 7-3-12 78
3
19 7-6-1250
3
19 7-9-12532
1
19 7-9-12532
1
19 7-9-12532
3
19 7-8-1252
1
19 7-12-12561
2
19 7-6-1250
1
19 7-11-1255
1.2
1917-1-12188

19 7- -12 88

1917-3-12 78
5
19 7-10-125 5
5
19 7-5-12196
3
19 7-5-12196
3
19 7-5-12 96
3
19 7- -12 83
1
1917-11-1255
3
19 7-11-125.5
1
19 7-11-1255
3
19 7-11-1265
1
19 7-2-12 73
3
19 7-1-12 88
5
19 7-3-12 78
2
19 7-12-12561
5
19 7-10-125 5
2
1917-6-1250
2
19 7-8-1252
3
19 7-10-125 5
2
1917-11-1255

19 7-10-12515
5
19 7-9-12532
6
19 7-12-12561

19 7-12-12561

1U 7-8-1252
1
19 7-10-125 5
5
19 7-10-125 5
2
19 7-9-12632
3
19 7-10-125 5
6
1917-8-1252
1
19 7-7-1251
1
19 7-9-12532
1
19 7-9-12532

19 7-6-12.50
3
19 7-6-1250
3
19 7-13-12572

19 7-6-1250
3
19 7-6-1250
2
19 7-12-12561
2
19 7-12-12561
1
19 7-1-12 66
10
19 7-1-12 68
28
19 7-1-12 70
70
19 7-212 7
79
19 7-2-12 76
63
19 7-3-12 79
33
19 7-3-12 80
66
19 7-3-12 81
67
19 7-3-12 83

( )
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I
Rung.
Offce decsons (I. T ) Con
38 0
38 1
38 2
38 3...
38
38 5
38 6
38 7
38 8
38 9..
3850
8861
3862
3853
385
3855
3858
3857
Offce decsons ( . P. C):
8
0
10
11
12
13
1
16
16
17
18
Offce decsons (MS.):
306
807
308.
309
Rung No.
19 7- -12 89
19 7- -12 90
19 7-5-12 97
19 7-6-12505
19 7-6-12506
18 7-7-12515
19 7-8-12526
19 7-8-12529
19 7-9-12535
19 7-10 125 6
19 7-11-12555
19 7-11-12556
19 7 12-12562
19 7-12-12563
19 7-12-12565
19 7-13-12573
19 7-13-1257
19 7-13-12576
19 7- -12 91
19 7- -12 92
19 7-5-12 98
19 7-7-12522
19 7-9-12637
19 7-9-12538
19 7-9-12539
19 7-12-12566
19 7-12-12571
19 7-13-12577
19 7-13-12578
19 7-2-12 77
19 7- -12 9
19 7-6-12510
19 7-8-12531
Page.
7
M
11
12
711
t ,
17
65
n
18
|n
32
16
2
67
0
23
6
73
76
7s
79
M
S3
88
h)
SO
90
92
199
200
201
202
Rung.
Offce decsons (MS.) Con.
310
311
Offce decsons (T.):
176
177
178
179
180
181
182
183
18
186
186
187
Mmeographs:
6083
6096
6105
6117.
6119
612
6125
6128
6131
6136
Crcuar:
19 5
Msceaneous _
Legsaton
Rung No.
Page.
19 7-10-12551
203
19 7-13-12579
20
19 7-1-12 71
205
19 7-1-12 72
207
19 7-3-12 86
205
19 7 3-12 87
207
19 7-5-12500
205
19 7-5-12501
207
19 7-7-12519
206
19 7-7-12520
207
19 7-9-125 3
2116
19 7-10-12552
208
19 7-12-12569
206
19 7-12-12570
208
19 7-1-12 67
19
19 7-3-12 8
11
19 7-5-12 99
153
19 7-6-12512
150
19 7-7-12516
113
19 7-7-12517
116
19 7-8-12527
0
19 7-7-12523
16
19 7-9-12533
21
19 7 9-12536
68
I9 7-,3-12 83
95
/ 19 7 -12 95
209
19 7-6-12511
1 6
19 7-5-12502
219
19 7-6-12503
219
19 7-7-12521
220
19 7-10-12553
221
19 7-13-12580
221
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CONT NTS OF CUMUL TI ULL TINS (I. T.) 1 to 5; S. T. FOR 1920 ND 1921; INT RN L
R NU 1-1. 1-2, D-. II-2. III-, III-2, I -1, I -2. -, -2, I-1, I-2, II-1. -2, n-1,
vrn-2, -. -2. -. -2. n-. -2. n-, n-2, -. vn 2, v-, v-2, v-, v-2.1937-1.
1937-2, 1938-1. 1938-2, 1939-1 (P RT 1 ND P RT 2). 1939-2, 19 0-1, 19 0-2, 19 1-1. 19 1-2, 19 2-1.
19 2-2; NNU L ULL TINS FOR 19 3. 19 . ND 19 5; S MI NNU L ULL TINS 19 6-1.
19 6-2, ND 19 7-1. .
Cumuatve uetn.
Rung Nos.
Income Ta :
December, 1919 (No. 1)
anuarv- une, 1920 (No. 2)_.
uy-December, 1920 (No. 3)
anuary- une, 1921 (No. )
uv-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20)...-
anuarv- une, 1921
uy-December, 1921
Interna Revenue uetn:
anuarv- une, 1922 (No. 1-1)
uv-December, 1922 (No. 1-2)
an uary- une, 1923 (No. II-1)
uv-December, 1923 (No. 11-2)
anuarv- une, 192 (No. III-)
uv-December, 192 (No. III-2)
aruary- une, 1925 (No. I -1)
uv-December, 1925 (No. I -2)
anuary- une, 1926 (No. -)
uy-December, 1926 (No. -2)
anuarv- une, 1927 (No. I-1)
uv-D ecember, 1927 (No. I-2)
anuarv- une, 1928 (No. II-1)
uy-December, 1928 (No. II-2)
anuarv- une, 1929 (No. III-1)
uv-December, 1929 (No. II1-2)
anuary- une, 1930 (No. I -1)
uy-December, 1930 (No. I -2)
anuary- une, 1931 (No. -)
uv-December. 1931 (No. -2)
anuarv- une, 1932 (No. I-1)
uv-D ecember, 1932 (No. I-2)
anuarv- une, 1933 (No. II-1)
uv-December, 1933 (No. II-2)
anuarv- une, 193 (No. III-1)
uv-December, 193 (No. III-2)
anuary- une, 1935 (No. I -1)
uv-December, 1935 (No. I -2)
anuarv- une, 1936 (No. -1)
uy-December, 1936 (No. -2)
anuarv- une, 1937 (1937-1)
uv-December, 1937 (1937-2)
anuarv- une, 1938 (1938-1)
uv-D ecember, 1938 (1938-2)
anuary- une, 1939 (1939-1 Part 1 and Part 2)
uv-December, 1939 (1939-2)
anuarv- une, 19 0 (19 0-1)
uy-December, 19 0 (19 0-2)
anuarv- une, 19 1 (19 1-1).
uv-December, 19 1 (19 1-2)
anuary- une, 19 2 (19 2-11
uv-D ecember, 19 2 (19 2-2)
anuary-December, 19 3 (12 months)
anuary-December, 191 (12 months)
anuary-December, 19 5 (12 months)
anuarv- une, 19 6 (19 6-
uv-D ecember, 19 6 (19 6 2)
anuary- une, 19 7 (19 7-1)
1-655
656-1033
103 -1368
1369-1710
1711-1996
1-112
113-265
266-356
1-383
38 -665
666-956
957-1276
1277-16 1
16 2-19 9
1950-2251
2252-2523
252 -2813
281 -3026
3027-3291
3292-3557
3558 378
3785- 052
053- 2 8
2 9- 87
88- 683
68 - 887
888-512
5125-5338
5339-5531
5532-5961
5962-6262
6263-6581
6582-6871
6872-722
7225-7563
756 -788
7885-81 9
8150-8 59
8 60-8792
8793-9118
9119-9 2
9 25-965
9655-9896
9897-10126
10127-1030
10305-105 8
105 9-10761
10762-109 3
109 -11138
11139-11302
11303-11590
11591-11916
11917-12200
12201-12332
12333-12 65
12 66-12580
( II)
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T T COURT OF T UNIT D ST T S.
CUMUL TI LIST OF NNOUNC M NTS R L TING TO
D CISIONS OF T T COURT OF T UNIT D ST T S,
FORM RLY T UNIT D ST T S O RD OF T PP LS,
PU LIS D IN T INT RN L R NU ULL TIN S R -
IC FROM NU RY 1 TO UN 30, 19 7, INCLUSI .
( nnouncements reatng to tbe acquescence or nonacquescence of the Commssoner n
decsons of The Ta Court of the Unted States, formery the Unted States oard of Ta
ppeas, as prnted n the weeky Interna Revenue uetns from December 22, 192 , to
December 31, 1931, ncusve, are pubshed n Cumuatve uetn -2 (1931), panes 1-106.
Those prnted n weeky uetns from anuary 1, 1932, to December 31, 1939, ncusve, are
pubshed n Cumuatve uetn 1939-2, pages 1-73. Those prnted n weeky uetns from
anuary 1, 19 0, to December 31, 19 2, ncusve, and n semmonthy uetns from anuary
1,19 3, to December 31,19 , ncusve, are pubshed n Cumuatve uetn 19 , pages 1-51.
Those prnted n semmonthy uetns durng the caendar ear 19 5 are pubshed n Cumu-
atve uetn 19 5, pages 1-9. Those prnted In bweeky uetns from anuary 1 to une
30. 19 6, ncusve, are pubshed In Cumuatve Iuetn MG-I, pages 1-5. Those prnted n
bweeky uetns from uy 1 to December 31, 19 . ncusve, are pubshed n Cumuatve
uetn 19 0-2, pages 1-7. The st beow, therefore contans ony such announcements prnted
n the bweeky uetns from anuary 1 to une 30, 19 7, ncusve.
19 7-13-12572
The Commssoner acquesces n the foowng decsons:
Ta payer.
Docket No. oume. Page.
.
ero Suppy Mfg. Co., Inc.
cazar ote, Inc.1.
ston, Caro du gnon
ssocated Industres of Ceveand.
.
agcy, Nancy Reynods --
eh, Forence
eh, Mnne
enefca Industra Loan Corporaton -
erger, George
erger, Laurene W
erger, Laurene Waker
akesee, rthur L
oom, osephne
udong, Mton ., estate of 1
C P. . Co
Campbe et u ., N. Stuart _
Canfed, Care L
Canster Co., The
Carbone, Gennaro
Case, Mary adey
7132
109580
7898
726
9930
70 3
70 2
7029
9518
906
2833
5811
5935
7308
3963
5583
586
5895
10993
8015
1 Parta npnactuesccnce pubshed n Cumuatve uetn 19 3, pane 26, wthdrawn.
1 state ta decson.
1 Parta nonacquescence pubshed n Cumuatve uetn 19 6-1, page 5, wthdrawn.
(1)
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2
cquescbnces Contnued
Ta payer.
Chck, Wam C
Cardge partments Co.1
Cooper, D. I., estate of2
Couter, oe Wrght, e ecutor of estate of Lea .
Couter 2
Couter, Lea ., estate of
Credt ance Corporaton 3
Currer et u ., Chares ertram
D.
Detrot Trust Co. (successor to Unon Guardan Trust
Co.) et a., e ecutors of estate of Theodore F. Mac-
Manus 2
Frst Natona ank of Portand (Oreg.), The, e ec-
utor of estate of D. I. Cooper 2
Fscher, Wam F
Ford, Raph Mer
Foster, L. ...
G.
Garrett et a., veyn ., e ecutors of estate of Pau
Garrett2
Garrett, Pau, estate of2
Greenspon, braham
Greenspon, Lous
a, vn Gen
a, Guy N
arrman, . Roand. _
emph, ane Cooper.
emph, Raph
orton, ram T
oudry, ugene
II.
Industra Trust Co., e ecutor of estate of Mton .
udong 2
Imerman, Staney
acobson, Lews F. .
amson, Wam .
.
Docket No. oume. Pape
6067
106868
2063
3821
3821
100561
8189
5 57
2063
6 70
1057
13
7200
07
07
868
9206
10 9
1053
5779
5150
5151
206
853
283
7308
5933
189
8 62
7
1
7
7
7
2
7
oard of Ta ppeas.
Part-I nonacquescence pubshed n Cumuatve uetn 19 3, page 28, wthdrawn.
stat ta decson.
Nonac uescence pubshed In Cumuatve uetn 19 0-2, page 10, wthdrawn.
Gft ta decson.
cquescence reates ony to the ssue nvovng the deductbty of amounts camed as automobe
and entertanment e penses for 1939 and 19 0.
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cquescences Contnued.
Ta payer.
Docket No.
oume. Page.
Laughn, omer, estate of
Lowe et a., Samue L., trustees of Motor Mart Trust .
Lyon, each D., admnstrator wth the w anne ed
of the estate of omer Laughn
M.
M Corporaton (a dssoved corporaton)
MacManus, Theodore F., estate of
Mannng, shey
Manufacturers Lfe Insurance Co., The 3
Mather Co
Mc can et u ., uncy . Shaw
Meyers, Dea
Mer, Inc., nthony P
Mer et a., arod ., trustees of chsah ane
Mer Trust
Mer et a., arod ., trustees of oanne Mer
Trust
Mer et a., arod ., trustees of Prudence Mer
Trust
Mer Trust. chsah ane
Mer Trust, oanne
Mer Trust, Prudence
Mtteman et u ., Maurce
Moro Reaty odng Corporaton 5_
Motor Mart Trust
N.
Nea et a., zabeth Mtche, ndependent coe ecu-
tors of estate of ohn W. Nea2
Nea, ohn W., estate of2
Pacfc Gas ectrc Co.8.
Pearson, Forrest G.3
Pett et u ., Wam ustn.
Puman, Inc
5891
2 12
5891
0995
5 57
5 72
1308
9317
8003
5930
0000
750
7500
7503
750
7500
7503
00 7
37 00
759
50 90
2 12
0389
0389
7900
2701
70 0
3757
Robson, ua gnes, estate of 1 I 015
Robson, Sr., Ma R., e ecutor of estate of ua gnes
Robson1 015
Rosborough, T. W .._ 8503
Runyon et u ., Water 7707
oard of Ta ppeas.
Nonacqueseenoe pubshed In Cumuatve uetn 19 5, paRe 8. wthdrawn.
state ta decson.
1 Parta nonacquescence pubshed In Cumuatve uetn 19 5, page 9, wthdrawn.
Parta nonacquescence pubshed n Cumuatve uetn 19 6-2, page 6, wthdrawn.
Nonacquescence pubshed n Cumuatve uetn -2 (1932), page 15, wthdrawn.
cquescence reatesony to the ssue whether a payment made n 1939 on account or San oaqun Lght
Power Corporaton, a former subsdary, pursuant to an order of the Federa Power Commsson made
In 1939 aganst that corporaton, shoud be dsaowed as an abnorma deducton for u:)0 n computng the
ta payer s e cess profts credt under secton 713 of the Interna Revenue Code.
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cquescences Contnued.
Ta payor.
s.
Sandberg, dwn F
Sander, Ma
Schreber, be
Schuhmacher et a., . C, e ecutors of estate of enry
C. Schuhmacher 1
Schuhmacher, enry C. estate of1
Schuhmacher, athrne 2
Shaprow, . C
T.
Tnng, ush
Torrance, W. G
Tower udng Corporaton 1
U.
Unted Carbon Co
.
an orst, George W
W.
Wade, zabeth F. ---
Westfr Lumber Co. (a dssoved Oregon corporaton)
Wson Lne, Inc
Woff et u ., . dward
Woff, Louse C
Wurtsbaugh, . T., transferee
Docket No.
8861
11356
3737
6153
6153
6152
3738
8996
593
6397
6 99
2837
5206
73 0
73 1
8697
65 9
6550
5316
oume.
oard of Ta ppeas.
I state ta decson. ,
Oft ta decson.
Nonacquescenoo pubshed n Cumuatve uetn 19 8-1, page 5, wthdrawn.
Nonacqucscence pubshed n Cumuatve uetn 19 5, pane 9, wthdrawn.
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The Commssoner does NOT acquesce n the foowng decsons:
Ta payer.
Docket No.
oume.
r Reducton Saes Co.
C.
Campanar et a., Chrstopher C, e ecutors of estate
of Nna M. Campanar 1 a
Campanar, Nna M., estate of 1 .
Cty ank Farmers Trust Co., trustee of MaRee
oughton Pumb Trust u/w of Chares F. ough-
ton, deceased.
Fredman, Lous ., e ecutor of estate of Nette
Fredman 1
Fredman, Nette, estate of1
ede, uus
oge, ames .
omme, ea
ughes, dward P., estate of .
acobson, Lews F. .
osephs, yman Y_.
.
Lehman, an S.
N.
Natona Carbde Corporaton
P.
Phpps, Margaret R
Pumb Trust, Ma ee oughton, u/w of Chares F.
oughton, deceased
Pure Carbonc, Inc
Rooney, een ., admnstratr , c. t. a., of the
ate of
estate of dward P. ughes 1
W.
Waston, Forence . _
5823
38
38
8SG0
9 8
9 8
9093
7 00
7501
8139
189
829
5887
5822
885
8860
582
8139
058
1 state ta decson.
cquescence pubshed In Cumuatve uetn 19 5, page 2, to the e tent It reates to the Incuson In
decedent s gross estate of the vaue of a one-thrd nterest n a trust created In 1923, wthdrawn.
Oft ta decson.
Nonacquescence reates ony to the Issue whether the ta payer s sub|ect to ta on the dfference
between the face vaue of certan bonds Issued by hm upon whch he was abe and the prce for whch
he purchased some of such bonds.
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INCOM T RULINGS. P RT I.
. INT RN L R NU COD .
C PT R 1. INCOM T .
SU C PT R . G N R L PRO ISIONS.
P RT II. COMPUT TION OF N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D FINITION.
Secton 29.22 (a)-1: What ncuded n gross 19 7- -12 89
ncome. I. T. 38 0
INT RN L R NU COD .
mounts receved by the wdow or hers of an empoyee of the M
Corpora I on pursuant to the terms of a vountary death benefts
pan of the corporaton, to whch no contrbutons were made by
the empoyee, represent consderaton for servces rendered by the
empoyee and consttute ta abe ncome n the hands of the
recpents.
dvce s requested wth respect to the status for Federa ncome
ta purposes of amounts receved by the wdow or hers of an empoyee
of the M Corporaton pursuant to the terms of a vountary death
benefts pan of the empoyer.
In the case under consderaton, the M Corporaton, a domestc
corporaton, vountary adopted a pan to mprove the reatonshp
between the empoyer and the empoyees and to promote contnuty
n the admnstraton of ts busness. Under the terms of the pan
no contrbutons are made by the empoyees. The board of drectors
of the corporaton apponted a commttee to admnster and carry out
the pan, wth fu power and authorty to determne, where an em-
poyee des n the course of hs empoyment, the person or persons to
whom payments are to be made under the pan, the amount or amounts
thereof, and the tme or tmes of payment, and to authorze the ds-
bursements n accordance wth such determnatons. Pursuant to
ths authorzaton, the commttee has determned to whom payments
shoud be made, the amount or amounts thereof, and the tme or tmes
of payment. though the pan was brought to the attenton of a
empoyees, t s termnabe n whoe or n part at any tme by appro-
prate acton of the corporaton s board of drectors.
In McLemore v. Western Unon Teegraph Co. (171 Pac, 390; 88
Ore., 228) a vountary pan provdng for the payment of certan
(7)
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20.22(a)-.
s
benefts to the dependents of deceased empoyees was hed to be a con-
tract on whch an acton coud be mantaned. In Pmtka et a. v.
Mchgan ka Co. et a. (26 N. W., 385; 27 Mch., 318), t was hed
that an empoyer s penson and death beneft pan, under whch an
empoyee had contrbuted nothng, was suffcenty supported by con-
sderaton to consttute a bndng contract n favor of the empoyee s
dependents notwthstandng the fact the pan specfcay provded
that t was purey vountary and dd not consttute a contract.
In Mary Sutro v. Unted States (unreported), decded une 2,19 2,
by the Southern Dvson of the Unted States Dstrct Court for the
Northern Dstrct of Caforna, an acton to recover Federa ncome
ta es aeged to have been erroneousy pad, the pan nvoved was a
vountary pan whch provded for payments to dependents of de-
ceased empoyees, whch payments were based on ther saares and
years of servce. The court, n support of the concuson that the
amount pad to the pantff was not a gft, stated n part as foows:
The genera rue s that a pan of ths sort creates an enforceabe obgaton
on the part of the empoyee or benefcary, even though the pan states that t s
vountary. Robnson v. Standard O Co. of Lousana, 180 So., 237, 230;
Psutka v. Mchgan ka Co., 26 N. W., 385; Schofed v. Zons Co-op. Mercan-
te Insttuton (Utah), 39 Pac. (2d), 3 2; Mabey d Carew Co. v. orden
(Supreme Court of Oho), 195 N. ., 697; Tbert v. age Lock Co. (Conn.), 165
t., 205; Perkns v. age Lock Co. (Conn.), 17 t., 77.) Generay,
the courts consder the good w of the empoyees and ong and fathfu servce
on ther part as consderaton for such pans. If there was an enforceabe
obgaton, there was of course no gft, and ths fact aone woud be a compete
answer to pantffs contenton.
Pantff argues that there was never an enforceabe obgaton under app-
cabe Caforna aw, because where a contract Is made for the beneft of a thrd
party, t s merey an offer unt accepted by the benefcary; that there s no
evdence of acceptance by pantff because the payment was made shorty after
Mr. Sutro s death. It woud seem that the recept of the money by the pantff
consttuted an acceptance. cceptance of such a contract may aso be effected
by brngng sut. More v. utchnson, 187 Ca., 623; 203 Pac, 97.) In any
event, the queston Is not whether an enforceabe obgaton actuay arose but
whether t coud have arsen f payment had not been made, for f t woud have
been enforceabe under any crcumstances, the transacton dd not consttute a
gft.
In vew of the foregong, t s hed that amounts receved by the
wdow or hers of an empoyee of the M Corporaton, pursuant to the
terms of a vountary death benefts pan of the corporaton, represent
consderaton for servces rendered by the empoyee and consttute
ta abe ncome n the hands of the recpents. (See secton 126(a)
of the Interna Revenue Code.)
Secton 29.22(a)-: What ncuded n gross ncome.
INT RN L R NU COD .
Sae of subscrpton warrants by stockhoders to whom they were
ssued. (See G. C. M. 25063, page 5.)
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9
29.22(b) 13-1.
S CTION 22(b). GROSS INCOM : CLUSIONS
FROM GROSS INCOM .
Secton 29.22(b)-: emptons cusons 19 7-13-12573
from gross ncome. I. T. 3855
INT RN L R NU COD .
The vaue of an automobe receved by a dsabed veteran pursuant
to the Frst Suppementa ppropraton ct, 19 7 (60 Stat., 910,
915), consttutes an addtona aowance for persona n|ures
resutng from actve servce n the armed forces and s not ncudbe
n gross ncome for Federa ncome ta purposes.
dvce s requested whether the vaue of an automobe receved by
a dsabed veteran pursuant to the Frst Suppementa ppropraton
ct, 19 7 (60 Stat., 910, 915), s ncudbe n gross ncome for Federa
ncome ta purposes.
In the ct referred to above, an appropraton was made to enabe
the dmnstrator of eterans ffars to provde an automobe or
other conveyance, at a cost per vehce or conveyance of not to e ceed
1,600, ncudng equpment wth such speca attachments and devces
as the dmnstrator may deem necessary, for each veteran of Word
War II who s entted to compensaton for the oss, or oss of use, of
one or both egs at or above the anke under the aws admnstered
by the eterans dmnstraton
Secton 22(b) (5) of the Interna Revenue Code provdes n part as
foows:
(b) cusons from Gross Income. The foowng tems sha not be n-
cuded n gross ncome and sha be e empt from ta aton under ths chapter
Chapter 1 of the Code :

(5) Compensaton fob n|ures or sckness. amounts receved
as a penson, annuty, or smar aowance for persona n|ures or sckness
resutng from actve servce n the armed forces of any country;
It s evdent that the vaue of an automobe receved by a dsabed
veteran pursuant to the Frst Suppementa ppropraton ct, 19 7,
consttutes an addtona aowance for persona n|ures resutng from
actve servce n the armed forces. ccordngy, t s hed that the
vaue of an automobe so receved s not ncudbe n gross ncome for
Federa ncome ta purposes.
Secton 29.22(b) (13)-1: Compensaton of members
of mtary and nava forces.
INT RN L R NU COD .
Mtary pay and aowances credted to the account of a deceased
commssoned rmy offcer. (See I. T. 3857, page 5 .)
75 70 17 2
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I 29.22(n)-.
10
S CTION 22(n). GROSS INCOM : D FINITION OF
D UST D GROSS INCOM .
Secton 29.22(n)-: d|usted gross ncome. 19 7-1-12 66
I. T. 3831
INT RN L R NU COD .
Interest pad In 10 5 on money borrowed In 19 1 nd 19 2 for farm
operatons, whch operatons were dscontnued In 19 3, s attrb-
utabe to a trade or busness carred on by the ta payer wthn
the meanng of secton 22(n) (1) of the Interna Revenue Code, and
such nterest s deductbe n computng ad|usted gross ncome for
Federa ncome ta purposes, provded the amount thereof was not
camed as an accrued tem of deducton for a pror ncome ta year.
dvce s requested whether nterest pad n 19 5 on money borrowed
n 19 1 and 19 2 for farm operatons, whch operatons were dscon-
tnued pror to 19 5, s deductbe n computng ad|usted gross ncome
for 19 5 tnder secton 22(n) (1) of the Interna Revenue Code.
The nstant nqury nvoves the cases of two ta payers who were
operatng farms n 19 1 and 19 2 and who borrowed money n those
years n connecton wth the farmng operatons. oth ta payers
reported ther ncome on the caendar year and the cash recepts and
dsbursements bass. In each case, the farmng operatons were ds-
contnued n 19 3, and the ta payers have snce been otherwse
engaged. Interest was pad n 19 5 on each of the oans obtaned for
use n the farmng operatons whch were dscontnued.
Secton 22 (n) (1) of the Interna Revenue Code provdes as foows:
(n) Defnton of d|usted Gross Incohe . s used n ths chapter the
term ad|usted gross ncome means the gross ncome mnus
(1) Trade and busness deductons. The deductons aowed by secton
23 whch are attrbutabe to a trade or busness carred on by the ta payer,
f such trade or busness does not consst of the performance of servces by
the ta payer as an empoyee; Itacs supped.
It w be noted that under the provsons of secton 22(n)() of
the Code two prmary tests are nvoved: (1) whether payments are
aowabe deductons under secton 23 of the Code and (2) whether
they are attrbutabe to a trade or busness carred on by the ta -
payer. ssumng that a ta payer was formery engaged n a trade
or busness n whch the accrua bass of accountng was not empoyed,
t s the opnon of ths offce that nterest charges ncurred on money
borrowed to conduct the busness n a prevous year shoud be con-
sdered as attrbutabe to such busness even though the nterest
charges were pad n a subsequent year. Under the e press wordng
of the statute, t s not necessary that a ta payer be engaged n the
trade or busness at the tme the nterest s pad n order to secure the
beneft of the deducton for whch the statute provdes. It s suffcent
f the nterest s attrbutabe to the ta payer s trade or busness.
Snce, n the cases referred to above, the nterest payments woud
quafy as deductons under the provsons of secton 23 of the Code,
and snce they were attrbutabe, n each case, to a trade or busness
carred on by the ta payer, t s hed that such payments are deduct-
be by each ta payer n arrvng at hs ad|usted gross ncome, for
Federa ncome ta purposes, for the caendar year 19 5, provded the
amount thereof was not camed as an accrued tem of deducton for
a pror ncome ta year.
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11
29.23 (a)-2.
S CTION 23(a). D DUCTIONS FROM GROSS
INCOM : P NS S.
Secton 29.23(a)-2: Traveng e penses. 19 7-5-12 97
( so Secton 2 , Secton 29.2 -1.) I. T. 38 2
INT RN L R NU COD .
Deductons for traveng e penses by members of State egs-
atures.
I. T. 33t8 (C. . 19 0-1, 29) ampfed.
dvce s requested concernng the deductbty for Federa ncome
ta purposes of traveng e penses, ncudng the cost of meas and
odgng, ncurred by members of State egsatures.
Secton 23(a) (1) ( ) of the Interna Revenue Code provdes n part
that n computng net ncome there sha be aowed as deductons
traveng e penses (ncudng the entre amount e pended for meas
and odgng) whe away from home n the pursut of a trade or bus-
ness. Secton 2 (a) (1) of the Code provdes that no deducton sha
n any case be aowed n respect of Persona, vng, or famy e -
penses, e cept e traordnary medca e penses deductbe under secton
2.3 ( ) of the Code.
Upon carefu consderaton of the genera queston of whether mem-
bers of State egsatures may deduct, under secton 23(a) (1) ( ) of
the Interna Revenue Code, e pendtures for ther meas and odgng
whe attendng egsatve sessons at the State capta, and for trans-
portaton between the State capta and the pace where a member
mantans bs permanent resdence, the poston of the ureau as e -
pressed n I. T. 3368 (C. . 19 0-1, 29) s ampfed as set forth beow.
Rembursements and aowances for e penses ncurred by a State
egsator shoud be ncuded n gross ncome. (See secton 29.23(a)-2
(S) and (c), Reguatons 111.) The deductbty of such e penses
s not, however, affected bv State aw. (See .Maurce ctor arnMU
et a v. Commssoner, 1 8 Fed. (2d), 913, Ct. D. 16 6, C. . 19 5, 96.)
. State egsator, ke any other ta payer, s entted to deduct trave-
ng e penses, ncudng the entre amount e pended for meas and
odgng, ony when on busness trps whch requre hm to be away
from home and hs prncpa pace of busness.
Where a State egsator s prncpa pace of busness and hs home
are ocated at a dstance from the State capta, he s entted to
deduct the cost of hs meas and odgng whe attendng sessons of the
egsature. (See Water F. rown v. Commssoner, 13 . T. .,
832. an oseph W. Po oe v. Commssoner, 3 . T. ., 655.) Where
the egsator s prncpa pace of busness s at the State capta, he
may not deduct hs e penses for meas and odgng whe there, even
though he s, durng sessons of the egsature, away from hs mnor
pace of busness and hs permanent pace of abode. (See S. M. R.
0-I ara v. Commssoner, 6 T. C, 8 1.) Obvousy, where an nd-
vdua s dutes as a State egsator consttute hs ony busness, no
deductons for meas and odgng whe attendng the egsatve ses-
sons may be aowed. These prncpes governng the deductbty
of e penses for meas and odgng are equay appcabe to reguar
and speca sessons of the egsature.
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S 29.23( )- .
12
In ths connecton, t mght be noted that athough the tme eement
s generay one of the more mportant factors n determnng
whether a partcuar ocaton consttutes an ndvdua s prncpa or
mnor pace of busness, t shoud not of tsef be regarded as con-
trong. (See Commssoner v. . N. Fowers, 326 U. S., 65. Ct. D.
1659, C. . 19 6-1, 57.) Thus, the mere fact that a State egsator
n an unusua year has to spend more than s months at the State
capta does not automatcay convert what s normay hs mnor
pace of busness nto hs prncpa pace of busness for that partcuar
year. Where a ta payer has two or more busness ocatons, a tem-
porary shft of emphass from the prncpa to a mnor pace of bus-
ness shoud be regarded as smar n nature to the temporary de-
parture of a ta payer havng ony one busness ocaton from the
pace where he customary carres on busness durng the ta abe
year. (See Chares I). Coourn v. Commssoner, 138 Fed. (2d), 763,
and arry F. Schurer v. Commssoner, 3 T. C., 5 .)
Where an ndvdua s dutes as a State egsator consttute hs
ony busness, he may deduct transportaton e penses for ony those
trps from the State capta whch are actuay undertaken for the
purpose of dschargng State busness. In addton thereto, f a
State egsator s engaged n some other trade or busness, he may
aso deduct such e pendtures ncurred n gong from and returnng
to the State capta for the purpose of attendng to matters reatng
to the pursut of such other trade or busness. owever, even though
a egsator s permanent pace of abode s ocated n the vcnty of
such other busness, any e penses ncurred for the purpose of beng
wth hs famy are persona and nondeductbe. (See George, F.
Thompson v. Commssoner, 6 T. C, 2S5.)
State egsator may deduct the cost of nonrembursed day
trave between hs prncpa pace of busness and the State capta
hs mnor pace of Dusness), provded such day trps are necessary
or the purpose of dschargng hs busness at both, ocatons.
Secton 29.23(a)-: penses of farmers. 19 7-6-12505
( so Secton 23 (1), Secton 29.23(1)-10; I. T. 38 3
Secton 2 , Secton 29.2 -2.)
INT RN L R NU COD .
The cost of me spread on farm and n a partcuar ta abe year
consttutes a deductbe farm e pense for that year f the beneft
or effectveness thereof does not e tend substantay beyond the
ta abe year n whch the me s spread. If, however, the quantty
of me spread and the nature and condton of the so are such
that the beneft or effectveness of the mng w e tend substan-
tay equay over an estmated perod of severa years, the cost
thereof consttutes an e haustbe capta e pendture whch shoud
be amortzed over such perod. If t defntey appears that the
beneft or effectveness of mng w e tend over an estmated
perod of severa years, and that such beneft or effectveness w
be much greater n the eary part of such perod than n the ater
part thereof, amortzaton and deducton of ts cost may be made
accordngy.
dvce s requested whether, for Federa ncome ta purposes, the
cost of me spread on farm and n a partcuar ta abe year s a
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13
15 29.23(a)-.
deductbe farm e pense for that year, or whether such e pendture
shoud be amortzed and deducted over the perod durng whch such
mng s effectve.
In the nstant case, the ta payer deducted the entre amount of
an e pendture made n 19 3 for mng farm and. The coector
refused to aow the entre amount as a deducton and stated that
the e pendture shoud have been captazed and deducted over a
perod of fve years, nasmuch as the amount of me spread n 19 3
was n e cess of the amount of me spread n subsequent years. The
decson n wng . Swaney . Commssoner (5 . T. ., 990,
acquescence, C. . I-2, 7 (1927)) was cted as a precedent for such
dsaowance.
The facts n wng . Swaney v. Commssoner, supra, show that
the ta payer operated, as a snge busness enterprse, two non-
contguous tracts of farm and, one of 185 acres purchased n 1903
and the other of 200 acres purchased n 1917. In the ta abe year
1919, he prepared and burned three arge me kns and scattered the
me so produced over a arge part of hs and, at a tota cost of
9,02 , and n the ta abe year 1920, he kewse med a further
porton of hs and at a tota cost of 5,800. From fve to eght tons
of me were spread on each acre so treated. There were n the
mmedate vcnty numerous coke ovens, the smoke and fumes from
whch were so detrmenta to the and s productveness that t coud
not be farmed proftaby wthout.reguar appcatons of me. ach
appcaton n the quanttes proved by the ta payer was effectve
for not more than four years. The oard of Ta ppeas (now
The Ta Court of the Unted States) hed that the cost of such
mng shoud be e hausted at the rate of 25 per cent per annum.
In one of the decsons cted by the oard, ppea of . II. Sanford
(2 . T. ., 181), t was hed that amounts e pended by a farmer
n the restoraton of so fertty, preparatory to the actua future
producton of crops, are capta e pendtures.
The prncpe appcabe to the nstant case s ustrated n G. C. M.
131 8 (C. . III-1, 67 (193 )), whch hods that where premums
for nsurance, whch are deductbe as busness e penses, are pad n
advance for a perod of severa years, ony the pro rata porton thereof
pertanng to nsurance for each ta abe year s deductbe for that
year, regardess of whether net ncome s reported on the cash recepts
and dsbursements or on the accrua bass. s set forth n G. C. M.
23587 (C. . 19 3, 213), such rung has been sustaned by numerous
decsons of the oard of Ta ppeas and aso by a decson of the
Crcut Court of ppeas for the Frst Crcut (Commssoner v. oy-
ston Market ssocaton, 131 Fed. (2d), 966, Ct. D. 1573. C. . 19 3,
102 ). The prncpe s aso refected by a arge number of rungs and
decsons hodng that costs of obtanng, foatng, or ssung busness
oans or bonds havng a term or fe of severa years are e haustbe
capta e pendtures whch, for Federa ncome ta purposes, rrespec-
tve of the method of accountng used, are amortzabe over the term
or fe of the oans or bonds, athough smar costs pertanng to oans
for a year or ess are deductbe n fu as busness e penses for the
ta abe year n whch pad or ncurred, dependng upon the accountng
bass empoyed n keepng books and fng returns.
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29.23(a)-15.
1
Snce the perod durng whch the beneft or effectveness of mng
of farm and w e tend or contnue s argey a queston of fact, whch
s dependent upon many varabe factors and can not be determned
e acty n advance but must be estmated, the ureau w aow the
entre cost of mng farm and as busness e pense for one ta abe
year even though some reatvey sght or nomna beneft or effectve-
ness may e tend or contnue nto another year. owever, where t
appears that substanta beneft or effectveness from the mng w
e tend or contnue durng a perod of severa years, the cost thereof
s regarded by the ureau to be an e haustbe capta e pendture
whch s amortzabe over the estmated benefca or effectve perod.
Ths s qute smar to the cost of farm budngs, machnery, and
equpment whch s deprecabe over ther estmated usefu ves and
deductbe for the ta abe years wthn such ves. Consstenty, f
an estmated benefca or effectve perod of. for nstance, fve years
s determned upon the bass of a the pertnent evdence avaabe at
the tme of the mng and t, utmatey deveops that t s necessary
to rene the same and n the thrd or fourth year, the baance of the
cost not prevousy deducted s deductbe n the thrd or fourth year,
respectvey. If t defntey appears that the estmated perod of
beneft or effectveness of mng, e tendng over severa years, w be
much greater n the eary part of such perod than n the ater part
thereof, amortzaton and deducton of ts cost may be made accord-
ngy. For e ampe, f the estmated perod of dmnshng beneft or
effectveness s fve years, the cost may be amortzed at the rate of 30,
25, 20, 15, and 10 per cent n each of the respectve fve years nstead
of at the rate of 20 per cent n each. Ths s somewhat smar to
the decnng baance method of computng deprecaton. (See u-
etn F, revsed anuary 19 2. at page 5. and I. T. 3818, C. . 19 6-2,
2.)
In vew of the foregong, t s hed that the cost of me spread on
farm and n a partcuar ta abe year consttutes a deductbe farm
e pense for that year f the beneft or effectveness thereof does not
e tend substantay beyond the ta abe year n whch the me s
spread. If, however, the quantty of me spread and the nature and
condton of the so are such that the beneft or effectveness of the
mng w e tend substantay equay over an estmated perod of
severa years, the cost thereof consttutes an e haustbe capta e -
pendture whch shoud be amortzed over such perod. If t defntey
appears that the beneft or effectveness of mng w e tend over an
estmated perod of severa years, and that such beneft or effectveness
w be much greater n the eary part of such perod than n the ater
part thereof, amortzaton and deducton of ts cost may be made
accordngy.
Secton 29.23(a)-15: Nontrade or nonbusness
e penses.
INT RN L R NU COD .
Counse fees pad by a wfe n connecton wth efforts to obtan an
ncrease n amony and counse fees pad by a husband n resstng
such an ncrease. (See I. T. 3856, page 23.)
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15 29.23(c)- .
S CTION 23(b). D DUCTIONS FROM GROSS
INCOM : INT R ST.
Secton 29.23 (b)-: Interest. 19 7-12-12562
I. T. 3852
INT RN L R NU COD .
No part of a ump sum accepted from , the ta payer, In compro-
mse of proposed Federa ncome ta defcences, pus penates
and nterest thereon, may be deducted as nterest n computng net
ncome for Federa ncome ta purposes.
dvce s requested whether a ump sum accepted by the Govern-
ment from , the ta payer, n compromse of Federa ncome ta
defcences, penates, and nterest may be apportoned and a part
thereof deducted as nterest n computng net ncome for Federa
ncome ta purposes.
In the case under consderaton defcences n Federa ncome ta ,
together wth penates and nterest thereon, were determned to be
due. Thereafter, the ta payer submtted an offer n compromse of hs
ta abty, penates, and nterest n a ump sum ess than the prn-
cpa amount of the defcences, whch offer was accepted by the
Government. The ta payer desres to apporton a part of the tota
payment to nterest and deduct t n determnng hs net ncome.
Secton 23(b) of the Interna Revenue Code provdes n part that
n computng net ncome there sha be aowed as deductons:
(b) Interest. nterest pad or accrued wthn the ta abe year on n-
debtedness
Interest pad or accrued on Federa ncome ta es s deductbe n
computng net ncome for Federa ncome ta purposes. (See O. D.
319, C. . 1. 2 7 (191 )), and L. O. 922, C. . 2, 227 (1920).)
It s the poston of the ureau, however, that the acceptance of a
ump sum n compromse of Federa ncome ta , penates, and nter-
est does not resut n payment of ncome ta , penates, or nterest,
but s n eu of abty therefor. ccordngy, n the nstant case,
no part of the amount accepted by the Government f rom the ta payer
n compromse of the proposed ncome ta defcences, pus penates
and nterest thereon, may be deducted as nterest under secton 23(b)
of the Interna Revenue Code, supra. (Cf. Ma Thomas Davs et a).
v. Commssoner, 6 . T. ., 663, acquescencerC. . 19 2-1, , whch
s ceary dstngushabe on the facts nvoved theren.)
S CTION 23(c). D DUCTIONS FROM GROSS
INCOM : T S G N R LLY.
Secton 29.23 (c) -1: Ta es. 19 7-8-12525
G. C. M. 25202
INT RN L R NU COD .
The Tennessee corporate e cse a Imposed by secton 1316,
Code of Tennessee, and the Tennessee corporate franchse ta Im-
posed by sectons 12 8.1-13 to 12 8.1 9, ncusve, rode of Tennessee,
whch ta es are due and payabe on uy 1 of each year, consttute
accrued abtes for Federa ncome ta purposes on December 31
of the precedng year where a corporaton keeps ts accounts and
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829.23(c)- .
16
fes ts Federa ncome ta returns on the caendar year bass, and
on the ast day of the precedng fsca year endng pror to uy 1
where a corporaton keeps ts accounts and fes ts Federa ncome
ta returns on a fsca year bass.
G. C. M. 1022 (G. . )37-2, 101) modfed. Recommended that
I. T. 3151 (C. . 1938-1, 126) be modfed.
n opnon s requested as to the date upon whch the Tennessee
corporate e cse ta mposed by secton 1316, Code of Tennessee, due
and payabe on uy 1 of each year and measured by the corporaton s
net earnngs for the precedng caendar or fsca year, becomes an
accrued abty for Federa ncome .ta purposes n the case of a
corporaton keepng ts accounts and fng ts Federa ncome ta
returns on a caendar year bass, and n the case of a corporaton keep-
ng ts accounts and fng ts Federa ncome ta returns on a fsca
year bass. Snce the Tennessee corporate franchse (prvege) ta
mposed by sectons 12 8.1 3 to 12 8.1 9, ncusve, Code of Tennessee,
s smar n appcaton to the corporate e cse ta , G. C. M. 1922
(C. . 1937-2, 101), reatng to the date of accrua of the franchse
ta , has been reconsdered n connecton wth the nstant request.
In I. T. 3151 (C. . 1938-1,126), t was hed that the e cse ta m-
posed by secton 1316, Code of Tennessee, due and payabe on uy 1,
1937, ahd measured by net earnngs for the caendar year 1936, accrued
as of uy 1, 1937, and was deductbe for the caendar year 1937 by a
corporate ta payer keepng ts books on the accrua bass and fng ts
Federa ncome ta returns on the caendar year bass. I. T. 3151
hed further that the e cse ta measured by the corporaton s net
earnngs for the caendar year 1937 was an aowabe deducton n
ts return for the caendar year 1938.
Sectons 1316 and 1318, Code of Tennessee, provde n part as
foows:
1316. Ta Imposed. corporatons sha pay to the
commssoner of fnance and ta aton annuay an e cse ta equa
to three and three-quarters per cent (8.75 ) of the net earnngs for ther ne t
precedng fsca or caendar year, from busness done wthn the State.

131S. Due, When ; Penaty. The ta Imposed sha be due and payabe on
uy 1st of each succeedng year;
s stated n I. T. 3151, supra, the ureau s concepton n regard to
the Tennessee e cse ta has been that the ta s pad n advance for
the prvege of dong busness wthn the State durng the ensung
year. Such nterpretaton of the Tennessee aw was based prmary
upon nformaton of ke mport receved from offcas of the State
department of fnance and ta aton. ccordngy, the ureau hed
that the Tennessee e cse ta , whch became due and payabe on uy 1,
1937, accrued on that date, athough measured by net earnngs for the
caendar year 1936.
The queston as to the accrua of Tennessee e cse and franchse ta es
has been reconsdered n an opnon of the attorney genera of Tennes-
see dated une 21, 19 5. The opnon hods that both the e cse and
franchse ta es commence to accrue when a corporaton begns busness
n Tennessee and that the State permts e ercse of the ta abe prv-
ege unt the ne t succeedng uy 1, at whch tme the corporaton
s requred to pay the ta for the perod of ts e stence wthn the
State pror to the estabshed ta payment date. Stated otherwse, the
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17
29.23(c)- .
opnon hods that a corporaton pays on uy 1 of each year for a
prvege aready e erczed.
In vew of the opnon of the attorney genera of Tennessee, t s now
the opnon of ths offce that the Tennessee e cse ta pad on uy 1 of
each year propery accrues at the cose of the ta abe year, caendar or
fsca, ne t precedng the date on whch t s payabe, . e., the end of
the year durng whch the prvege was e ercsed, and s deductbe,
for Federa ncome ta purposes, for such year. It s recommended
that I. T. 3151. supra, be modfed accordngy.
In G. C. M. 1922 (C. . 1937-2, 101), ths offce consdered the
queston as to the accrua date, for Federa ncome ta purposes, qf the
corporate franchse ta mposed by the State of Tennessee. That ta
s very smar n ts appcaton to the Tennessee corporate e cse ta .
The poston of ths offce was that the franchse ta s pad n advance
and accrues n the year n whch pad. Gvng effect to the above-
mentoned opnon of the attorney genera of Tennessee (whch covers
both e cse and franchse ta es), t s now the vew of ths offce that
the Tennessee corporate franchse tf accrues, for Federa ncome ta
purposes, at the cose of the ta abe year, caendar or fsca, ne t pre-
cedng the date on whch t s payabe, . e., the end of the year durng
whch the prvege was e ercsed, and s deductbe, for Federa
ncome ta purposes, for such year. G. C. M. 1922 , supra, s modfed
accordngy.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 29.23(c)-1 : Ta es. 19 7-8-12526
I. T. 38 6
INT RN L R NU COD .
Modfcaton of I. T. 3151 (C. . 1938-1, 126), reatng to the date
of accrua, for Federa Income ta purposes, of the Tennessee cor-
porate e cse ta . ppcaton of G. C. M. 25202 (page 1 5, ths ue-
tn) wth respect to the accrua dates of Tennessee corporate e cse
and franchse ta es.
I. T. 3151 (C. . 1938-1, 126), reatng to the date of accrua for
Federa ncome ta purposes of the Tennessee corporate e cse ta
mposed by secton 1316, Code of Tennessee, s modfed to accord wth
the recommendaton and concusons set forth n G. C. M. 25202 (page
15, ths uetn).
Where, wth respect to ta abe years begnnng pror to une 21,
19 5, the date of the opnon of the attorney genera of Tennessee
cted n G. C. M. 25202, supra, corporate ta payers have, n ther Fed-
era ncome ta returns, foowed the rue stated n I. T. 3151, supra,
such treatment of the Tennessee corporate e cse ta w not be ds-
turbed. Furthermore, where corporate ta payers have, wth respect
to ta abe years begnnng pror to une 21, 19 5, foowed the rue
set forth n G. C. M. 1922 (C. . 1937-2,101), reatve to the date of
accrua of the Tennessee corporate franchse ta , such treatment of
that ta w not be dsturbed.
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29.23(c)- .
18
Secton 29.23(c)-: Ta es. 19 7-10-125 6
L T. 38 9
INT RN L R NU COD .
Corporatons whch accrued the New York State franchse ta at
the rate of 6 per cent and camed t as a deducton n ther Federa
ncome ta returns for a abe years ended December 81, 19 5, and
pror thereto w be consdered to have propery accrued such ta
and the deductons camed therefor w be aowed. owever,
nasmuch as a part of the abty for the 6 per cent ta was ater
e tngushed, the e cess accrua (the dfference between 6 per cent
and per cent) shoud be reported as ncome n the succeedng
ta abe year.
I. T. 3813 (C. . 19 6-2, 0) modfed.
econsderaton as been gven to I. T 3813 (C. . 19 6-2, 0), reat-
ng to the ad|ustment of Federa ncome and e cess profts ta ab-
tes for ta abe years endng after une 30, 19 5, necesstated by the
reducton n rate of the New York State franchse ta . In that
rung t was hed that ad|ustment of Federa ncome and e cess
profts ta abtes for ta abe years endng after une 30, 19 5.
n whch the accrua date of the New York State franchse ta fas,
necesstated by the reducton n the rate of such ta , shoud be made
by submttng amended Federa ncome and e cess profts ta returns
to the coector of nterna revenue for the dstrct n whch the
orgna returns were fed, together wth a check for the resutng
net defcency.
The New York State franchse ta accrues on the frst day of a
corporaton s ta abe year. (I. T. 3697, C. . 19 ,116.) new aw
whch merey changes the rate of ta aton ordnary does not change
the otherwse recognzed accrua date. (G. C. M. 173 0, C. . -2,
81 (1936).) Where the change n rate occurs wthn a corporaton s
ta abe year, for e ampe, the caendar year 19 6, proper ad|ustments
are made n ts books of account and are refected n Federa ncome
ta returns subsequentv fed. (Cf. I. T. 2632, C. . I-2,7 (1932);
I. T. 2827, C. . III-2, 130 (193 ).) Where, however, the change
n rate occurs after the cose of the corporaton s ta abe year, con-
sderaton must be gven to the queston whether the act changng
the rate was passed n ampe tme to aow the ta payer to read-
|ust ts accounts pror to the due date of the return. (Faccu
Machne Co. v. Unted States, 282 U. S., 375, Ct. D. 278, C. . -.
2 (1931).)
On March 12, 19 6, the rate of the New York State franchse ta
was reduced from 6 per cent to per cent by secton 2, chapter 110,
Laws of New York, 19 6, effectve for years endng after une 30,19 5.
In the case of corporatons usng the accrua method of accountng and
havng fsca years ended uy 31, 19 5, and up to and ncudng
November 30,19 5, the aw changng the rate of the franchse ta was
not enacted unt after the due dates of the Federa ncome ta returns.
It was, therefore, mpossbe for them to have accrued the ta at the
ower rate before fng ther returns. In the case of a corporaton
fng ts return on the caendar year bass for 19 5, the return for tha
ear was due March 15, 19 ( . ony three days after the enactment of
(he State aw on March 12, 19 6, whch reduced the franchse ta rate.
Under the crcumstances, t can not propery be sad that the ct was
passed n ampe tme to enabe such a corporaton to ad|ust ts
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19
29.23 (c)-2.
books so as to refect the accrua of the reduced ta on or before March
15, 19 0, the due date of ts return. (Cf. Fawcus Machne Co. v.
Unted States, supra.)
In vew of the foregong, corporatons whch accrued the New York
State franchse ta at the rate of 6 per cent and camed t as a deduc-
ton n ther Federa ncome ta returns for ta abe years ended
December 31,19 5, and pror thereto w be consdered to have prop-
ery accrued such ta and the deductons camed therefor w be
aowed. owever, nasmuch as a part of the abty for the 0 per
cent ta was ater e tngushed, the e cess accrua (the dfference
between 6 per cent and y2 Per cent) shoud be reported as ncome n
the succeedng ta abe year. (See I. T. 2632, supra, I. T. 2827, supra,
and cases cted theren.)
I. T. 3813, supra, s modfed accordngy.
Secton 29.23(c)-2: Federa dutes and 19 7-1-12 07
e cse ta es. Mm. 0083
( so Secton 111, Secton 29.111-1.)
Deductbty of Federa stamp ta es by traders or nondeaers
upon transfers or conveyances of securtes or rea estate.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
The foowng statement s pubshed pursuant to secton 3(a) (3)
of the dmnstratve Procedure ct:
Reference s made to that porton of I. T. 3806 C. . 19 6-2, 1
whch reads as foows:
(2) Federa stamp ta es pad on transfers or conveyances of securtes or rea
estate upon sans thereof as a trader or other nondeaer are seng costs or off-
sets aganst song prces to be taken nto account ony n determnng (net)
amounts reazed and gans or osses under secton 111 of the Code on the saes;
Pror to the pubcaton of I. T. 3806, the ureau had rued that such
ta es were deductbe n ther entrety n the case of traders and other
nondeaers and need not be treated as offsets aganst the seng prce.
The pror poston of the ureau has been pubczed by varous com-
merca ta servces and, as a consequence, was reed upon by many
ta payers n preparng and fng ther returns for the years 19 ana
19 5.
Where, wth respect to returns fed for ta abe years endng pror
to the pubcaton of I. T. 380G, Federa stamp ta es pad on transfers
or conveyances of securtes or rea estate upon saes thereof as a trader
or other nondeaer were deducted n ther entrety rather than as offsets
aganst the seng prces, t w be the admnstratve pocy not to
dsturb such treatment. (See secton 3791 (b) of the Interna Revenue
Code; 26 U. S. C, 3791(b).)
Inasmuch as the rue announced heren merey mts the effectve
date of appcaton of a prevous rung, and the needs of certan of
the ta payers affected thereby requre mmedate ssuance of the rue,
pror notce and pubc rue-makng procedure n connecton therewth
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S 29.23(e)-. 20
are hereby found to be mpractcabe, as they woud deay promuga-
ton of the rue.
s ths mmeograph s wthn the parenthetca e cepton to-secton
(c) of the dmnstratve Procedure ct, t sha be effectve upon
ts fng for pubcaton n the Federa Regster.
Correspondence reatng to ths mmeograph shoud refer to ts
number and the symbos IT: IM.
oseph D. Nunan. r.,
C ommssoner.
pproved December 2,19 6.
O. Ma Gardner,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa R gster December 6, 19 6, 10.01 a. m.)
S CTION 23(e). D DUCTIONS FROM GROSS INCOM :
LOSS S Y INDI IDU LS.
Secton 29.23(e)-: Losses by ndvduas. 19 7-11-12555
I. T. 3850
INT RN L R NU COD .
n amount pad n 19 6 by a essee of resdenta property n sats-
facton of a |udgment for damages for faure to surrender the
property to the, essor upon e praton of the ease n as good order
and condton as reasonabe use and wear thereof w permt,
damage by the eements e cepted, whch faure was due to the fact
that n 19 the property was damaged by fre, s deductbe from
gross ncome for 19 6 under secton 23(e) (3) of the Interna Revenue
Code.
dvce s requested reatve to the deductbty of an amount pad
n 19 6 by a essee of resdenta property n satsfacton of a |udgment
for damages for faure to surrender t e property to the essor upon
e praton of the ease n as good order and condton as reasonabe
use and wear thereof w permt, damage by the eements e cepted.
In the nstant case the faure to surrender the eased property,
ncudng the furnshngs, n good order and condton was due to the
fact that n 19 , shorty pror to e praton of the ease, the property
was severey damaged by fre. There was no neggence on the part of
the essee and no nsurance from whch the essee coud beneft.
cam for damage was asserted by the essor aganst the essee, and the
essee dened abty. Thereafter, a sut was nsttuted aganst the
essee, the partes entered nto a stpuaton of settement, and n 19 (
a |udgment was entered based on such stpuaton. The amount of the
|udgment was pad n 19 6.
Secton 23(e) (3) of the Interna Revenue Code provdes n part that
n computng net ncome there sha be aowed as deductons:
(e) Losses by Indvduas. In the case of an ndvdua, osses sustaned
durng the ta abe year and not compensated for by nsurance or otherwse

(3) of property not connected wth the trade or busness, f the oss arses
from fres, storms, shpwreck, or other casuaty, or from theft.
In I. T. 2150 (C. . I -1,1 7 (1925)), t was hed, under a smar
provson of the Revenue ct of 1918, that the essee of busness prop-
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21
S 29.23(p)-10.
erty, whch was bound by a covenant n a ease to restore or repace
budngs destroyed by fre, was entted to a deducton for the year n
whch a fre oss was ncurred. In the nstant case abty under the
ease was at frst dened. Thereafter, pursuant to the terms of a
stpuaton entered nto by and between the essor and essee n connec-
ton wth a sut by the essor for damages, |udgment was rendered for
the essor.
Inasmuch as the damage n ths case, nvovng resdenta property,
resuted from fre, the oss sustaned upon payment of the |udgment
was drecty attrbutabe to the fre. It s hed, therefore, that the
amount pad by the essee s deductbe from gross ncome for Federa
ncome ta purposes under secton 23(e) (3) of the Interna Revenue
Code for 19 (5, the year n whch the |udgment was pad.
S CTION 23 (1). D DUCTIONS FROM GROSS
INCOM : D PR CI TION.
Secton 29.23(1)-10: Deprecaton n case of
farmers.
INT RN L R NU COD .
Cost of me spread on farm and. (See I. T. 38 3, page 12.)
S CTION 23(p). D DUCTIONS FROM GROSS INCOM :
CONTRI UTIONS OF N MPLOY R TO N MPLOY-
S TRUST OR NNUITY PL N ND COMP NS TION
UND R D F RR D-P YM NT PL N.
Secton 29.23(p)-10: Contrbutons of an em- 19 7-9-12533
poyer to a stock bonus or proft-sharng Mn. (3131
trust (secton 23(p) (1) (C)).
ppcaton of the carry-over provsons of secton 23(p) (1) (C)
of the Interna Revenue Code, reatnu to contrbutons of an em-
poyer to a stock bonus or proft-sharng trust.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March 28, 19 7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons, Technca Staff, and Others Concerned:
1. The carry-over provsons contaned n secton 23(p) (1) (C) of
the Interna Revenue Code, reatng to contrbutons of an em-
poyer to a stock bonus or proft-sharng trust, are of two types,
namey, credt carry-overs (provded by the second sentence of that
secton) and contrbuton carry-overs (contaned n the thrd sen-
tence). credt carry-over may arse n a ta abe year n whch the
amount contrbuted s ess than the mtaton under the frst sentence
of secton 23(p) (1) (C) of the Code, . e., 15 per cent of the compensa-
ton, not ncudng the contrbuton under that secton, of a partc-
pants n the stock bonus or proft-sharng trust or trusts under the
pan to whch the contrbuton s made. contrbuton carry-over
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I 29.23(p)-10.
22
may arse n a ta abe year n whch the amount contrbuted s more
than the mtaton under the frst sentence of secton 23(p)()(C)
of the Code.
2. The requrement for a defnte predetermned formua for deter-
mnng the profts to be shared (secton 29.165-1 (a) of Reguatons
111, as amended by Treasury Decson 5 22, C. . 19 , 318) does
not of tsef precude the use of the carry-over provsons of secton
23 (p) (1) (C) of the Code. oth credt and contrbuton carry-overs
may be avaed of as ustrated n the succeedng paragraphs hereof.
3. Under a formua whch cas for a contrbuton based ony upon
a percentage of the annua profts, the contrbuton s based on such
percentage regardess of the amount that, may be deductbe n the
partcuar year. If such contrbuton s ess than the 15 per cent m-
taton, a credt carry-over w resut, but f such contrbuton s
more than such mtaton, there w be a contrbuton carry-over.
For e ampe, under a pan whch requres a contrbuton of 10 per
cent of the annua profts, the carry-overs w arse and w be
absorbed, under the facts heren assumed, as foows:
Year.
10 per cent
of annua
profts
15 percent
of compen-
saton.
Contrbu-
ton.
Deduc-
ton.
Credt
carry-
over.
Contrbu-
ton carry-
over.
19
100,000
150,000
50,000
100.000
150, 000
50,000
75, 000
125,000
100, 000
150,000
50,000
100,000
100,000
100. 000
75.000
125,000
50,000
(50,000)
/ 0
0
0
19 5
50,000
(25, 000)
(25,000)
19 8..
19 7.....
Tota..
00,000
00.000
00,000
00,000
0
0
It shoud be observed that over a perod of years (n the above us-
traton, four years) the tota contrbuted n accordance wth the for-
mua contaned n the pan s deductbe. In the frst year, athough 15
per cent of compensaton amounted to 150,000, ony 100,000 was con-
trbuted because that was the amount permtted under the formua.
ccordngy, there was a credt carry-over of 50,000. In the second
year, a contrbuton of 150,000 was made n accordance wth the for-
mua, but ony 100,000 was deductbe. Ths conssted of 50,000
based on 15 per cent of compensaton for 19 5 and an addtona 15
per cent (makng a tota of 30 per cent of compensaton for 19 5)
whch absorbed the credt carry-over of 50,000 from the prevous
year. Consequenty, there was a contrbuton carry-over of 50,000.
In the thrd year, a contrbuton of 50,000 was made, but snce 15 per
cent of compensaton amounted to 75,000, and snce the tota of the
contrbuton carry-over and the amount deductbe under the frst sen-
tence of secton 23(p) (1) (C) of the Code can not e ceed 15 per cent
of compensaton, the amount deductbe for that year was 75,000.
Therefore, ony 25,000 of the 19 5 contrbuton carry-over of 50,000
was absorbed n 19 6, and the baance of 25,000 s avaabe as a carry-
over to 19 7. The baance of the contrbuton carry-over s absorbed
n the fourth year, snce 15 per cent of compensaton s 25,000 more
than the amount requred to be contrbuted under the formua.
. Under a formua whch cas for a contrbuton equa to the esser
of a f ed percentage of the annua profts or 15 per cent of the compen-
saton of partcpants, e cusve of the contrbuton under the pan,
credt carry-overs may arse, but there w be no occason for deduc-
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23
29.2 -1.
tons under the carry-over provsons as ong as the formua contnues
to restrct the amount to be contrbuted to the mtatons under the
frst sentence of secton 23(p) (1) (C) of the Code. For e ampe, the
formua mght requre a contrbuton of the esser of 10 per cent of the
annua profts or 15 per cent of compensaton of partcpants. If 10
per c nt of profts n a gven year amounts to 100,000 and 15 per cent
of compensaton equas 150,000, the esser amount, or 100,000, s con-
trbuted. If, n the foowng year, 10 per cent of profts amounts to
150,000 and 15 per cent of compensaton equas 50,000, the contrbu-
ton to be made n that year s 50,000. Snce that amount s deduct-
be under the frst sentence of secton 23 (p) (1) (C) of the Code, there s
no occason for deducton under the carry-over provsons. Note,
however, that f the formua n such foowng year requred a contr-
buton equa to the esser of 10 per cent of annua profts or the ma -
mum amount deductbe for the current year under the frst and second
sentences of secton 23(p)()(C) of the Code, the contrbuton for
the second year woud have been 100,000 and the 50,000 credt carry-
over from the frst year woud be avaed of.
5. Correspondence and nqures from the foowng regardng ths
mmeograph shoud refer to the number hereof and to the symbos n-
dcated: Coectors of nterna revenue, C: Co; nterna revenue.
agents n charge, IT: PS; heads of fed dvsons of the Technca
Staff, TS: M.
oseph D. Nt|nan, r.,
Commssoner.
S CTION 23(u). D DUCTIONS FROM GROSS INCOM :
LIMONY, TC., P YM NTS.
Secton 29.23 (u)-: Perodc amony payments.
INT RN L R NU COD .
Counse fees pad by a husband to the wfe s attorney n connecton
wth her efforts to obtan an ncrease n amony. (See I. T. 3856,
beow.)
S CTION 2 . IT MS NOT D DUCTI L .
Secton 29.2 -1: Persona and famy e penses. 19 7-13-1257
( so Secton 23(a), Secton 29.23(a)-15; Sec- I. T. 3856
ton 23(u), Secton 29.23(u)-.)
INT RN L revenue code.
Counse fees pad by a wfe for servces rendered In connec-
ton wth her efforts to obtan an ncrease n amony, and counse
fees pad by a husband n resstng such an ncrease, do not const-
tute ordnary and necessary e penses for the producton or coecton
of ncome, or for the management, conservaton, or mantenance of
property hed for the producton of ncome, wthn the mean g of
secton 23(a)(2) of the Interna Revenue Code. Such e penses
consttute persona e penses, a deducton for whch s prohbted
by secton 2 (a) (1) of the Code.
Counse fees whch a husband s obgated to pay and whch are
pad by hm to the wfe s attorney n connecton wth her efforts to
obtan an ncrease n amony do not quafy as amony deductons
under secton 23(u) of the Code.
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29.2 -1.
2
dvce s requested whether counse fees pad by a wfe for servces
rendered n connecton wth her efforts to obtan an ncrease n a-
mony, and counse fees pad by a husband n resstng such an ncrease,
consttute ordnary and necessary e penses for the producton or co-
ecton of ncome, or for the management, conservaton, or mante-
nance of property hed for the producton of ncome, whch are de-
ductbe under secton 23(a) (2) of the Interna Revenue Code. d-
vce s aso requested whether counse fees whch a husband s ob-
gated to pay and whch are pad by hm to the wfe s attorney n con-
necton wth her efforts to obtan an- ncrease n amony quafy as
amony payments under secton 23 (u) of the Code.
Secton 23 (a) and (u) of the Interna Revenue Code provdes n
part that n computng net ncome there sha be aowed as deductons:
(a) penses.

(2) Nontbade ob NON USIN SS e pf.nses. In the case of an ndvdua,
a the ordnary and necessary e penses pad or ncurred durng the ta abe
year for the producton or coecton of ncome, or for the management,
conservaton, or mantenance of property hed for the producton of ncome.

(u) mony, tc., Payments. In the case of a husband descrbed n secton
22(k), amounts Incudbe under secton 22(k) In the gross ncome of hs wfe,
payment of whch s made wthn the husband s ta abe year.
Secton 2 (a) of the Code provdes n part that n computng net
ncome no deducton sha n any case be aowed n respect of
(1) Persona, vng, or famy e penses, e cept e traordnary medca
e penses deductbe under secton 23( )
penses, to be deductbe under secton 23(a)(2) of the Code,
supra, must be ordnary and necessary. Ths presupposes that they
must be reasonabe n amount and must bear a reasonabe and pro -
mate reaton to the producton or coecton of ta abe ncome, or for
the management, conservaton, or mantenance of property hed for the
producton of ncome. Furthermore, e cept for the requrement of
beng ncurred n connecton wth a trade or busness, a deducton
under secton 23(a)(2) of the Code s sub|ect to a the restrctons
and mtatons that appy n the case of a deducton, under secton
23(a) (1) ( ) of the Code, of an e pense pad or ncurred n carryng
on any trade or busness, ncudng the restrctons and mtatons
contaned n secton 2 of the Code. (See secton 29.23(a)-15 of
Reguatons 111.)
In ppea of Davd G. oyce (3 . T. ., 393), the argument was
advanced on the part of the ta payer that ega e penses ncurred by
hm n resstng a cam by hs wfe attackng the vadty of a post-
nupta agreement, whch purported to mt and f ther respectve
property rghts, were ncurred n connecton wth managng, nvestng,
and preservng hs estate. The Unted States oard of Ta ppeas
(now The Ta Court of the Unted States) hed that the e penses
there n queston were persona e penses snce they arose out of the
marrage reatonshp. Smar argument was advanced on behaf
of the ta payer n Fred S. Markham v. Commssoner (39 . T. .,
65), wheren the poston was taken by the oard of Ta ppeas
that an e pendture made to obtan evdence used n the tra and
convcton of the wrter of an e torton etter threatenng harm to the
ta payer s chdren was prmary, f not purey, a persona e pense.
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25
29.2 -6.
though these decsons were rendered pror to the enactment of
secton 23(a) (2) of the Interna Revenue Code, t w be noted that
the deducton of the e penses nvoved was dened on the ground that
they were persona e penses rather than on the ground that they were
not ncurred n connecton wth a trade or busness.
In vew of the foregong, t s hed that counse fees pad by a wfe
for servces rendered n connecton wth her efforts to obtan an ncrease
n amony, and counse fees pad by a husband n resstng such an
ncrease, do not consttute ordnary and necessary e penses for the
producton or coecton of ncome, or for the management, conserva-
ton, or mantenance of property hed for the producton of ncome,
wthn the meanng of secton 23(a) (2) of the Code. Such e penses
consttute persona e penses, a deducton for whch s prohbted by
secton 2 (a)(1) of the Code. It s further hed that counse fees
whch a husband s obgated to pay and whch are pad by hm to
the wfe s attorney n connecton wth her efforts to obtan an ncrease
n amony do not quafy as amony deductons under secton 23(u)
of the Code.
Secton 29.2 -1: Persona and famy e penses.
INT RN L R NU COD .
Traveng e penses of State egsators. (See I. T: 38 2, page 11.)
Secton 29.2 -2: Capta e pendtures.
INT RN L R NU COD .
Cost of me spread on farm and. (See I. T. 38 3, page 12.)
Secton 29.2 -6: Losses from saes or e changes 19 7-9-1253
between certan casses of persons. Ct. D. 1682
INCOM T INT RN L R NU COD D CISION OF COURT.
1. Losses from Sams or changes of Property Transactons
etween usband and Wfe.
husband bought and sod securtes for hs own account and
aso as agent and for the account of hs wfe. ach had a separate
brokerage account and a separate bank account; nether one had
authorty to draw checks on the bank account of the other. Durng
the ta abe year the husband nstructed the broker to se for hs
account, or for that of hs wfe, a specfed number of shares of a
partcuar stock and to buy a ke number of shares for the other
spouse, the non-seng party. the transactons were effected
through the New York Stock change. ccordngy, nether knew
to whom he or she sod or from whom he or she bought, and nether
buyer hed the dentca share certfcate formery hed by the other.
It s conceded that the transactons were effected for the purpose
of estabshng osses for ta purposes. Ied: The saes were n-
drecty between husband and wfe wthn the meanng of secton
2 (b) of the Interna Revenue Code, and the osses accordngy
were not deductbe. In reaty, there was no oss to the husband-
wfe unt. There was no bona fde ntenton on the part of the famy
unt to make a fna dsposton of these securtes.
75 70 7 S
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29.2 -6.
26
2. Decson Revebsed.
Memorandum opnon of The Ta Court of the Unted States (De-
cember , 19 5). reversed.
Unted States Crcut Court of ppeas for the Fourth Crcut.
Commssoner of Interna Revenue, pettoner, v. ugust ohn, r., usband, and
Dorta ohn, Wfe, respondents.
158 Fed. (2d), 32.
On petton to revew the decson of The Ta Court of the Unted States.
efore Parker, Soper, and Dobe, Crcut udges.
November 13, 19 6.
OPINION.
Dobe, Crcut udge: Ths Is an appea by the Commssoner of Interna
Revenue from the decson of The Ta Court of the Unted States aowng
certan ong-term capta osses to the pettoners, ugust ohn and Dorta
ohn, husband and wfe, for the ta abe year 19 1. The facts are not n dspute.
ohn bought and sod securtes for hs own account; he aso bought and sod
securtes as agent, and for the account, of the wfe. ach had a separate
brokerage account wth the branch offce, at Coumba, S. C, of a New York
brokerage frm. Separate bank accounts were kept by ohn and hs wfe at
separate banks; nether one had authorty to draw checks on the bank account
of the other.
s to the transactons here n queston durng the ta abe year, ohn nstructed
the broker to se for hs account, or that of hs wfe, a specfed number of shares
of a partcuar stock, and, as to each sae, to buy a ke number of shares for the
other spouse, the non-seng party. ccordngy, when the broker sod 100
shares of stock n the Corporaton for the account of ohn, 100 shares of stock
n the same corporaton were bought for the account of hs wfe; n ke manner,
when 100 shares of a partcuar corporaton were sod for the wfe s account,
a ke amount of the same stock was bought for the account of ohn.
In some Instances, the trade date of the purchase was the same as the trade
date of the sae; whe, n other nstances, the trade date of the purchase fo-
owed by one or two days the trade date of the sae. In a ma|orty of the
transactons, the saes prce and the purchase prce were sghty dfferent-
the transactons were effected through the New York Stock change. ccord-
ngy, nether ohn nor hs wfe knew to whom he or she sod or from whom he or
she bought. nd nether buyer hed the dentca share certfcate formery hed
by the other. It s conceded that the nstant saes transactons were effected
for the purpose of estabshng osses for ta purposes.
The apposte ta statute, Interna Revenue Code, secton 2 (26 U. S. C. .
(19 5 edton)), secton 2 (b), reads:
S C. 2 . IT MS NOT D DUCTI L .
(b) Losses from Sa.es or changes of Property.
(1) Losses dsaowed. In computng net ncome no deducton sha n
any case be aowed n respect of osses from saes or e changes of property,
drecty or ndrecty
( ) etween members of a famy, as defned n paragraph (2) (D).
nd paragraph (2) (D) of ths secton reads:
The famy of an ndvdua sha ncude ony hs brothers and ssters
(whether by the whoe or haf bood), spouse, ancestors, and nea
descendants.
The snge queston before us, then, s whether n ths case there have been saes
or e changes of property ndrecty between spouses wthn the meanng of
the statute set out above. The Ta Court answered ths queston n the negatve.
Snce ths queston s one of aw, the nterpretaton of a statute, we are not
compeed to foow the decson of The Ta Court beow. (Dobson v. Comms-
soner, 320 U. S., 89 Ct. D. 1597, C. . 19 , 56 ; Trust of ngham v. Com-
mssoner, 325 U. S., 365, 371-372 Ct. D. 16 3, C. . 19 5, 103 .) nd, as we
beeve The Ta Court s decson here was a cear-cut mstake of aw, we must
reverse that decson.
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27
29.2 6.
The opnon of udge runde n The Ta Court contans no dscusson on
prncpe of the nstant probem. That court grounded ts decson soey on the
decded cases, whch unquestonaby favor The Ta Court s vews. ( ohn P.
McWams, 5 T. C, 612; Paune Ickehemer, 5 . T. ., 78, affrmed by the
Crcut Court of ppeas for the Second Crcut; Comm soner v. Ickehemer,
132 Fed. (2d), 660.) Ths decson of the oard of Ta ppeas (n /w The Ta
Court of the Unted States), though,.s crtczed n 55 arvard Law Revew, 872,
whe Crcut udge Learned and fed a dssentng opnon n Commssoner
v. Ickehemer. To us, the reasonng of udge Learned and s so cogent and
convncng that we mght adopt hs opnon as our own and et t go at that. Yet
we deem t proper to e press our vews a bt further.
We thnk the decson beow subordnates substance to form, reaty to appear-
ance, the sprt of the statute to the etter. In everng v. New York Trust Go.
(292 . S., 55, 6 Ct. D. 8 0, C. . III-1, 188 (198 ) ), t was sad:
ut the e poundng of a statutory provson strcty accordng to the etter
wthout regard to other parts of the ct and egsatve hstory woud often
defeat the ob|ect ntended to be accompshed.
nd, agan, n Ozawa v. Unted States (260 U. S., 178, 19 ), we fnd :
It s the duty of ths court to gve effect to the ntent of Congress. Prmary
ths ntent s ascertaned by gvng the words ther natura sgnfcance, but f
ths eads to an unreasonabe resut pany at varance wth the pocy of the
egsaton as a whoe, we must e nmne the matter further. We may then ook
to the reason of the enactment and Inqure Into ts antecedent hstory and gve
t effect n accordance wth ts desgn and purpose, sacrfcng, If necessary,
the tera meanng n order that the purpose may not fa.
In the case before us, the husband and wfe, regarded as a unt (and the statute
so consders them), have suffered no economc oss. efore these transactons,
and aso after them, the husband-and-wfe unt owned the same number of shares
n the same corporatons at substantay the same cost to the unt. oss,
to be deductbe, must be evdenced by cosed and competed transactons. ere
ths essenta eement s conspcuousy absent. In reaty, there was no rea oss
to the husband-wfe unt. There ust wns no bona fde ntenton on the part
of the famy unt to make a fna dsposton of these securtes.
We are not mpressed by the facts that the saes and purchases were made
through the Stock change, that nether husband nor wfe receved the dentca
share certfcate hed by the other, that nether knew the other party to whom
he or she sod, or from whom he or she bought. These crcumstances are merey
e terna garments that cothe the transactons, outward trappngs at best. In no
way do they condton the essenta vertes. The approach to a ta statute s
functona, not conceptuastc. We are concerned rather wth the resut actuay
acheved than wth the subte means or devous methods used to brng ths resut
to pass. Ta payers shoud not be permtted to se ther stock, have It too, and
then cam a oss on the transacton.
If the adverb ndrecty n the statute as any meanng (as Congress un-
questonaby ntended), t must have been used to prevent ust such transactons
as are here nvoved. Otherwse evason through the famy devce s amost
Invted. The cear purpose of the statute seems to be refected n ts egsatve
hstory. We quote two e tracts from commttee reports:
Many nstances have been brought to ght where transactons have taken
pace for the soe purpose of takng a oss for ncome-ta purposes. It s be-
eved that the recommendaton of the subcommttee, f foowed, w effectuay
cose ths opportunty for ta avodance. (Premnary report of the Subcom-
mttee on Ways and Means on Preventon of Ta vodance. Seventy-thrd Con-
gress, second sesson, page 15.)
perence shows that the practce of creatng osses through transactons
between members of a famy and cose corporatons has been frequenty utzed
for avodng the Income ta . It s beeved that the proposed change w operate
to cose ths oophoe of ta avodance. ( ouse Report No. 70 , Seventy-thrd
Congress, second sesson, page 23 C. . 1939-1 (Part 2), 55 , 571 .)
In hs dssentng opnon n the Ickehemer case, supra (132 Fed. (2d), at
page 622), Crcut udge Learned and stated :
The wash saes secton secton 118 of the ct of 1936 (26 U. S. C. .,
Interna Revenue Code, secton 118 shows that Congress dd not regard the
chance taken by an nvestor who sod and rebought wthn 30 days, as enough
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28.25-3.
28
of a break n hs ownershp to reaze a oss; the stuaton here s somewhat
ke that.
We thnk ths sheds ght on |ust how far Congress Intended to go when It
enacted the famy group statute. The Instant case Is thus pecuary one
for the appcaton of the ancent rue that n nterpretng a statute, the conrt
shoud ook to the od aw, the mschef and the remedy. It woud therefore seem
to us that when Congress Incorporated the word ndrecty In the famy
group statute, t ceary manfested an ntent to catch ust such ngenous
devces as that empoyed by Mr. and Mrs. ohn.
The decson of The Ta Court of the Unted States s reversed.
Reversed.
S CTION 25. CR DITS OF INDI IDU L
G INST N T INCOM .
Secton 29.25-3: Persona e empton, surta 19 7-1-12 G8
e emptons, and e emptons for both norma I. T. 3832
ta and surta .
INT RN L R NU COD .
Wth respect to two ndvduas whose status s that of husband
and wfe as of the ast day of the ta abe year, the husband, whose
former wfe ded durng the ta abe year, w not be aowed an
e empton for hs deceased wfe where the second wfe fes n separate
Federa Income ta return and cams an e empton for hersef.
dvce s requested as to the number of e emptons aowabe for
Federa ncome ta purposes n the case of a ta payer whose frst wfe
ded durng the ta abe year 19 6 and pror to the end of the ta abe
year the ta payer remarred. The frst wfe had no gross ncome for
the caendar year n whch the ta abe year of the ta payer began,
and she was not the dependent of another ta payer.. The second wfe
had gross ncome and fed a separate Federa ncome ta return n
whch she camed an e empton for hersef.
Secton 25(b) of the Interna Revenue Code provdes n part as
foows:
(1) Credts. There sha be aowed for the purposes of both the norma ta
and the surta , the foowng credts aganst net ncome:
( ) n e empton of 500 for the ta payer;
( ) n e empton of 500 for the spouse of the ta payer f

() a separate return Is made by the ta payer, and hs spouse has
no gross ncome for the caendar year In whch the ta abe year of the
ta payer begns and s not the dependent of another ta payer;

(2) Determnaton of status. The determnaton of whether an Indvdua
Is marred sha be made as of the ast day of the ta abe year, uness hs spouse
des durng the ta abe year, n whch case such determnaton sha be made as
of the date of hs spouse s death.
In the nstant case, the ta payer coud not take an e empton for hs
second wfe because she had gross ncome and took her own e empton
n her separate return. Snce the ta payer was a marred ndvdua
on the hst day of the ta abe year, hs status as such and hs aowabe
e emptons are determned as of that date. e s not permtted to go
back to the date of hs deceased wfe s death to estabsh a status as of
that date n connecton wth another e empton. The appcabe
statute contempates that a husband and wfe, n ther returns for a
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29
29.25-3.
partcuar ta abe year, w hot cam e emptons n e cess of 1,000
on account of the marta reatonshp.
ccordngy, t s hed that wth respect to two ndvduas whose
status s that ot husband and wfe as of the ast day of the ta abe year,
the husband, whose former wfe ded durng the ta abe year, w not
be aowed an e empton for hs deceased wfe where the second wfe
fes a separate Federa ncome ta return and cams an e empton
for hersef.
Secton 29.25-3 : Persona e empton, surta 19 7-2-12 7
e emptons, and e emptons for both norma I. T. 383
ta and surta .
INT RN L R NU COD .
For the purpose of secton 25(b) |(3) of the Interna Revenue Code,
benefts (tuton payments and subsstence aowance) receved by or
on behaf of a veteran pursuant to the provsons of te Servcemen s
Read|ustment ct of 19 ( 58 Stat., 28 ), as amended, must be con-
sdered In determnng whether a parent furnshes more than one-
haf of the veteran s support. If the tota amount of such benefts
consttutes more than one-haf of the veteran s support, the parent
can not be aowed an e empton for hm as a dependent under sec-
ton 25(b) (1) (C) of the Code, assumng that the subsstence aow-
ance s used by the veteran for hs support. If the veteran does not
use hs subsstence aowance for hs support, and the parent fur-
nshes more than one-haf of the veteran s actua support, the parent
may cam hm as a dependent.
dvce s requested whether a veteran who s enroed for educa-
tona tranng under the Servcemen s Read|ustment ct of 19
(58 Stat., 28 ), approved une 22, 19 , as amended, may be camed
as a dependent under secton 25(b) (1) (C) of the Interna Revenue
Code for the caendar year 19 6.
In the nstant case, the Government, through the eterans dmn-
straton, pays the veteran s tuton of 500 to an educatona nsttu-
ton n accordance wth the provsons of secton 00(b) of the Serv-
cemen s Read|ustment ct of 19 , as amended, frequenty referred
to as the G. I. of Rghts. Whe enroed the veteran aso re-
ceves from the eterans dmnstraton 65 a month whch, for a
9-month schoastc perod, woud amount to more than 500 per year.
The veteran s snge, and the queston of a |ont return s not nvoved.
Secton 25(b) (1)(C) and (3) ( ) of the Interna Revenue Code
provdes n part as foows:
(b) Credts fob oth Norma Ta and Surta .
(1) Credts. There sha be aowed for the purposes of both the norma
ta and the surta , the foowng credts aganst net Income:

(C) n e empton of 500 for each dependent whose gross ncome
for the caendar year In whch the ta abe year of the ta payer begns
Is ess than 500, e cept that the e empton sha not be aowed In
respect of a dependent who has made a |ont return wth hs spouse
under secton 51 for the ta abe year begnnng n such caendar year.

(3) Defnton of dependent. s used n ths chapter the term depend-
ent means any of the foowng persons over haf of whose support, for
the caendar year In whch the ta abe year of the ta payer begns, was
receved from the ta payer:
( ) a son or daughter of the ta payer
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29.25-3.
30
The term gross ncome, as used n secton 25(b) (1) (C) of the
Code, supra, does not ncude ncome whch s e empt under the Code
or by statute. (See I. T. 37 1, C. . 19 5,12 .) The ct of ugust 12,
1935 ( 9 Stat., 607), provdes n part that payments made to, or on ac-
count of, a benefcary under any of the aws reatng to veterans sha
be e empt from ta aton. (See Mm. 11, C. . -1, 97 (1936).)
The ureau has hed that tuton payments and subsstence aowances
for the beneft of veterans, made under the provsons of the Servce-
men s Read|ustment ct of 19 , are not ncudbe n gross ncome
for Federa ncome ta purposes. (See I. T. 3702, C. . 19 , 7 .) In
the case under consderaton, the veteran can not be consdered as
havng a gross ncome n e cess of 500 merey by reason of hs enro-
ment n an educatona nsttuton and hs acceptance of subsstence
aowances under the provsons of the ct, as amended.
though the benefts (e ceedng 500 n vaue) receved by the
veteran under the Servcemen s Read|ustment ct of 19 , as amended,
do not consttute a part of hs gross ncome for Federa ncome ta
purposes, such benefts must be consdered n determnng whether
the parent furnshes more than one-haf of the veteran s support for
the purpose of secton 25(b) (3) of the Code, supra. The term sup-
port, generay speakng, ncudes among other thngs the cost of
educaton, amounts e pended for subsstence, cothng, and medca
care, and e penses of a smar character.
If the amount pad for the veteran by the Government to an edu-
catona nsttuton, namey, 500, pus the subsstence aowance re-
ceved by hm from the Government for nne months durng 19 6,
namey, 585, a tota of 1,085, consttutes more than one-haf of the
veteran s support, the parent can not be aowed credt for hm as a
dependent under secton 25(b)(1)(C) of the Code, assumng that
the subsstence aowance s used by the veteran for hs support.
The test to be apped n determnng whether a ta payer has
furnshed more than one-haf of the support of a person camed as
a dependent s one of actua support. (See I. T. 3723, C. . 19 5,
122.) If the veteran does not use hs subsstence aowance for hs
support, and the parent furnshes more than one-haf of the veteran s
actua support, the parent may cam hm as a dependent.
Secton 29.25-3: Persona e empton, surta e - 19 7-9-12535
emptons, and e emptons for both norma ta I. T. 38 8
and surta .
INT RN L R NU COD .
chd born n a foregn country, whose mother s a nonresdent
aen and whose father s a member of the armed forces of the Unted
States who meets the condtons prescrbed by secton 201 () of the
Natonaty ct of 19 0, as added by the ct of uy 31, 19 6 (60
Stat., 721), s a ctzen of the Unted States at brth. The chd qua-
fes as a dependent under secton 25(b) (3) of the Interna Rev-
enue Code and may be camed as such f the other requrements of
that secton are met
dvce s requested whether a chd born n a foregn country, whose
mother s a nonresdent aen and whose father s a member of the
armed forces of the Unted States, s a ctzen of the Unted States,
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31
29.25-3.
and whether such chd quafes as a dependept under secton
25(b) (3) of the Interna Revenue Code.
In the nstant case, the chd s father, a ctzen of the Unted States,
and ts mother, a rtsh sub|ect, were marred at a tme when the
father was a member of the armed forces of the Unted States and was
statoned n the rtsh Ises. The father has returned to the Unted
States, eavng hs wfe and chd n ngand. Informaton obtaned
from the rtsh mbassy s to the effect that under rtsh aw the
chd s a rtsh sub|ect.
Secton 25(b) of the Interna Revenue Code provdes n part as
foows:
(b) Credts for oth Norma Ta and Surta .
(1) Credts. There sha be aowed or the purposes of both the norma
ta and the surta , the foowng credts aganst net ncome:

(C) n e empton of 500 for each dependent whose gross ncome for
the caendar year n whch the ta abe year of the ta payer begns s
ess than 500

(3) Defnton of dependent. The term dependent does
not ncude any ndvdua who Is a ctzen or sub|ect of a foregn country
uness such ndvdua s a resdent of the Unted States or of a country
contguous to the Unted States.
Secton 201 () of the Natonaty ct of 19 0, as added by the ct
of uy 31, 19 6 (60 Stat., 721), provdes as foows:
Sec. 201. The foowng sha be natonas and ctzens of the Unted States
at brth:

() person born outsde the Unted States and ts outyng possessons
of parents one of whom Is a ctzen of the Unted States who has served or
sha serve honoraby n the armed forces of the Unted States after Decem-
ber 7, 19 1, and before the date of the termnaton of hosttes n the present
war as procamed by the Presdent or determned by a |ont resouton by
the Congress and who, pror to the brth of such person, has had ten years
resdence In the Unted States or one of ts outyng possessons, at east
fve of whch were after attanng the age of tweve years, the other beng
an aen: Provded, That In order to retan such ctzenshp, the chd must re-
sde n the Unted States or Its outyng possessons for a perod or perods
totang fve years between the ages of thrteen and twenty-one years: Pro-
vded further, That, f the chd has not taken up a resdence n the Unted
States or ts outyng possessons by the tme he reaches the age of s teen
years, or f he resdes abroad for such a tme that t becomes mpossbe for
hm to compete the fve years resdence n the Unted States or ts outyng
possessons before reachng the age of twenty-one years, hs mercan ct-
zenshp sha thereupon cease.
The chd nvoved n the nstant nqury appears to possess dua
natonaty. The word dua connotes the e stence of two aspects.
From the aspect of mercan aw, the chd s an mercan ctzen and
shoud be treated as such n the admnstraton of mercan aw. The
chd s, therefore, a dependent for the purpose of the credt provded
by secton 25(b) (1) (C) of the Interna Revenue Code, supra.
It s hed that a chd born n a foregn country, whose mother s a
nonresdent aen and whose father s a member of the armed forces
of the Unted States who meets the condtons prescrbed by secton
201 () of the Natonaty ct of 19 0, as added bv the ct of uv 31,
19 6 (60 Stat., 721), s a ctzen of the Unted States at brth, and the
chd s ctzenshp contnues unt such tme as t may be dvested
under the Natonaty ct of 19 0, as amended. The chd quafes as
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29. 2-1.
32
a dependent under secton 25(b) (3) of the Interna Revenue Code
and may be camed as such f the other requrements of that secton
are met.
P RT I . CCOUNTING P RIODS ND M T ODS OF CCOUNTING.
S CTION 2. P RIOD IN W IC IT MS OF
GROSS INCOM INCLUD D.
Secton 29. 2-1: When ncuded n gross 19 7-11-12556
ncome. I. T. 3851
INT RN L R NU COD .
Income resutng from retroactve ncreases In ma rates granted
by the Cv eronautcs oard wth respect to transportaton of ar
ma durng pror ta abe years accrues to an ar ma carrer for the
year n whch the oard ssues the fna order provdng for such n-
creases.
dvce s requested as to the year of accrua of ncome resutng from
retroactve ncreases n ma rates granted to an ar ma carrer by
the Cv eronautcs oard wth respect to transportaton of ar ma
durng pror ta abe years.
Secton 06 of the Cv eronautcs ct of 1938 (52 Stat., 973, 998)
requres the Cv eronautcs oard to f the rate of compensaton to
be pad by the Post Offce Department to ar carrers for the carrage of
ar ma. Under the procedure of the oard, a carrer may petton
for an ncrease n ar ma pay appcabe to the transportaton of ma
from that date forward. The oard may ssue a rue for the carrer to
show cause why the rate, from and after the date of fng the orgna
petton, shoud not be f ed at an amount whch may be the same as,
or ess than, that requested n the petton. If no ob|ecton to the rue
s fed, the oard ssues an order makng fna the rate proposed n the
show cause order. If an answer ob|ectng to the proposed rate s fed
by the carrer, a hearng s hed, and after argument before the oard,
a fna rate s set by order thereafter ssued. The ncrease s generay
effectve from and after the date of the petton and may be retroactve
to a pror year. For e ampe, a carrer, whch makes ts Federa n-
come ta returns on the caendar year bass, fed a petton wth the
oard on uy 1,19 5, requestng that t f a ma rate n e cess of the
e stng rate. On March 1,19 6, the oard ssued an order drectng
the carrer to show cause why the oard shoud not f a certan rate for
the perod on and after uy 1, 19 5, n e cess of the e stng rate but
ess than the rate requested n the carrer s petton. On une 1,19 6,
a fna order was ssued f ng a rate ess than that requested but greater
than that tentatvey set n the show cause order. Thereafter, the car-
rer receved from the Post Offce Department ma pay representng
the e cess above that aready receved for the perod from and after
uy 1,19 5.
Secton 2(a) of the Interna Revenue Code provdes n part as
foows:
(a) Genera Ru.e. 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 1, any such
amounts are to be propery accounted for as of a dfferent perod.
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33
8 20. 3-1.
In Sprng Cty Foundn/ Co. v. Commssoner (292 U. S., 182, Ct. D.
829, C. . III-1,281 (193 )), the Court stated that keepng accounts
and makng returns on the accrua bass, as dstngushed from the
cash bass, mport that t s the rght to receve and not the actua
recept that determnes the ncuson of the amount n gross ncome.
When the rght to receve an amount becomes f ed, the rght accrues.
In Law Opnon 1086 (C. . 1-1, 87 (1922)) t was hed that add-
tona compensaton granted raway ma carrers by order of the
Interstate Commerce Commsson dated December 23, 1919, for serv-
ces performed from November 1, 1916, to December 31, 1917, s not
ncome whch accrued to such raway ma carrers n the years 1916
and 1917 but shoud propery be ncuded n ther returns for the
year 1919. It was stated n that opnon that n order to be accru-
abe n the ta abe year for whch a return s made, a vad rght to
ncome must have arsen or e sted n that year, whch s enforceabe
on the date the ncome s due. If, however, the rght to an amount
s contngent upon the happenng of some future event, there s no
certanty that t w be pad or w accrue. In ths event no ncome
accrues from a f ed or determnabe source, and no rght to anythng
arses or e sts n the ta abe year whch can be accounted for as
ncome under any system of accountng.
ased upon the foregong, t s hed that ncome resutng from
retroactve ncreases n ma rates granted by the Cv eronautcs
oard wth respect to transportaton of ar ma durng pror ta abe
years accrues to an ar ma carrer for the year n whch the oard
ssues the fna order provdng for such ncreases.
Secton 29. 2-1: When ncuded n gross ncome.
mounts receved by seers of puts and cas whch are not
thereafter e ercsed. I. T. 3681 (C. . 19 , 6 ) revoked. (See I. T.
3835, page 53.)
Secton 29. 2-2: Income not reduced to possesson.
Mtary pay and aowances credted to the account of a deceased
commssoned rmy offcer. (See I. T. 3857, page 5 .)
S CTION 3. P RIOD FOR W IC D DUCTIONS
ND CR DITS T N.
INT RN L R NU COD .
INT RN L R NU COD .
Secton 29. 3-1: Pad or ncurred and
pad or accrued.
INT RN L R NU COD .
19 7-3-12 79
I. T. 3836
Deductbty for Federa ncome ta purposes of amounts pad
or to be pad by the M Company to ts empoyees under the Par
Labor-Standards ct of 1938 (52 Stat.. 1000), as a resut of the
decson of the Supreme Court of the Unted States n nderson et a.
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20. 3-1.
3
v. Mt. Cemens Pottery Co. (66 Sup. Ct, 1187), for overtme pay
and qudated damages for nonproductve workng tme necessary
spent by the empoyees on the company s premses.
rung has been requested by the M Company as to the proper
tme for the accrua and deducton for Federa ncome ta purposes
of amounts pad or to be pad empoyees of that company under the
Far Labor Standards ct of 1938 (52 Stat., 1060), as a resut of
the decson of the Supreme Court of the Unted States n nderson
et a. v. Mt. Cemens Pottery Co. (66 Sup. Ct., 1187), decded une 10,
19 6, for overtme pay and qudated damages for nonproductve
workng tme necessary spent by the empoyees on the company s
premses. That decson hed that tme necessary spent by empoyees
n wakng to work on the empoyer s premses and n pursung certan
premnary actvtes after arrvng at ther pace of work may be
requred to be treated as workng tme for the purposes of the overtme
pay provsons of the Far Labor Standards ct of 1938.
Secton 7(a) of the Far Labor Standards ct provdes that no
empoyer sha, e cept as otherwse provded n the secton, empoy
any of hs empoyees who are engaged n commerce or n the produc-
ton of goods for commerce for a workweek onger than 0 hours
(the workweek was and 2 hours, respectvey, for the frst and
second years after the effectve date of the ct), uness such empoyee
receves compensaton for hs empoyment n e cess of the hours above
specfed at a rate not ess than one and one-haf tmes the reguar
rate at whch he s empoyed. Secton 16(b) of the ct provdes
that any empoyer who voates the provsons of secton 7 sha be
abe to the empoyee or empoyees affected n the amount of
ther unpad overtme compensaton an(| n
an addtona equa amount as qudated damages.
The ct does not contan a defnton of the term workweek, and
ts meanng was eft for ascertanment by |udca proceedngs.
(See Tennessee Coa, Iron R. R. Co. v. Muscoda Loca No. 12 et a.
(19 ), 321 U. S., 590.) In the Tennessee case, whch nvoved
empoyment n underground meta mnes and whch was the frst of
the so-caed porta-to-porta cases, the empoyees spent about 10
mnutes n wakng and other premnary actvtes (such as secur-
ng sma toos, amps, carbde, etc.) between the tay (or check-n)
room and the coar (or porta) of the mne. The Unted States
dstrct court ( 0 Fed. Supp., ) ncuded wthn the workday both
the tme at the surface and the tme spent n underground trave, but
the Crcut Court of ppeas, Ffth Crcut (135 Fed. (2d), 320),
reversed the dstrct court as to the tme at the surface, e cudng
t from the tme makng up the workday. No acton was taken
on behaf of the empoyees to secure a revew by the Supreme Court
of the decson of the crcut court as to the tme at the surface.
Smary, n the ater case, of ewe Rdge Coa Corporaton v. Loca
No. 6167, U. M. W. ., et a. (19 5) (325 U. S., 161)., havng to do
wth empoyment n underground btumnous coa mnes, no revew
by the Supreme Court was requested by the empoyees of the acton
of both ower courts, whch e cuded from the workday the tme spent
at the surface. The Supreme Court had sad n the Tennessee case
(wth some reteraton n the ewe Rdge case) that ts decson dd
not forecose
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35
29. 3-1.
reasonabe provsons of contract or custom governng the com-
putaton of work hours where precsey accurate computaton Is dffcut or
Impossbe. Nor are we concerned here wth the effect that custom and contract
may have In borderne cases where the other facts gve rse to serous doubts
as to whether certan actvty or nonactvty consttutes work or empoyment.
It Is suffcent In ths case that the facts reatng to underground trave In Iron
ore mnes eave no uncertanty as to Its character as work.
In the nstant case the facts submtted ndcate that shorty after
the Supreme Court s decson n the ewe Rdge case (May 7, 19 5)
the ta payer company began consderaton of ts possbe abty for
tme spent n wakng from the pant gates to the varous departments
and n changng cothes and washng. The company has a number of
separate pants and severa thousand empoyees. The statstca and
other necessary work requred much tme for the competon of the
study. t about the same tme (May 21, 19 5), the Crcut Court of
ppeas, S th Crcut, had reversed (1 0 Fed. (2d), 61) the dstrct
court n nderson et a. v. Mt. Cemens Pottery Co., supra, and had ds-
aowed the ncuson n the workday of tme spent n wakng and
other premnary actvtes pror to the schedued startng tme.
The company was not ready to dscuss the matter wth ts empoyees
when ate n 19 5 ts representatves met wth the representatves of
the empoyees unon. owever, the empoyee representatves rased
the queston of payment for such addtona tme at ths meetng, and
the company s representatves sought to deay dscusson of the matter.
Thereafter, the unon brought sut aganst the company camng over-
tme pay and qudated damages n e cess of 1,000,000 for the years
19 2, 19 3,19 , and 19 5, whch sut s st pendng. fter the dec-
son of the Supreme Court on une 10. 19 6, n nderson et a. v. Mt.
Cemens Pottery Co.. supra, the ta payer company nsttuted nego-
tatons wth ts empoyees, and t appears that agreements have been
reached wth some or a of the empoyees for the payment of overtme
pay and qudated damages n ne wth the above-mentoned decson
for empoyment n the years 19 2 to 19 5. ncusve.
The course of deveopment of the so-caed porta-to-porta queston
has been such that many empoyers have not made provson n surface
or above-ground empoyment (as dstngushed from tme spent under
ground n the case of mnes) for payment, as a part of the compensa-
ton for the workweek, for tme necessary spent n the empoyer s
premses n wakng and preparatory actvtes pror to the schedued
startng tme at the machnes or other usua workng paces.
Secton 3 of the Interna Revenue Code provdes that:
The deductons and credts (other thun the corporaton dvdends pad credt
provded n secton 27) provded for n ths chapter Chapter 1, Income Ta
sha be taken for the ta abe year n whch pad or accrued or pad r n-
curred, dependent upon the method of accountng upon the bass of whch the
net ncome s computed, unc s n order to ceary refect the ncome the deductons
or credts shoud be taken as of a dfferent perod. Itacs supped.
Secton 729 of the Interna Revenue Code, havng to do wth Chapter
2, whch mposes the e cess profts ta . provdes that:
provsons of aw (ncudng penates) appcabe n respect of the ta es
Imposed by Chapter 1, sha, Insofar as not nconsstent wth ths subchapter, be
appcabe In respect of the ta mposed by ths subchapter.
fter carefu consderaton, n vew of the crcumstances heren out-
ned, t s hed, under the authorty conferred n the ast cause of
the e cerpt from secton 3 herenabove quoted, that ta payers may be
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f 29.51-1.
36
permtted to aocate the amounts of overtme pay and qudated
damages for pror ta abe years necesstated by the decson n nder-
son et a. v. ft. Cemens Pottery Co., supra, to the year or years n
whch the servces to whch such payments reate were rendered. For
the purposes of ths rung, a suts whch have been fed aganst em-
poyers and a answers or other peadngs thereto fed by empoyers
may be regarded as drected to the ascertanment of the proper amount
of overtme work to be compensated for rather than as a dena or
contest of the fact of abty or the fundamenta bass of computaton.
P RT . R TURNS ND P YM NTS OF T .
S CTION 51. INDI IDU L R TURNS.
Secton 29.51-1: Indvdua returns. 19 7- -12 90
I. T. 38 1
INT RN L R NU COD .
survvng spouse s one-haf Interest n rzona communty
property contnues n the survvor durng the perod of admnstra-
ton of the decedent s estate, and the prncpe of G. C. M. 250O8
(O. . 19 6-2, 9), whch hods that that part of the Income
receved durng the perod of admnstraton by the estate of a
deceased husband, who ded whe domced n Caforna, whch s
derved from the survvng wfe s share of communty property
s ta abe to the wfe for Federa ncome ta purposes,
s equay appcabe to cases of decedents who were domced n
the State of rzona.
dvce s requested whether the prncpe of G. C. M. 25008 (C. .
19 6-2, 9), reatng to the ta abty of that part of the ncome
receved durng the perod of admnstraton by the estate of a
deceased husband, who ded whe domced n Caforna, whch s
derved from the survvng wfe s share of communty property
(acqured by the communty on or after uy 29, 1927), s appcabe
to cases of decedents who were domced n the State of rzona.
G. C. M. 25008 hods that for Federa ncome ta purposes such
ncome s ta abe to the survvng wfe.
though n rzona the representatve of the deceased spouse s
requred to take possesson of and nventory a the property of the
estate, ncudng the communty property, the survvor s nterest n
the communty property s sub|ect to probate ony f there are com-
munty debts. (See La Tourette et a. v. La Tourette et ah, 15 rz.,
200, 137 Pac, 26; Mona v. Ramrez et a., 15 rz., 2 9, 138 Pac,
17; scaada v. Wson, 19 rz., 205, 168 Pac, 503.) In Monaghan
v. ennerde (173 Pac. (2d), 107), the Supreme Court of rzona
stated that under the provsons of sectons 38-801, 38-803, 38-901,
and 38-902 of the rzona Code nnotated (1939) the estate con-
ssts not ony of the separate property of the deceased and the nterest
of the deceased n the communty property, but aso the nterest of
the survvor f such nterest s beng probated to satsfy communty
debts. owever, the court quafed ths statement by sayng that f
there are communty debts, the estate acqures an nterest n the
survvor s one-haf nterest n the communty property ony to that
e tent, and that f a famy aowance s made under the provsons of
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37
55.
secton 38-903 of the rzona Code nnotated (1939) and the sur-
vvor s nterest n the communty property s beng probated, the
estate further acqures a rght, tte, or nterest n the survvor s por-
ton of the communty property for the pro rata payment of such
aowance. Thus, t woud appear that the survvor s share of the
communty property does not become a part of the estate of the
decedent e cept to the e tent necessary to satsfy the communty
debts and famy aowance, f any. Ths nterpretaton by the court
s consstent wth the case of Greer v. Goesng (5 rz., 88; 97
Pac. (2d), 218) wheren the foowng observaton s made:
When the communty status s dssoved by death, the communty
estate becomes pso facto In effect two separate estates, e cept as to the rghts
of communty credtors. The survvng spouse takes haf of the estate, not as a
matter of descent but as a matter of r|;ht, sub|ect, however, to the communty
debts.
Snce the survvng spouse s nterest n rzona communty prop-
erty contnues n the survvor durng the perod of admnstraton of
the decedent s estate, t s hed that the prncpe of G. C. M. 25008,
supra, s equay appcabe to cases of decedents who were domced
n the State of rzona.
S CTION 55. PU LICITY OF R TURNS.
19 7-1-12 69
T. D. 55 8
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 58,
SU P RT . INSP CTION Y CONGR SSION L COMMITT .
Reguatons governng the nspecton of ncome, e cess-profts, and
decared vaue e cess-profts ta returns by the Commttee on Nava
ffars, ouse of Representatves.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
Secton 58.200. Inspecton of Returns by Commttee on Nava
ffars, ouse of Representatves. (a) Pursuant to the provsons
of sectons 55(a), 508, 603, and 729(a) of the Interna Revenue Code
(53 Stat., 29, 111; 5 Stat., 989, 1008; 26 U. S. C, sectons 55(a), 508,
603, and 729(a)), ncome, e cess-profts, and decared vaue e cess-
profts ta returns made for the years 19 1, 19 2, and 19 3 sha be
open to nspecton by the Commttee on Nava ffars, ouse of Repre-
sentatves, or any duy authorzed subcommttee thereof, for the pur-
pose of carryng out the provsons of ouse Resouton 15 (Seventy-
nnth Congress, frst sesson), passed March 19, 19 5. The nspecton
of returns heren authorzed may be by the commttee or a duy au-
thorzed subcommttee, or by or through such e amners or agents as
the commttee or subcommttee may desgnate or appont. Upon wrt-
ten notce by the charman of the commttee or of the authorzed sub-
commttee to the Secretary of the Treasury, gvng the names and
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55.1
38
addresses of the ta payer whose returns t s necessary to nspect and
the ta abe perods covered by the returns, the Secretary and any
offcer or empoyee of the Treasury Department sha furnsh such com-
mttee 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 com-
mttee 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 sha be hed confdenta;
provded, however, that any porton or portons thereof reevant or
pertnent to the purpose of the nvestgaton may be submtted by the
commttee to the ouse of Representatves.
(b) ecause of the short perod of tme remanng n whch the sad
Nava ffars Commttee may nspect the ta returns heren mentoned,
t s found that t s mpractcabe to ssue ths Treasury decson wth
notce and pubc procedure thereon under secton (a) of the dmn-
stratve Procedure ct, approved une 11, 19 6, or sub|ect to the
effectve date|mtaton of secton (c) of sad ct.
(c) Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
ohn W. Snyder,
Secretary of the Treasury.
pproved December 19,19 6.
arry S. Trttman,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster December 19, 19 6, .50 p. m.)
CUTI ORD R INSP CTION OP INCOM , C SS-rROFITS, ND D CL R D
LU C SS-PROFITS T R TURNS Y T COMMITT ON N L
FF IRS, OUS OF R PR S NT TI S.
y vrtue of the authorty vested n me by sectons 55(a), 508, 603,
and 729(a) of the Interna Revenue Code (53 Stat., 29, 111; 5 Stat.,
989. 1008; 26 U. S. C, 55(a), 508, 603, 729(a)), t s hereby ordered
that ncome, e cess-profts, and decared vaue e cess-profts ta returns
for the years 19 1, 19 2, and 19 3 sha be open to nspecton by the
Commttee on Nava ffars, ouse of Representatves, or any duy
authorzed subcommttee thereof, for the purpose of carryng out the
provsons of ouse Resouton 15 (Seventy-nnth Congress, frst
sesson), passed March 19, 19 5, such nspecton to be n accordance
and upon compance wth the rues and reguatons prescrbed by the
Secretary of the Treasury n the Treasury decson reatng to the
nspecton of returns by that commttee, approved by me ths date.
Ths ecutve order sha be effectve upon ts fng for pubcaton
n the Federa Regster.
arry S. Truman.
The Whte ot|be,
December 19,19 6.
( . O. 9812)
(Fed wth the Dvson of the Federa Regster December 19, 19 6, .60 p. m.)

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39
55.
19 7-6-12513
T. D. 5552
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 58, SU -
P RT F. INSP CTION OF C RT IN TURNS UND R T INT RN L R -
NU COD .
Reguatons governng the nspecton of ncome, e cess-pr fts,
decared vaue e cess-profts, and capta stock ta returns by the
Federa Trade Commsson.
Treasury Department,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
Sec. 58.312. Inspecton of Returns by Federa Trade Comms-
son. (a) Pursuant to the provsons of sectons 55(a), 508. 603,
729(a), and 120 of the Interna Revenue Code (53 Stat., 29, 111, 171;
5 Stat., 989, 1008; 55 Stat., 722; 26 U. S. C, 55(a), 508, 603, 729(a),
and 120 ), and n the nterest of the nterna management of the
Government, corporaton ncome, e cess-profts, decared vaue e cess-
profts, and capta stock ta returns made for the caendar year 19 3
and fsca years ended n the caendar year 19 3, and statstca tran-
scrpt cards prepared by the ureau of Interna Revenue from the
returns ncuded n such casses made for anv ta abe year endng
after une 30,19 3, and before uy 1,19 , sha be open to nspecton
by the Federa Trade Commsson as an ad n e ecutng the powers
conferred upon such Commsson by the Federa Trade Comm son
ct of September 26, 191 (38 Stat., 717). The nspecton of such
returns and cards heren authorzed may be made by an offcer or
empoyee of the Federa Trade Commsson duy authorzed by the
Charman of the Federa Trade Commsson to make such nspecton.
Upon wrtten notce by the Charman of the Federa Trade Comms-
son to the Secretary of the Treasury statng the casses of corpora-
tons the returns or transcrpt cards of whch t s desred to nspect,
the Secretary and any offcer or empoyee of the Treasury Depart-
ment, wth the approva of the Secretary of the Treasury, may furnsh
the Federa Trade Commsson wth any data on such returns or
cards or may make the returns or cards avaabe n the offce of the
Commssoner of Interna Revenue for the takng of such data as the
Charman of the Federa Trade Commsson may desgnate. ny
nformaton thus obtaned sha be hed confdenta e cept to the
e tent that t sha be pubshed or dscosed n statstca form: Pro-
vded, such pubcaton sha not dscose, drecty or ndrecty, the
name or address of any ta payer.
(6) Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
. L. M. Wggns,
ctng Secretary of the Treasury.
pproved.
arry S. Truman.
The Whte ouse,
March 7, 19tf.
(Fed wth the Dvson of the Federa Regster March 7, 19 7, 3.59 p. m.)
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29.57-1.
0
CUTI ORD R INSP CTION OF INCOM , C SS-PROFITS, D CL R D
LU C SS-PROFITS. ND C PIT L STOC T R TURNS Y F D R L
TR D COMMISSION.
y vrtue of the authorty vested n me by sectons 55(a), 508,
603, 729(a), and 120 of the Intenfa Revenue Code (53 Stat., 29, 111,
171; 5 Stat., 989, 1008; 55 Stat., 722; 26 U. S. C, 55(a), 508, 603,
729(a), and 120 ), and n the nterest of the nterna management of
the Government, t s hereby ordered that corporaton ncome, e cess-
profts, decared vaue e cess-profts, and capta stock ta returns
made for the caendar year 19 3 and fsca years ended n the caendar
year 19 3, and statstca transcrpt cards prepared by the ureau of
Interna. Revenue from the returns ncuded n such casses made for
any ta abe year endng after une 30, 19 3, and before uy 1, 19 ,
sha be open to nspecton by the Federa Trade Commsson as an
ad n e ecutng the powers conferred upon such Commsson by the
Federa Trade Commsson ct of September 26,191 (38 Stat., 717),
such nspecton to be n accordance and upon compance wth the
rues and reguatons prescrbed by the Secretary of the Treasury n
the Treasury decson reatng to the nspecton of returns by the
Federa Trade Commsson, approved by me ths date.
Ths ecutve order sha be effectve upon ts fng for pubca-
ton n the Federa Regster.
arry S. Truman.
The Whte ouse,
March 7, 19 7.
(9833)
(Fed wth the Dvson of the Federa Regster March 7, 19 7, 3.59 p. m.)
S CTION 57. MIN TION OF R TURN ND
D T RMIN TION OF T .
Secton 29.57-1: amnaton of return and 19 7-8-12527
determnaton of ta by the Commssoner. Mm. 6125
Procedure wth respect to fed determnatons of ta abty
agreed to by ta payers whch are dsapproved by post-revew author-
tes n Washngton.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March 12,19 7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Under .the ureau s present pocy, t s the responsbty of
nterna revenue agents n charge to determne the correct ncome,
profts, estate, and gft ta abty wth respect to returns, reportng
such abty, whch propery come wthn ther e amnng |ursdc-
ton. Income, profts, estate, and gft ta cases cosed n the offces of
the nterna revenue agents n charge, on the bass of agreements
sgned by ta payers, are sub|ect to post-revew n the respectve unts
n Washngton. If, n the post-revew of a case, matera ad|ustments
are dscosed n the fed cosng acton, the case, together wth a report
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29.57-1.
settng forth the e ceptons taken, s returned to the nterna revenue
agent n charge for further consderaton.
2. The crtcsm has been made that ta payers, or ther representa-
tves, are not afforded an opportunty for a hearng to argue the case
before the offca who dsapproves the agreed fed determnaton of
the ta abty. It s the purpose of ths mmeograph to estabsh
procedure whereby a ta payer, or hs representatve, w be afforded
an opportunty to present ora arguments to a Washngton representa-
tve of the unt responsbe for the dsapprova of the cosng acton
by the nterna revenue agent n charge.
3. The foowng proeedure w be foowed wth respect to cases
comng wthn the provsons of ths mmeograph:
(a) Upon recept of a prevousy cosed case n whch the cosng
acton has been dsapproved by post-rev ew authortes n Washngton,
the nterna revenue agent n charge w gve carefu consderaton to
the bass of the e cepton taken to the cosng of the case. If he does
not concur n the bass of the e cepton taken to the cosng acton, t
w be hs duty to advse the approprate unt n Washngton wth
respect to hs nonconcurrence n the recommendaton of the unt. In
any case n whch the nterna revenue agent n charge concurs n the
bass of the e cepton taken or, after consderaton of the reasons for
hs nonconcurrence n the e cepton, s advsed by the Deputy Com-
mssoner n charge of the unt havng post-revew |ursdcton that
the change s warranted, he w reopen the case and redetermne the
ta . abty.
(6) If the nterna revenue agent n charge and the ta payer, or hs
representatve, are unabe to reach an, agreement wth respect to the
ssue, the nterna revenue agent n charge s drected to advse the
ta payer, or hs representatve, that, f he so desres, a hearng w be
granted n the offce of the nterna revenue agent n charge at whch
the ta payer, or hs representatve, may appear and argue the case
before a quafed Washngton representatve of the unt responsbe
for the post-revew acton n the case.
(c) In consequence of the adopton of that pocy, t w be the duty
of the nterna revenue agent n charge to notfy the approprate offce
n Washngton prompty upon recept of any such request, propery
dentfyng the case, outnng the acton taken wth respect to the
ssue under consderaton, and gvng the date on whch t s proposed
to hod the hearng.
(d) The unt n Washngton havng post-revew |ursdcton of the
case w desgnate a quafed member of the unt to represent the
Deputy Commssoner n charge of such unt. The member so desg-
nated s authorzed to act on behaf of the Deputy Commssoner n the
settement or dsposton of the case before the nterna revenue agent
n charge.
. Correspondence from nterna revenue agents n charge wth re-
spect to the procedure descrbed heren shoud refer, n ncome and
frofts ta cases, to the number of ths mmeograph and the symbos
T: IM and, n estate and gft ta cases, to MT: DC.
ose h D. Nunan, r.,
C ommssoner.
75 70 T
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29.101(12)- .
2
SU C PT R C. SUPPL M NT L PRO ISIONS.
SUPPL M NT . T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
Secton 29.101 (12)-1: Farmers cooperatve 19 7-12-12563
marketng and purchasng assocatons. I. T. 3853
INT RN L R NU COD ND R NU CTS OF 1936 ND 1938.
Where a cooperatve marketng assocaton markets products pur-
chased by members In an amount the vaue of whch e ceeds the
vaue of products groon or otherwse produced by members for
whose accounts such products are marketed, the mtaton paced
on busness done for nonmembers, contaned n secton 101(12)
of the Interna Revenue Code and correspondng provsons of pror
revenue aws, s voated. Furthermore, In marketng and otherwse
handng the products of nonmembers as those of ts members, such
an assocaton does not meet the statutory requrement that the pro-
ceeds of the sae of products, ess necessary operatng e penses, be
returned to producers on the bass of the quantty or vaue of prod-
ucts furnshed by them, and the assocaton s not e empt from Fed-
era Income ta under secton 101(12) of the Code and correspondng
provsons of pror revenue aws.
dvce s requested .whether a cooperatve marketng assocaton
whch otherwse quafes for e empton from Federa ncome ta un-
der secton 101(12) of the Interna Revenue Code and correspondng
provsons of pror revenue aws w be dened e empton f t markets
products purchased by the members n an amount the vaue of whch
e ceeds the vaue of products grown or otherwse produced by the mem-
bers for whose accounts the purchased products are marketed.
In the nstant case the assocaton s engaged n packng and shp-
png frut supped by members, a substanta amount of whch s not
produced by them but s purchased on the open market. Net profts
from operatons are aocated to members on the bass of the vaue of
products furnshed by them. Durng each of the years nvoved the
vaue of the amount of frut purchased by members of the assocaton
and handed by t was n e cess of the vaue of the amount of frut
grown or otherwse produced by them.
Secton 101(12) of the Interna Revenue Code and the correspond-
ng provsons of the Revenue cts of 1936 and 1938 provde for e -
empton of the foowng organzatons:
(12) Farmers , frut growers , or ke assocatons organzed and operated
on a cooperatve bass (a) for the purpose of marketng the products of
members or other produeens, and turnng back to them the proceeds of
saes, ess the necessary marketng e penses, on the bass of ether the
quantty or the vaue of the products furnshed by them Such an
assocaton may market the products of nonmembers In an amount the
vaue of whch does not e ceed the vaue of the products marketed for
members
Wth respect to the marketng of products purchased by members, as
dstngushed from products produced by members, n Northwestern
Drug Co. v. Commssoner (1 . T. ., 222), the oard of Ta p-
peas, now The Ta Court of the Unted States, n construng secton
231(11) of the Revenue ct of 1921 (correspondng to secton 101(12)
of the Code) sad:
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29.111-1.
The pan ntenton of Congress was to grant certan benefts to groups
of producers organzed to se ther otm crops or other products through coopera-
tve saes agences, or to purchase suppes and equpment for the use of members
n ther actvtes as producers. Itacs supped.
That decson was foowed n Sunset Scavenger Co., Inc., v. Com-
mssoner (31 . T. ., 758, affrmed on appea on ths ssue, 8 Fed.
(2d), 53, Ct. D. 1190, C. . 1937-1, 202) whch nvoved secton
231(12) of the Revenue ct of 1926 and secton 103(12) of the Rev-
enue ct of 1928 (both of whch correspond to secton 101(12) of the
Code). In ts opnon, the oard stated:
Despte the very e tensve argument of pettoner s counse on bref to con-
vnce us that waste paper, unk, garbage n pace, and abor consttute products
of the stockhoders or members of pettoner, whch are merey marketed by
the atter, we can not agree wth hs contenton that pettoner s smar n a
essenta respects to a cooperatve agrcutura marketng assocaton whch
ses for Its members the fruts or vegetabes produced by them and devered to
t for sae, remttng to them the proceeds ess the cost of seng. Itacs sup-
ped.
earng n mnd the ntent of secton 101(12) of the Code, supra,
as above e pressed, the term products ss used theren must be
deemed to have reference to products grown or otherwse produced by
the patron for whose account such products are marketed. Products
grown by one who s not a member of the cooperatve marketng asso-
caton must be treated as products of nonmembers, notwthstandng
such products are marketed by the assocaton n the name of, or for
the account of, a member.
In vew of the foregong, t s hed that where a cooperatve mar-
ketng assocaton markets products purchased by members the vaue
of whch e ceeds the vaue of products grown or otherwse produced
by members for whose accounts such products are marketed, the mta-
ton paced on busness done for nonmembers, contaned n secton
101(12) of the Interna Revenue Code and correspondng provsons
of pror revenue aws, s voated. Furthermore, n marketng and
otherwse handng the products of nonmembers as those of ts mem-
bers, such an assocaton does not meet the statutory requrement that
the proceeds of the sae of products, ess necessary operatng e penses,
be returned to producers on the bass of the quantty or vaue of prod-
ucts furnshed by them, and the assocaton s not e empt from Federa
ncome ta under secton 101(12) of the Code and correspondng
provsons of pror revenue aws.
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 111. D T RMIN TION OF MOUNT OF, ND
R COGNITION OF, G IN OR LOSS.
Secton 29.111-1: Computaton of gan or oss.
INT RN L R NU COD .
Federa stamp ta es pad on transfers or conveyances of securtes
or rea estate upon saes thereof as a trader or other nondeaer. (See
Mm. 6083, page 19:)
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29.113(b) ()-2.

Secton 29.111-1: Computaton of gan or oss.
INT RN L R NU COD .
Sae of securtes pursuant to e ercsed cas. I. T. 3681 (C. .
19 ,6 ) revoked. (See I. T. 3835, page 53.)
S CTION 113(b). D UST D SIS FOR D T RMINING
G IN OR LOSS: D UST D SIS.
Secton 29.113(b) (1)-1: d|usted bass: Genera rue.
Purchase of securtes pursuant to e ercsed puts. I. T. 3681
(C. . 19 ,6 ) revoked. (See I. T. 3835, page 53.)
INT RN L R NU COD ND N RUPTCY CT.
In vew of the Commssoner s acquescences (pages 1, 3, and , ths
uetn) n cazar ote, Inv., v. Commssoner (1 T. C, 872),
Motor Mart Trust v. Commssoner ( T. C, 931), and Tower ud-
ng Corporaton v. Commssoner (6 T. C, 125), n whch The Ta
Court took the poston that no canceaton of Indebtedness resuts,
wthn the meanng of secton 270 of the ankruptcy ct, as amended,
where stock s ssued for bonds, or other evdences of ndebtedness,
and accumuated nterest n a corporate reorganzaton under that
ct, G. C. M. 22528 (C. . 19 1-1,193) Is revoked.
Reconsderaton has been gven to G. C. M. 22528 (C. . 19 1-1,193)
n connecton wth the Commssoner s acquescences (pages 1,3. and ,
ths uetn) n cazar ote, Inc., v. Commssoner (1 T. C, 872),
Motor Mart Trust v. Commssoner ( T. O, 931, affrmed, 156 Fed.
(2d), 122), and Tower udng Corporaton v. Commssoner (6 T. O,
125).
G. C. M. 22528 prescrbes a method for determnng the amount of
canceaton of ndebtedness, wthn the meanng of secton 270 of the
ankruptcy ct, as amended, obtaned by a corporate ta payer as the
resut of ts reorganzaton pursuant to a pan under whch (1) new
bonds pus frst preferred stock were e changed for od bonds, (2)
new bonds pus second preferred stock were e changed for notes,
and (3) new common stock was ssued n payment of arrears of nterest
on the od obgatons.
Secton 270 of the ankruptcy ct, as added by the ct of une 22,
1938 (52 Stat., 8 0, 90 ), commony known as the Chander ct, and
amended by the ct of uy 1, 19 0 (5 Stat., 709; C. . 19 0-2, 91),
provdes n part as foows:
Sec. 270. In determnng the bass of property for any purposes of any aw
of the Unted States the bass of the debtor s property (other than
money) or of such property (other um money) as s transferred to any person
requred to use the debtor s bass n whoe or In part sha be decreased by an
amount equa to the amount by whch the ndebtedness of the debtor, not Incud-
ng accrued nterest unpad and not resutng n a ta beneft on any ncome ta
return, has been canceed or reduced n a proceedng under ths chapter Chapter
INT RN L R NU COD .
Secton 29.113(b) ()-2: d|usted bass: Can-
19 7-13-12575
G. C. M. 25277
ceaton of ndebtedness.
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29.115-1.
of the ankruptcy ct , but the bass of any partcuar property sha not
be decreased to an amount ess than the far market vaue of such property as
of the date of entry of the order confrmng the pan.
The decsons of The Ta Court of the Unted States are not n
accord wth the vews e pressed n G. C. M. 22528, supra. It s the
poston of that court, as set forth n the above-cted decsons n whch
the Commssoner has now acquesced, that where stock s ssued
for bonds, or other evdences of ndebtedness, pus accumuated nter-
est thereon, no canceaton of ndebtedness resuts wthn the meanng
of secton 270 of the ankruptcy ct, as amended. The court hods
that n such a case the ssuance of stock for an ndebtedness does not
cance the ndebtedness but merey contnues the obgaton n another
form.
In vew of the Commssoner s acquescences n the above-cted Ta
Court decsons, G. C. M. 22528, supra, s hereby revoked.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
Secton 29.115-1: Dvdends. 19 7-10-125 7
( so Secton 22(a), Secton 29.22(a)-; G. C. M. 25063
Secton 117, Secton 29.117-1; Secton 1 3,
Secton 29.1 3-2.)
INT RN L R NU COD .
Pror to December , 19 3, the authorzed captazaton of the M
Company conssted of common stock and 5 per cent cumuatve pre-
ferred stock. On that date, by amendment of the artces of ncor-
poraton, a new cass of preferred stock, rankng on a party wth
the outstandng 5 per cent preferred stock, was authorzed. On the
foowng day, subscrpton warrants e prng on anuary , 19 ,
were ssued to the hoders of the common stock, enttng such stock-
hoders to purchase one share of the new cass of stock for each
eght shares of common stock hed. ed, (1) recept of the war-
rants dd not resut In recept of a dvdend, as defned n secton
115(a) of the Interna Revenue Code, and no gan was reazed and
no oss was sustaned by a stockhoder who dd not e ercse or se
hs warrants; (2) dvdend ncome, under secton 115(r) of the Code,
was reazed, at the tme of e ercse, by a stockhoder who e ercsed
hs warrants, to the e tent of the e cess of the far market vaue
of the new cass of stock receved over the subscrpton prce pad .
therefor; and (3) ordnary ncome, under secton 22(a) of the Code,
was reazed, at the tme of sae, by a stockhoder who sod hs
warrants, to the e tent of the amount receved for the warrants.
ed further, wthhodng of Income ta at the source under secton
1 3(b) of the Code was necessary, In the case of a nonresdent aen
stockhoder, at the tme of e ercse of the warrants, not at the tme
of ther Issuance.
n opnon s requested whether, under crcumstances nvovng the
ssuance of subscrpton warrants by the M Company to ts common
stockhoders enttng them to subscrbe to a new ssue of preferred
stock to rank on a party wth the corporaton s outstandng preferred
stock, dvdend ncome, as denned n secton 115(a) of the Interna
Revenue Code, s reazed by the stockhoders upon recept of the war-
rants or upon the e ercse thereof. The nqury aso nvoves consd-
eraton of the treatment of the proceeds of sae of such warrants n
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I 29.115-1.
6
cases n whch they are sod, and the abty of the corporaton for
wthhodng ta at the source n the case of nonresdent aen stock-
hoders.
Pror to December , 19 3, the captazaton of the M Company
conssted of common stock and 5 per cent cumuatve preferred stock.
On that date, by amendment to the artces of ncorporaton, a new ssue
of y2 per cent convertbe cumuatve preferred stock was created and
the authorzed common stock ncreased. It was provded that a por-
ton of the addtona shares of common stock so authorzed woud be
reserved for converson rghts and any of such, shares not so reserved
woud be avaabe for ssuance for o-producng propertes and for
other corporate purposes. The new ssue of convertbe cumuatve
preferred stock ranks on a party, both wth respect to dvdend rghts
and to rghts on qudaton or dssouton, wth the 5 per cent cumu-
atve preferred stock, and t s convertbe nto common stock. On the
day after amendment of the artces of ncorporaton, subscrpton
warrants were ssued to the common stockhoders of record on that
date enttng such stockhoders to purchase one share of new per
cent convertbe cumuatve preferred stock for each eght shares of
common stock hed, such warrants to e pre on anuary , 19 .
Tradng n the warrants on a eadng stock e change began on the fo-
owng day. The new preferred stock was sted on the e change
on anuary , 19 (21 days after the e praton of the warrants),
the quotatons beng about 11 per cent above par.
Secton 115(a) of the Interna Revenue Code provdes n part as
foows:
(a) Defnton of Dvdend. The terra dvdend when used In ths chapter
Chapter 1 of the Code means any dstrbuton made by a corpora-
ton to ts sharehoders, whether n money or n other property, () out of ts
earnngs or profts accumuated after February 28, 1913, or (2) out of the earnngs
or profts of the ta abe year wthout regard to the amount of the
earnngs and pr fts at the tme the dstrbuton was made.
In radey W. Pamer v. Gonvmnsoncr (302 U. S., 63, Ct. D. 128 .
C. . 1937-2, 251), the statute under consderaton, secton 115(a) of
the Revenue ct of 1928, wth e ceptons not matera n the nstant
case, defned a dvdend n the same manner as secton 115(a) of the
Code, supra. The Court stated n part as foows:
The mere ssue of rghts to subscrbe and ther recept by stockhoders,
s not a dvdend. No dstrbuton of corporate assets or dmnuton of the net
.worth of the corporaton resuts In any practca sense. ven though the rghts
have a market or e change vaue, they are not dvdends wthn the statutory
defnton. (Cf. Mes v. Safe Depost d Tru Co., 209 U. S., 2 7 T. D. 3365, C. .
1-1, 72 (1922) ; everng v. San oaqun Co., 297 U. S., 96 Ct. D. 1098, C. .
-1, 196 (1936) ; everng v. artett, supra 71 Fed. (2d), 598 .) They are
at most optons or contnung offers, potenta sources of ncome to the stock-
hoders through sae or the e ercse of the rghts. Ta abe ncome mght resut
from ther sae, but dstrbuton of the corporate property coud take pace ony
on ther e ercse. The queston, then, s whether the dstrbuton whch resuts
from the e ercse of the rghts must be regarded as a dvdend f the reasonabe
vaue of the property at the tme of e ercse s more than the purchase prce.
Secton 115(f) (1) of the Interna Revenue Code reads as foows:
(f) Stock Dvdends.
(1) Genera bue. dstrbuton made by a corporaton to ts share-
hoders n Its stock or In rghts to acqure ts stock sha not be treated as a
dvdend to the e tent that t does not consttute ncome to the sharehoder
wthn the meanng of the S teenth mendment to the Consttuton.
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7
29.115-1.
The Revenue ct of 1928 contaned no provson comparabe to secton
115(f) of the Code, supra, so the effect of such a provson on the ta -
abty of stock rghts was not consdered by the Supreme Court n
the Pamer case. owever, n rthur O. Choate v. Commssoner (129
Fed. (2d), 68 ), the Revenue ct of 1936 was under consderaton,
and secton 115 (a) and (f) of that ct s substantay smar to sec-
ton 115 (a) and (f) of the Interna Revenue Code. In that case, the
Court re|ected the contenton of the ta payer that secton 115(f) of
the Revenue ct of 1936 dscosed no congressona ntent to ta stock
rghts and aso found no mert n the Commssoner s contenton that
stock rghts mght be consdered ta abe whether or not they con-
sttuted dvdends. The Court stated:
The Commssoner nrgru S. that the rghts are ta abe whether or not they are
dvdends, . e., wthout regard to secton 115. We take ths to be a contenton
that they are ta abe under secton 22(a). ut such a contenton must fa for
these reasons: In the Pamer case, the court hed that rghts were ta abe when
e ercsed, f they were dvdends. There, because there was no spread when
the rghts were ssued, the court hed there was no dvdend and therefore no
ta . We nterpret that case as hodng that the rghts were not ta abe e cept
as dvdends, . e., that they were not ta abe e cept In so far as they were cor-
porate dstrbutons (dvdends) under secton 115. It Is suggested that the
Government n the Pamer case dd not urge that rghts were ta abe under sec-
ton 22(a) and wthout regard to secton 115; but we do not fee at berty to
dstngush In that way a Supreme Court decson so carefuy detaed In Its
reasonng unt that court says we may do so. nd no changes have snce been
made n the statute apped In the Pamer case whch render rghts ta abe other
than as dvdends. Rghts, to be sure, are mentoned n the 1936 and succeedng
cts, but, so far as we have found, they are referred to ony n so far as they
are ta abe as dvdends.
In vew of the foregong, ths offce s of the opnon that the stock
rghts ssued by the M Company are ta abe as dvdends to the stock-
hoders ony when e ercsed by them. Pror to that tme, there has
been no dstrbuton by the corporaton and the statutory defnton
of a dvdend has not been met. It s not beeved that ths concuson
s n confct wth secton 115(f) of the Interna Revenue Code snce
the dstrbuton referred to theren does not occur upon recept of
the rghts, but takes pace ony upon e ercse thereof. Smar ob-
servatons may be made wth respect to the anguage of secton
29.115-7 of Reguatons 111.
Ths offce s further of the opnon that upon a sae of the rghts
ordnary ncome s reazed by a stockhoder n accordance wth the
prncpes set forth n the decsons n rthur 0. Choate v. Comms-
soner, supra, and een W. Gbson v. Commssoner (133 Fed. (2d),
308) under the provsons of secton 22(a) of the Interna Revenue
Code. It s not beeved that the amount of such ncome s measured
by the vaue of the rghts at the tme of recept thereof. In the opnon
of ths offce, the entre amount receved upon the sae of the rghts s
ta abe as ordnary ncome.
G. C. M. 23677 (C. . 19 3, 370), deang wth gan or oss arsng
from the sae of an opton to acqure stock, to a person other than the
owner of the stock sub|ect to the opton, was not ntended to appy
to a stuaton of the nstant knd. The purpose of G. C. M. 23677 was
to dstngush between those cases n whch gan or oss resuts from
the faure to e ercse an opton to purchase stock (acqured for a con-
sderaton) and those cases n whch gan or oss resuts from the sae
of an opton to purchase stock (acqured for a consderaton). Not-
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19.115-11.
8
wthstandng the fact that a preemptve rght of the type here under
consderaton may consttute property n the broad sense, the pro-
ceeds of sae of such rght do not, at east to the e tent they are n eu
of dvdend ncome, consttute capta gan. (See een W. Gbson v.
Commssoner, supra: see aso I. T. 3795, C. . 19 6-1, 15, reatng to
the treatment for Federa ncome ta purposes of empoyee stock op-
tons; cf. Forence S. yman v. Nunan, 1 3 Fed. (2d), 25, n whch
the stockhoder made a gft to her husband of a rght to receve dv-
dends, and erman M. Rhodes v. Commssoner, 3 . T. ., 780,
affrmed, 131 Fed. (2d), 50, n whch dvdend rghts were sod.) Snce,
n the nstant case, t can not be sad that any porton of the proceeds
of sae of stock rghts represents a return of capta to the sharehod-
ers, t s beeved that the entre proceeds of sae are ncudbe n gross
ncome under the provsons of secton 22(a) of the Code.
In addton, snce a stockhoder s not n recept of ncome at the
tme he receves the stock rghts, no deductbe oss s suffered by hm
f such rghts are aowed to e pre wthout e ercse or sae. Secton
117(g) (2) of the Code provdes that gans or osses attrbutabe to
the faure to e ercse prveges or optons to buy or se property sha
be consdered as short-term capta gans or osses. That secton s
not appcabe uness the opton hoder has pad vaue for the opton.
Smary, secton 23(g) (2) of the Code contempates a case n whch
a securty whch becomes worthess has come nto the ta payer s hands
for a vauabe consderaton. Such cases as Mary P, unter v. Com-
mssoner (Ta Court memorandum opnon, May 12. 19 3, affrmed,
1 0 Fed. (2d), 95 ) and vn . Sprng et u . . Commssoner (
T. C, 2 8) are ustratve of stuatons n whch secton 117(g) (2) or
secton 23(g) (2) of the Code may be appcabe.
Snce no dvdend ncome was reazed at the tme of recept of
the stock rghts, t was not necessary for the M Company to wthhod,
at that tme, the ta of 30 per cent under the provsons of secton
1 3(b) of the Interna Revenue Code n the case of stock rghts ssued
to nonresdent aens. Such wthhodng, however, was necessary at
the, tme of e ercse of such rghts when, n accordance wth the Pamer
and Choate cases dscussed herenbefore, the stockhoders were n
recept of dvdend ncome.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 19.115-11: ffect on earnngs or 19 7-12-125(5
profts of certan ta -free e changes and Ct. D. 1685
ta -free dstrbutons.
ncome ta nterna revenue code decson op supreme court.
1. Dvdends Reorganzaton arnngs and Profts of Prede-
cessor Corporatons.
Upon a reorganzaton In 1928 stockhoders of one corporaton e -
changed ther stock for stock In a new corporaton, and stockhoders
of the other corporaton receved cash and new stock n e change for
ther od stock. t that tme the od corporatons had earnngs and
profts accumuated snce 1913. These ta payers, stockhoders of the
new corporaton, receved dvdends n 19 0. The Ta Court deter-
mned that the successor corporaton acqured a the earnngs and
profts of ts predecessors n 1928, and that such accumuated earn-
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9
19.115-11.
ng and profts were suffcent In 19 0 to make the dvdends ta abe
to the recpents as ncome. ed: The congressona purpose to ta
a stockhoders who receve dstrbutons of corporate earnngs and
profts can not be frustrated by any reorganzaton whch eaves earn-
ngs and profts undstrbuted n whoe or n part. If the predeces-
sors earnngs and profts are not dstrbuted n the course of the
reorganzaton, they do not dsappear smpy because the successor
corporaton has some assets and owners n addton to those of the
od corporaton or corporatons. In so far as accumuated earnngs
and profts were dstrbuted contemporaneousy wth the reorgan-
zaton so as to become ta abe to the dstrbutees, they can not be
sad to have been acqured by the successor corporaton. Iut n so
far as payments to the predecessor corporatons or ther stockhoders
do not actuay represent ta abe dstrbutons of earnngs and
profts, those earnngs and profts must be deemed to have become
avaabe for ta abe dstrbuton by the successor corporaton. De-
cson n Campbe v. Unted States (1 Fed. (2d), 177) overrued
to the e tent that t takes e cepton to the rue of Commssoner v.
Sansome (60 Fed. (2d), 031).
2. Decson Reverskd;
Decson of the Unted States Crcut Court of ppeas, Thrd Cr-
cut (157 Fed. (2d), 132), reversed wth drectons that cause be
remanded to Ta Court for proceedngs not nconsstent wth ths
opnon.
SUP M COU T OF T UNIT D ST T S.
Commssoner of Interna Revenue, pettoner, v. Sdney 8. unter.
Commssoner of Interna Revenue, pettoner, v. Car unter.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
May 5, 19 7.
OPINION.
Mr. ustce ack devered the opnon of the Court.
The Commssoner assessed defcences aganst respondents for faure to
report as 19 0 ncome dvdends pad to them on stock of Cranda-Mc enze
enderson, Inc., whch respondents had bought earer n that year.1 These
dvdends are ta abe as ncome to the respondents If the corporaton pad them
out of ts earnngs and profts. (Interna Revenue Code, sectons 22(a),115 (a),
(b).) Snce ts organzaton n 1928, the corporaton had not accumuated earn-
ngs and profts suffcent to pay the 19 0 dvdend n fu.1 Rut the Commssoner
found that the two od corporatons whch were merged n 1928 to form ths
new corporaton had at that tme, and turned over to the new corporaton,
accumuated earnngs and profts suffcent to cover these dvdends. One of
these od corporatons, L. enderson Sons, Inc., had about 75,000 n earnngs
and profts accumuated snce 1913; the other, Cranda-Mc enze Co., had about
330,000. Labty of respondents for these defcences depends upon whether
the new corporaton acqured and retaned a suffcent amount of these earnngs
and profts of ts predecessors to cover the 19 0 dvdends.
The 1928 merger took pace under the foowng crcumstances. Stockhoders
of enderson and certan stockhoders of Cranda-Mc enze agreed together
wth a frm of underwrters to effect a merger of the two corporatons nto a
new one. The underwrters agreed to buy for cash 52 per cent of the stock of
the new corporaton for pubc sae. In e ecuton of ths agreement the new
The Ta Court ncorporated by reference a fact stpuaton of the partes as Its fndng
of fact. ach of the respondents had bought 10,000 shares of the 38,922 shares of the
corporaton then outstandng. The dvdends decared In 19 0 amounted to 35,160.25, of
whch each of the ta payers receved 12,500.
t one pont In the stpuaton t was ndcated that the new corporaton had no
earnngs and profts accumuated from December , 1928, to December 31, 1939. and no
earnngs or profts In the ta abe year 19 0. ut esewhere In the stpuaton It appears
there may have been some . 12,000 earnngs and prnts aeenmuated between 1928 and
19 0. The Ta Court apparenty dd not resove these contradctory statements.
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I 19.115-11.
50
corporaton was formed and acqured a the assets of enderson and Cranda-
Mc enze. The s stockhoders of enderson accepted stock n the new corpo-
raton as fu payment for surrenderng ther od company stock. oders of
neary one-haf of the stock of od Cranda-Mc enze dd not accept new corpo-
raton stock but were pad some 355,000 n cash for ther od stock. The other
od Cranda-Mc enze stockhoders were satsfed to accept ony new corporaton
stock. When the reorganzaton was compete the new corporaton stock had
been dstrbuted as foows: 1 ,607 shares to od Cranda-Mc enze stockhoders,
9,52 shares to od enderson stockhoders, and 25,869 shares to the genera
pubc through the partcpatng underwrters.
The Ta Court found that there was a faure of proof that the earnngs and
profts of the od corporatons had been dstrbuted n 1928. Reyng upon the
rue of Commssoner v. Sansome (60 Fed. (2d), 931 Ct. D. 607, C. . I-2, 175
(1932) ), whch, for ta purposes, treats a reorganzed corporaton as but a
contnuaton of ts predecessors, The Ta Court determned that the new corpo-
raton acqured a the earnngs and profts of ts predecessors n 1928. Then,
wthout anayzng the earnngs and dstrbuton hstory of the new corporaton
after ts r epton n 1928 and pror to the 19 0 dstrbuton, The Ta Court
concuded that the new corporaton s accumuated earnngs and profts were
suffcent n 19 0 to make the questoned dvdends ta abe to respondents as
ncome. (5 T. C, 108.) The Crcut Court of ppeas for the Thrd Crcut
reversed (157 Fed. (2d), 132), foowng ts earer decson n Campbe v.
Unted States (1 Fed. (2d), 177), whch had narrowy mted the Sansome
rue. The theory of the Campbe decson, so far as reevant to the ony
queston drecty presented here, was that change n ownershp brought about
by the partcpaton of new Investors n the reorganzaton made the new corpo-
raton such an entrey dfferent entty that t coud not propery be caed, even
for ta purposes, a contnuaton of ts predecessors. Thus, t was concuded,
earnngs and profts of the predecessors were not acqured by the new corporaton.
We granted certorar because of an aeged confct wth the Sansome rue.
( U. S., .) In the state of the record presented we fnd t necessary to decde
no more than whether the dstncton of the Sansome rue made by the Campbe
case s correct.
basc prncpe of the Income ta aws has ong been that corporate earnngs
and profts shoud be ta ed when they are dstrbuted to the stockhoders who
own the dstrbutng corporaton. (See Interna Revenue Code, sectons 22,
115 (a), (b).) The controng Revenue cts n queston, however, e empt from
ta aton dstrbutons of stock and money dstrbutons, at east n part, made
pursuant to a reorganzaton such as transpred here In 1928. (See Revenue
ct of 1928, secton 112 (b), (c), () (1) ( ) ; secton 115 (c), (h), 5 Stat., 791,
816-818, 822-823.) Thus uness those earnngs and profts accumuated by the
predecessor corporatons and undstrbuted n ths reorganzaton are deemed to
have been acqured by the successor corporaton and ta abe upon dstrbuton
by t, they woud escape the ta aton whch Congress ntended. (See secton
112(h), Revenue ct of 1928; Murchson s state v. Commssoner, 76 Fed. (2d),
6 1; Unted States v. uuffmann, 62 Fed. (2d), 10 5.)
In Sansome v. Commssoner, supra, t was hed that mpct n. the ta e -
empton of reorganzaton dstrbutons was the understandng that the earnngs
and profts so e empt were acqured by the new corporaton and we|e ta abe as
Income to stockhoders when subsequenty dstrbuted. Congress has repeatedy
e pressed ts approva of the so-caed Sansome rue as a correct nterpretaton of
Some of the Cranda-Mc enze stockhoders were pad 358 pus per share; others
were pad 315.53 per share for dentca stock.
part of the od Cranda-Mc enze stock for whch cash was pad was bought for
300,000 cash by one od Cranda-Mc enze stockhoder from another whe the reorgan-
zaton was beng transacted. The stockhoder who made ths purchase thereupon sur-
rendered hs orgna Cranda-Mc enze hodngs, together wth hs recenty purchased
shares, to the new corporaton n e change for shares n the new corporaton and 300,000
cash. We do not decde whether the sae from one od stockhoder to another represents
a transacton separate from the reorganzaton. Whatever may be the utmate sgnfcance
of ths pont, It does not affect the resut we reach here.
There were two Independent grounds for the decson n the Campbe case. One ground
was that the earnngs and profts of the predecessor corporaton there had actuay been
dstrbuted In the course of the reorganzaton. The crcut court of appeas stated
e pressy that It dd not rest ts decson n the nstant case on ths theory.
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51
5 19.115-11.
the purpose of the ta aws governng reorganzatons. nd Congress has appar-
enty been satsfed wth Treasury reguatons whch foow the Sansome doctrne.6
Of course, when, as In the Sansome case, a the stockhoders of the od corpora-
ton swap a ther od stock for dentca proportons of the new, there can be no
doubt that the earnngs and profts of the od have not been dstrbuted and are
passed on to the successor corporaton. ut f the predecessors earnngs and
profts are not dstrbuted n the course of the reorganzaton, they do not
dsappear smpy because the successor corporaton has some assets and owners
In addton to those of the od corporaton or corporatons. (See Putnam v.
Unted States, 1 9 Fed. (2d), 721, 726.) The congressona purpose to ta a
stockhoders who receve dstrbutons of corporate earnngs and profts can not
be frustrated by any reorganzaton whch eaves earnngs and profts unds-
trbuted n whoe or In part. In so far as accumuated earnngs and profts have
been dstrbuted contemporaneousy wth the reorganzaton so as to become
ta abe to the dstrbutees, they, of course, can not be sad to have been acqured
by the successor corporaton. ut n so far as payments to the predecessor cor-
poratons or ther stockhoders do not actuay represent ta abe dstrbutons of
earnngs and profts, those earnngs and profts must be deemed to have become
avaabe for ta abe dstrbuton by the successor corporaton.
It woud be Inapproprate for us to make the factua anayss of ths record
necessary to trace the earnngs and profts nvoved n the 1928 reorganzaton
n the absence of such determnaton by The Ta Court and revew by the crcut
court of appeas. (See everng v. Rankn, 295 U. S., 123, 131-132 Ct. D. 1)66,
C. . I -1, 160, 163 (1935) ; everng v. Safe Depost Trust Co., 316 U. S.,
56, 66-67 Ot. D. 1552, C. . 19 2-1, 2 6, 250 ; Commssoner v. Scottsh mercan
Investment Co., 323 U. S., 119, 12 Ct. D. 1619, C. . 19 , 3 0, 3 2 .) It mght
be that upon a fu factua anayss The Ta Court woud concude that the new
corporaton acqured and had retaned earnngs and profts of enderson suf-
fcent to cover the 19 0 dstrbuton. Or The Ta Court may fnd t necessary
to make further anayss of the 1928 dstrbutons to Cranda-Mc enze s od
stockhoders. In ths connecton t s nrged that the cash pad for part of the
Cranda-Mc e ze stock n 1928 consttuted a ta abe dstrbuton of some or
a of the accumuated earnngs and profts. The Ta Court, however, has pre-
vousy decned to consder these cash payments as such a dstrbuton of earn-
ngs and profts n the absence of proof that the recpents had been ta ed for
them. ut even f t were proved that od Cranda-Mc enze stockhoders had
been so ta ed, the face amount of that ta woud not necessary refect the
earnngs and profts dstrbuton they receved. For e ampe, part or a of
ther ta may have represented capta gan as dstngushed from earnngs and
profts. Or the dstrbuton may be found to have consttuted a qudaton
under secton 115 of the Revenue ct of 1928. It may be necessary on remand,
therefore, for The Ta Court to consder, n the ght of sectons 112(c) and 115
of the Revenue ct of 1928, how much, f any, of the 1928 cash dstrbuton to
Cranda-Mc enze stockhoders represented earnngs and profts deductbe from
the earnngs and profts transferred to the new corporaton avaabe for the 19 0
dvdend payments.
The decson of the crcut court of appeas s reversed wth drectons that the
cause be remanded to The Ta Court for proceedngs not nconsstent wth ths
opnon.
So ordered.
The Senate commttee recommendng adopton of secton 115(h) of the Revenue ct of
1936 cted the Sansome case wth approva. It descrbed the new secten as not changng
e stng aw. The commttee recommended the amendment ony In the nterest of
greater carty. (S. Rept. 2156, Seventy-fourth Congress, second sesson (1936), 19 C. .
1939-1 (Part 2). 678. 690 . See aso secton 115(h). Revenue ct of 1938. 52 Stat.. 7;
. Rept. 289 , Seventy-s th Congress, thrd sesson (19 0), 1 C. , 19 0-2, 96. 526 ;
S. Rept. 211 , Seventy-s th Congress, thrd sesson (19 0), 25 C. . 19 0-2, 528,
5 6-5 7 .)
U. S. Treasury Reguatons 9 , artce 115-11 (1936) ; D. S. Treasury Reguatons 103,
secton 19.115-11 (19 0). (See Taft v. Commssoner, 30 U. S.. 351, 357 Ct. D. 13 6,
C. . 1938-1, 510. 512 ; everng v. Wnm, 30 . . S., 79, 83 Ct. D. 1365, C. . 1938-2,
212, 213 ; Dougas v. Commssoner, 322 U. S., 27. . 281-282 Ct. D. 1608. C. . 19 . 512.
515-516 ; oehm . Commssoner, 326 U. S., 287, 291-292 Ct. D. 1652, C. . 19 5,
353, 355).)
Secton 112(c)(1) of the Revenue ct of 1928 provdes n effect f a cash or property
dstrbuton s made n the course of a reorganzaton 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 the property. ut secton 112(c)(2) makes ta abe as
dvdend Income that porton of the gan whch represents the dstrbutee s share of the
dstrbutng corporaton s earnngs and profts.
Secton 115(c) of the Revenue ct of 1928 governs the ta abty of dstrbutons In
qudaton.
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29.118-5.
52
S CTION 116. CLUSIONS FROM GROSS INCOM .
Secton 29.116-5: cuson of certan aow- 19 7-8-12528
ances of Foregn Servce personne. T. D. 5555
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T ; T L T RS GINNING FT R D C M R 31, 19 1.
Reguatons 111 amended to conform to the Foregn Servce ct
of 19 6.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. G.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 111 26 CFR, Part 29 to the For-
egn Servce ct of 19 6, approved ugust 13, 19 6, such reguatons
are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
29.116-1 of Reguatons 111 26 CFR, 29.116-1 the foowng:
Part F empton from Ta aton (Tte , Foregn Servce ct
of 19 6).
Sec. 1051. Secton 116 of the Interna Revenue Code, as amended
(53 Stat. 8; 53 Stat. 575; 58 Stat. 8 2 ; 58 Stat. 6; 26 U. S. C. 116),
reatve to e cusons from gross ncome. Is further amended by addng
at the end thereof a new subsecton to read as foows:
(k) In the case of an offcer or empoyee of the Foregn Servce
of the Unted States, amounts receved by such offcer or empoyee
as aowances or otherwse under the terms of tte I of the Foregn
Servce ct of 19 6.
Part ffectve Date of ct (Tte I, Foregn Servce ct of 19 6,
pproved t|oust 13, 19 6).
Sec 11 1. The effectve date of ths ct sha be three months foowng
the date of ts enactment.
Par. 2. There s nserted mmedatey after secton 29.116- of
Reguatons 111 26 CFR, 29.116- the foowng new secton:
Sec. 29.116-5. cuson of Certan owances of Foregn Servce Person-
ne. mounts receved on or after November 13, 19 6, by personne of the
Foregn Servce of the Unted States as aowances or otherwse under the terms
of tte I of the Foregn Servce ct of 19 6 (60 Stat., 999) are, by the pro-
vsons of secton 116(k), e cuded from gross ncome.
Par. 3. Ths Treasury decson s pubshed wthout pror genera
notce of ts proposed ssuance for the reason that notce and pubc
rue-makng procedure n connecton therewth are hereby found to
be unnecessary. Se secton (a) of the dmnstratve Procedure
ct, approved une 11, 19 6. Ony mnor technca amendments are
made to the reguatons.
Par. . Ths Treasury decson sha be effectve on the thrty-frst
day after the date of ts pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat., 32; 26 U. S. G,
62).)
oseph D. Nunan, r.,
Commssoner of Interna Revenue.
pproved March 2 ,19 7.
oseph . O Conne, r..
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 27, 19 7, 8. 7 a. m.)
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5 29.117-1
S CTION 117. C PIT L G INS ND LOSS S.
Secton 29.117-1: Meanng of terms.
( so Secton 2, Secton 29. 2-1; Secton 111,
Secton 29.111-1; Secton 113(b), Secton
29.113(b) (1)-1.)
INT RN L R NU COD .
The amount receved by the seer (wrter) of a put or ca
whch s not thereafter e ercsed consttutes a short-term capta
gan under secton 117(g) (2) of the Interna Revenue Code, to be
taken nto account n computng gross ncome for Federa ncome
ta purposes ony for the year n whch the faure to e ercse the
opton becomes fna. Where the put or ca s e ercsed, the
amount receved by the seer (wrter) consttutes a reducton n
the cost or other bass of the securtes wth respect to whch the
opton s e ercsed for the purpose of determnng capta gan or
oss. I. T. 36S1 (C. . 19 , 6 ) revoked.
The above-stated concusons do not appy to nnounts receved
from the sae of puts or cas whch are wrtten by deaers
n securtes n the ordnary course of ther busness.
Reconsderaton hns been gven to I. T. 3681 (C. . 19 , 6 ), whch
hods that the proceeds or sae of a put or ca consttute
ordnary ncome for Federa ncome ta purposes and shoud be n-
cuded n ta abe ncome for the year n whch receved. I. T. 3681
hods further that when puts and cas are e ercsed, the pro-
ceeds of sae of such optons do not effect a reducton n the purchase
prce of the stock to the seer of a put, and such proceeds do not
ncrease the sae prce of the stock caed n the case of a ca. It
s contended that ths pubshed rung s n confct wth secton
117(g) (2) of the Interna Revenue Code.
Under secton 117(g) (2) of the Code, gans or osses attrbutabe to
the faure to e ercse prveges or optons to buy or se property are
to be consdered as snort-term capta gans or osses. Snce the
statute specfes gans attrbutabe to the faure to e ercse optons, and
as such gans are generay reazed onv by the seer of optons whch
e pre or are otherwse termnated wthout beng e ercsed, t foows
that secton 117(g) (2) of the Code contempates that gans receved
by a seer (wrter) of such optons whch are not thereafter e ercsed
shoud be treated as short-term capta gans and not as ordnary
ncome.
Thus, the faure to e ercse an opton s regarded as the dentfabe
event whch evdences a cosed and competed transacton. Unt that
event occurs, or unt the transacton s cosed and competed by the
e ercse of the opton, the character of the amount pad or receved
for the opton s not f ed and can not be defntey ascertaned. (Cf.
Mary P. unter v. Commssoner, 1 0 Fed. (2d), 95 , and De .
Moody v. Commssoner, . T. . memorandum opnon, decded De-
cember 26,19 1.)
Gans or osses attrbutabe to optons to buy or to se securtes,
whch optons are e ercsed and resut n actua saes, aso consttute
capta gans or osses. Whether such capta gans or osses are ong-
term or short-term depends upon the hodng perod of the securtes
upon the e ercse of the opton.
It s now concuded that the amount receved by the seer (wrter)
of a put or ca whch s not thereafter e ercsed consttutes a
19 7-2-12 75
I. T. 3835
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8 29.126-1.
5
short-term capta gan under secton 117(g) (2) of the Interna Rev-
enue Code, to be taken nto account n computng gross ncome for
Federa ncome ta purposes ony for the year n whch the faure to
e ercse the opton becomes fna. Where the put or ca s e er-
csed, the amount receved by the seer (wrter) consttutes a reducton
n the cost or other bass of the securtes wth respect to whch the
opton s e ercsed for the purpose of determnng capta gan or oss.
(Cf. I. T. 2266, C. . -, 13 (1926).) I. T. 3681, supra, s hereby
revoked.
The concusons set forth heren do not appy to amounts receved
from the sae of puts or cas whch are wrtten by deaers n
securtes n the ordnary course of ther busness.
Secton 29.117-1: Meanng of terms.
INT RN L R NU COD .
G. C. M. 23677 (C. . 19 3, 370) not appcabe under facts consd-
ered n G. C. M. 25063 (page 5, ths uetn).
S C TION 119. INCOM FROM SOURC S WIT IN
UNIT D ST T S.
Secton 29.119-10: pportonment of deductons.
INT RN L R NU COD .
Ta es pad to Great rtan by rtsh nsurance companes (other
than fe or mutua) dong busness n the Unted States. (See I. T.
3833, page 70.)
S CTION 126. INCOM IN R SP CT OF
D C D NTS.
Secton 29.126-1: Incuson n gross ncome of 19 7-13-12576
ncome n respect of a decedent. I. T. 3857
( so Secton 22(b), Secton 29.22(b) (13)-1;
Secton 2, Secton 29. 2-2; Secton 21, Sec-
ton 29. 21-1.)
nterna revenue code.
Where a commssoned rmy offcer was frst reported mssng n
acton and the War Department subsequenty ascertaned that he
was ked n acton, a mtary pay and aowances credted to hs
account on or before the estabshed date of death were construc-
tvey receved by the decedent. The ncome ta abty of the
decedent for the ta abe year n whch he was ked and any unpad
ncome ta abtes for pror ta abe years are e tngushed
by secton 21 of the Interna Revenue Code.
Pay and aowances credted to the decedent s account after the
estabshed date of death shoud be treated as receved by hs estate.
There shoud be e cuded from the gross ncome of the estate for
each ta abe year a nonta abe mtary aowances, such as aow-
ances for quarters and for subsstence, and, n addton, 1,500 of
the decedenfs mtary pay, as provded by secton 22(b) (13) ( )
of the Code.
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55
29.126-1.
dvce s requested as to the proper treatment, for Federa ncome
ta purposes, of mtary pay and aou ances credted to the account
of a deceased commssoned rmy offcer under the facts stated heren.
In the nstant case, the decedent was reported mssng n acton n
19 3, and he was so carred on the records of the War Department unt
September , 19 5. s of that date, The d|utant Genera of the
rmy advsed the decedent s sster that he was ked n acton on u-
gust , 19 3. Mtary pay and aowances were credted to the
decedent s account to and ncudng September , 19 5, the date the
War Department receved evdence of hs death.
Secton 2 of the ct of March 7, 19 2 (56 Stat., 1 3), known as the
Mssng Persons ct, provdes n part as foows:
ny person who Is In actve servce and Is offcay reported as mssng,
mssng n acton, nterned n a neutra country, or captured by an enemy sha,
whe so absent, be entted to receve or to have credted to hs account the same
pay and aowances to whch such person was entted at the tme of the
begnnng of the absence or may become entted to thereafter Itacs
supped.
Income whch s credted to a ta payer s account or set apart for
hm so that he may draw upon t at any tme s sub|ect to Federa
ncome ta as constructvey receved for the ta abe year n whch
t s so credted or set apart, even though he does not then actuay
receve t nto hs possesson. To consttute constructve recept, the
ncome must be credted or set apart to the ta payer wthout any
substanta mtaton or restrcton as to the tme or manner of pay-
ment or condton upon whch payment s to be made. It must be made
avaabe to hm so that he may receve t prompty at any tme upon
hs request and ts recept thus brought wthn the ta payer s own
contro and dsposton. (See secton 29. 2-2, Reguatons 111.)
Secton 126(a) of the Interna Revenue Code provdes n part as
foows:
(a) Incuson n Gross Income.
(1) Gkneba rue. The amount of a tems of gross ncome n respect
of a decedent whch are not propery ncudbe n respect of the ta abe
perod In whch fas the date of hs death or a pror perod sha be n-
cuded In the gross ncome, for the ta abe year when receved, of:
( ) the estate of the decedent, f the rght to receve the amount
s acqured by the decedent s estate from the decedent;

(3) Character of ncome determned by reference to decedknt. The
rght, descrbed n paragraph (1), to receve an amount sha be treated, n
the hands of the estate of the decedent as f t had been acqured
by the estate n the transacton by whch the decedent acqured
such rght; and the amount ncudbe n gross ncome under paragraph (1)
sha be consdered n the hands of the estate to have
the character whch t woud have had n the hands of the decedent f the
decedent had ved and receved such amount.
It s hed that a mtary pay and aowances credted to the
decedent s account on or before ugust , 19 3, the estabshed date
of hs death (whch date s to be used for Federa ncome ta purposes,
I. T. 3771, C. . 19 5, 19 ), were constructvey receved by hm.
(Cf. I. T. 3802, C. . 19 6-1, 81.) The ncome ta abty of the
decedent for the ta abe year 19 3 and any unpad ncome ta ab-
tes for pror ta abe years are e tngushed by secton 21 of the Code.
It s further hed that the pay and aowances credted to the dece-
dent s account after ugust , 19 3, the estabshed date of hs
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S 29.131-1.
56
death, shoud be treated as receved by hs estate. Under secton
126(a) (3) of the Code, supra, the amount due and credted to the
decedent s account s consdered to have the same character n the
hands of hs estate that t woud have had n the decedent s hands
had he ved and receved such amount. Therefore, there shoud be
e cuded from the gross ncome of the estate for each ta abe year
a nonta abe mtary aowances, such as aowances for quarters
and for subsstence, and, n addton, 1,500 of the decedent s m-
tary pay, as provded bv secton 22(b) (13) ( ) of the Code. (Cf.
I. T. 3801, C. . 19 6-1,109.)
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S OF FOR IGN COUNTRI S ND
POSS SSIONS OF UNIT D ST T S.
Secton 29.131-1: nayss of credt for 19 7-3-12 80
ta es.. I. T. 3837
INT RN L R NU COD .
The natona emergency ta mposed by rgentne Decree No.
1 .338/ 6 s an ncome ta wthn the Unted States concept of such
a ta , and t s aowabe as a credt aganst the Federa ncome ta .
ubty of a ctzen of the Unted States to the e tent provded by
secton 131 of the Interna Revenue Code.
dvce s requested whether the natona emergency ta mposed
by rgentne Decree No. 1 .338/ 6 s an ncome ta wthn the Unted
States concept of such a ta and whether t s aowabe as a credt
aganst Unted Sates ncome ta under secton 131 of the Interna
Revenue Code.
rtce 1 of rgentne Decree No. 1 .338/ 6 (ap ngsh transaton
of whch was submtted) provdes that ncome receved snce
une 1,19 6, by persons or ega enttes and not sub|ect to
the ncome ta aws s sub|ect to the natona emergency ta estab-
shed by ths decree. rtce 2 provdes that the ta
s appcabe to a ncome and profts (e ceptng those sub|ect to the
ncome ta aw) derved from the sae, e change or barter of estates
or property, an(| n genera a ncreases n weath not spe-
cfcay e empted from ta . rtce 3 provdes that Incomes of
rgentne orgn are those whch orgnate from goods or propertes
e stent or used for proft n the Repubc or the occurrence
of any proftabe acton n the natona terrtory; natonaty, resdence
or address of benefcary or pace of orgn of the contract notwth-
standng.
It s hed that the natona emergency ta mposed by rgentne
Decree No. 1 .338/ 6 s an ncome ta wthn the Unted States concept
of such a ta , and t s aowabe as a credt aganst the Federa ncome
ta abty of a ctzen of the Unted States to the e tent provded
by secton 131 of the Interna Revenue Code.
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57
29.1 3-1.
SUPPL M NT D. R TURNS ND P YM NT OF T .
S CTION 1 1. CONSOLID T D R TURNS.
Reguatons 10 , Secton 23.11: Consodated
returns for subsequent years.
19 7-12-12565
I. T. 385
INT RN L R NU COD .
ecton wth respect to fng separate Federa ncome ta returns
for fsca years endng In 19 7 by affated corporatons whch fed
consodated Federa ncome and e cess profts ta returns for fsca
years ended In 19 6.
L T. 3821 (C. . 19 6-2, 72) revoked.
Reconsderaton has been gven to I. T. 3821 (C. . 19 6-2, 72),
whch hods that the amendments to the Interna Revenue Code by
the Revenue ct of 1915 do not gve rse to an eecton to fe separate
Federa ncome ta returns for fsca years endng n 19 7 by affated
groups whch fe consodated ncome and e cess profts ta returns
for fsca years endng n 19 6.
It s now hed that the aw appcabe to the fng of consodated
returns has been so amended as to make ess advantageous to affated
groups as a cass the contnued fng of consodated Federa ncome
ta returns wthn the meanng of secton 23.11(a) of Reguatons
10 , as amended by Treasury Decson 5087 (C. . 19 1-2, 1 1). c-
cordngy, affated corporatons whch fed consodated ncome and
e cess profts ta returns for fsca years ended n 19 6 may, notwth-
standng the fng of such returns, fe separate Federa ncome ta
returns for fsca years endng n 19 7.
In vew of the foregong, L T. 3821, supra, s hereby revoked.
S CTION 1 3. WIT OLDING OF T T SOURC .
ocaton of e penses to ta abe and nonta abe ncome under the
Income ta conventon between the Unted States and the Unted
ngdom, sgned pr (, . .r , effectve for ta abe years begnnng
on or after anuary 1, 19 5, where the ncome of a domestc trust
conssts of dvdends, nterest, and rent, and such ncome s currenty
dstrbutabe to a nonresdent aen benefcary who s not engaged n
trade or busness n the Unted States through a permanent estabsh-
ment theren and who s sub|ect to Unted ngdom Income ta .
dvce s requested whether e penses wth respect to ncome of a
domestc trust, whch ncome s currenty dstrbutabe to a nonresdent
aen benefcary who s not engaged n trade or busness n the Unted
States through a permanent estabshment theren and who s sub|ect
to Unted ngdom ncome ta , are whoy deductbe from the ncome
whch s ta abe under the ncome ta conventon between the Unted
States and the Unted ngdom or whether such e penses shoud be
aocated to the ncome whch s ta abe and nonta abe, respectvey,
under the ta conventon.
75 70 7 5
Secton 29.1 3-1: Wthhodng tu at source.
19 7_3_12 81
I. T. 3838
INT RN L R NU COP .
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29.165-1.
58
In the case under consderaton, the ncome of a domestc trust s
currenty dstrbutabe to a resdent of the Unted ngdom who s .
sub|ect to the Unted ngdom ncome ta and who at no tme has
been engaged n trade or busness n the Unted States through a
permanent estabshment theren. The ncome of the trust s derved
from dvdends, nterest, and renta of rea property. The e penses
ncurred wth respect to such ncome consst of trustee s fees, account-
ant s fees, and amounts e pended n connecton wth rentng the rea
property.
Pursuant to the provsons of rtce II (1) of the ncome ta
conventon between the Unted States and the Unted ngdom of
Great rtan and Northern Ireand, sgned pr 16,19 5, and effec-
tve (for the purposes of Unted States ncome and e cess profts ta es)
for ta abe years begnnng on or after anuary 1, 19 5, nterest
derved from sources wthn the Unted States by a resdent of the
Unted ngdom who s sub|ect to Unted ngdom ta on such
nterest, and who s not engaged n trade or busness n the Unted
States through a permanent estabshment theren, s e empt from
Unted States ta . (See aso secton 7.502(a) of T. D. 5532, C. .
19 6-2,73, at page 80.) owever, the ncome ta conventon does not
provde for a smar e empton wth respect to dvdends derved from
a Unted States corporaton and rentas from rea property derved
from sources wthn the Unted States. (See rtces I(1) and
I (1), respectvey, of the ncome ta conventon.)
It s hed that the e penses drecty attrbutabe to renta of rea
property shoud be apped aganst (deducted from) the renta ncome.
The baance of the e penses (trustee s fees and accountant s fees)
shoud be aocated to ta abe and nonta abe ncome for the purpose
of determnng the amount of nterest ncome whch s e empt from
Unted States ta and the amount of dvdend and renta ncome whch
s sub|ect to wthhodng of ta at the source. Such aocaton s to be
made by apportonng the baance of the e penses to ta abe and
nonta abe ncome n the rato that each of such casses of ncome bears
to the tota amount of ncome receved by the trust.
Secton 29.1 3-2: F ed or determnabe annua
or perodca ncome.
INT RN L R NU COD .
Dvdend ncome recognzed upon e ercse of subscrpton war-
rants by nonresdent aen stockhoders. (See G. C. M. 25063, page 5.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 165. MPLOY S TRUSTS.
Secton 29.165-1: mpoyees trusts. 19 7-9-12536
Mm. 6136
ppcaton of the prncpes affectng the pror quafcaton under
secton 165(a) of the Interna Revenue Code, as amended, upon
the termnaton or curtament of a stock bonus, penson, proft-
sharng, or annuty pan.
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290.165-1.
Trkasukt Department,
Offce of Commssonkr of Interna Revenue,
Washngton 25, D. C, pr S, 19 .7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of Fed Dvsons of the Technca Staff, and Others Con-
cerned:
1. Requests have been receved for rungs as to the effect of the
termnatons of stock bonus, penson, proft-sharng, and annuty pans,
and of amendments resutng n the curtament of such pans, on pror
rungs hodng that the pans met the requrements of secton 165(a)
of the Interna Revenue Code, as amended, and that the trusts formng
a part thereof were entted to e empton under the provsons of
that secton. The facts n each case are controng wth respect to
the ssuance of the appcabe rung. Two basc prncpes, however,
affect the determnaton to be made, namey, the e stence of a vad
reason for the termnaton or change consstent wth the assumpton
that the pan, from ts ncepton, has been a bona fde program for
the e cusve beneft of empoyees n genera, and compance wth the
requrements of secton 165(a) n other respects, not ony at the adop-
ton of the pan but aso throughout ts entre operaton, ncusve of
the termnaton.
2. When a rung as to the quafcaton of a pan under secton
165(a) s ssued, there usuay s nothng more to consder but the
nformaton furnshed by the empoyer. The wordng contaned
wthn the four corners of a wrtten document may spe out a theoret-
cay quafed pan whch may or may not materaze n actua opera-
ton. For e ampe, a pan may be open to a empoyees who have
one year of servce and who w be entted to pensons commencng at
norma retrement age 65 ony f they reman wth the empoyer unt
that age and have at east 10 years of servce at retrement. Such
provsons have been found acceptabe n certan cases, and favorabe
rungs have been ssued wth respect to the quafcaton of the pans
nvoved. hgh rate of servce separatons, however, may eave
reatvey few of the ower pad empoyees but practcay a of the
offcers, sharehoders, supervsors, and hghy compensated empoyees
n the pan, resutng n dscrmnaton n favor of the atter group.
Thus, n operaton, such a pan does not meet the requrements of
secton 165(a) for some part or a of the perod of ts operaton.
3. Secton 29.165-1 (a) of Reguatons 111 provdes n part that the
term pan mpes a permanent program. ccordngy, t must
aso be estabshed that a vad reason e sts for the termnaton or
change. ecause of the varyng facts n dfferent cases, prescrbed
rues can not be ad down as to the suffcency of such reasons.
reason whch has been found satsfactory n one case may not neces-
sary appy n another. Some of the reasons whch have been found
acceptabe n certan cases have been bankruptcy, nsovency, change of
ownershp n an arm s-ength transacton, a bona fde and substanta
change n stock hodngs and management, and fnanca nabty to
contnue meetng the cost of the pan.
. pan whch, over the perod of ts operaton, resuts n dspro-
portonate fundng n favor of empoyees wthn the enumeratons
wth respect to whch dscrmnaton s prohbted may. under certan
crcumstances, be appropratey amended to remove the dscrmnaton
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29.165-1.
GO
pror to termnaton or curtament so as to warrant a favorabe ru-
ng on such termnaton or curtament. For e ampe, f certan
hghy compensated empoyees were, at the ncepton of the pan,
wthn a few years of retrement age and proportonatey arger con-
trbutons were made to provde benefts tor such empoyees because
of the reatvey shorter ntervas remanng pror to ther retrements,
and f the pan s amended to reaocate benefts so as to provde pro-
ortonatey equa shares geared to compensaton for the ower and
|gher pad empoyees, the prohbted dscrmnaton may be removed.
5. In certan cases, pans are curtaed, rather than termnated, be-
cause of changed condtons or new requrements. curtament
of a pan conssts of a modfcaton reducng benefts or empoyer
contrbutons, or makng the egbty or vestng requrements es
bera. n amendment requrng empoyee contrbutons to provde
the same benefts whch prevousy were provded e cusvey by em-
poyer contrbutons resuts n a curtament. The mere fact that
benefts are reduced does not necessary render the amendment
through whch such resut s accompshed ob|ectonabe. For e ampe,
the modfcaton of a penson pan wth a -3,000 saary cassfcaton
e tendng t to an a-coverage pan, but reducng the vestng or
beneft provsons, may be found acceptabe.
6. The appcaton of the foregong prncpes may be ustrated
by the facts and resuts obtaned n the foowng cases:
( ) The Company estabshed a trusteed penson pan effectve
October 1, 19 2, n whch a empoyees wth at east two years of
servce and under the age of 56 were egbe to partcpate. Indvd-
ua contracts were purchased provdng for retrement annutes equa
to 0 per cent of the average saary durng the ast fve years of em-
poyment to commence at norma retrement age 65. Upon severance
of empoyment, regardess of cause, the trustee assgned and turned
over the contracts nvoved to the empoyees concerned. Three stock-
hoder-empoyees partcpated n the pan. Ther ages at the ncepton
of the pan were, respectvey, 33, 38, and 1. The average age of
other empoyees was about 0. On the effectve date of the pan, 112
empoyees were egbe to partcpate and the frst year s cost on a
eve premum bass was 60,000.
Durng anuary, 19 7, empoyees demanded a 20 per cent saary
ncrease and, upon threatenng to strke uness such ncrease were
granted, ther demand was comped wth. t that tme, the com-
pany s capta stock amounted to 1,000,000 and ts surpus to 350,000.
Its net proft for 19 6, after makng ts contrbuton of 68,000 under
the penson pan for 123 empoyees who were then partcpants, was
23,000. 20 per cent saary ncrease, based on compensaton for
19 6, woud amount to 72,000. though the company s not nso-
vent, t ponted out that f the resuts of operatons n 19 7 were
comparabe to those of 19 6, and f t were requred to contrbute
68,000 under ts penson pan as we as pay the saary ncrease of
72,000, t woud sustan a oss of 9,000, and, f that contnued, ts
surpus woud dsappear n a few years. It, therefore, termnated the
pan as of anuary 31,19 7.
Upon anayss of data for the entre perod of operaton of the
pan, t was found that the vaues of the benefts actuay made ava-
abe were equa to 12, 1 , and 17 per cent, respectvey; of the saares
of the three stockhoder-empoyees over the entre perod, 18 per cent
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29.165-1.
for empoyees among the hghest 25, other than stockhoders, and 22
per cent for a other empoyees. It was aso found that durng ts
operaton the pan met a requrements of secton 165(a) of the
Interna Revenue Code, as amended.
It was hed, upon the above-stated facts, that the termnaton of the
penson pan of the Company dd not adversey affect ts pror
quafcaton under secton 165(a), nor the e empt status of the trust
under the provsons of that secton.
( ) The proft-sharng pan of the Company was put nto effect
on anuary 1, 19 0, and provded for partcpaton of a empoyees
wth two years of servce. Out of a tota of 51 empoyees, 2 were
egbe and were covered under the pan. Company contrbutons
were equa to 10 per cent of the annua profts and were aocated
among partcpants n proporton to compensaton, wth a ceng of
800 whch coud be aocated to any one partcpant n one year, the
e cess beng reaocated among the remanng partcpants. mpoy-
ees were granted nonforfetabe rghts n a company contrbutons.
The admnstratve head of the company was a stockhoder who
owned 98 per cent of ts outstandng stock. e became eary n
19 5 and entered nto negotatons for the sae of the busness. In
uy of that year, a company whch was engaged n a smar ne
of busness purchased a of the stock of the Company, had t
dssoved, took over a the assets, assumed the abtes, and retaned
thepeope who prevousy were empoyed by the Company.
The purchasng company dd not have a proft-sharng or smar
pan of ts own, and, rather than contnue benefts for those who had
prevousy been empoyed by the Company and cause dssenson
among empoyees, t termnated the pan.
Under the foregong facts, t was hed that the termnaton of the
proft-sharng pan of the Company dd not resut n ts retroactve
dsquafcaton.
(C) The C Company estabshed a penson pan on December 1,
19 2. and provded for partcpaton of a empoyees on the e ecu-
tve pay ro. Such empoyees conssted of sharehoders, offcers,
supervsors, and others compensated above 7,500 per annum. Out
of a tota of 1, 00 empoyees, 150 were ncuded n the pan. ene-
fts were provded based on y2 per cent of average annua compen-
saton for servces rendered pror to December 1, 19 2, and 2 per cent
for servces subsequent to that date, and were to commence at norma
retrement age 60. Contrbutons were made durng 19 2 and 19 3
tc provde such benefts.
On November 1, 19 , the pan was amended, effectve as of an-
uary 1, 19 , to provde for a cassfcaton whch was found accept-
abe wthn the provsons of secton 165(a)(3)( ) of the Interna
Revenue Code, the requrements for ntegraton wth the benefts un-
der the Soca Securty ct were comped wth, restrctons on con-
trbutons to provde benefts for empoyees who are sharehoders
were ncorporated n the pan, a mtaton on the benefts for the 25
hghest compensated empoyees was provded for to restrct such
benefts n the event of eary termnaton of the pan, and other
provsons to compy wth the appcabe requrements of the Code
were set forth, on the bass of a of whch a rung was ssued on
November 20, 19 , that the pan, as amended, met the requrements
of secton 165(a) of the Interna Revenue Code.
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29.1C5-1.
62
The contrbuton whch was to have been made on December 1,
19 , was not pad, but, nstead, the pan was termnated on that date.
It was found, on the bass of the foregong facts, that the amend-
ments on November 1, 19 , were not made n good fath but were
adopted for the purpose of obtanng a favorabe rung as to the
quafcaton of the pan under secton 165(a) n an effort to obtan
the aowance of deductons for contrbutons made n 19 2 and 19 3;
that the amendments, made effectve as of anuary 1, 19 , dd not
affect benefts provded for sharehoders, offcers, supervsors, and
hghy compensated empoyees, by contrbutons made n 19 2 and
19 3; and that there was no ameoraton of the dscrmnaton re-
sutng therefrom snce no contrbutons were made under the pan
as amended. ccordngy, the favorabe rung ssued on November
20, 19 , was revoked, and the pan, from ts ncepton, was hed not
to quafy under secton 165(a).
(D) The D Company commenced busness n 1926. Its entre
operatng force conssted of three ndvduas who owned a of the
company stock. In the eary part of 19 2, t obtaned a contract
to manufacture a product requred n the avaton ndustry and en-
gaged a force of 260 peope for that purpose. In November, 19 2,
the company adopted a penson pan under whch a empoyees wth
s months of servce and who were under the age of 56 were covered.
There were 22 peope who met these requrements and became par-
tcpants n the pan.
enefts commencng at norma retrement age 65 were to be equa to
50 per cent of average compensaton over the entre perod of servce,
provded the partcpant remaned wth the company unt such age.
Severance of empoyment, regardess of cause, pror to norma retre-
ment age entted the empoyee to no benefts. The pan was of the
sef-nsured, trusteed tvpe and contaned a provson that upon term-
naton a funds remanng n the trust were to be used to purchase
retrement annutes for any retred empoyees and other remanng
partcpants.
The company s contract termnated n the atter part of 19 5, and
a empoyees e cept the three stockhoders and a bookkeeper were
dscharged. The company termnated ts pan n 19 6 on the ground
that t no onger had a force of empoyees who coud beneft there-
under, and the trustee used the funds to purchase retrement annuty
contracts for the four remanng partcpants. None of the other
enpoyees had ever become egbe to receve benefts.
It was found, on the bass of the foregong facts, that the pan, from
ts ncepton, was not a bona fde penson program for the e cusve
beneft of empoyees n genera, but an arrangement to sphon off a
substanta porton of the company s wartme profts for subsequent
dstrbuton prmary to the stockhoders. ccordngy, the pror
favorabe rung was rescnded.
( ) The Company adopted a penson pan effectve uy 1, 19 2.
whch provded for partcpaton of a empoyees wth one year ot
servce. enefts commencng at norma retrement age 65 were to be
equa to 50 per cent of the average annua compensaton. mpoyees
whose servces were termnated pror to fve years of partcpaton un-
der the pan receved no benefts. Those who remaned beyond that
perod were entted to 10 per cent, for each addtona year of partc-
paton, of the cash surrender vaue of the ndvdua retrement annu-
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63
29.165-1.
ty contracts whch were purchased for empoyees covered under the
pan. Forfetures were used to reduce subsequent premums whch
were pad quartery. There was aso a provson that upon termna-
ton of the pan the contracts for the then remanng partcpants
were to be dstrbuted to them. Out of a tota of 318 empoyees, 262
were egbe for partcpaton at the ncepton of the pan.
Durng anuary, 19 7, empoyees demanded saary ncreases and
other wefare benefts, the tota cost of whch was about equa to the
cost of mantanng the penson pan. The company s fnanca status
dd not permt t to undertake the addtona burden, and t thereupon
decded to termnate the pan. t that tme, there were 223 partc-
pants, whch ncuded 61 of the orgna 262 empoyees. mong the
61 who remaned n the pan throughout the entre perod of operaton
were 3 stockhoder-empoyees, one of whom was near retrement and
one was wthn a few years therefrom, and 11 others who were hghy
compensated. n anayss of compensaton and contempated bene-
fts ndcated the foowng resuts:
Percentage of
contempated
Percentage of
contempated
mpoyees.
benefts to
compensaton
for entre
perod.
mpoyees.
benefts to
comt ensaton
for entre
perod.
Stockhoders:
verage
23
18
3

31
22
18
11 hghy compensated

Snce none of the empoyees had fve years of partcpaton, none

had vested rghts n the contempated benefts. ccordngy, the pan
was amended pror to termnaton to provde a ceng on benefts for
any one of the stockhoder-empoyees equa to 18 per cent of compensa-
ton over the entre perod of partcpaton, wth the e cess to be ds-
trbuted among empoyees n the owest group. Ths resuted n the
foowng changes:
Percentage of
Percentage of
contempated
contempated
benefts to com-
benefts
to-com-
pensaton for
pensaton for
mpoyees.
entre
perod.
mpoyees.
entre perod.
efore
fter
efore
ftcr
amend-
amend-
amend-
amend-
ment.
ment.
ment.
ment.
Stockhoders:
23
17
31
18
11 hghy compensated
18
18
n
22
18
others
3
20
o:::::::::::
18
15
mpoyee pad the dfference between 18 and 31 per cent to the
trustee under the pan and receved hs contract wthout change. The
contract for empoyee was reduced to provde for a beneft equa to
18 per cent, and the trustee obtaned the cash surrender vaue for the
dfference. mpoyee C and the 11 hghy compensated empoyees
receved ther contracts wthout ad|ustment. others, n addton
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S 29.165-1.
6
to ther contracts, shared n the cash obtaned by the trustee n propor-
ton to the vaue of ther respectve annuty contracts.
It was hed, under the foregong facts, that the termnaton of the
penson pan of the Company, after amendment, dd not resut n ts
retroactve dsquafcaton.
(F) The F Company estabshed a penson pan effectve uy 1,
19 3, under whch a empoyees wth fve years of servce were cov-
ered. enefts were provded equa to 50 per cent of tota compensa-
ton, commencng at norma retrement age 65. There were 88 em-
poyees who were covered under the pan at ts ncepton. Incuded
among such empoyees were two stockhoders, compensated at 25,000
and 35,000 per annum, respectvey, as we as 12 others, compensated
above 10,000 per annum, who had been recevng bonuses rangng
from 10 to 15 per cent of compensaton. Snce the bonus arrangement
had been n effect for many years pror to the ncepton of the penson
pan, retrement benefts were computed on the tota of basc compensa-
ton and bonuses.
In the atter part of 19 6, the company found tsef n need of funds
for e panson purposes and amended ts pan by pacng a ceng of
20,000 on compensaton for the purpose of computng retrement
benefts and e cudng bonuses from tota compensaton.
ased on the foregong observatons, t was hed that snce the
curtament of the pan apped ony to the stockhoders and hghy
compensated empoyees, ts modfcaton dd not adversey affect ts
status as a pan for the beneft of empoyees n genera.
(G) The G Company commenced busness n 1928 and reazed
profts through 19 1 whch averaged 50,000 a year. The profts n the
best year durng that perod were 85,000. ary n 19 2 t started
makng a new product, and ts profts from anuary 1 to November 30,
19 2, amounted to 280,000. In December, 19 2, the company estab-
shed a proft-sharng pan, effectve as of anuary 1, 19 2, whch
provded for empoyer contrbutons equa to 50 per cent of profts n
e cess of 100,000 per year, but not to e ceed 15 per cent of the com-
pensaton otherwse pad or accrued to a partcpants under the pan.
empoyees wth one year of servce were covered under the pan
and shared n contrbutons n proporton to the annua compensaton
of each. The annua contrbutons between 19 2 and 19 5, ncusve,
were 100,000, 150,000, 175,000, and 210,000, respectvey.
There no onger was a need for the company s new product n 19 6.
oss of 0,000 was sustaned between anuary 1 and pr 30,19 6,
at the end of whch tme the company competed converson to ts
former actvtes. n unprecedented demand for the company s
product after converson, however, resuted n a net proft, before
proft-sharng contrbuton, of 2CO,000 by November 30, 19 6. In
December, 19 6, the company proposed to amend ts pan, effectve as
of anuary 1,19 6, ncreasng the e cuson factor n ts contrbuton
formua from 100,000 to 350,000, and requested a rung as to the
effect of such amendment on the status of ts pan under secton 165(a)
of the Interna Revenue Code, as amended.
On the bass of the foregong facts, the foowng fndngs were
made and concusons reached:
(1) That pror to the effectve date of ts pan, the company s
profts were we under 100,000, the e cuson factor provded
for n the contrbuton formua contaned n the pan;
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29.165-8.
(2) That profts rose sharpy above such factor durng the
years that ts new product was manufactured and that 50 per cent
of such profts, n e cess of 100,000, was contrbuted under ts
pan and reduced ts ncome sub|ect to e cess profts ta es;
(3) That after e cess profts ta es were no onger n effect,
ts profts, after a short reconverson perod, contnued to reman
above the e cuson factor of 100,000, and that a ta beneft of
but 38 per cent woud be reazed on profts above such e cess; and
( ) That the e cuson factor was sought to be ncreased to
such an e tent that athough, theoretcay, the pan woud merey
be curtaed, for a practca ntents and purposes t woud be
competey termnated snce, for 19 (5, based on avaabe data, no
contrbuton woud be made, and, n accordance wth the com-
pany s e perence, there was no ndcaton that contrbutons
woud subsequenty be contnued.
It was, accordngy, hed that f the pan were amended as proposed
t woud resut n a fndng that, from ts ncepton, t was not a bona
fde permanent program for the e cusve beneft of empoyees n
genera.
7. Correspondence and nqures regardng ths mmeograph shoud
refer to ts number and to the symbos ndcated: Coectors of nter-
na revenue, C: Co; nterna revenue agents n charge, IT: PS;
heads of fed dvsons of the Technca Staff, TS: M.
dstrbutee of an e empt empoyees trust s entted to the ong-
term capta gan treatment provded for n secton 16 )(b) of the
Interna Revenue Code wth respect to dstrbutons (n e cess of the
amount contrbuted by hm) on account of separaton from servce
f the baance to hs credt at that tme s pad n one ta abe yenr of
the dstrbutee, even though some dstrbutons may have been made
to the empoyee n pror years n accordance wth the provsons of
the pan of whch the trust s a part. Such treatment s equay ap-
pcabe to a benefcary of a deceased empoyee.
dvce s requested whether the capta gan provsons of secton
165-(b) of the Interna Revenue Code, reatng to the ta abty of
benefcares of an e empt empoyees trust, are appcabe under the
crcumstances herenafter set forth.
The proft-sharng pan of the M Company provdes for annua
contrbutons to an empoyees trust whch s e empt from Federa
ncome ta under secton 165(a) of the Interna Revenue Code.
partcpatng empoyee s not entted to any dstrbutons for a spec-
fed perod of years, upon the e praton of whch perod annua ds-
trbutons are made, unt the empoyee retres or s otherwse separated
from servce. t the tme the empoyee s separated from servce, the
baance to whch he s entted under the pan becomes mmedatey
, payabe to hm.
oseph D. Nunak, r.,
C ommssoner.
Secton 29.165-6: Ta abty of benefcary
under a trust whch meets the requrements
of secton 165(a).
INT RN L R NU COD .
19 7-8-12529
I. T. 38 7
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29.181-1.
6G
Secton 105(b) of the Interna Revenue Code provdes n part as
foows:
If the tota dstrbutons payabe wth respect to any empoyee are
pad to the dstrbutee wthn one ta abe year the dstrbutee on account of
the empoyee s separaton from the servce, the amount of such dstrbuton to the
e tent e ceedng the amounts contrbuted by the empoyee, sha be consdered a
gan from the sae or e change of a capta asset hed for more than 6 months.
It s the opnon of ths offce that the term tota dstrbutons
payabe, as used n secton 165(b) of the Code, supra, means the tota
dstrbutons due and unpad wth regard to a specfc tme whch,
when vewed n the ght of the secton as a whoe, s the tme of the
empoyee s separaton from servce.
ccordngy, t s hed that a dstrbutee of an e empt empoyees
trust s entted to the ong-term capta gan treatment provded for
n secton 165(b) of the Interna Revenue Code wth respect to ds-
trbutons (n e cess of the amount contrbuted by hm) on account
of separaton from servce f the baance to hs credt at that tme s
pad n one ta abe year of the dstrbutee, even though some dstrbu-
tons may have been made to the empoyee n pror years n accordance
wth the provsons of the pan of whch the trust s a part. Such
treatment s equay appcabe to a benefcary of a deceased empoyee.
SUPPL M NT F. P RTN RS IPS.
S CTION 181. P RTN RS IP NOT T L .
Secton 29.181-1: Partnershps. 19 7-7-12515
I. T. 38 5
INT RN L R NU COD .
ureau pocy wtb respect to so-caed famy partnershps.
dvce s requested as to the treatment of so-caed famy part-
nershps for Federa ncome ta purposes.
Secton 22(a) of the Interna Revenue Code ta es ncome to the
person who earns t, or who creates the rght to receve t, or who
contros ts use. The Supreme Court of the Unted States has hed
(Lucas v. ar, 281 U. S., I) that ncome ta es may not be escaped
by antcpatory arrangements and contracts, no matter how skfuy
devsed, to prevent ncome from vestng even for a second n the
person who earned t. ttempts to escape surta es by dvdng one
ncome nto two or more ncomes through the devce of famy part-
nershps present an acute probem n the admnstraton of the Federa
ncome ta . The basc queston presented by the so-caed famy
partnershp s whether, for Federa ncome ta purposes, such a
busness arrangement has succeeded n spttng one ncome or earn-
ng power nto two or more separatey ta abe parts wthn the famy
group. The determnaton of such questons as the proper cassfca-
ton of the busness arrangement as a |ont venture or partnershp,
or whether a vad partnershp has been created under State aw, does
not contro the queston of avodance of Federa surta es. (See
Commssoner v. Tower, 327 U. S., 280, Ct. D. 1670, C. . 19 6-1, 11.)
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67
29.181-1.
The four ma|or crtera for determnng the effectveness, for n-
come ta purposes, of an agreement purposng to create a famy
partnershp are: (1) The rendton of servces by the famy member
aeged to be a partner, n the reguar conduct of the busness, to a de-
gree and of a quaty commensurate wth the status of a partner n that
knd of busness; (2) the nature and e tent of the aeged partner s
partcpaton n the contro and management of the busness; (3) the
contrbuton to the busness, sub|ect to ts rsks, of capta or credt
orgnatng .wth the contrbutor, whch capta or credt s needed for
and was not aready avaabe to the busness; and ( ) the reason-
abeness of the reaton between the proportonate share of the profts
granted to any member of the famy by the agreement and the pro-
porton of the earnngs whch s fary attrbutabe to the servces
rendered by, or the contrbuted capta orgnatng wth, sad member.
earng n mnd that each partnershp has ts own pecuar facts,
whch are to be determned not ony from the terms of the agreement
but from the conduct of the partes n carryng on the busness, bus-
ness partnershps n whch the partners or members are cosey reated
may be dvded nto three broad casses for ncome ta purposes. Wth
respect to each of these casses, the pocy to be foowed s as foows:
1. ffectve partnershps for Federa ncome ta purposes: Where
persons who are cosey reated by bood or marrage enter nto an
agreement purportng to create a so-caed famy partnershp or other
arrangement wth respect to the operaton of a busness or ncome-
producng venture, under whch agreement a of the partes are
accorded substantay the Same treatment and consderaton wth
respect to ther desgnated nterests and prescrbed responsbtes
n the busness as f they were strangers deang at arm s ength;
where the actons of the partes as egay responsbe persons ev-
dence an ntent to carry on a busness n a partnershp reaton; and
where the terms of such agreement are substantay foowed n the
operaton of the busness or venture, as we as n the deangs of the
partners or members wth each other, t s the pocy of the ureau
to dsregard the cose famy reatonshp e stng between the partes
and to recognze, for Federa ncome ta purposes, the dvson of
profts as prescrbed by such agreement. owever, where the nstru-
ment purportng to create the famy partnershp e pressy provdes
that the wfe or chd or other member of the famy sha not be
requred to partcpate n the management of the busness, or s merey
sent on that pont, the e tent and nature of the servces of such
ndvdua n the actua conduct of the busness w be gven appro-
prate evdentary weght as to the queston of ntent to carry on
the busness as partners. The cass of busness partnershp descrbed
n ths paragraph s regarded as consstng of those cases n whch
t s ceary correct to recognze the partnershp for Federa ncome
ta purposes.
2. Sham transactons and ta avodance schemes: Where a the
facts revea the busness arrangement as a sham, or as a fagrant de-
vce for ta -dodgng purposes, t s the pocy of the ureau to deny
that the arrangement effects a dvson of the ncome of the person
or persons whose servces or capta earned the profts of the bus-
ness and created the rght to receve such profts. For e ampe,
where the nstrument purportng to create the famy partnershp
e pressy prohbts the wfe or chd or other member of the famy
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I 29.20 -2.
68
from partcpatng n the management of the busness, or from havng
any voce n the dstrbuton of the assets or profts of the busness,
or from e ercsng any contro over the assets or profts of the bus-
ness, the effectveness of the specfc agreement w be dened for
Federa ncome ta purposes. (Cf. ames L. Prtchard v. Comms-
soner, 7 T. C, 1228.) Ths second cassfcaton s regarded as con-
sstng of those cases n whch t woud be ceary aganst the weght
of |udca authorty to recognze (for ncome ta purposes) the
dvson of profts provded by the agreement.
3. Intermedate cases: (a) Where, after fu deveopment and
consderaton of the evdence, the merts and equtes of the case
favor the ta payer, or the tgatng outcome appears favorabe to
the ta payer, the dvson of profts prescrbed by the agreement w
be recognzed for Federa ncome ta purposes. The e amnng
offcer w proceed wth dscreton and carefuy wegh a the facts
and crcumstances before reachng a concuson adverse to the ta -
payer.
(b) Where, after fu deveopment and consderaton of the ev-
dence, the merts and equtes of the case favor the Government and
there are reasonabe prospects of successfuy contestng the dstrbu-
ton of profts prescrbed by the agreement, a far aocaton of the
profts of the busness, as between ncome attrbutabe to persona
servces and ncome attrbutabe to capta, w be made. The amount
of the profts attrbutabe to servces w then be apportoned between
the partes on the bass of the far vaue of the servces actuay
rendered by each party. The amount of the profts attrbutabe to
capta w, under the pecuar facts of each case, be apportoned
between the partes on the bass of the capta and credt (necessary
for the busness) orgnatng wth, and rsked by, each party. (C.
Care L. Canfed v. Commssoner, 7 T. C, 9 , acquescence, page 1,
ths uetn; M. M. rgo v. Commssoner, 3 T. C, 1120; . Z. Todd et
a. v. Commssoner, 7 T. C, 399; and G. C. M. 9825, C. . -2, 1 6
(1931).)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 20 . INSUR NC COMP NI S OT R
T N LIF OR MUTU L.
Secton 29.20 -2: Gross ncome. 19 7-11-12557
G. C. M. 25256
R NU CT OF 1021, SU S U NT R NU CTS, ND
INT RN L R NU COD .
In vew of acquescence (page 1, ths uetn) n C. P. . Co. v.
Commssoner (7 T. C, 912), reatng to the deductbty as un-
earned premums, under sectons 20 (b) (5) of the Revenue ct of
1938 and of the Interna Revenue Code, of a porton of reserves
mantaned by an nsurance company, other than fe or mutua,
wth respect to retrement and death beueft features of noncanceabe
retrement, dscharge, sck, accdent, and fe Insurance poces
ssued on a eve premum bass, G. C. M. 22503 (C. . 19 1-1. 265)
s modfed to the e tent of wthdrawng therefrom the concudng
sentence of the fourth paragraph whch mts appcaton of the
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69
29.20 -2.
decson n Massachusetts Protectve ssocaton, Inc., v. Unted
States (11 Fed. (2d), 30 , Ct. D. 1 83, C. . 19 1-1, 383) to cases
nvovng noncanceabe heath and accdent nsurance.
Reconsderaton has been gven to G. C. M. 22503 (C. . 19 1-1,265)
whch revoked G. C. M. 18975 (C. . 1937-2, 355) and hed that an n-
surance company, other than fe or mutua, s entted, n computng
the premum earned. as used n secton 2 6(b)(5) of the Revenue
ct of 1921, correspondng provsons of subsequent Revenue cts, and
the Interna Revenue Code, to e cude therefrom the net addton
made durng the ta abe year to the addtona reserve-for noncance-
abe heath and accdent poces requred by State aw. G. C. M.
22503 was ssued n vew of the decson n Massachusetts Protectve
ssocaton, Inc., v. Unted States (11 Fed. (2d), 30 , Ct. D. 1 83,
C. . 19 1-1, 383), whch hed that the ta payer, engaged n the bus-
ness of wrtng noncanceabe accdent and heath nsurance, the pre-
mums on whch were constant and f ed e cept for read|ustment at
age 50, was entted, n computng ts premums earned for the year
1926, under secton 2 6(b) (5) of the Revenue ct of 1926, to e cude
therefrom the net addton made durng that year to the addtona
reserve for noncanceabe heath and accdent poces requred by
State aws, or, n other words, that ths addton to the reserve fund was
a part of unearned premums wthn the meanng of secton
2 6(b) (5) of the Revenue ct of 1926. G. C. M. 22503, supra, hed
further that the appcaton of the decson n Massachusetts Protectve
ssocaton, Inc., v. Unted States, supra, shoud be mted to cases n-
vovng noncanceabe heath and accdent nsurance.
In the recent decson of The Ta Court of the Unted States n
C. P. . Co. v. Commssoner (7 T. C, 912), t was hed, n the case
of an nsurance company, other than fe or mutua, wrtng noncance-
abe retrement, dscharge, sck, accdent, and fe nsurance on a eve
premum bass, that reserves wth respect to retrement and death
beneft features of ts poceS| as requred by the Department of In-
surance of the State of Mchgan, consttute unearned premums
wthn the meanng of sectons 20 (b) (5) of the Revenue ct of 1938
and the Interna Revenue Code, and that the ncreases n such reserves
durng the ta abe years 1938 and 1939 shoud not be ncuded n gross
ncome. The Ta Court stated n part n ts opnon :
We perceve no essenta dfference between the reserves mantaned n the
nstant case and that mantaned n the case Massachusetts Protect c ssoca-
ton. Inc., v. Unted States cted above. The reserves mantaned for the death
benefts under the pettoner s poces are ceary of the same type as those used
n the Massachusetts Protectve ssocaton, Inc.. case, supra. nd we thnk the
retrement reserves requre smar treatment. One of the pettoner s wtnesses
testfed on cross-e amnaton that when the contract s comparatvey new the
cost of nsurance s much ess than t s as the contract becomes oder. Con-
sequenty, when the contract s new a porton of th e premum s paced n the
reserve n order to provde funds for the payment of the poces as they mature,
snce, at that tme, the cost of the nsurance w appro matey equa the amount
of premum coected. nother wtness caed by the pettoner as an e pert gave
testmony of smar mport and testfed that the mantenance of the reserves by
the pettoner was essenta n order for t to have suffcent funds to pay the
cams as they matured.
om a ths we thnk t s suffcenty evdent that the reserves mantaned
by the pettoner wth respect to the retrement and fe nsurance features of ts
poces consttuted unearned premums wthn the meanng of secton 20 (b) (5)
and that the amounts paced theren durng the ta abe years are not a part of ts
gross ncome. We so hod.
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29.232-1.
70
The Commssoner has acquesced (page 1, ths uetn) n the
decson of The Ta Court n C. P. . Co. v. Commssoner, supra.
Snce that porton of G. C. M. 22503, supra, whch mts the appca-
ton of the decson n Massachusetts Protectve ssocaton, Inc., v.
Unted States, supra, to cases nvovng noncanceabe heath and
accdent nsurance s nconsstent wth the decson of The Ta Court
n the C. P. . Co. case and the acquescence theren, G. C. M. 22503
s hereby modfed to the e tent of wthdrawng therefrom the con-
cudng sentence of paragraph , readng as foows:
owever, the appcaton of that court decson shoud be mted to cases
Invovng noncanceabe heath and accdent nsurance.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
SUPPL M NT . NONR SID NT LI N INDI IDU LS.
S CTION 212. GROSS INCOM .
Secton 29.212-2: cuson of earnngs of 19 7-6-12506
foregn shps from gross ncome. I. T. 38
( so Secton 231, Secton 29.231-3.) -
INT RN L R NU COD .
The Repubc of onduras satsfes the equvaent e emptonpro-
vsons of sectons 212(b) and 231(d) of the Interna Revenue Code.
(See aso Mm. 1 8, C. . III-1,87 (193 ).)
SUPPL M NT I. FOR IGN CORPOR TIONS.
S CTION 231. T ON FOR IGN CORPOR TIONS.
Secton 29.231-3: cuson of earnngs of
foregn shps from gross ncome.
INT RN L R NU COD .
Repubc of onduras, equvaent e empton provsons of sectons
212(b) and 231(d) of the Interna Revenue Code. (See I. T. 38 ,
above.)
. S CTION 232. D DUCTIONS.
Secton 29.232-1: Deductons aowed foregn 19 7-1-12 70
corporatons. I. T. 3833
( so Secton 119, Secton 29.119-10.)
INT RN L R NU COD .
Determnaton of the ratabe part of rtsh ta es pad by rtsh
Insurance companes (other than fe or mutua) dong busness n
the Unted States whch s deductbe under secton 20 (c) (8) of
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71
29. 21-1.
the Interna Revenue Code, as mted by sectons 119(b), 20 (d),
and 232 of the Code.
I. T. 36 3 (C. . 19 , 3 3) revoked.
Further consderaton has been gven to I. T. 36 3 (C. . 19 , 3 3)
n the ght of the decson n Paatne Insurance Co., Ltd., v. Com-
mssoner ( T. C, 239).
I. T. 33 3, supra, prescrbed a method of mtng the amount of
deducton aowabe to rtsh nsurance companes other than fe or
mutua, dong busness n the Unted States, for ta es pad to Great
rtan upon ncome from sources wthn the Unted States and de-
ductbe under the provsons of sectons 20 (c) (3) and 23(c) of the
Interna Revenue Code and secton 20 (d) of the Code, to the e tent
provded n secton 232 of the Code, wth respect to ta abe years begn-
nng after December 31, 10 0. The method of mtaton set forth n
I. T. 36 3 was apped by the ureau n the case of Paatne Insurance
Co., Ltd., supra, n whch The Ta Court of the Unted States hed
that a deducton for rtsh ncome ta es pad by the pettoner, a
foregn nsurance corporaton dong busness n the Unted States, for
the year 1939 was aowabe to the e tent of a ratabe porton of the
ta computed by comparng pettoner s gross ncome from ta abe
sources wthn the Unted States wth tota gross ncome, wthout
further mtaton. The combnaton of the gross to gross method
of apportonment and the formua mtng the deductbe amount of
rtsh ta es, set forth n I. T. 30 3. was dscussed by the court and
hed to be nappcabe under the crcumstances present n that case.
cquescence n the decson n the Paatne Insurance Co. case was
announced n Interna Revenue uetn 19 6-1 , page 1, but such
acquescence was stated to be mted to ta abe years ended pror to
anuary 1, 19 1. In vew of the wthdrawa of the mted acques-
cence n the Paatne decson and substtuton of an unmted ac-
quescence C. . 19 6-2, whch s appcabe to a ta abe years,
I. T. 36 3, supra, s hereby revoked.
SUPPL M NT U. T M NT OF T FOR M M RS OF RM D FORC S UPON
D T .
S CTION 21. T M NT OF T FOR M M RS
OF RM D FORC S UPON D T .
Secton 29. 21-1: batement of ta for members
of the armed forces on death.
INT RN L R NU COD .
Canceaton of Federa ncome ta abty n the case of a deceased
commssoned rmy offcer. (See I. T. 3857, page 5 .)
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Regs. 112, 35.722-2. 72
C PT R 2. DDITION L INCOM T S.
SU C PT R . C SS PROFITS T S.
P RT L
S CTION 722. G N R L R LI F CONSTRUCTI
R G S P RIOD N T INCOM .
Reguatons 112, Secton 35.722-2: Construe- 19 7-10-125 8
tve average base perod net ncome. T. D. 5560
( so Secton 30.722-2, Reguatons 109.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 30
ND P RT 35.
Reguatons 109 and 112 amended Computaton of constructve
average base perod net ncome.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2-5, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 109 26 CFR, Part 30 and Reguatons 112 26 CFR,
Part 35 are amended as foows:
R GUL TIONS 109.
Paragraph 1. Secton 30.722-2(6), as amended by Treasury Dec-
son 5 15, approved November 3, 19 C . 19 , 0 26 CFR,
30.722-2 (b) , s further amended by strkng out the ast sentence
of subparagraph (1) and nsertng n eu thereof the foowng:
In a proper case, however, growth may be recognzed n arrvng at the far
and |ust amount representng norma earnngs f, and to the e tent that, such
recognton s reasonabe and consstent wth the condtons and mtatons of
secton 722.
R GUL TIONS 112.
Par. 2. Secton 35.722-2(6), as amended by Treasury Decson
5 15, approved November 3, 19 26 CFR, 35.722-2(b) , s further
amended by strkng out the ast sentence of subparagraph (1) and n-
sertng n eu thereof the foowng:
In a proper case, however, growth may be recognzed n arrvng at the far
and |ust amount representng norma earnngs f, and to the e tent that, such
recognton Is reasonabe and consstent wth the condtons and mtatons of
secton 722.
Par. 3. The amendment to Reguatons 109 26 CFR, Part 30
made by paragraph 1 of ths Treasury decson sha be appcabe
to a ta abe years covered by such reguatons. The amendment
to Reguatons 112 26 CFR, Part 35 made by paragraph 2 of ths
Treasury decson sha be appcabe to a ta abe years covered by
such reguatons.
Par. . Ths Treasury decson sha be effectve on the thrty-frst
day after the date of ts pubcaton n the Federa Regster.
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73
Msc.
(Ths Treasury decson s ssued under the authorty of secton 62
of the Interna Revenue Code (53 Stat., 32; 26 U. S. C, 62), as made
appcabe by secton 729(a) of the Interna Revenue Code (5 Stat.,
989; 26 U. S. C, 729(a)).)
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved pr 21,19 7.
oS MI . O CoNN LL, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 2 , 19 7, 8. 9 a. m.)
C SS PROFITS T COUNCIL.
19 7- -12 91
. P. C. 8
Use of nde es In determnng constructve average hase perod
net ncome from 1939 constructve earnngs.
In a number of cases recenty certfed to the Counc, constructve
average base perod net ncome has been determned by the app-
caton of one of the genera busness nde es found n Mmeograph
5807 C. . 19 5, 273 to the constructve earnngs estabshed for the
year 1939.
Ths procedure was foowed by The Ta Court of the Unted States
n the ast Te as Motor Freght Lnes case (7 T. C, No. 71), and t s
beeved that ts use n that nstance may have ed to the assumpton
that the use of ths formua was acceptabe as reguar procedure.
owever, ths s not the case. The Counc has made no change n the
buetn n ths respect.
In genera, the Counc approves the emphass n Part , Subpart II,
(C)(1), upon the desrabty of basng reconstructons under sub-
secton (b) ( ) upon actua e perence n the foowng order of
preference:
1. The ta payer s own e perence.
2. The e perence of a cosey comparabe concern.
3. The combned e perence of severa comparabe concerns.
. pproprate ndustry e perence.
Wth respect to the partcuar sub|ect of ths statement, the pro-
vsons of Part , Subpart II (C) ( ) (b) (), page 110, are st n
effect. ccordngy, the suggestons of the buetn on choce of an
nde when usng ths method of normazng (. e., determnng con-
structve average base perod net ncome from) 1939 earnngs shoud
contnue to be foowed. These suggestons presuppose that con-
structve earnngs for 1939 or the ast year of the base perod have
been estabshed, and reate to the probem of determnng constructve
average base perod net ncome on the bass of such constructve
earnngs.
The suggestons of the buetn are emboded n the foowng
paragraphs:
To appy ths technque, an nde of earnngs may frst be constructed for the
entre base perod usng the ast year of such perod as 100 per cent, based ether
upon the earnngs for each year of other representatve actvtes of the ta payer
or of representatve members of the ta payer s ndustry. If, durng the base
perod, there have been mportant changes n the ndustry n the number of
75 70 7 6
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7
concerns, capta nvestment, or net worth, the earnngs on whch the nde a
based shoud be e pressed as ratos to some such factor as net worth n order to
make the nde representatve of the e perence of a snge concern wth no
mportant changes In capta.
If there are no fgures avaabe for the Industry or for comparabe concerns,
the most genera busness profts nde , . e., the earnngs of a corporatons,
mght be used. owever, f the ta payer s busness s of oca character, or f the
products or servces sod have a partcuar geographca dstrbuton, the genera
busness nde mght be ocazed to ft the ta payer through the use of some oca
nde of busness profts.
If the ta payer s a member of an Industry whch s n ts. nta deveopment
stage durng the base perod, use of the ndustry nde may not be approprate.
The presence of deveopment means that the nde contans nta growth
eements n addton to norma fuctuatons. In such cases, nde es of smar
ndustres or the genera busness profts nde mght serve as the nstrument
by whch the 1939 poston of the ta payer coud be ad|usted to average base
perod condtons.
Thus e stng nstructons provde that the genera busness nde
w generay not be used f approprate fgures are avaabe for other
representatve actvtes of the ta payer, for the ta payer s ndustry,
or f the ta payer s busness s of a oca character and a sutabe oca
profts nde s avaabe or can be constructed by ocazng the genera
busness nde . Ony when no better, more approprate data are
avaabe shoud a genera busness nde be used.
In ths connecton t may be hepfu to offer some gudance n the
choce of a profts nde for use n cases where a genera busness nde
s ndcated. Mmeograph 5807 gves a tabe presentng three profts
seres. s e paned n the mmeograph, seres s the tota comped
net proft or oss of a corporatons, as reported n Statstcs of Income,
representng the ordnary concept of net ncome from a sources before
Federa ncome ta es as currenty defned each year by Federa ta ng
statutes; seres s derved from seres by the subtracton of certan
types of ta -e empt ncome ta -e empt for e cess profts ta pur-
poses; and seres C s seres wth the addton of nterest pad.
Seres s of nterest chefy because t s fundamenta to the other
two seres, and shoud not be used drecty for normazng 1939 n-
come. Whe seres s the cosest appro maton to e cess profts
net ncome that t s possbe to derve from the e perence of a
corporatons, ts usefuness for appcaton to ndvdua cases s
mted by the fact that t s nfuenced by arge and reatvey stabe
nterest payments. Seres C (ncome, e cusve of certan ta -e empt
ncome before deductng nterest) represents tota earnngs of cor-
porate busness avaabe both for equty and borrowed capta. It s
a measure of fuctuatng prosperty that s not dstorted by the above-
mentoned nterest payments; t s rrespectve of changes n the
proporton of borrowed to tota capta. The reatonshp between
the absoute amounts n seres and C s shown n mons of doars
n the foowng tabuaton:
Proft
ess ta -
e empt
ncome.
C Proft
ess ta -
e empt n-
come pus
nterest
pad.
Year.
Interest
pad
19Tf .
1,370
1, 07
1,608
, 09
3,081
3,003
2,871
2,797
7, 51
7, 10
, 79
7,306
1937 -
1938
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75
(Msc.
In the foowng tabuaton each of the three seres has been
e pressed as an nde wth 1939 as 100 and the average for the base
perod years computed:
ase
1939
1938
1937
1936
perod
average
Seres
100
100
100
57.6
35.7
61.3
109.1
97.7
101.
108.3
90.9
102.0
93.8
82.6
91.2
Serks C
In a case n whch the ta payer s constructve deductons for nter-
est n each base perod year may be consdered equa to the actua
nterest deductons or n whch these constructve deductons may be
otherwse satsfactory determned, an nde based on seres C s the
most approprate for normazng 1939 earnngs. Ths s the usua
stuaton. It s approprate to use the seres nde ony when the
aggregate corporate e perence wth reference to rato of nterest
payments to ncome before such payments may be assumed to be
norma for the ta payer.
The procedure for appyng the seres C nde for the purpose of
determnng a C PNI from 1939 constructve earnngs may be set
forth n four steps. The frst step s to add to the constructve earn-
ngs for 1939 the constructve nterest pad n 1939. Second, ths
fgure s then mutped by the nde fgure gven above for each base
perod year (keepng n mnd that each s a percentage). s the
thrd step, the estmated fgures for each base perod year |ust
obtaned are reduced by the amount of constructve nterest assumed
to have been pad n each of those years. Fnay, an average of the
revsed fgures for the four years s taken as the C PNI. The
foowng e ampe ustrates the above procedure:
nsumptons.
Year.
Constructve
nterest de-
ductons.
Constructve
net Income.
20,000
80,000
1937 ---
20,000
20,000
20,000
Step 1. dd nterest pad to constructve ncome for 1939.
80,000 pus 20,000 100,000.
Step 2. ppy seres C nde fgures, ad|usted to 1939 as 100, to the
sum of 1939 ncome and nterest.
d|usted ncome.
1939. 100 per cent of 100,000 equas 100,000
1938. 61.8 per cent of 10tt000 equas 61,300
1937. 101. per cent of 100,000 equas 101, 00
1986. 102 percent of 100,000 equas 102,000
Step 3. Deduct nterest pad, actua or constructve, from ad|usted
ncome for each base perod year.
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Msc.
76

Construc-
tve net
ncome.
Year
d|usted
ncome.
Interest
pad.
1939
100,000
61.300
101, 00
102.000
20,000
20,000
20,000
20,000
80,000
1.300
81. 00
82,000
1938
1937 _
1936
Step . verage the constructve net ncome determned n step 3,
whch gves a C . PNI of 71,175, or 89.0 per cent of the 1939 con-
structve net ncome.
Chares D. ame,
Charman, cess Profts Ta Counc.
anuary 23,19 7.
19 7- -12 92
. P. C. 9
corporaton operatng a number of stores In dfferent ctes and
wth a base perod ended uy 31, 19 0, opened two new stores In
the sprng o 19 0 to whch t was not commtted on December 31,
1939. ed, that the corporaton s not entted to have ts con-
structve average base perod net ncome computed wth any regard
whatever to the two new stores.
The Counc s n recept of a Request for technca advce under
date of December 26, 19 6, from the charman of a secton 722 fed
commttee. The etter reads n matera part as foows:
Ths commttee woud apprecate an e presson of opnon from the Counc
wth respect to the e tent, f any, to whch quafyng factors (. e., factors
mentoned n secton 722(b)( )) occurrng after December 31, 1939, but durng
the ast base perod year of a fsca year ta payer, may be gven effect n
the determnaton of norma earnngs to be used as a constructve average base
perod net ncome.
case typca of severa now under consderaton n ths offce s a chan store
organzed pror to the begnnng of the base perod. It has consstenty fed ts
ta returns on the bass of a fsca year ended uy 31 so that ts base perod
ended on uy 31, 19 0. It operates a reta chan of stores . t
the begnnng of ts base perod the ta payer owned and operated 10 stores
ocated n varous ctes . On ugust 1, 1939 (the begnnng of ts ast
base perod year), t had 13 such stores and durng the fsca year ended uy 31,
19 0, t opened 3 addtona stores. One of these was opened durng November,
1939, and the two others durng March and pr, 19 0. of the stores are
ake n so far as the cass of merchandse sod s concerned, athough some do
a somewhat arger voume of busness than others. On ths pont t may be
stated that the three stores opened durng the fsca year ended uy 31, 19 0,
can be compared, as far as the annua voume of saes and net profts are
concerned, wth some of the other stores opened pror to ugust 1, 1939. Fnay,
the Counc may assume that the two stores opened n the sprng of 19 0 do not
represent a commtment as that term s generay understood n subsecton
(b)( ).
In our premnary consderaton of ths typca case the commttee s sats-
fed that the two stores opened durng the sprng 0 19 0 quafy as a change n
character, . e., as a dfference n the capacty for operaton. Snce
the ta payer had 1 stores on December 31, 1939, the addton of these 2 stores
amounts to an ncrease of a,bout 1 per cent n capacty for operaton and a
comparabe ncrease n the voume of busness. We beeve ths may be regarded
as a substanta ncrease n capacty and snce t was effectuated durng the base
perod the addton of these two stores woud seem to come ceary wthn the
quafyng factors mentoned n subsecton (b) ( ) and wthn the ntendment
of the frst sentence thereof.
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dfference of opnon e sts, however, wth respect to the queston of
whether these two stores (opened n 19 0) may be ncuded In the determnaton
of the constructve average base perod net Income. Those who hod n the
negatve rey on the statutory prescrpton aganst the use of post-1939 events
or condtons In secton 722(a) and upon the e ampe gven n the buetn In
Part III(C), page 1 9. The e ampe deas wth a hypothetca ta payer wth
a fsca year ended November 30, 19 0, whch bases ts cam for reef on a
capacty change effected In uy, 19 0, to whch t was not commtted pror to
anuary 1, 19 0. Whe treatng ths capacty change as a quafyng factor,
the buetn hods that for the purpose of reconstructon of norma earnngs no
regard can be gven to the change n capacty because t oc nrred after December
31, 1939. Gong beyond the e ampe, the buetn denes reef n any case
where the cam s based soey on a change n character effectuated after
December 31, 1939 (wthout commtment), even though the change occurred
durng the statutory base perod.
The wrter of the etter s of the persona opnon that the construc-
tve average base perod net ncome shoud take nto account the
operatons of the two stores opened n the sprng of 19 0. Other
members of the commttee are of a contrary opnon. The wrter
states that the addton of two stores n 19 0 occurred durng ts base
perod and was a norma event n the fe of ths chan store. e
then states:
The operaton of 16 stores consttutes the norma eve of operatons
reached durng ts base perod. Ths concuson seems |ustfed by the foowng
paragraphs taken from page 3 of . P. C. G, dated December 12, 19 6 C. .
19 6-2, 123 :
The utmate ob|ectve In constructng norma earnngs, stated broady,
may be reached by attrbutng ; to the ta payer whose average
base perod net ncome was nadequate because t began busness or changed
Its character durng or mmedatey pror to the base perod, the earnngs
t woud have had durng the base perod n ts new or changed character.
Itacs supped.

arnngs durng an nta deveopment perod may not refect norma
operatons. busness mght we e perence osses or subnorma earnngs
durng such perod whch woud not recur thereafter. In cases nvovng
commencement or change n character of a busness, norma operatons
assume the nortru eve of deveopment reached by the ta payer at the end
of the base perod or the norma eve of deveopment whch woud have
been reached by the ta payer at the end of the base perod under the push-
back and commtment rues. Itacs supped.
The same thought Is e pressed n the secton 35.722-3(d) of Reguatons 112,
where t s provded that:
For the purposes of secton 722(b)( ), norma operatons refers to
norma operatons throughout the entre base perod of the busness com-
menced or to whch such busness was changed Immedatey pror to or
durng th base perod, and to the norma earnngs reconstructed on the
bass of such norma operatons for such entre perod.
The statute s specfc that n determnng such constructve
average base perod net ncome, no regard sha be had to events or
condtons affectng the ta payer, the ndustry of whch t s a mem-
ber, or ta payers generay occurrng or e stng after December 31,
1939, e cept n commtment and other e cepted cases. The chan
store s not one of such e cepted cases. The Counc s of the opnon
that the ta payer s not entted to have ts constructve average base
perod net ncome computed wth any regard whatever to the two
stores opened n the sprng of 19 0.
You ca attenton to the anguage of . P. C. 6, and argue that snce
the character of the busness was changed durng the base perod, the
Counc may have ntended to take nto account post-1939 events or
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78
condtons n reconstructng the average base perod net ncome.
That . P. C. specfcay provdes The queston of post-1939 events
or condtons s not covered by ths memorandum. It shoud not,
therefore, be regarded as amendng the buetn upon the pont rased
by your etter.
Chares D. ame,
Charman, cess Profts Ta Counc.
anuary 23, 19 7.
19 7-5-12 98
. P. C. 10
oatons of the anttrust aws.
1. arnngs attrbutabe to actvtes carred on by the ta payer n
voaton of the anttrust aws, that s, earnngs n e cess of the earn-
ngs whch woud have been reazed had there been no voaton, w
not be ncuded n norma earnngs under secton 722. Ths statement
s not to be construed to mean that a voaton w, of tsef, dsquafy
an otherwse quafed ta payer from reef under secton 722. On
the other hand, f a ta payer voates such aws, and ts earnngs are
adversey affected thereby, t w not be entted, n the determnaton
of norma earnngs, to an ad|ustment for such adverse effects and such
crcumstances w not consttute a quafyng factor under secton 722.
2. The burden rests upon the ta payer to estabsh the far and
|ust amount representng norma earnngs to be used as a bass for
determnng ts credt. here actua base perod earnngs are em-
poyed n the reconstructon, earnngs attrbutabe to actvtes car-
red on n voaton of these aws, as set forth n paragraph 1, must be
e cuded. In some cases, however, even though voatons have taken
pace, the method of reconstructon may not enta consderaton of
actua earnngs arsng out of such voatons. The queston of
whether or not the ta payer voated the aw s merey one eement
of the probem, dstnct from the determnaton of the amount of
earnngs, f any, attrbutabe thereto. If a far and |ust amount
representng norma earnngs s estabshed (whch presupposes that
no part of such amount s attrbutabe to the ega actvtes), proper
credt w be aowed even though there may be other earnngs, not
ncuded theren, attrbutabe to the voaton.
3. oaton of the anttrust aws w be deemed estabshed n
cases n whch the fact that such voaton occurred s acknowedged
by the ta payer, or has been ad|udcated by a court, commsson, or
other trbuna of competent |ursdcton, whether the nature of the
proceedng be cv or crmna.
. No presumpton of fact w be based merey upon charges of
voaton of the aw. Nevertheess, n nstances n whch a ta payer
camng reef under secton 722 has been charged wth a voaton
of the anttrust aws, such ta payer w be e pected to estabsh
whether or not abnorma earnngs have n fact resuted from ts
actvtes. ny determnaton n reaton to ths ssue w be based
on an e amnaton of the economc aspects of the case. determna-
ton of whether or not the aw has been voated s beyond the scope
of the admnstratve dsposton of a case under secton 722. Fed
commttees may use dscreton n deferrng acton on cams where
an ad|udcaton of the charges may be e pected wthout unreasonabe
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deay, or where the e tent of the abnormaty, f any, can not be
determned satsfactory wthout a pror ad|udcaton of whether
or not the aw has been voated.
5. The fact that a ta payer s a member of an ndustry characterzed
durng the base perod by voatons of the anttrust aws w not
gve rse to any presumpton that the ta payer has voated such aws.
owever, where a ta payer appyng for reef under secton 722 s
a member of such an ndustry, ts base perod earnngs w be e am-
ned for possbe abnormates resutng from these ndustry prac-
tces. bnormay hgh earnngs arsng from such condtons w be
ad|usted. If the ta payer has not voated the aw, and f ts earnngs
are abnormay ow as a resut of such ndustry practces, the crcum-
stances may consttute a quafyng factor for such ta payer. The
ta payer, f quafed on ths or any other ground, w be entted to
an approprate ad|ustment.
Chares D. ame,
Charman, cess Profts Ta Counc,
February 18,19 7.
19 7-7-12522
. P. C. 11
The M Corporaton changed ts method of operatons durng the
base perod. The change dd not resut n a hgher eve of earnngs
but, because of the change, average base perod net ncome s an
nadequate standard of norma earnngs. ed, the ta payer may
quafy for reef under secton 722(b) (5).
1. Pror to and durng the base perod year 1936, the M Corpora-
ton purchased n the open market a certan raw matera necessary
to the manufacture of ts products. study by the ta payer of the
crcumstances surroundng the source of the raw matera nvoved
ndcated a possbe curtament of suppy. s a resut, on anuary
1, 1937, the ta payer started producton of ths raw matera n a
pant acqured for that purpose. Producton costs of the raw matera
for the years 1937 and 1938 averaged 13 cents per unt cue to dffcuty
n nta operatng probems. Throughout 1939 the cost of producton
was 10 cents per unt. It has been determned that ths unt cost of
10 cents was norma n the ght of the nterna operatng condtons
of the ta payer, and that such cost woud not have vared materay
durng the entre base perod. The cost n the open market durng
the entre base perod averaged 9 cents per unt and t appears that
the ta payer coud have satsfed ts entre requrements at that prce.
2. The ta payer has apped for reef under secton 722 and has
demonstrated that ts actua average base perod net ncome s sub-
stantay ess than (a) the amount t woud have reazed had t made
no change n ts method of operatons as we as (6) the amount t
woud have reazed had t produced ts entre base perod requre-
ments of ths matera at ts norma cost of 10 cents per unt. It s
camed that the hgh cost of producton of the raw matera e per-
enced durng the deveopment perod has resuted n average base pe-
rod net ncome beng an nadequate standard of norma earnngs even
though aowance s made for the e tent to whch earnngs for 1936
resuted from the dfference between constructve producton cost of
10 cents and market prce of 9 cents per unt.
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3. The queston has been rased as to whether the ta payer can
quafy for reef n vew of the foowng provsons of secton
35.722-3 of Reguatons 112:
change n the character of the busness for the purposes of secton 722(b) ( )
must be substanta n that the nature of the operatons of the busness affected
by the change s regarded as beng essentay dfferent after the change from
the nature of such operatons pror to the change. No change whch busnesses
n genera are accustomed to make n the course of usua or routne operatons
sha be consdered a change n the character of the busness for the purposes
of secton 722(b)( ). Trade custom and practce may be taken nto account n
determnng whether an essenta dfference n the character of the busness has
occurred. change n the character of the busness, to be consdered substanta,
must be refected n an ncreased e-r of earnngs whch s drecty attrbutabe
to such change. Itacs supped.
. It s apparent that the change effected by the ta payer has not
resuted n an ncreased eve of earnngs drecty attrbutabe to the
change. acty the opposte s true, snce the ta payer now has a
raw matera cost of 10 cents per unt as opposed to the prevous 9
cents per unt cost. The change, therefore, does not appear to satsfy
the provsons respectng quafcaton under secton 722(b)( ), a-
though the contrary vew has been strongy advocated.
5. It s unnecessary to resove the ncetes of these arguments n
order to dspose of ths partcuar case.
6. In the. opnon of the cess Profts Ta Counc, the M Cor-
poraton may quafy under the provsons of secton 722(b) (5). In
ths case, t s not beeved that waver of the requrement for an
ncreased eve of earnngs s nconsstent wth the prncpes under-
yng the provsons of secton 722(b) or wth the condtons and
mtatons of that secton. The M Corporaton shoud be permtted
to reconstruct ts average base perod net ncome by empoyng 10
cents per unt the norma cost to the M Corporaton as t e sted
after the change as the cost of ths raw matera throughout the
entre base perod.
Chares D. ame,
Charman, cess Profts Ta Counc.
March 21, 19 7.
19 7-9-12537
. P. C. 12
Tests of the event or condton n subsecton (b) cases.
To be egbe for a cam under secton 722 a ta payer s requred,
n accordance wth the provsons of the reguatons and the uetn
on Secton 722, to demonstrate (a) that the base perod or pre-base
perod event or condton under whch t seeks to quafy conforms
to the specfcatons of subsecton (b) of secton 722, and (b) that
average base perod net ncome affords an nadequate standard of
norma earnngs. The frst of these tests requres that the event or
condton possess the foowng genera characterstcs:
(a) It s dentfabe as the cause of a depresson of base perod net
ncome, or as havng created a greater norma earnng capacty. Thus,
the causa reatonshp between a subsecton (b)(1) event and a de-
cne of a prevousy estabshed earnngs eve or between a subsecton
(b)( ) event and ncreased earnngs must be ceary demonstrabe.
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Merey to pont out a change n the earnngs eve foowng such an
event s not suffcent.
(b) It s measurabe n ts effect on tems of gross ncome or e pense.
ach asserton of effect must be accompaned by a reasonabe method
of measurng the effect.
The ta payer must demonstrate that the event or condton meets
these genera tests, and, n addton, the more specfc tests requred
for quafcaton under one or more subdvsons of subsecton (b)
as outned n the paragraphs that foow:
Subsecton (b) (7). The event contempated by subsecton (b) (1),
whether t be a food, fre, e poson, strke, severe freeze or bzzard,
a crop bght or epdemc, a court n|uncton, or other smar nc-
dent, must be unusua and pecuar n the e perence of the ta payer
and must resut n an nterrupton or dmnuton of producton,
output, or operaton. The event may not be one that dd not resut
n a substanta ncrease n e pense or n an effectve decne n saes
or ncome durng the base perod, as, for e ampe, where nventores
were suffcent to brdge the gap unt producton coud agan be re-
sumed, where other factes were utzed wth tte oss n produc-
ton, or where a temporary oss of saes was made good wthn the
base perod by subsequent ncreased producton and saes of the
same or substtute product, or by an ncrease n seng prce brought
about by a scarcty of the product foowng the event. It shoud aso
be shown that the decne n saes dd not accompany a saes decne
n smary stuated organzatons, or n the ndustry or busness
generay. These requrements are met by the ntroducton and sub-
stantaton of comparatve saes, quantty, and prce fgures refectng
the ta payer s e perence n pror and subsequent perods and, where
necessary, the e perence of other organzatons functonay com-
parabe to the ta payer; and by a demonstraton of the norma con-
dtons whch they refect and of the abnorma condton durng the
year or years for whch a correcton s sought.
Subsecton (b)(2). Under subsecton (b)(2) an event must be an
economc crcumstance whch, drecty or ndrecty, has the effect
of temporary depressng the earnngs of the busness or ndustry.
The causes of the depresson n earnngs resembe n some respects
those underyng a subsecton (b)(1) event, the prncpa dfference
beng that a subsecton (b) (2) cause must refect the operaton of
economc forces. The dstncton s unmportant, snce n ether case
consderaton must be gven to reef. ere t s essenta that the
e stence of the ta payer s abnorma stuaton be demonstrated by the
ntroducton of saes, quantty, and prce fgures for the purpose of
ndcatng the ta payer s e perence n pror and subsequent perods,
and the e perence of other comparabe organzatons. Proof must
be offered that the economc cause was (1) temporary and not ndc-
atve of a decnng busness or ndustry and (2) not an e ampe of
vared sorts of operatng hazards to whch the busness or ndustry
ordnary woud be sub|ect. Mere errors n |udgment of manage-
ment w not be deemed to consttute quafyng events.
Subsecton (b)(3). Cases fang under subsecton (b)(3) are
those of ta payers beongng to ndustres for whch the base perod
1936-1939 provdes too ow a standard of norma earnngs. Two
man causes are recognzed: ndustres havng a profts cyce df-
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ferne materay n ength and amptude from the genera busness
cyce, and ndustres havng sporadc and ntermttent perods of
hgh producton and profts not fuy represented n the base perod.
In both cases a statstca study s requred, e tendng over a perod
much greater than the four prewar years and reatng to the e per-
ence of the ta payer, ts ndustry, and busness generay; and the
ta payer must snow (1) that ts own proft varatons corresponded
cosey to those of the ndustry, and (2) that the ndustry-proft var-
atons dffered materay from those of busness n genera durng
the same perod. For ths purpose an e tended perod ncudng
the years 1036-1939 shoud ordnary be covered, and from the data
coected shoud be emnated any matera noncycc factors. The
nvokng of ths subsecton requres a carefu study of ndustry var-
ants from the genera busness pattern throughout the perod. These
varants shoud be substanta and must make the base perod 1936-
1939 a ceary unrepresentatve standard of comparson.
Subsecton (b)( ). Subsectons (b) (1), (2), and (3) provde tests
ntended to dscose the e stence of adverse factors whch may have
reduced profts durng the base perod. Subsecton (b) ( ) provdes
tests for the creaton and contnued e stence after ts creaton of a
hgher earnng capacty before 19 0 occurrng too ate to be fuy
effectve throughout the base perod. The ncrease may arse because
the ta payer commenced busness (. e., started out wth reguar
busness operatons) or changed the character of the busness dur-
ng or mmedatey before the base perod. Where a change s
asserted, the ta payer must show that an ncrease n net ncome
resuted actuay or constructvey and that the hgher earnng rate
refected a contnung norma operaton. The ncrease shoud be
ceary separated from and not be confused wth ncreased voume
arsng from war busness and other abnorma causes, prce changes,
e pense fuctuatons, and varatons n e pense aocatons unreated
to the quafyng change. The changes referred to n ths sub-
secton must a possess the common characterstc of havng atered
the character of the busness. y ths s meant that, after the
change, busness operatons must be essentay dfferent from what
they were before.
Subsecton (b) (5). Subsecton (b) (5) s desgned to afford reef
In e ceptona cases whch do not fa wthn the provsons of secton
722(b) (1), (2), (3), or ( ). Its purpose s to afford reef where,
through the nterventon of any other factor not mentoned n sub-
sectons (b) (1), (2), (3), or ( ), the base perod does not refect
norma earnngs. s a condton precedent to consderaton under
secton 722(b) (5), an dentfabe factor to whch the nadequacy of the
average base perod net ncome s attrbutabe must have occurred dur-
ng or mmedatey pror to the base perod. It admts other factors
not wthn the provsons of secton 722(b) (1), (2), (3), or ( ) whch
caused average base perod net ncome to be depressed beow the eve
of norma earnngs for the busness or whch resuted n ncreased earn-
ngs, the effect of whch was not adequatey refected n average base
perod net ncome. The factor must affect the ta payer s busness and
must not be nconsstent wth the prncpes underyng the provsons
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of secton 722(b), and wth the condtons and mtatons enumerated
theren.
Chares D. ame,
Charman, cess Profts Ta Counc.
pr 9,19 7.
19 7-9-12538
. P. C. 13
The recognton of fuctuaton, abnorma varaton, and growth
In the determnaton of constructve average base perod net ncome.
1. The Ta Court of the Unted States n Stmson M Co. (7 T. C,
125) and The omer Laughn Chna Co. (7 T. C, 15 ) hed that
nether secton 713(e) (1) nor 713(f) s appcabe n the determnaton
of norma earnngs under secton 722. Sectons 30.722-2(6) (1) and
35.722-2(6) (1) of Reguatons 109 and 112, respectvey, as amended,
provde that n proper cases, under secton 722, regard may be taken
of the presence, n the ta payer s e perence, of factors ndcatng
growth, but prohbt the use of ether the defct or 75 per cent rues
of secton 713(e) (1). In vew of the desrabty of correatng the
rungs of The Ta Court, n the cted cases, wth the aw as nter-
preted by the reguatons, t s beeved that comprehensve e presson
shoud be gven to the prncpes governng the recognton of fuctua-
ton, abnorma varaton, and growth n determnng constructve
average base perod net ncome.
2. ny determnaton of a standard of the earnng capacty of a
busness enterprse, wthn the framework of a specfed base perod,
to be used as a comparatve n ater years nvoved generay (1) cor-
recton for the effect of abnormates n the base perod e perence,
and (2) correcton for any reatvey permanent ncrease n such earn-
ng capacty, resutng from changes n the character of the busness
or n busness condtons durng such perod. The cted Ta Court
decsons are nterpreted to mean that the methods used n estabshng
the standard of norma earnngs n 722 cases are nether controed by
nor mted to those apped n estabshng the standard n non-722
cases. On the other hand, the decsons are not nterpreted as hodng
that the methods apped n non-722 cases may not be used where they
are approprate devces for determnng a far standard of norma
earnngs n 722 stuatons. For e ampe, the base perod prescrbed
by secton 713(b) s a devce whch s practca and approprate to the
determnaton of such a standard of earnngs, but the 75 per cent rue,
havng no reatonshp to cause and effect, s not approprate and w
not be apped.
3. There s a fundamenta dstncton between the methods empoyed
n determnng average base perod net ncome and the methods em-
poyed n estabshng constructve average base perod net ncome.
verage base perod net ncome s computed by the automatc app-
caton of certan nfe be methods (such as prescrbed n sectons
711(b)(1) and 713) to the base perod e perence of the ta payer.
y reason of ther nfe bty those methods may produce, n a par-
tcuar C8.S6 ft standard of earnngs whch s nadequate, adequate, or
e cessve, when compared wth norma earnngs, dependng upon the
net effect of a abnormates and changes n the ta payer s base perod
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8
e perence. On the other hand, constructve average base perod net
ncome s estabshed, as set forth n the buetn, by dscretonary
appcaton of those methods whch crtca anayss of the ta payer s
e perence shows to be best suted to correctng for abnormates
or changes n the ta payer s base perod e perence. Thus, whe
averagng methods, apped to amounts of net earnngs, are the ony
means of makng certan correctons n non-722 cases, the more fe be
methods avaabe n 722 cases permt ad|ustment of the eements
affectng net earnngs and thereby produce a more accurate resut.
The degree of refnement of the correctve methods used w vary wth
the nature of the case. It w usuay depend upon whether the prac-
tca aspects of the case permt the correcton of (1) the eements
producng net earnngs, (2) net earnngs for a partcuar year, or
(3) the procedure by whch annua earnngs are converted to the
standard for the base perod.
. ecause the e perence of corporatons vares from year to -year,
earnngs from a snge year s operatons sedom provde a satsfactory
standard of norma earnngs. ccordngy, an average of earnngs
for severa typca years (. e., a base perod) usuay s empoyed. In
most 722 cases the 1936-1939 perod, prescrbed by secton 713, con-
sttutes a satsfactory perod for determnng the standard of norma
earnngs. In 722 cases, as n any stuaton where a base perod s used,
the ta payer s e perence frequenty w dscose, n addton to ord-
nary fuctuaton, the presence of abnorma varaton n ncome, e pense,
and net earnngs. There w aso be numerous nstances n whch
actua or constructve earnngs, toward the end of the base perod,
have become estabshed at a eve substantay dfferent from the
average for the entre perod. When such new eve has an endurng
character, rep resentng growth of the busness, t w afford a more
accurate standard for use n comparng norma earnngs wth earn-
ngs durng the e cess profts ta perod. The determnaton of a
far and |ust amount representng norma earnngs, therefore, permts
and requres the recognton of fuctuaton, abnorma varaton, and
growth n estabshng the standard for comparson wth earnngs
durng the e cess profts ta perod. The dstnctons among these
factors are more ready perceved when they are consdered together.
5. s used n ths connecton:
(a) Fuctuaton refers to varatons, n the ncome, e pense, or net
earnngs e perence of a busness or ndustry, of a character or magn-
tude whch ordnary woud be e pected to occur wthn the nterva
seected as the base perod.
(b) bnorma varaton refers to varatons, n the ncome, e pense,
or net earnngs e perence of a busness or ndustry, of a character
or magntude whch ordnary woud not be e pected to occur wthn
the nterva seected as the base perod.
(c) Growth refers to a reatvey permanent1 ncrease, durng the
base perod, n the eve of the ta payer s earnngs.
6. The correctve steps n secton 722 reconstructons ncude (1)
ad|ustment for the quafyng factor, (2) emnaton of abnorma
varatons, and, fnay, (3) correcton for growth f that factor s
present n the ta payer s e perence. t any step n reconstructon
1 n Increase Is reatvey permanent when It Is attrbutabe to factors or condtons
whch reasonaby woud be e pected to contnue for a substanta perod of tme under the
genera economc condtons prevang durng the base perod.
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such e perence w dscose varatons from year to year n ncome,
e pense, and net earnngs, or the appearance of a rsng or decnng
trend n the eve of earnngs. fter correcton for the quafyng
factor, the anayss of the ta payer s e perence s drected, prmary,
to dstngushng varatons or trends whch are the resut of ordnary
fuctuaton n operatng or economc condtons from those whch con-
sttute abnorma varaton or growth. Correcton for abnorma vara-
ton, f any, must necessary precede correcton for the effect of growth.
ccordngy, the recognton of such factors s prmary a matter of
dstngushng:
(a) Those cases n whch the anayss dscoses that nether abnor-
ma varaton nor growth has nfuenced the varatons or trends e -
hbted by the ta payer s base perod e perence. For convenence ths
cass of cases s referred to as fuctuaton cases.
(6) Those cases n whch the anayss dscoses the occurrence, dur-
ng the base perod, of a varaton n earnngs of a character or magn-
tude whch ordnary woud be e pected to occur, f at a, ony after
ntervas substantay onger than the base perod. For convenence
ths cass of cases s referred to as abnorma varaton cases.
(c) Those cases n whch the anayss dscoses that any ncrease n
the eve of ta payer s net earnngs by the end of the base perod was
attrbutabe to the reatvey permanent effects of a change,2 durng
that perod, n busness condtons or n the character of busness
actvtes. For convenence ths cass of cases s referred to as growth
cases. Growth may be evdenced by the foowng ustratve types
of changes n busness condtons, f ther effect upon the eve of earn-
ngs s reatvey permanent:
() more favorabe compettve poston n the ndustry or
n the domestc economy;
() n ncreased eve of demand for the products or servces
furnshed,- such, for e ampe, as mght be attrbutabe to changes
n customers tastes or acceptance of the products or servces
furnshed;
() n ncreased eve of operatng effcency;
deveopments;
(v) favorabe change n the state of the aw or n pubc
factes.
7. Fuctuaton cases. y defnton, the recognton of fuctuaton
precudes the appcaton of methods whereby greater weght s gven
to e perence durng one part of the base perod than to the e perence
durng another. The ob|ectve s the seecton of a method whch w
gve recognton to the ordnary fuctuaton whch woud be e pected
to characterze the ta payer s e perence durng the base perod. c-
cordngy, n convertng constructve annua earnngs for the severa
base perod years (or for one year when approprate) to constructve
average base perod net ncome, the foowng methods w be
acceptabe:
(a) When earnngs for each year of the base perod have been con-
structvey determned, the standard of norma earnngs shoud be
determned by the use of the arthmetc average of such earnngs.
Operatona changes
technoogca
1 Change 1b used In ts broad spnse. It Incudes changes n busness condtons as
we as changes n the character of the busness.
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(b) If ony the ast year of the ta payer s e perence has been con-
structvey determned, such earnngs may be converted to the con-
structve average base perod net ncome by whchever of the
foowng methods s more approprate n the crcumstances of the
case:
() When constructve earnngs throughout the base perod
woud be e pected to vary materay and to an e tent smar to
some approprate ndustry nde , or the genera busness nde ,
the earnngs for the ast year may be converted by the appcaton
thereto of the rato of the -vear average of such nde to ts 1939
eve. (Cf. . P. C. 8 page ths uetn .)
() When constructve earnngs throughout the base perod
woud not be e pected to vary materay from the ast year, such
ast year s earnngs may be taken as the constructve average base
perod net ncome. (7-Up Fort Worth Co., Inc., 8 T. C, 6.)
Ths stuaton s not typca of most e perence, and the method
empoyed under the pecuar facts of the cted case shoud not
generay be foowed. It s approprate ony where the ack of
sgnfcant varaton s ceary estabshed.
8. bnorma varaton cases. . P. C. 6 C. . 19 6-2,123 defnes
abnormates as substanta and outstandng departures from the
usua and ordnary ncome and e pense that woud be e pected to
characterze the profts hstory of the ta payer durng the base perod.
Such abnormates are corrected whether or not they consttute qua-
fyng factors and regardess of whether the consequences are favorabe
or unfavorabe to the ta payer. The recognton of abnorma vara-
ton s prmary a matter of dstngushng varatons whch const-
tute mere fuctuaton from varatons whch consttute the substanta
and outstandng departures referred to n . P. C. 6.
(a) It s fundamenta to the recognton and correcton of abnorma
varatons that they be attrbutabe to dentfabe events and cond-
tons and, e cept n unusua nstances, measurabe n partcuar tems
of ncome and e pense.
(b) varaton n ncome, e pense, or net earnngs of a partcuar
character or magntude w be norma (. e., fuctuaton ) when
t woud ordnary be e pected to occur wthn the base perod or any
equa nterva, or abnorma (. e., abnorma varaton ) when t
woud ordnary be e pected to occur, f at a, ony after ntervas
substantay onger than the base perod. Thus, for e ampe, a vara-
ton of doars attrbutabe to crcumstances whch woud ordnary
be e pected to occur ony after ntervas of appro matey eght years
woud be an abnorma varaton f t occurred durng a -year base
perod. The onger the probabe nterva between occurrences of
such crcumstances, the greater s the effect of the abnormaty upon
the shorter base perod. Whe many of such abnorma varatons
w not be of a recurrent type, the e perence of the ta payer or ts
ndustry may ndcate that some w recur from tme to tme. The
frequency wth whch a partcuar varaton may ordnary be e -
pected to occur can not be e acty determned. Such determnaton
s a matter of sound |udgment of the reasonabe probabty of recur-
rence based upon anayss of the characterstcs of the ta payer s
busness.
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(c) When the effects of abnorma varaton are measuraby refected
n partcuar tems of ncome or e pense, the correcton usuay w be
made by ad|ustng the partcuar tems so affected durng the base
perod years. If the varaton s of a recurrent type, the amount of
the ad|ustment shoud bear a reasonabe reaton to the probabe fre-
quency of occurrence of the abnormaty. For e ampe, f ncome or
e pense for one of four base perod years s found to be affected by an
abnorma varaton of doars, because of crcumstances whch woud
reasonaby be e pected to occur ony after ntervas of eght years,
such abnormaty mght be corrected by frst emnatng the vara-
ton of doars from the affected year and, thereafter, aocatng
s a doars of such varaton to each of the four base perod years.
Ths method resuts n ad|ustng aggregate base perod earnngs by
the correct proporton of the varaton ( doars) wthout dstort-
ng earnngs for any snge year.
(d) In the unusua nstances n whch the effect of the abnorma
varaton s measurabe ony n net earnngs for a partcuar year, the
abnormaty may be corrected by ad|ustng earnngs for such year to
conform to the e perence typfed by any nde of the ta payer s n-
dustry or ndustry segment whch, tsef, s not materay affected
by the abnorma crcumstances. If, for e ampe, an abnorma vara-
ton occurred n 1937, a year for whch the nde number of the ta -
payer s ndustry segment s 105 wth reaton to any norma year, such
as 1939, taken as 100, norma earnngs for 1937 mght be reconstructed
at 105 per cent of the ta payer s norma earnngs for 1939. When no
such nde s avaabe n a partcuar case, the genera busness nde
mght be used. In a case where the amount of the abnorma varaton
has been ascertaned by the procedure ndcated above n ths para-
graph and t further appears that the crcumstances causng the ab-
normaty mght recur wth reasonaby probabe reguarty, earnngs
for the base perod years mght then be ad|usted by the method sug-
gested n paragraph 8(c) above.
9. Growth cases. The ob|ectve of methods recognzng growth s
to correct the ta payer s e perence for the effects of changes durng
the base perod n busness condtons or n the character of the ta -
payer s busness actvtes whch, by the end of the base perod, re-
suted n a reatvey permanent ncrease n the ta payer s eve of
earnngs. In such cases, t s necessary to assume that the ta payer
operated throughout the base perod wth the capacty for producton
and operaton and n the manner and state of deveopment estabshed
by December 31, 1939, sub|ect to the genera demand condtons and
to the genera economc condtons whch prevaed durng the base
perod. Ths prncpe may be mpemented n varous ways, depend-
ng on the degree of refnement permtted by the practca aspects of
the partcuar case. fter ad|ustng the ta payer s earnngs for 1939
to refect the eve of earnngs constructvey reached by the end of the
base perod, the foowng methods may be empoyed to compete tha
recognton of growth:
(a) In such deta of ncome and e pense as may be advsabe n
the crcumstances, constructve earnngs for the three earer years
of the base perod may be determned on the bass of assumed norma
operatons, throughout those years, consstent wth the earnng ca-
pacty constructvey estabshed for 1939. Where growth s so rec-
ognzed, net earnngs for the severa base perod years w refect
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88
merey the year-to-year fuctuatons n earnngs whch are due to gen-
era economc or other operatng condtons durng the base perod.
The arthmetc average of the constructve earnngs for a base perod
years w be the constructve average base perod net ncome.
(6) In cases n whch the ta payer acks suffcent reevant e pe-
rence, or the practca aspects of the case otherwse precude the
method of reconstructon descrbed n the precedng paragraph, t
may be necessary to determne earnngs for the three earer years
of the base perod by the use of.() the e perence of comparatves,
(2) nde es for the ndustry or ndustry segment to whch the ta -
payer s busness beongs, or (3) the genera busness nde . When-
ever the comparatve or the nde used n a partcuar case does not
tsef typfy growng busness e perence (as n the case of the genera
busness nde ), growth w be satsfactory recognzed n the recon-
structon and the arthmetc average of annua base perod earnngs,
so estabshed, w be the constructve average base perod net ncome.
(c) When the comparatve e perence or the nde , used n recon-
structng the three earer base perod years, tsef typfes growng
busness e perence, correcton for the growth factor w not be fuy
competed n the yeary reconstructon. In such cases, fu recogn-
ton of growth may be accompshed by determnng the ta payer s
norma earnngs eve through the use of any accepted statstca
method ncudng the growth formua. The amount so determned
sha,Mn no case, be greater than the hghest amount of constructve
earnngs for any year of the base perod.
10. In cases where ta payers prevousy have been granted reef
under secton 722 and the provsons of secton 713(f) have been ap-
ped n the determnaton of constructve average base perod net
ncome, appcatons for reef under secton 722 fed by such ta -
payers for subsequent years w be processed n accordance wth ths
memorandum, and the constructve average base perod net ncome
w be redetermned on the revsed bass.
11. In cases where, n reconstructon, the busness of the ta payer
may have been dvded nto two or more segments representng sep-
arate departments, dfferent products, operaton of separate estabsh-
ments, or other natura cassfcatons, t w be permssbe to appy
dfferent methods to the varous segments f the crcumstances warrant
such procedure. Consodaton of the severa amounts so determned
w then represent the constructve average base perod net ncome
of the ta payer.
Chares D. ame,
Charman. cess Profts Ta Counc.
pr 9, 19 7.
19 7-9-12539
. P. C. 1
arabe credt rue.
Inqures have been receved as to whether the varabe credt rue
(Reguatons 112, secton 35.722-3 (d), uetn on Secton 722, Part
, Subpart II, paragraph (F)) has been modfed or revoked by the
decson of The Ta Court of the Unted States n the case of ast
Te as Motor Freght Lnes (7 T. C, 579).
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It s beeved that the cted decson nether revokes nor modfes
the rue set forth n the reguatons and the buetn. Further, t s
the opnon of the cess Profts Ta Counc that, n the types of
cases specfed n the reguatons and buetn, the varabe credt rue
s a sound and proper nterpretaton of the statute, because t s requred
to obtan a far and |ust amount representng norma earnngs for
purposes of comparson wth earnngs durng an e cess profts ta
perod.
Chares D. am e,
Charman, cess Profts Ta Counc.
pr 9,19 7.
19 7-12-12566
. P. C. 15
The substanta detrment rue In commtment cases.
(1) The uetn on Secton 722 of the Interna Revenue Code, n
ts treatment of commtment cases, provdes that a quafyng com-
mtment shoud meet a of three tests, the ast of whch reads as
foows (G. P. O. Prntng, November, 19 , Part , Subpart I,
paragraph C(3), page 58) :
(3) No Wthdrawa Wthout Substanta Detrment.
The commtment shoud be of such nature that It w not permt the ta -
payer to wthdraw wthout substanta detrment. Negotaton pror to a con-
tract for the purchase of factes, or payment of a nomna fee for a con-
structon permt woud not be suffcent.
The buetn s hereby amended by strkng out the provsons quoted
above n ths paragraph and by nsertng n eu thereof the prov-
sons of paragraph (2) of ths . P. C.
(2) Progress to the pont where the ta payer coud not wthdraw
wthout substanta detrment may be gven substanta weght n
determnng whether or not ta payer has commtted tsef to a course
of acton pror to anuary 1, 19 0, ookng to a change n capacty
for producton or operaton. On the other nand, commtment cams
are not to be re|ected soey on the ground that ta payers whch have
otherwse comped wth a of the essentas n commtment cases
may, nevertheess, be n a poston where they mght have wthdrawn
wthout substanta detrment pror to anuary 1, 19 0. For e -
ampe, t may we be that a ta payer near the end of the base perod
adopted a cear, defnte, and unequvoca course of acton but dd not
have suffcent tme pror to anuary 1, 19 0, to progress to a pont
from whch t coud not wthdraw wthout substanta detrment.
Under such crcumstances, there s no reason to deny approprate
reef on the theory that the ta payer mght have been abe to wth-
draw wthout substanta detrment. If, however, the ta payer asserts
that t commtted tsef to a course of acton we n advance of the
end of the base perod and f under ordnary crcumstances, and n
the ght of condtons then appcabe to the ta payer, t mght have
been e pected to have progressed pror to the end of the base perod
to a pont from whch t coud not have wthdrawn wthout substan-
ta detrment, ts faure to progress to suc pont pror to anuary
75 70 17 7
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90
1,19 0, may be gven consderaton n determnng whether ta payer
has n fact commtted tsef.
Chares D. ame,
Charman, cess Profts Ta Counc.
May 22, 19 7.
19 7-12-12571
. P. C. 16
Meanng of nadequate standard of norma earnngs.
The uetn on Secton 722 of the Interna Revenue-Code (G. P. O.
prntng, November, 19 ) s amended by addng the foowng para-
graph at the concuson of the dscusson under the headng (D)
Genera Prncpes ( uetn, Part 1(D), page 6):
The term standard of norma earnngs n secton 722(b) s synonymous wth
the term far and |ust amount representng norma earnngs n secton 722(a).
ccordngy, there s n prncpe no test of whether average base perod net
ncome s an nadequate standard of norma earnngs other than a comparson
of average base perod net ncome and constructve average base perod net n-
come. In ths respect, a ta payer Is not requred to prove more than that an
e cess of norma earnngs over average base perod net ncome was caused, n
whoe or n part, by a secton 722(b) factor. ut a ta payer whch has estab-
shed the e stence of one or more of the factors set forth n secton 722(b) (1),
(2), (3), ( ), or (5) may be dened reef wthout a detaed and e act determna-
ton of norma earnngs when t s cear that wthout such a determnaton norma
earnngs woud not e ceed average base perod net ncome. Instances of such
a stuaton ncude the foowng:
( ) Where the secton 722(b) factor had no effect actuay (or constructvey)
upon base perod ncome or base perod earnng capacty.
(6) Where the effect of the secton 722(b) factor s offset by an ad|ustment
permtted under secton 711(b)(1) or secton 713, n determnng average base
perod net ncome, whether or not reated to the secton 722(b) factor.
(c) Where the effect of the secton 722(b) factor s offset by the effect of
some other factor for whch an ad|ustment s requred n determnng norma
earnngs.
(d) Where the ta payer used a credt based on nvestw capta and the effect
of the 722(1)) factor woud not be suffcent to resut n a arger credt.
ny provsons of the buetn nconsstent wth the foregong are to
be deemed modfed, amended, or revoked to the e tent necessary to
emnate such nconsstency.
Chares D. ame,
Charman, cess Profts Ta Counc.
une 2,19 7.
19 7-13-12577
. P. C. 17
In computng average base perod net Income n ts e cess profts
ta return, the M Corporaton ncreased ts net ncome for 1936
by propery dsaowng certan abnorma deductons n accordance
wth the provsons of secton 711(b)(1) ( ) and ( ). It sub-
sequenty fed an appcaton for reef under secton 722, aegng
that ts average base perod net ncome was an nadequate standard
of norma earnngs because ts norma operatons for 1938 had
been nterrupted by a fre. ed, In determnng constructve aver-
age base perod net Income under the crcumstances of ths case,
the entre amount of such deductons shoud be emnated. The
fact that ony a porton woud be emnated In computng average
base perod net ncome s not controng.
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1. The M Corporaton fed an appcaton for reef under the pro-
vsons of secton 722 n whch t aeged that ts average base perod
net ncome was an nadequate standard of norma earnngs because
norma operatons for 1938 were nterrupted by a fre. In determnng
ts constructve average base perod net ncome, a queston has arsen
wth respect to the treatment of certan deductons whch had been
propery dsaowed n accordance wth the provsons of secton
711(b) (1) ( ) and ( ) when the ta payer computed ts average base
perod net ncome. The facts pertnent to ths queston are dscussed
beow.
2. Pror to 193 the M Corporaton marketed ts product by empoy-
ng a force of saesmen. In 193 t dscontnued ths method of opera-
ton and entered nto a contract wth a merchandse broker who as-
sumed the obgaton of dstrbutng the ta payer s product on a
commsson bass. Pursuant to ths change, ta payer s saes depart-
ment was dscontnued and ts saesmen were dscharged. t the
tme of ther separaton, severa saesmen were ndebted to the ta -
payer by reason of the fact that the amounts of e pense moneys ad-
vanced to them were n e cess of accrued commssons. Repeated at-
tempts by the M Corporaton to coect these amounts argey resuted
n faure, wth the consequence that the remanng baance of unco-
ectbe overdrafts, amountng to 12,000, was charged off and de-
ducted for 1936. Of ths amount, 5,750 was dsaowed n computng
average base perod net ncome by appyng secton 711(b) (1) ( )
and ( ) as foows:
Deductons for saesmen s overdrafts.
Year: mount.
1932 , ,000
1933 3, 000
193 5,000
1935 8,000
Test perod tota . 20,000
Test perod average 5, 000
125 per cent of test perod average 6, 250
ppcabe base perod year deducton 12, 000
ase perod deducton determned to be abnorma 5, 750
Lmtaton mposed by secton 711(b) (1) ( ) () (deductons of same
cass for cur-pnt ta abe year) None.
mount to be dsaowed 5, 750
3. The facts ndcate that the change n method of dstrbuton was
fuy consummated pror to the base perod and has no effect upon
constructve average base perod net ncome other than that, f any,
attrbutabe to ths partcuar cass of deductons. The soe queston
for determnaton s whether, n determnng constructve average
base perod net ncome, a or part of these deductons shoud be
emnated.
. Under the facts stated, t s the opnon of the Counc that the
M Corporaton s constructve average base perod net ncome must be
determned wthout regard to any amount of these deductons. In
the busness as t e sted throughout the base perod, and for whch
constructve average base perod net ncome s heng determned, de-
ductons of ths cass have no pace. The ta payer empoyed no saes-
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92
men durng any base perod year.1 Its norma ncome must be com-
puted for a busness operatng as the ta payer actuay operated, . e.,
dstrbutng ts product through a merchandse broker. It foows that
the entre 12,000 must be emnated.
5. In . P. C. 6 C. . 19 6-2, 126 t was stated that norma earn-
ngs ace not dependent upon appcaton of sectons of the Code other
than secton 722.2 Ths same prncpe was enuncated more fuy n
. P. C. 13 page 83, ths uetn . Under ths concept, the amount of
any deducton to be ncuded n the determnaton of constructve
average base perod net ncome s controed by the facts n the partcu-
ar case and s not dependent upon ether a statutory rue derved
from secton 711(b) (1) or upon the advantage or dsadvantage to the
partcuar ta payer.5
Chares D. ame,
Charman, cess Profts Ta Counc.
une ,19 7.
19 7-13-12578
. P. C. 18
In determnng constrnctve average base perod net Income for
the N Corporaton, the Secton 722 Fed Commttee recommended
emnaton from gross ncome for 1937 of the entre amount of a
ump-sum refund of the State e cse ta . The ta n queston had
been erroneousy coected from the ta payer for the perod October,
1922, through March, 1931, and was refunded pursuant to speca
act of the State egsature after State ta ng authortes determned
that the actvtes of the N Corporaton were not sub|ect to the ta .
ed, that the entre amount of such refund must be emnated
from gross ncome for 1937 n determnng constructve average
base perod net Income.
1. The N Corporaton fed an appcaton for reef under secton
722, aegng ts average base perod net ncome to be an nadequate
standard of norma earnngs because of an ncrease n capacty, etc.,
evdenced by the openng of an addtona branch n 1936. The ta -
ayer determned a constructve average base perod net ncome whch
as been accepted by the Secton 722 Fed Commttee, sub|ect to a
snge transacton upon whch the opnon of the Counc has been
requested.
2. The facts surroundng the transacton n queston are summarzed
as foows: From October, 1922, through March, 1931, the N Cor-
poraton fed monthy returns and pad the amounts of State e cse
ta shown to be due. The amounts so assessed and pad were deducted
currenty n the N Corporaton s Federa ncome ta returns. In
pr, 1931, the State ta ng authortes determned that the N Cor-
poraton had never been abe for any amount of ths ta and made
no assessments aganst ths ta payer subsequent to the assessment for
1 See the ast paragraph of . P. C. 6, where substanta and outstandng departures
from the usua and ordnary e pense that woud be e pected to characterze
the profts hstory of the ta payer durng ts base perod are termed abnormates
whch must be taken Into account n determnng norma earnngs.
1 Ta payers quafyng under secton 722 are aowed an e cess profts credt computed
In accordance wth a method dstnct from ether tha average earnngs or nvested capta
method. The computaton of the credt n such cases nvoves a determnaton of norma
earnngs, whch determnaton Is governed by the provsons of secton 722.
See paragraphs 2 and 8, . P. O. 18.
See Part III(D)(1), page 150, and Part III(I))(3), page 153, uetn on Secton
722 (O. P. O. prntng).
Cf. The CoUon Corporaton (5 T. C, 1035).
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93
Regs. 116, 8 05.101.
March, 1931. In 1936 the State egsature authorzed the repayment
of the entre amount of ths ta pad by the N Corporaton. The
ta payer receved the refund n 1937 and ncuded t n gross ncome
for that year.
3. The N Corporaton contends that the amount of the refund
shoud reman n gross ncome for the purpose of determnng norma
earnngs snce (a) t does not reate to the actvtes of the new
branch estabshed n 1936 and for whch reef s sought, and (b)
t was propery ncudbe n gross ncome, for ncome ta purposes,
for the ta abe year n whch t was eceved. The Secton 722 Fed
Commttee has proposed to emnate from grass ncome for 1937 the
entre amount of ths refund. It s the poston of the commttee
that ths emnaton s requred for the reason that the N Corporaton
ordnary woud not be e pected to receve gross ncome of ths
character at any tme and that ts recept n 1937 was a fortutous
crcumstance whch dstorted gross ncome for the purposes of sec-
ton 722.1
. It s the opnon of the Counc that the Secton 722 Fed Com-
mttee shoud be sustaned. The facts surroundng ths partcuar
tem of gross ncome ceary ndcate that t arses f rom a source totay
foregn to the ta payer s reguar busness. It s a refund of a ta
for whch the N Corporaton never was egay abe. s such t
s not to be cassed wth mnor ad|ustments, upward or downward,
of e cses propery appcabe but orgnay assessed n erroneous
amounts whch over a perod of years tend to cance each other. In
short, t s an tem of gross ncome havng no reaton to ta payer s
base perod operatons and whch never woud have appeared n base
perod gross ncome but for the fact that an erroneous appcaton
of aw e tendng over a perod of pror years happened to be. rectfed
durng the base perod.
Char/es D. ame,
Charman, cess Profts Ta Counc.
une ,19 7.
C PT R 9. MPLOYM NT T S.
SU C PT R D. COLL CTION OF INCOM T T SOURC
ON W G S.
S CTION 1621(a). D FINITIONS: W G S.
Regttatons 116, Secton 05.101: Wages. 19 7-3-12 82
( so Secton 1622, Secton 05.201, Regu- I. T. 3839
atons 116.)
INT RN L R NU COD .
Where an empoyee des before cashng or depostng a check for
hs compensaton, ess the Income ta wthhed at the source on
wages, and such check Is returned for canceaton and ressuance
because of hs death, the ressued check (payabe to hs persona
See ast paragraph, . P. C. 6 C. . 19 -2, 126 , deang wth abnormates, and
paragraph 8, . P. C. 18 page 88, ths uetn .
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Regs. 116, 05.201.
9
representatves) shoud be In the face amount of the check pre-
vousy ssued, snce the compensaton n queston was propery
sub|ect to wthhodng of Income ta under secton 1622 of the Inter-
na Revenue Code.
dvce s requested whether I. T. 3737 (C. . 19 5, 319) s ntended
to cover a stuaton where an empoyee des before cashng or depost-
ng a check for hs compensaton, ess the ncome ta wthhed at the
source on wages, and t s necessary to return the check for cancea-
ton and ressuance n the name of the empoyee s persona representa-
tves. In I. T. 3737, t s hed (syabus) :
Death beneft payments made to the benefcares or to the estates of deceased
empoyees, and payments made to the benefcares or to the estates of deceased
empoyees whch represent unpad compensaton for servces rendered by the
decedent, are not wages sub|ect to wthhodng of ncome ta at the source under
secton 1022 of the Interna Revenue Code, as amended.
The specfc queston presented s whether the ressued check (pay-
abe to the persona representatves of the decedent) shoud be drawn
for the fu amount of compensaton wthout reducton for wthhod-
ng or n the same amount as the orgna check.
When the check was devered to the empoyee n payment of com-
pensaton t was sub|ect to wthhodng of ncome ta at the source on
wages under secton 1622 of the Interna Revenue Code. The fact
that the empoyee ded wthout havng cashed or deposted the check
ssued to hm, thus necesstatng the canceaton of such check and
the ssuance of another check n the name of the empoyee s persona
representatves, does not affect the abty of the empoyer to wth-
hod on the amount of the check devered to the empoyee pror to
hs death.
In vew of the foregong, t s hed that where an empoyee des
before cashng or depostng a check for hs compensaton, ess the
ncome ta wthhed at the source on wages, and such check s returned
for canceaton and ressuance because of hs death, the ressued check
(payabe to hs persona representatves) shoud be n the face amount
of the check prevousy ssued, snce the compensaton n queston
was propery sub|ect to wthhodng of ncome ta under secton 1622
of the Interna Revenue Code. I. T. 3737, supra, s not appcabe to
such a stuaton.
Ressuance of wage check to empoyee s persona representatves,
S CTION 1622. INCOM T COLL CT D
T SOURC .
Reguatons 116, Secton 05.201: Requre-
ment of wthhodng.
INT RN L R NU COD .
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95
Regs. 116, 05.501.
S CTION 1625. R C IPTS.
Reguatons 116, Secton 05.501: Recepts 19 7-3-12 83
for ta wthhed at source on wages. Crcuar 19 5
Form W-2, Wthhodng statement for 19 7. Rues for repro-
ducton. Crcuar 1920 C. . 19 6-2, 132 revoked.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 2-6, D. C, anuary 15, 19 f.
Coectors of Interna Revenue and Others Concerned:
1. Crcuar 1920 C. . 19 6-2, 132 , dated September 5, 19 6,
s hereby revoked, and the nstructons ncorporated heren are sub-
sttuted for the nstructons n that, crcuar. pprovas heretofore
granted for the reproducton of Form W-2 are not affected by ths
crcuar. The forms prnted under such approvas may be used.
owever, future appcatons for such authorzaton w be sub|ect
to the provsons of ths crcuar.
2. Form W-2 for 19 7 may be reproduced, but ts reproducton
must have offca approva. Requests for such approva must be
addressed to the Commssoner of Interna Revenue, ttenton:
C: Co: O, Washngton 25, D. C, and must ncude a sampe of the
proposed reproducton. The foowng specfcatons must be met:
(a) Coor and quaty of paper: The forms must be prnted on pnk
paper of substantay the same weght and te ture, and of quaty
as good as that used by the Government. The use of wa -coated
paper w not be permtted.
(b) Typography: The reproducton must be prnted n back nk,
usng type not smaer than the correspondng type on the offca form
and, as neary as possbe, of the same font. mted rearrange-
ment of the face of the form w be permtted, but the space for the
name of the empoyee must be above that used for the name of the
empoyer. The space provded for the coector s use may be re-
duced n sze sghty, but ony f proved necessary. It must be n
the same reatve poston as on the offca form. No rearrangement
of the matera on the backs of the orgna and dupcate w be
permtted.
(e) Data to be shown on Form W-2: Reproduced Forms W-2 must
be desgned so as to provde for entry by empoyers of the same data
as to wages pad and ta wthhed as requred by the offca form.
separate showng of the Federa od-age and survvors nsurance
ta (abbrevaton O. . S. I. ) w be permtted f ceary ndcated
as such. owever, ony one amount of wages may be shown, the
gross wages before any payro deductons of any nature have been
made. Permsson w not be granted for reproductons whch woud
permt empoyers to show, on the orgna and trpcate copes; any
payro deductons other than those ndcated heren. There s no
ob|ecton to the attachment of a stub or e tenson, to the dupcate
porton of the form ony, to provde addtona nformaton not
authorzed for reproducton on the form tsef. ddtona copes
smar to Form W-2b may be reproduced for the use of empoyers.
It w be permssbe to prepare forms, as carbon mpressons of
Form W-2, for use n connecton wth ta es other than the Federa
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S 111, rt. 111-1.
96
ncome ta , provded such forms bear no menton of the Interna
Revenue Servce or the Unted States Treasury Department. These
forms or addtona copes must not be paced ahead of Form W-2a n
the assemby. Forms for devery to State or oca ta ng authortes
shoud be ceary abeed to ndcate the purpose for whch they are
ntended and shoud not bear any part of the desgnaton Form
(d) Dmensons: The offca sze of the form s 7 nches wde
by 3 nches n depth, but the depth may vary from Sy2 to 3 nches.
(e) Carbonzed forma or spot carbons are not permssbe. In-
tereaved carbon, f used, must be of good quaty to precude
smudgng.
(/) The Government Prntng Offce symbo must be omtted from
reproduced forms.
(g) uthorzed reproducton: n approved form must bear the
notaton pp. . I. R. and the date of ts approva n sma type
on the bottom margn, eft-hand sde of the face of both the orgna
and the coector s copy, Form W-2a.
3. Correspondence reatve to the contents of ths crcuar shoud
refer to ts number and to the symbos C: Co.
oseph D. Ncnan, r.,
Commssoner.
. R NU CT OF 1938.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
rtce 101(12)-1: Farmers cooperatve
marketng and purchasng assocatons.
R NU CT OF 1938.
Cooperatve marketng assocaton whch markets products pur-
chased by members as products produced by members. (See L T.
3853, page 2.)
SUPPL M NT . COMPUT TION OF N T INCOM .
S CTION 111. D T RMIN TION OF MOUNT OF,
ND R COGNITION OF, G IN OR LOSS.
rtce 111-1: Computaton of gan or oss.
R NU CT OF 1938.
mount reazed from sae of nherted property sub|ect to an
nassumed mortgage. (See Ct. D. 168 , page 97.)
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97
113(a), rt. 113(a)(5)- .
S CTION 113(a). D UST D SIS FOR D T RMINING
G IN OR LOSS: SIS (UN D UST D) OF PROP RTY.
rtce 113(a) (5)-: ass of property ac- 19 7-10-125 9
qured by bequest, devse, or nhertance. Ct. D. 168
( so Secton 111, rtce 111-1; Secton
113(b), rtce 113(b)-; Secton 11 ,
rtce 11 -1.)
ncome ta revenue act of 1938 decson of supreme court.
1. Gan or Loss ass Sae of Property ncumbered by Mort-
gage mount Reazed Deprecaton owance.
Ta payer receved under the w of her husband an apartment
budng and ot, sub|ect to a mortgage n an amount equa to the
vaue of the property as apprased for Federa estate ta purposes
and accrued Interest; hence her equty n the property was of zero
vaue. For seven years she operated the property, reportng the
gross rentas as Income, and was aowed deductons for ta es and
operatng e penses, for nterest pad on the mortgage, and for
physca e hauston of the budng. In 1938 she sod the property,
st encumbered by the mortgage, for a net sum of 2,500. ed:
The word property, as used n secton 113(a) and reated sectons
of the Revenue ct of 1 ). 8, s not to be construed to mean equty.
Therefore, n determnng the ta abe gan upon the sae, the proper
bass under secton 113(a) (5) s the vaue of the property undmn-
shed by the mortgage thereon, and the amount reazed was the
net amount of cash receved pus the amount of the mortgage. The
Commssoner s ad|ustments for deprecaton are sustaned, as the
apartment house was property of a knd sub|ect to physca e haus-
ton, and was used In the ta payer s trade or busness.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Second
Crcut (153 Fed. (2d), 50 ), reversng opnon of The Ta Court
of the Unted States (3 T. C, 5S0), affrmed.
Supreme Court of the Unted States.
euah . Crane, pettoner, v. Commssoner of Interna Revenue, respondent.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
pr 1 , 10 7.
OPINION.
Mr. Chef ustce nson devered the opnon of the Court.
The queston here s how a ta payer who acqures deprecabe property sub|ect
to an unassumed mortgage, hods t for a perod, and fnay ses t st so
encumbered, must compute her ta abe gan.
Pettoner was the soe benefcary and the e ecutr of the w of her husband,
who ded anuary 11, 1932. e then owned an apartment budng and ot sub-
|ect to a mortgage,1 whch secured a prncpa debt of 255,000 and nterest In
defaut of 7,0 2.50. s of that date, the property was apprased for Federa
estate ta purposes at a vaue e acty equa to the tota amount of ths encum-
brance. Shorty after her husband s death, pettoner entered nto an agreement
wth the mortgagee whereby she was to contnue to operate the property co-
ectng the rents, payng for necessary repars, abor, and other operatng e -
penses, and reservng 200 monthy for ta es and was to remt the net rentas
to the mortgagee. Ths pan was foowed for neary seven years, durng whch
perod pettoner reported the gross rentas as ncome, and camed and was
1 The record does not show whether he was personay abe for the debt.
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113(a), rt. 113(a)(5)- . 98
aowed deductons for ta es and operatng e penses pad on the property, for
nterest pad on the mortgage, and for the physca e hauston of the budng.
Meanwhe, the arrearage of nterest ncreased to 15,857.71. On November 29,
1938. wth the mortgagee threatenng forecosure, pettoner sod to a thrd party
for 1,000 cash, sub|ect to the mortgage, and pad 500 e penses of sae.
Pettoner reported a ta abe gan of 1,250. er theory was that the prop-
erty whch she had acqured n 1932 and sod n 1938 was ony the equty, or the
e cess n the vaue of the apartment budng and ot over the amount of the
mortgge. Ths equty was of zero vaue when she acqured t. No deprecaton
coud be taken on a zero vaue.2 Nether she nor her vendee ever assumed the
mortgage, so, when she sod the equty, the amount she reazed on the sae was
the net cash receved, or 2,500. Ths sum ess the zero bass consttuted her
gan, of whch she reported haf as ta abe on the assumpton that the entre
property was a capta asset.
The Commssoner, however, determned that the pettoner reazed a net
ta abe gan of 23,767.03. s theory was that the property acqured and
sod was not the equty, as pettoner camed, but rather the physca property
tsef, or the owner s rghts to possess, use, and dspose of It, undmnshed by
the mortgage. The orgna bass thereof was 262,0 2.50, ts apprased vaue
n 1932. Of ths vaue 55,000 was aocabe to and and 207,0 2.50 to budng.
Durng the perod that pettoner hed the property, there was an aowabe
deprecaton of 28,0 5.10 on the budng,5 so that the ad|usted bass of the
budng at the tme of sae was 178,997. 0. The amount reazed on the sae
was sad to ncude not ony the 2,500 net cash recepts, but aso the prncpa
amount0 of the mortgage sub|ect to whch the property was sod, both totang
257,500. The seng prce was aocabe n the proporton, 5 , 71.15 to the and
and 203,028.85 to the budng.7 The Commssoner agreed that the and was
a capta asset, but thought that the budng was not. Thus, he determned
that pettoner sustaned a capta oss of 528.85 on the and, of whch 50 per cent
or -0 . 2 was taken nto account, and an ordnary gan of 2 ,031. 5 on the
budng, or a net ta abe gan as ndcated.
The Ta Court agreed wth the Commssoner that the budng was not a
capta asset. In a other respects t adopted pettoner s contentons, and
e punged the defcency. Pettoner dd not appea from the part of the rung
adverse to her, and these questons are no onger at ssue. On the Comms-
soner s appea, the crcut court of appeas reversed, one |udge dssentng.1 We
granted certorar because of the mportance of the questons rased as to the
proper constructon of the gan and oss provsons of the Interna Revenue Code.
The 1938 ct, secton 111(a), defnes the gan from the sae or other ds-
poston of property as the e cess of the amount reazed therefrom over the
ad|usted bass provded n secton 113(b). It proceeds, secton 111(b),
to defne the amount reazed from the sae or other dsposton of property
as the sum of any money receved pus the far market vaue of the property
(other than money) receved. Further, n secton 113(b), the ad|usted bass
for determnng the gan or oss from the sae or other dsposton of property
Is decared to be the bass under subsecton (a), ad|usted (1)( )
Th poston s. of course, nconsstent wth her practce n camng such deductons
In each of the years the property was hed. The deductons bo camed and aowed by
the Commssoner were n the tota amount of 25,500.
See secton 117(a)(1)), Revenue ct of 1938 (eh. 289, 52 Stat.. 7). Under ths
provson ony 50 per cent of the gan reazed on the sae of a capta asset need be
taken nto account, f the property had been hed more than two years.
The partes stpuated as to the reatve parts of the 1032 apprased vaue and of the
1038 saes prce whch were aocabe to and and budng.
5 The partes stpuated that the rate of deprecaton appcabe to the budng was 2
per cent per annum.
6 Te Commssoner e pans that ony the prncpa amount, rather than the tota
present debt secured by the mortgage, was deemed to be a measure of the amount reazed,
because the dfference was attrbutabe to nterest due, a deductbe tem.
7 See supra, note .
See secton 117(a)(1), Revenue ct of 1938, supra.
3 T. C, 585. The court hed that the budng was not a capta asset wthn the
meanng of secton 117(a) and that the entre gan on the budng had to be taken nto
account under secton 117(b). because It found that the budng was of a character
sub|ect to physca e hauston and that pettoner had used t n her trade or busness.
ut because the court accepted pettoner s theory that the entre property had a ero
bass, t hed that she was not entted to the 1038 deprecaton deducton on the budng
whch she had Inconsstenty camed.
For these reasons, t dd not e punge the defcency n ts entrety.
153 Fed. (2d), 50 .
U. S.. .
subsequent references to n Revenue ct are to ths ct uness otherwse Indcated.
The reevant parts of the gan and oss provsons of the ct and Code are Identca.
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99 113(a), rt. 113(a)(5)- .
for e hauston, wear and tear, obsoescence, amortzaton to
the e tent aowed (but not ess than the amount aowabe). The
bass under subsecton (a) f the property was acqured by devse
or by the decedent s estate from the decedent (secton 113(a)(5))
a the far market vaue of such property at the tme of such acquston.
Logcay, the frst step under ths scheme Is to determne the unad|usted bass
of the property, under secton 113(a) (5), and the dspute n ths case s as to the
constructon to be gven the term property. If property, as used n that
provson, means the same thng as equty, t woud necessary foow that
the bass of pettoner s property was zero, as she contends. If. on the contrary,
It means the and and budng themseves, or the owner s ega rghts n them,
undmnshed by the mortgage, the bass was 262,0 2.50.
We thnk that the reasons for favorng one of the atter constructons are of
overwhemng weght. In the frst pace, the words of statutes ncudng Rev-
enue cts shoud be nterpreted where possbe In ther ordnary, everyday
senses.13 The ony reevant defntons of property to be found In the prn-
cpa standard dctonares 1 are the two favored by the Commssoner, 1. e.,
ether that property s the physca thng whch s a sub|ect of ownershp, or
that It s the aggregate of the owner s rghts to contro and dspose of tht tng.
quty s not gven as a synonym, nor do ether of the foregong d fntons
suggest that t coud be correcty so used. Indeed, equty s defned as the
vaue of a property above the tota of the ens. The
contradstncton coud hardy be more ponted. Strong countervang consd-
eratons woud be requred to support a contenton that Congress, In usng the
word property, meant equty, or that we shoud mpute to t the Intent to
convey that meanng.18
In the second pace, the Commssoner s poston has the approva of the admn-
stratve constructon of secton 113(a)(5). Wth respect to the vauaton of
property under that secton, Reguatons 101, artce 113(a) (5)-, promugated
under the 1938 ct, provded that the vaue of property as of the date
of the death of the decedent as apprased for the purpose of the Federa estate
ta sha be deemed to be ts far market vaue. The and
and budng here nvoved were so apprased n 1932, and ther apprased
vaue 262,0 2.50 was reported by pettoner as part of the gross estate. Ths
was In accordance wth the estate ta aw 1T and reguatons,18 whch had aways
requred that the vaue of decedent s property, undmnshed by ens, be so
apprased and returned, and that mortgages be separatey deducted In computng
the net estate.19 s the quoted provson of the reguatons has been In effect
snce 1918,20 and as the reevant statutory provson has been repeatedy reen-
acted snce then In substantay the same form,21 the former may Itsef now be
consdered to have the force of aw.
Moreover, n the many nstances In other parts of the ct n whch Congress
has used the word property, or e pressed the dea of property or equty,
we fnd no Instances of a msuse of ether word or of a confuson of the deas.
Od Coony R. Co. . Commssoner (28 U. 8., 552, 560 Ct. D. 50, C. . I I, 27 ,
276 (1982)1).
Sec Webster s New Internatona Dctonary, Unabrdged, 2d ed. ; Punk Wn gna s
New Standard Dctonary ; O ford ngsh Dctonary.
See Webster s New Internatona Dctonary, supra.
Crooks v. arreson (283 U. S., 65, 50 Ct. D. 271, C. . -I, 69. 70 (1931) ).
See sectons 202 and 203(a)(1), Revenue ct of 1916; sectons 02 and 03(a)(1),
Revenue cts of 1918 and 1921 ; sectons 302. 303(a) (1), Revenue cts of 192 and 1926 ;
secton 805, Revenue ct of 1931 .
See Reguatons 87, artces 18, 1 , and 7 ; Reguatons 63, artces 12, 13. and 1 ; Reg-
uatons 68, artces 11, 13, and 38 ; Reguatons 70, artces 11, 13, nnd 38 ; Reguatons SO,
artces 11. 13, and 38.
See Cty ank Farmers Trust Co. v. owers (68 Fed. f2d). 909 Ct. D. 835, C. .
III-1, 368 (193 )1. certorar dened. 292 U. S., 6 ) ; Rodek v. everng (87 Fed.
(2d), 328 Ct. D. 1229. C. . 1937-1, 290 ) ; drance v. Mggns (113 Fed. (2d), 1013).
Set aso Reguatons 5. artce 1562; Reguatons 62, artce 1563; Reguatons 65,
artce 159 ; Reguatons 69, artce 159 ; Reguatons 7 . artce 596; Reguatons 77,
artce 596: Reguatons 86, artce 118(a) (5)-(c) ; Reguatons 9 , artce 113(a)(5)-
(o) ; Reguatons 103, secton 19.113(a) (5)-(c) : Reguatons 111, secton 29.113(a)(5)-
c).
Secton 202(a)(3), Revenue ct of 1921; secton 20 (a)(5), Revenue ct of 192 ;
ecton 20 (a)(5), Revenue ct of 1926; secton 113(a)(5), Revenue ct of 1928; secton
118(a)(5), Revenue ct of 1932; secton 113(a)(5), Revenue ct of 193 ; secton
118(a)(8), Revenue ct of 1936; secton 113(a)(5), Revenue ct of 1938; secton
118(a)(5), Interna Revenue Code.
everng v. Reynods Co. (306 U. S., 110, 11 Ct. D. 1883, C. . 1939-1 (Part 1), 225,
227 ).
Ct. ete ng v. Stookhoms ank (293 T . 8., 8 , 87 Ct. D. 887, C. . III-2, 299,
300-301 (193 ) ).
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113(a), rt. 113(a)(5)- . 100
In some parts of the ct other than the gan and oss sectons, we fnd property
where It s unmstakaby used n ts ordnary sense. On the other hand, where
ether Congress or the Treasury ntended to convey the meanng of equty,
t dd so by the use of approprate anguage.
further reason why the word property n secton 113(a) shoud not be
construed to mean equty Is the bearng such constructon woud have on the
aowance of deductons for deprecaton and on the coatera ad|ustments of
bass.
Secton 23(1) permts deducton from gross ncome of a reasonabe aowance
for the e hauston, wear and tear of property. Sectons 23(n) and
11 (a) decare that the bass upon whch e hauston, wear and tear
are to be aowed s the bass provded n secton 113(b) for the purpose of
determnng the gan upon the sae of the property, whch s the secton 113(a)
bass ad|usted for e hauston, wear and tear to the e -
tent aowed (but not ess than the amount aowabe).
Under these provsons, f the mortgagor s equty were the secton 113(a)
bass, t woud aso be the orgna bass from whch deprecaton aowances are
deducted. If t s, and f the amount of the annua aowances were to be com-
puted on that vaue, as woud then seem to be requred,16 they w represent ony
a fracton of the cost of the correspondng physca e hauston, and any recoup-
ment by the mortgagor of the remander of that cost can be effected ony by the
reducton of hs ta abe gan n the year of sae. If, however, the amount of the
annua aowances were to be computed on the vaue of the property, and then
deducted from an equty bass, we woud n some nstances have to accept deduc-
tons from a mnus bass or deny deductons atogether.18 The Commssoner aso
argues that takng the mortgagor s equty as the secton 113(a) bass woud
requre the bass to be changed wth each payment on the mortgage,2 and that
the attendant probem of repeatedy recomputng bass and annua aowances
woud be a tremendous accountng burden on both the Commssoner and the
ta payer. Moreover, the mortgagor woud acqure contro over the tmng of hs
deprecaton aowances.
Thus t appears that the appcabe provsons of the ct e pressy precude an
equty bass, and the use of It s contrary to certan mpct prncpes of ncome
ta deprecaton, and entas very great admnstratve dffcutes. 0 It may be
added that the Treasury has never furnshed a gude through the maze of prob-
ems that arse n connecton wth deprecatng an equty bass, but, on the con-
trary, has consstenty permtted the amount of deprecaton aowances to be com-
puted on the fu vaue of the property, and subtracted from t as a bass. Surey,
Congress ong-contnued acceptance of ths stuaton gves t fu egsatve
endorsement.
Secton 23(a)(1) permts the deducton from gross ncome of rentas
requred to be made as a condton to the contnued use for purposes of the
trade or busness, of property n whch he the ta payer has no equty.
Secton 23(1) permts the deducton from gross ncome of a reasonabe aowance for
the e hauston, wear and tear of property used n the trade or busness.
See aso secton 303(a)(1). Revenue ct of 1026 (ch. 27, Stat., 0) ; secton 805,
Revenue ct of 1032 (ch. 200, 7 Stat., 2S0).
18 See secton 23(a)(1), supra, note 2 ; secton 805, Revenue ct of 1032, supra, note
2 : secton 3 82, I. R. C.; Reguatons 105, secton 81.38. Ths provson of the regua-
tons, frst appearng n 1037 (T. 1). 720, C. . 1037-1, 28 , 280), permtted estates
whch were not abe on mortgages appcabe to certan of decedent s property to return
ony the vaue of the equty of redemptou (or vaue of the property, ess the ndebted-
ness).
M Sectons 23(n) and 11 (a), In defnng the bass upon whch deprecaton Is to
be aowed, do not dstngush between bass as the mnuend from whch the aowances
are to be deducted, and as the dvdend from whch the amount of the aowance Is to be
computed. The reguatons Indcate that the bass of property s the same for both
purposes. (Reguatons 101, artce 23()- , 5.)
21 Ths Is contrary to Treasury practce, and to Reguatons 101, artce 23()-5, whch
provdes In part:
The capta sum to be recovered sha be charged off over the usefu fe of the property,
ether n equa annua nstaments or n accordance wth any other recognzed trade prac-
tce, such as an apportonment of the capta sum over unts of producton.
See Detrot dson Co. v. Commssoner (310 D. S., 08, 101 Ct. D. 1582. C. . 10 3,
1010, 1020)).
So ong as the mortgagor remans n possesson, the mortgagee can not take depreca-
ton deductons, even f he Is the one who actuay sustans the capta oss, as secton
23(1) aows them ony on property used n the trade or busness.
Secton 113(b)(1)( ) requres ad|ustment of bass for e pendtures
propery chargeabe to capta account.
Obvousy we are not consderng a stuaton n whch a ta payer has acqured and sod
an equty of redempton ony, 1. e., a rght to redeem the property wthout a rght to present
possesson. In that stuaton, the rght to redeem woud tsef be the aggregate of the ta -
payer s rghts and woud undoubtedy consttute property wthn the meanng of
ecton 113(a). No deprecaton probems woud arse. (See note 28.)
See note 22.
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101
113(a), rt. 113(a)(5)- .
We concude that the proper bass under secton 113(a) (5) Is the vaue of the
property, undmnshed by mortgages thereon, and that the correct bass here was
282,0 2 0. The ne t step s to ascertan what ad|ustments arc requred under
secton 113(b). s the deprecaton rate was stpuated, the ony queston at ths
pont s whether the Commssoner ws warranted n makng any deprecaton
ad|ustments whatsoever.
Secton 113(b)(1)( ) provdes that proper ad|ustment n respect of the
property sha n a cases 6e made for e hauston, wear and
tear to the e tent aowed (but not ess than the amount aow-
abe). The Ta Court found on adequate evdence that the apartment
house was property of a knd sub|ect to physca e hauston, that t was used In
ta payer s trade or busness, and consequenty that the ta payer woud have been
entted to a deprecaton aowance under secton 23(1), e cept that, n the opnon
of that court, the bass of the property was zero, and t was thought that depreca-
ton coud not be taken on a zero bass. s we have ust decded that the correct
bass of the property was not zero, but 262,0 2.50, we avod ths dffcuty, and
concude that an ad|ustment shoud be made as the Commssoner determned.
Pettoner urges to the contrary that she was not entted to deprecaton
deductons, whatever the bass of the property, because the aw aows them ony
to one who actuay bears the capta oss, and here the oss was not hers but the
mortgagee s. We do not see, however, that she has estabshed her factua
premse. There was no fndng of The Ta Court to that effect, nor to the effect
that the vaue of the property was ever ess than the amount of the en. Nor
was there evdence n the record, or any ndcaton that pettoner coud produce
evdence, that ths was so. The facts that the vaue of the property was ony
equa to the en In 1932 and that durng the ne t s and one-haf years the
physca condton of the budng deterorated and the amount of the en
ncreased, are entrey nconcusve, partcuary n th. ght of the buyer s w-
ngness n 1938 to take sub|ect to the ncreased en and pay a substanta amount
of cash to boot. Whatever may be the rue as to aowng deprecaton to a
mortgagor on property n hs possesson whch s sub|ect to an unassumed mort-
gage and ceary worth ess than the en, we are not faced wth that probem
and see no reason to decde t now.
t ast we come to the probem of determnng the amount reazed on the
1938 sae. Secton 111 (b), t w be recaed, defnes the amount reazed from
the sae of property as the sum of any money receved pus the
far market vaue of the property (other than money) receved, and secton
111(a) defnes the gan on the sae of property as the e cess of the
amount reazed over the bass. ute obvousy, the word property, used here
wth reference to a sae, must mean property n the same ordnary sense n-
tended by the use of the word wth reference to acquston and deprecaton In
secton 113, both for certan of the reasons stated heretofore n dscussng ts
meanng n secton 113, and aso because the functona reaton of the two sec-
tons requres that the word mean the same n one secton that t does In the other.
If the property to be vaued on the date of acquston s the property free of
ens, the property to be prced on a subsequent sae must be the same thng.
Startng from ths pont, we coud not accept pettoner s contenton that the
2,500 net cash was a she reazed on the sae e cept on the absurdty that she
sod a quarter-of-a-mon doar property for roughy 1 per cent of ts vaue, and
took a 99 per cent oss. ctuay, pettoner does not urge ths. She argues, con-
versey, that because ony 2,500 was reazed on the sae, the property sod
must have been the equty ony, and that consequenty we are forced to accept her
contenton as to the meanng of property n secton 113. We adhere, however,
fo what we have aready sad on the meanng of property, and we fnd that the
absurdty s avoded by our concuson that the amount of the mortgage s propery
Incuded In the amount reazed on the sae.
Pettoner concedes that f she had been personay abe on the mortgage and
the purchaser had ether pad or assumed t, the amount so pad or assumed woud
be consdered a part of the amount reazed wthn the meanng of secton
See everng v. Lazarus f Co. (308 U. S., 252 Ct. D. 1 30, C. . 1939-2, 208 ) ;
Duffy v. Centra . Co. (268 U. S., 55, 6 T. D. 370 , C. . I -1, 1 3, 1 5 (1925) ).
See Magure v. Commssoner (313 U. S., 1, 8 Cr. D. 1506, C. . 19 1-1. 368, 369 ).
We are not troubed by pettoner s argument that her contract of ao e pressy provded
for the conveyance of the equty ony. She actuay conveyed tte to the property, and the
buyer took the same property that pettoner bad acqured n 1932 and used n her trade or
busness unt Its sae.
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113(a), rt, 113(a) (5)-. 102
111(b). The cases so decdng have aready repudated the noton that there
must be an actua recept by the seer hmsef of money or other property, In
ther narrowest senses. It was thought to be decsve that one secton of the ct
must be construed so as not to defeat the Intenton of another or to frustrate the
ct as a whoe, 6 and that the ta payer was the benefcary of the payment n
as rea and substanta a sense as f the money had been pad t and then pad
over by t to ts credtors.
oth these ponts appy to ths case. The frst has been mentoned aready. s
for the second, we thnk that a mortgagor, not personay abe on the debt, who
ses the property sub|ect to the mortgage and for addtona consderaton, rea-
zes a beneft In the amount of the mortgage as we as the boot. If a purchaser
pays boot, It s mmatera as to our probem whether the mortgagor s aso to
receve money from the purchaser to dscharge the mortgage pror to sae, or
whether he s merey to transfer sub|ect to the mortgage t may make a dffer-
ence to the purchaser and to the mortgagee, but not to the mortgagor. Or put n
another way, we are no more concerned wth whether the mortgagor s, strcty
speakng, a debtor on the mortgage, than we are wth whether the beneft to hm
s, strcty speakng, a recept of money or property. We are rather concerned
wth the reaty that an owner of property, mortgaged at a fgure ess than that
at whch the property w se, must and w treat the condtons of the mortgage
e acty as If they were hs persona obgatons. If he transfers sub|ect to the
mortgage, the beneft to hm Is as rea and substanta as f the mortgage were
dscharged, or as f a persona debt n an equa amount had been assumed by
another.
Therefore we concude that the Commssoner Was rght In determnng that
pettoner reazed 257,500 on the sae of ths property.
The Ta Court s contrary determnatons, that property, as used n secton
113(a) and reated sectons, means equty, and that the amount of a mortgage
sub|ect to whch property s sod s not the measure of a beneft reazed, wthn
the meanng of secton 111(b), announced rues of genera appcabty on cear-
cut questons of aw. The crcut court of appeas therefore had |ursdcton to
revew them. 0
Pettoner contends that the resut we have reached ta es her on what s not
ncome wthn the meanng of the s teenth amendment. If ths Is because ony
the drect recept of cash Is thought to be ncome In the consttutona sense, her
contenton s whoy wthout mert. If t Is because the entre transacton Is
thought to have been by a dctates of common-sense a runous
dsaster, as t was termed n her bref, we dsagree wth her premse. She
was entted to deprecaton deductons for a perod of neary seven years, and
she actuay took them n amost the aowabe amount. The cru of ths case,
reay, s whether the aw permts her to e cude aowabe deductons from
consderaton n computng gan. 2 We have aready showed that, If It does,
Unted States v. endrr (303 U. S., 56 Ct. D. 1328. C. . 1938-1, 285 ) ; ron
otes, Inc. (3 . T. .. 370) ; Water F. aass (37 . T. .. 9 8). See Dougas . WU
cuts (290 D. S., 1, 8 Ct. D. 10 1, C. . I -2, 250, 252 (1935) ).
M Sec rons otes, Inc., supra (3 . T. . nt 381).
See Unted States v. ender, supra (303 U. S. nt 566 C. . 1938-1. (t 286 ).
Obvousy, f the vaue of the property s ess than the amount of the mortgage, a
mortgagor who s not personay abe can not reaze a beneft equa to the mortgage.
Consequenty, a dfferent probem mght be encountered where a mortgagor abandoned the
property or transferred t sub|ect to the mortgage wthout recevng boot. That s not ths
case.
35 For nstance, ths pettoner returned the gross rentas as her own ncome, and out of
them pad nterest on the mortgage, on whch .she camed and was aowed deductons.
See Reguatons 77, artce 1 1 ; Reguatons 86, artce 23(b)-; Reguatons 9 , artce
3(b)- : Reguatons 101, artce 23(b)-.)
38 See Commssoner . Wco (327 U. S., 0 . 10 Ct. D. 1668, C. . 19 6-1, 6, 8 ) ;
Trust of ngham v. Commssoner (325 U. 9., 365, 369-372 Ct. D. 16 3, C. . 19 5, 103,
10 -106 ). Cf. ohn cey Co. v. Commssoner (326 D. S., 521. 527 Ct. I). 1600, C. .
19 6-1, 191, 193 ) : Dohson v. Commssoner (320 U. S., 89 Ct. D. 1597, C. . 19 , 56 ).
,g Ibd. : see aso secton 11 1 (a) and (c). I. R. C.
Doutas v. Wcuts, supra (296 U. S. at 9 C. . I -2 at 253 (1935) ) ; urnet v.
Wes (289 tT. R.. 670, 677 Ct. D. 688, C. . II-1, 261. 263 (1933) ).
a In the course of the argument some reference was made, as by anaogy, to a stuaton
n whch a ta payer acqured by devse property sub|ect to a mortgage n an amount
greater than the then vaue of the property, and ater transferred t to a thrd person,
st sub|ect to the mortgage, and for a cash boot. Whether or not the dfference between
the vaue of the property on acquston and the amount of the mortgage woud n that
stuaton consttute ether statutory or consttutona ncome s a queston whch s dfferent
from the one before us, and whch we need not presenty answer.
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103 20 (b), rt. 20 (b)-.
the ta payer can en|oy a doube deducton. In effect, on the same oss of assets.
The s teenth amendment does not requre that resut any more than does the
ct tsef.
ffrmed.
Dssentng opnon by Mr. ustce ackson, n whch Mr. ustce Frankfdbteb
and Mr. ustce Dougas |on.
S CTION 113(b). D UST D SIS FOR D T RMINING
G IN OR LOSS: D UST D SIS.
rtce 113(b)-: d|usted bass: Genera rue.
R NU CT OP 1038.
Deprecaton of nherted property sub|ect to an unassumed mort-
gage. (See Ct. D. 168 , page 97.)
S CTION 11 . SIS FOR D PR CI TION
ND D PL TION.
rtce 11 -1: ass for aowance of deprecaton
and depeton.
R NU CT OF 1938.
Inherted property sub|ect to an unassumed mortgage. (See Ct. D.
168 , page 97.)
SUPPL M NT C INSUR NC COMP NI S.
S CTION 20 (b). INSUR NC COMP NI S OT R T N
LIF OR MUTU L: D FINITION OF INCOM , TC.
rtce 20 (b)-: Gross ncome of nsurance
companes other than fe or mutua.
R NU CT OF 1838.
Deductbty as unearned premums of reserves reatng to re-
trement and death beneft features of noncanceabe poces ssued
on a eve premum bass. G. C. M. 22503 (C. . 19 1-1, 265) mod-
fed. (See G. C. M. 25256, page 68.)
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26, rt. 26-2. 10
INCOM T RULINGS. P RT II.
R NU CTS OF 1937 ND 1936.
SU TITL . G N R L PRO ISIONS.
P RT II.-COMPUT TION OF N T INCOM .
S CTION 26. CR DITS OF CORPOR TIONS.
rtce 26-2: Credt n connecton wth re- 19 7-10-12550
strctons on payment of dvdends. Ct. D. 1683
INCOM T R NU CT OF 1936, S M ND D Y R NU CT OP 19 2
D CISION OF SUPR M COURT.
1. Cam fob Refund Surta on Undstrbuted Profts Defct
Corporaton Constructon of mendatory Statute,
corporaton whch In 192 had Increased ts captazaton by the
decaraton of a stock dvdend s entted, under secton 501(a) (3)
of the Revenue ct of 19 2, amendng retroactvey secton 26(c)
of the Revenue ct of 1936, to a refund of undstrbuted profts ta es
for the fsca years endng n 1937 and 1938 n whch t was prohbted
by State aw, as a defct corporaton, from payng dvdends, even
though ts status as a defct corporaton depended on treatng the
stock dvdend as an addton to capta. The determnaton of what
s a defct, what are accumuated earnngs and profts, and the
utmate rght to a refund, depends upon State and not Federa aw.
The statute s a speca reef measure and s not to be nterpreted I
so as to gve t a mted scope.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Ffth Cr-
cut (155 Fed. (2d), 577), affrmed.
Supreme Court of the Unted States.
The Unted States of merca, pettoner, v. Ogve ardware Co., Inc.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Ffth Crcut.
pr 7, 19 7.
OPINION.
Mr. ustce -ack devered the opnon of the Court
Ths s a sut for ta refund whch the dstrct court aowed. (62 Fed. Supp.,
338.) The crcut court of appeas affrmed. (155 Fed. (2d), 577.) We granted
certorar because of an apparent confct wth Century ectrc Co. v. Comms-
soner (1 Fed. (2d), 983).
The respondent, Ogve ardware Co., Inc., was ncorporated In Lousana In
1907 wth a pad-n capta of , 100,000. In 192 t ncreased ts captazaton to
200,000 by decaraton of a 100,000 stock dvdend out of past earnngs. De-
pressed busness condtons durng the 1930 s brought heavy operatng osses so
that by 1937 the company s assets were about 71,CO0 ess than the 200,000 cap-
tazaton. The company books accordngy showed a defct n ths amount.
y 1938 ths defct was reduced to about 01,000. In ths fnanca posture the
corporaton coud not decare dvdends wthout mparng ts then capta struc-
ture (whch Incuded captazaton of the 100,000 stock dvdend) and Lousana
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26, rt. 26-2.
aw prohbted payment of a dvdend under such crcumstances.1 Secton 1
of the governng Revenue ct of 1936 Imposed a surta on certan corporate net
Income earned durng the ta year but not dstrbuted as dvdends. It provded
no e empton from that surta because a corporaton had an accumuated defct
at the begnnng of the ta year, or because State aw prohbted payments of
dvdends.
ctng under ths 1936 aw, the Commssoner, on e amnaton of respondent s
1937 and 1938 ta returns, determned that respondent was sub|ect to the unds-
trbuted profts ta , despte the defct and the State prohbton aganst payment
of dvdends. The Commssoner s nterpretaton and appcaton of the 1936 ct
Was In accord wth our hodng In everng v. Northtcest Stee Rong Ms (311
U. S., 6 Ct. D. 1 68, C. . 19 0-2, 181 ) and Crane- ohnson Co. v. everng
(311 U. S., 5 Ct. D. 1 67, C. . 19 0-2, 180 ). The ta payers n those cases
camed e empton from the surta on the ground that they coud not dstrbute
dvdends wthout voatng a provson of a wrtten contract e ecuted by the
corporaton pror to May 1, 1936, whch provson deas wth the payment of
dvdends. Secton 26(c) (1) of the 1936 ct reeved corporatons from the ta
f such contracts e sted. ( 9 Stat., 16 8, 166 .) The queston we had to decde
n those cases was whether a State consttuton, corporate charter, or State
statute, whch prohbted payment of dvdends, was a wrtten contract wthn
the meanng of the secton 26(c) (1) e empton provson. We hed that we coud
not so e pand the provson s anguage, reyng n part upon prevous statements
of ths Court that provsons grantng speca ta e emptons are to be strcty
construed. everng v. Northwest Stee Rong Ms, supra, 9.) Snce the
respondent here hnd no wrtten contract aganst payment of dvdends, t had
no e empton from the surta Imposed by the orgna 1936 ct.
ut ths sut s not brought to determne the company s ta abty under the
1936 ct as It stood In the ta abe years 1937 and 1938. It s an acton for a re-
fund under a 19 2 reef amendment to the 1936 ct specfcay desgned to au-
thorze corporatons to obtan repayments of tu es they had been forced to pay
under the 1936 ct as we had Interpreted t. That amendment, as enacted, pro-
vded for compete or parta retroactve mmunty from the 1936 undstrbuted
profts ta under the foowng crcumstances:
Defct Corporatons. In the case of a corporaton havng a defct n ac-
cumuated earnngs and profts as of the cose of the precedng ta abe year, the
amount of such defct, f the corporaton s prohbted by a provson of a aw or
of an order of a pubc reguatory body from payng dvdends durng the e stence
of a defct In accumuated earnngs and profts, and f such provson was In effect
pror to May 1, 1930. (Secton 501(a) (3), Revenue ct of 19 2, 56 Stat., 798,
95 .)
Ths amendment was desgned to grant corporatons a refund on account of
payments of undstrbuted profts ta es for ta years In whch they had an ac-
cumuated defct, and where, for that reason, State aw, Federa aw, or pubc
reguatory orders of ether prohbted dstrbuton of dvdends. It therefore
authorzed refunds to the very ta payers who had been awfuy requred to pay
ta es by the 1936 ct as we had Interpreted t n the two cases cted above. Fur-
thermore, n order to make sure that ta payers who had pad under our nter-
pretaton mght recover refunds, secton 501(c) of the same amendment specf-
cay authorzes cams for repayment to be fed wthn one year after ts passage,
wthout regard to any statute of mtatons or other desgnated statutory bars.
(56 Stat., 798, 955.)
The Government s contenton s that we shoud construe the word defct
and the phrase accumuated earnngs and profts accordng to ther estabshed
I. No corporaton sha pay dvdends In cash or property (a) e cept from the surpus
of the aggregate of ts assets over the aggregate of ts abtes, pus the amount of Its
capta stock; or (6) out of any surpus due or arsng from (1) any proft on treasury
shares before resae; or (2) any unreazed apprecaton In vaue or revauaton of f ed
assets; or (3) any unreazed apprecaton n vaue or revauaton of Inventores before
pae; or ( ) the unaccrued porton of unreazed proft on note . bonds or obgatons for
the payment of money, purchased or otherwse acqured, uness such notes, bonds or obga-
tons are ready marketabe. In whch case they may be taken at ther actua market vaue;
or (5) the unaccrued or unearned porton of any unreazed proft In any form whatever,
whether n the form of notes, bonds, obgatons for the payment of money, nstament
gaes, credts or otherwse, e cept as provded In the precedng subparagraph ( ).

III. No corporaton sha pay dvdends n shares of the corporaton e cept from the
surpus of the aggregate of Its as ets over the aggregate of Its abtes, pus
the amount of ts capta stock. (La. cts 1028, No. 250, secton 26, I, III; 1 La. Gen.
Stat.; secton 1106.)
9 Stat., 18 8, 1655-1807.
75 70 7 8
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26, rt. 26-2.
106
meanng under Federa ta aws; that so construed the 100,000 aotted for stock
dvdends remaned a part of earnngs and profts for ta purposes; therefore,
there was no defct n the Federa ta sense, and consequenty the ta payments
shoud not have been refunded here despte the State prohbton aganst dstrbu-
ton. We may assume that the Government Is correct n contendng that f Con-
gress ntended n the 19 2 amendment to use the words defct and earnngs
and profts n ths Federa ta sense, the stock dvdend dd not reduce earn-
ngs, there was no defct, and the refund shoud be dened. (See secton 115,
Revenue ct of 1936, 9 Stat., 16 8,1687-1689; Commssoner v. edford, 325 U. S.,
283, 292 Ct. D. 16 1, 0. . 19 5, 357, 361 .) Ths constructon woud greaty mt
the scope of the reef granted by the 19 2 amendment. To determne whether
Congress ntended so to mt the reef t granted, we must ook to the whoe 1SM2
amendment n ts reatonshp to the 1936 ct and the egsatve and |udca
hstory ntervenng between the two.
The 1936 undstrbuted profts ta aw was a novety n the fed of Federa
ta aton. Its chef nove feature was that t was desgned to compe corporatons
to dstrbute current earnngs to sharehoders by mposng a surta on corpora-
tons whch faed to make such dstrbutons. It had detaed provsons for
defnng the net ncome whch woud be reached by ths ta . Its appcaton,
therefore, rased new and sometmes whoy une pected probems. Wdespread
opposton deveoped to the ta . Snce 1938, ony a token of t has survved.
(See Revenue ct of 1938, 52 Stat., 7.) ut even after the 1936 undstrbuted
profts ta was no onger n effect, compants about ts pror appcaton from
corporatons whch had been requred to pay an undstrbuted profts ta con-
tnued to reach and to concern Congress. Representatves of these corporatons
appeared before the ouse and Senate commttees n 19 2, and Congress re-
sponded to ther compants by enactng the severa provsons of secton 501
the retroactve reef egsaton now under consderaton.
One sub|ect of compant was that under the ncome ta defntons ony a
fracton of capta osses were deductbe from ta abe net Income. Corporatons
whch had suffered arge capta osses n a gven year were requred to pay-
undstrbuted profts ta es n that year as though they had made a proft. The
19 2 amendment, as reported by the ouse commttee, met ths compant by
recommendng that refunds be authorzed for corporatons who had pad under
ths 1936 defnton of net ncome. Ths authorzaton, subsequenty, approved by
the Senate commttee, ceary shows that Congress Intended to provde for ths
phase of the refund wthout regard to ta defntons, and dd not ntend ts au-
thorzed refund to be restrcted by the appcaton of estabshed ta termnoogy.
When the b reached the Senate commttee, Insstent compants reated to
the fact that corporatons wth defcts In accumuated earnngs and profts had
been compeed to pay ta es for nondstrbuton of dvdends athough State or
Federa aw prohbted dvdend payments. defct raroad corporaton had
been ta ed over ts ob|ecton that payment of dvdends woud have rendered ts
offcers sub|ect to punshment for a msdemeanor under Federa aw and a money
penaty under State aw. The oard of Ta ppeas had overrued ob|ectons
on these grounds, reyng on our decsons n the Crane- ohnson and Northwest
Stee cases, supra. (Pars Mt. Peasant R. Co. v. Commssoner, 7 . T. .,
39 acquescence, C. . 19 2-2, 1 . ) The counse who had represented Crane-
ohnson before ths Court aso appeared on ther behaf before the Senate com-
mttee and made a pea for reef for defct corporatons whch had been com-
The ouse Ways and Means Commttee reported that secton 501 of the 19 2 ct
aowed corporatons to deduct capta osses from ther capta assets for purposes of the
undstrbuted profts ta even though ony 2,000 of such capta oss was deductbe from
gross ncome for other purposes.
nother amendment provded a stock redempton credt deductbe from gross ncome
ta abe for undstrbuted profts ta purposes.
nd the breadth of the refund provson s Iustrated by the provsons makng the
amendment effectve as of the date the 1036 ct was enacted, and e tendng the statute
of mtatons to permt refunds for a overpayments snce that date. ( . Rept. 2333,
Seventy-seventh Congress, second sesson, 170 (10 2) C. . 19 2-2, 372. 961.)
S. ept. 1631, Seventy-seventh Congress, second sesson, 2 , 2 5 (19 2) C. . 19 2-2,
50 ,683 .
earngs before Senate Commttee on Fnance on Revenue ct of 19 2 (Seventy-seventh
Congress, second sesson, 23 3-23 5 (19 2)). Counse for another defct raroad cor-
poraton ponted out that under governng State aw that raroad s offcers woud have
been abe for a penaty of doube the damages to anyone harmed. (Id. at 1 22.)
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107
26. rt. 26-2.
peed to pay the undstrbuted profts ta . e urged that such corporatons
had been caught n a trap, and that they were |usty entted to have a
refund for that reason. It was apparenty n response to the foregong com-
pants that the reef provson before us, not part of the ouse b as t came
to the Senate, was ntroduced by the Senate commttee. We thnk Congress
was moved to reeve those corporatons whch t consdered to be caught n a
trap, whereby they were ta ed by the Federa Government f they dd not. pay
dvdends and sub|ect to prosecuton and penates by the Federa Government
or the States f they dd.
Some of the anguage Congress used, consdered ta wse ony, provdes pausbe
support for the nterpretaton urged by the Government whch woud gve the
reef amendment more mted scope. ut the provson before us Is not a genera
ta e empton to be nterpreted n the framework of a currenty operatng
genera revenue aw. It s a speca retroactve reef measure to authorz
repayment of ta es coected n prevous years under a revenue aw whch had
aready been substantay abandoned. The anguage of ths e traordnary reef
measure and the crcumstances whch prompted ts passage convnce us that
Congress ntended to provde refunds to corporate ta payers, wth possbe mnor
e cepton, who had pad undstrbuted profts ta es as a choce between confctng
State and Federa compusons.
Furthermore, the very mechancs of the 19 2 amendment requre that determ-
naton of rghts to refund under t be based on consderaton of somethng other
than the ta meanng of the 1936 ct or other ta termnoogy. The rght to
recovery n every case depends utmatey upon whether Federa aw or Federa
reguatory bodes, or State aw or State reguatory bodes, prohbt payments of
dvdends. In ths case the utmate rght to refund depends upon State aw.
(Cf. Lycth v. oey, 305 U. S., 188, 193 Ct. D. 1370, C. . 1938-2, 208, 210 .) e-
fore that rght can be fnay estabshed, courts must e amne State aw at east
to the e tent of determnng (1) what s a defct ; (2) what are accumuated
earnngs and profts ; (3) what was the State aw on these questons pror to
May 1, 1936; ( ) whether payments of dvdends under these crcumstances were
prohbted by State aw. cceptance of the Government s contenton woud mean
that courts admnsterng the 19 2 ct must frst determne whether a defct
e sts under Federa aw; f such a Federa defct e sts, they must then turn to
State aw to decde whether under It a defct e sts such as prohbts the payment
of dvdends. We do not thnk that Congress ntended the courts so to admnster
the 19 2 amendment. The Government s argument that t does rees heavy upon
the Senate commttee report.
We thnk the Senate commttee report, as a whoe, eans toward the vew we
have taken of the purpose of the aw. ut n one of the s ustratve e ampes
Statement of Mr. ohn . ughes :
Ne t I have n statement on behaf of Crane- ohnson Co. that secton 501 of the ouse
b shoud be smpfed. That pont s ths: If u corporaton was forbdden by State aw
to decare a dvdend because ts capta stock was mpared, t coud not avod the uns
trbuted profts ta enacted n 1036 and was caught In a trap. rch corporaton coud.
It coud decare a dvdend and avod t. Surey you woud not dscrmnate aganst a
poor one.
Furthermore, f t had an Imparment of capta stock and was organzed under the
aws of about one-thrd of the States where corporatons n such condton are aowed
to decare dvdends, a dvdend woud be a return of capta to the sharehoder and no
credt for the undstrbuted profts ta woud be Rven.
There Is no reason for grantng reef retroactvey In the mted cases whch may he
hed to be covered by the vague and ambguous anguage of secton 501 of the ouse b
wthout grantng reef n these cases aso.
The anguage of secton 501 Is vague and ambguous and ought to be smpfed. In
1938 reef was granted as soon as ths stuaton was brought to the attenton of Congress,
but unfortunatey was not made retroactve to 1936. The ouse b In secton 501 propery
makes It retroactve to 1936, but s not phrased n smpe enough anguage.
earngs, supra, 1022. (See aso.d. at 1306-1308.)
See ouse report, note 3, supra.
See Senate report, note . supra.
S. ept. 1681, note , supra, outnng secton 501 of the proposed Revenue ct of 19 2
stated :
a new paragraph has been added, provdng for an addtona
credt In cases of corporatons havng a defct In accumuated earnngs and profts and
prohbted by aw from payng dvdends and a new subsecton has been added
provdng for a stock redempton credt.
Secton 501 grants reef from the undstrbuted-profts ta for ta abe
years begnnng after December 81, 1935, and pror to anuary 1, 1988, by aowng as an
addtona credt n computng undstrbuted net Income the porton of the ad|usted net
Income whch, n certan nstances, coud not be dstrbuted as ta abe dvdends.
Under secton 1 of the Revenue ct of 1936 corporatons n genera were sub|ect to
surta at varous rates from 7 to 27 per cent of ther undstrbuted net ncome. In some
Instances State aw or an order of a pubc reguatory body prohbted payment of dv-
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20 03). rt. 20 (b)-1. 108
of appcaton of the new ta reef provsons of the amendment, and n the subse-
quent Treasury reguatons, t was ndcated that no ta credt shoud be aowed
where a ta defct resuted from pror captazaton of surpus n the course of
a nonta abe reorganzaton. sde from the fact that corporate reorganza-
tons and smpe stock dvdends are qute dfferent thngs, we fnd ths one us-
tratve e ampe nsuffcent to outwegh the consderatons whch have governed
our Interpretaton of the 19 2 amendment.
We are persuaded that Congress at east Intended by the amendment to refund
ta es Imposed on corporatons whch had faed to dstrbute dvdends when ds-
trbuton, In voaton of State aw, woud have mpared ong-e stng State
approved corporated captazatons. (See Unted States v. yron Sash Door
Co., 150 Fed. (2d), , 6.) In order that ths purpose may be effected, the |udg-
ment of the crcut court of appeas s
ffrmed.
Dssentng opnon by Mr. ustce Frankfurter, wth whom Mr, ustce Reek
ons.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S OF T .
S CTION 101. MPTIONS FROM T
ON CORPOR TIONS.
rtce 101(12)-1: Farmers cooperatve
marketng and purchasng assocatons.
R NU CT OF 1936.
Cooperatve marketng assocaton whch markets products pur-
chasedby members as products produced by members. (See I. T.
8868, page 2.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 20 (b). INSUR NC COMP NI S OT R T N
LIF OR MUTU L: D FINITION OF INCOM , TC.
rtce 20 (b)-: Gross ncome of nsurance
companes other than fe or mutua.
R NU CT OF 1930.
Deductbty as unearned premums of reserves reatng to re-
trement and death beneft features of noncanceabe poces ssued on
a eve premum bass. G. C. M. 22503 (C. . 1911-1, 265) modfed.
(See G. C. M. 25256, page 68.)
dends durng the e stence of a defct even though the corporaton had current earnngs
and profts whch woud consttute undstrbuted net ncome under the defnton thereof
n secton 1 (a)(2). Such corporatons were, therefore, sub|ect to undstrbuted profts
surta even though they were prohbted by aw from payng dvdends. The addton of
the new paragraph 3 to subsecton (c) of secton 26 to provde an addtona credt In the
amount of the defct n accumuated earnngs and profts as of the cose of the precedng
ta abe year s Intended to gve reef n certan of these cases.
so under secton 1 of the Revenue ct of 1936, It was possbe that the undstrbuted
net Income of a corpornton ncht e ceed accumuated and current earnngs and profts.
In such case the ta coud not be avoded even f dstrbutons were made to sharehoders.
The amendment was to provde reef n ths stuaton aso.
Id. at 2 6.
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Msc.
INCOM T RULINGS. P RT III.
R NU CTS OF 1935 ND 193 OR PRIOR CTS.
SU TITL C SUPPL M NT L PRO ISIONS.
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 20 (b). INSUR NC COMP NI S OT R T N
LIF OR MUTU L: D FINITION OF INCOM , TC.
rtce 20 (b)-: Gross ncome of nsurance
companes other than fe or mutua.
R NU CTS OF 1921, 192 , 1926, 1928, 1932, ND 193 .
Deductbty as unearned premums of reserves reatng to retre-
ment and death beneft features of noncanceabe poces ssued on a
eve premum bass. G. C. M. 22503 (C. . 19 1-1, 265) modfed.
(See G. C. M. 2526, page 68.)
MISC LL N OUS.
19 7-2-12 76
Ct. D. 1679
e cse ta ncome ta revenue act op 1918 decson op
supreme court.
Sut Income Ta Recoupment op cse Ta Statute of
Lmtaton.
Where e cse ta es on the sae of storage batteres pad between
1922 and 1926 were refunded n 1935 and were treated by the Com-
mssoner as ncome for that year, the ta payer may not recoup, as
aganst the addtona ncome and e cess profts ta es assessed for
that year arsng from such refund, the amount of barred e cse
ta es on the sae of the batteres whch t had pad between 1919 and
1922. The doctrne of recoupment does not aow one transacton to
be offset aganst another, but ony permts a transacton whch s
made sub|ect of sut by a pantff to be e amned n a ts aspects
and udgment to be rendered that does ustce n vew of the one
transacton as a whoe.
Supreme Court of the Unted States.
Water . Rothensea, Indvduay and as Unted States Coector of Interna
Revenue for the Frst Dstrct of Pennsyvana, pettoner, v. The ectrc
Storage attery Co.
On wrt of certorar to the Unted States Crcut Court o ppeas tor the Thrd Crcut.
December 16, 19 6.
opnon.
Mr. ustce ackson devered the opnon of the Court.
Ths case represents an effort, thus far successfu, to obtan advantage by
way of recoupment of a cam for ta refund ong snce barred by the statute
of mtatons. The facts of ths snguar stuaton are not n dspute. From
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110
pr, 1919, to pr, 1926, the ectrc Storage attery Co. pad e cse ta es on
the sae of storage batteres n the beef, shared by the Government, that such
saes were sub|ect to ta . In uy of 1926 the company asserted otherwse
and fed a refund cam. It asked refund ony of that part of the ta es whch
t had pad between 1922 and 1926. Refund of the ta es pad earer whch the
company now seeks to recoup were then barred by the statute of mtatons
and no cam ever has been fed for ther refund and no acton ever was begun
for ther recovery. Sut was brought, however, aganst the coector for refund
of the ta es pad after uy, 1922; |udgment therefor was obtaned n the dstrct
court and affrmed by the crcut court of appeas. The Government fnay
setted by refund of 1,395,515.35, of whch 825,151.52 represented ta and the
baance nterest.
Durng the years that the refunded e cse ta was beng coected, the
ta payer deducted t from ncome before cacuaton of ts ncome ta , thereby
dervng substanta benefts. The Commssoner, therefore, treated the refund
as ncome for 1935, the year n whch t was receved, and because of t assessed
addtona ncome and e cess proft ta es whch wth nterest thereon totaed
229,805.3 . The ta payer pad the defcency, fed cam for refund, and after
t was re|ected sued the coector: It contended that the refund from the
Government was not Income to the ta payer but that f t were so consdered
ta payer shoud be permtted, as aganst the addtona ta caused by ts n-
cuson, to recoup the amount of the barred e cse ta es whch t had pad
between 1919 and 1922. oth courts beow correcty hed that the refund was
propery assessed as ncome. (Cf. Securty Four Ms Co. v. Commssoner,
321 U. S., 281 Ct. D. 1003, C. . 19 , 520 ; Frehofer akng Co. v. Commssoner,
151 Fed. (2d), 383.) oth have hed, however, that the ncome ta abty for
1935 shoud be e tngushed by recoupment of the 1919 to 1922 e cse ta es.
The gravty of ths hodng to the admnstraton of the ta aws ed us to grant
certorar. (Rothenses v. Unted States, U. S., .)
It s not contended that there s any statutory warrant for aowng barred
ta refund cams by way of recoupment or otherwse.1 uthorty for t s sad
to be found n case aw and ta payer rees chefv on two decsons of ths Court
( u v. Unted States, 295 . S ., 2 7 Ct. D. 909, C. . I -1, 310 (1935) , and
Stone v. Whte, 301 U. S., 532 Ct. D. 1232, C. . 1937-1, 22 ). The essence of
the doctrne of recoupment Is stated n the u case; recoupment s n the nature
of a defense arsng out of some feature of the transacton upon whch the pan-
tff s acton s grounded. (295 U. ., 2 7, 262.) It has never been thought to
aow one transacton to be offset aganst another, but ony to permt a transacton
whch s made sub|ect of sut by a pantff to be e amned n a ts aspects, and
|udgment to be rendered that does |ustce n vew of the one transacton as a
whoe.
The appcaton of ths genera prncpe to concrete cases n both of the cted
decsons s nstructve as to the mted scope gven to recoupment n ta t-
gaton. In both cases a snge transacton consttuted the ta abe event camed
upon and the one consdered n recoupment. In both, the snge transacton or
ta abe event had been sub|ected to two ta es on nconsstent ega theores, and
what was mstakeny pad was recouped aganst what was correcty due. In
u v. Unted States, the one ta abe event was recept by e ecutors of a sum
of money. n effort was made to ta t twce once under the Income Ta ct
as ncome to the estate after decedent s death and once under the state Ta
ct as part of decedent s gross estate. Ths Court hed that the amount of the ta
coected on a wrong theory shoud be aowed n recoupment aganst an assess-
ment under the correct theory.1 In Stone v. Whte, kewse, both the cam and
recoupment Invoved a snge ta abe event, whch was recept by an estate of
ncome for a perod. The trustees had pad the ncome ta on t but ths Court
hed t was ta abe to the benefcary. ssessment aganst the benefcary had
meanwhe become barred. Then the trustee sued for a refund, whch woud nure
to the benefcary. The Court treated the transacton as a whoe and aowed
1 Indeed, the appcabe provsons of the Revenue ct of 1028 seem to drect a resut
opposte to that asked by respondent. Secton 608 provdes that refund of any porton
of an Interna-revenue ta (or any Interest, penaty, addtona amount, or addton to
such ta ) made after the enactment of ths ct, sha be consdered erroneous (a) f
made after the e praton of the perod of mtaton for fng cam therefor, uness wthn
such perod cam was ted: . Secton 009(b) provdes, credt of an over-
payment In respect of any ta sha be vod f a refund of such overpayment woud be con-
derod erroneous under secton 608. ( 8 Stat., 87 , 875. nd cf. Mc achern v. Rose,
802 D. S.. 56 Ct. D. 12S2. C. . 1937-2, 822 .)
1 ut the Court emphaszed that refund of the Incorrect ta was not barred by the statute
at the tme the Government proceeded for coecton of the correct ta .
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recoupment of the ta whch the benefcary shoud have pad aganst the tn
the Government shoud not have coected from the trustees. Whatever may have
been sad Indcatng a broader scope to the doctrne of recoupment, these facts
are the ony ones n whch t has been apped by ths Court n ta cases.
The Government has argued that aowance of the cam of recoupment nvoved
here woud e pand the hodng n the u case. The Crcut Court of ppeas
agreed that n the u case the man cam and recoupment cam were more
cosey connected than they are here. ( ectrc Storage attery Co. v. Ro-
thenscs, 152 Fed. (2d), 521, 52 .) ut the court nevertheess aowed the cam
because t consdered that ths Court had Introduced the doctrne of recoupment
nto ta aw and that t was based on concepts of farness. (152 Fed. (2d),
521, 52 .) It sad t saw no reason for narrowy construng the requrement
that both cams orgnate n the same transacton. We thnk ths msappre-
hends the mtatons on the doctrne of recoupment as apped to ta aw and
t eads us to state more fuy reasons for decnng to e pand the doctrne beyond
the facts of the cted cases.
It probaby woud be a but ntoerabe, at east Congress has regarded t as
-advsed, to have an ncome ta system under whch there never woud come
a day of fna settement and whch requred both the ta payer and the Govern-
ment to stand ready forever and a day to produce vouchers, prove events, estabsh
vaues and reca detas of a that goes nto an Income ta contest. ence, a
statute of mtaton Is an amost ndspensabe eement of farness as we as
practca admnstraton of an ncome ta pocy.
We have had recent occason to pont out the reason and the character of such
mtaton statutes. Statutes of mtaton, ke the equtabe doctrne of
aches, n ther concusve effects are desgned to promote |ustce by preventng
surprses through the revva of cams that have been aowed to sumber unt
evdence has been ost, memores have faded, and wtnesses have dsappeared.
The theory s that even f one has a |ust cam It s un|ust not to put the adversary
on notce to defend wthn the perod of mtaton and that the rght to be free
of stae cams n tme comes to preva over the rght to prosecute them. (Order
of Raroad Teegraphers v. Raway press gency, 321 U. S., 3 2, 3 8-3 9.)
They are by defnton arbtrary, and ther operaton does not dscrmnate
between the |ust and the un|ust cam, or the vodabe avodabe and un-
avodabe deay. They have come nto the aw not through the |udca process
but through egsaton. (Chase Securtes Corporaton v. Donadson, 325 U. S.,
30 , 31 .)
s statutes of mtaton are apped n the fed of ta aton, the ta payer
sometmes gets advantages and at other tmes the Government gets them. oth
hardshps to the ta payers and osses to the revenues may be ponted out
They tempt the equty-mnded |udge to seek for ways of reef n ndvdua eases.
ut f we shoud approve a doctrne of recoupment of the breadth here apped
we woud serousy undermne the statute of mtatons In ta matters. In
many, f not most, cases of asserted defcency the tems whch occason t reate
to past years cosed by statute, at east as cosey as does the tem nvoved here.
(Cf. a v. Unted States, 3 Fed. Supp., 130.) The same s true of tems whch
form the bass of refund cams. very assessment of defcency and each
cam for refund woud nvte a search of the ta payer s entre ta hstory for
tems to recoup. Ths case provdes evdence of the e tent to whch ths woud
go. When ths sut was brought n 10 3, the cam peaded as a recoupment
was for ta es coected over 20 years before and for over 16 years barred by the
statute. That cams dead so ong can be resurrected under ths doctrne, s
enough to show1 ts menace to the statute of mtatons at east as to those
ta payers whose affars by accdent or desgn take such shape that they can
ava themseves of recoupment remedes. Moreover, we have hed that The
Ta Court has no |ursdcton to consder recoupment. (Oooch Mng rf evator
Co. v. Commssoner, 320 U. S., 18 Ct. D. 1593, C. . 19 3, 5 8 .) ence, the
avaabty of the remedy woud depend on dvertng the tgaton to the dstrct
courts.
In mercan Lght Tracton Co. v. arrson (1 2 Fed. (2d), 039) the court dd not
aow recoupment to the Government. ut |udcousy, t sad. though here n hardshp
on the Government resuts from ta payer s nconsstency, the correatve provsons of ths
name statute w, n the converse of the Instant stuaton, work an equa hardshp on the
ta payer. (1 2 Fed. (2d), f:9, 6 3.) Whether or not the statute, sectons 60S and 609
of the Revenue ct of 1928. be taken to compe the concuson we reach n ths case, the
court s recognton that both partes to ta aton are affected mpartay, though perhaps
harshy, by pocy of repose hns appcaton here. It may easy be overooked, when the
unfarness of the Government s retanng ncorrecty coected moneys of respondent Is
stressed, that the statute of mtatons s prmary an Instrument of farness.
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Msc.
112
We can not approve such encroachments on the pocy of the statute out of
consderaton for a ta payer who for many years faed to fe or prosecute
ts refund cam. If there are to be e ceptons to the statute of mtatons, t
s for Congress rather than for the courts to create and mt them.
The |udgment beow s
Reversed.
Mr. ustce Murphy s of the opnon, n whch Mr. ustce ack and Mr.
ustce Rutedge |on, that the |udgment beow shoud be affrmed. e beeves
that the cams for refund of the ega assessments e acted from 1919 to 1922
arse out of the same sub|ect matter as was nvoved n the Government s de-
mand for addtona ta es for 1935, thereby makng appcabe the rue of u
v. Unted States (295 U. S., 2 7).
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MPLOYM NT T RULINGS.
INT RN L R NU COD .
C PT R 9, SU C PT R . F D R L INSUR NC CONTRI UTIONS
CT.
Secton 1 26: Defntons. 19 7-7-12516
Reguatons 106, Secton 02.227: Wages. Mm. 6119
( so Subchapter C (Federa Unempoyment Ta
ct), Secton 1607; Reguatons 107, Sec-
ton 03.227; aso Soca Securty ct, Sectons
811 and 907; Reguatons 91 and 90, rtces 1
and 207.)
Payments made to empoyees who are renstated and granted
back pay for tme ost, pursuant to an order ssued by the Natona
Labor Reatons oard, consttute wages for purposes of the
ta es mposed by the Federa empoyment ta statutes.
Mm. 60 0 C. . 19 6-2, 155 modfed.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March 6, 19 .7.
Coectors of Interna Revenue and Others Concerned:
1. It s the poston of the ureau that back pay awards made by an
empoyer n compance wth an order of the Natona Labor Reatons
oard consttute wages wthn the meanng of that term as defned
n the Federa Insurance Contrbutons ct and the Federa Unem-
poyment Ta ct. (Mm. 60 0, dated uy 25, 19 6 C. . 19 6-2,
155 .) Ths poston was based on the decson of the Supreme Court
of the Unted States n the case of Soca Securty oard v. oseph
Nerotko (66 Sup. Ct., 637) affrmng the decson of the Unted States
Crcut Court of ppeas for the S th Crcut, hodng that back
Say awards made by an empoyer n compance wth an order of the
atona Labor Reatons oard consttute wages for empoy-
ment under the Soca Securty ct, for whch an empoyee s
entted to credt on hs od-age and survvors nsurance account.
Snce the Federa empoyment ta statutes have defntons of wages
and empoyment smar to those contaned n Tte II of the Soca
Securty ct, the decson of the Supreme Court s controng for
Federa empoyment ta purposes n determnng the status of back
6ay awarded pursuant to an order of the Natona Labor Reatons
oard.
2. The Nerotko decson requred that back pay shoud be aocated
to the perods when the reguar wages were not pad as usua, and
nstructons are contaned n paragraph 8 of Mm. 60 0 requrng
(113)
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Regs. 100, rt. 202.
11
an empoyer, makng a return on Form SS-a under the Federa
Insurance Contrbutons ct for the quarter ended une 30, 19 6, or
any subsequent quarter, to prepare and attach to hs return on Form
SS-a, a statement of back pay pad to empoyees durng the quar-
ter covered by hs return, showng the account number of each em-
poyee to whom a back pay award has been made, the empoyee s name,
the tota amount of the back pay, and the perod for whch the back
payment s made.
3. Secton 1 26(a) (1) of the Federa Insurance Contrbutons ct,
as amended by secton 12 of the Soca Securty ct mendments of
19 6, reads as foows:
(a) Wages. The term wages means a remuneraton for empoyment,
Incudng the cash vaue of a remuneraton pad n any medum other than
cash; e cept that such term sha not Incude
(1) That part of the remuneraton whch, after remuneraton equa to
3,000 has been pad to an ndvdua by an empoyer wth respect to em-
poyment durng any caendar year, s pad, pror to anuary 1, 19 7, to
such ndvdua by such empoyer wth respect to empoyment durng such
caendar year; or that part of the remuneraton whch, after remuneraton
equa to 3,000 wth respect to empoyment after 1936 has been pad to an
ndvdua by an empoyer durng any caendar year after 19 6, s pad to
such Indvdua by such empoyer durng such caendar year;
. In the case of remuneraton pad after 19 6, the 3,000 mtaton
on wages provded by the Federa Insurance Contrbutons ct ap-
pes ony f the remuneraton receved durng anv one caendar year
by an empoyee from the same empoyer for empoyment performed
after 1936 e ceeds 3,000. The mtaton n such case reates to the
amount of remuneraton receved durng any one caendar year for
empoyment after 1936 and not to the amount of remuneraton for
empoyment performed n any one caendar year.
5. In vew of the provsons of the Soca Securty ct mendments
of 19 6, amendng the defnton of wages contaned n the Federa
Insurance Contrbutons ct and enacted subsequent to the date of
the Nerotko decson, the provsons contaned n paragraph 8 of
Mm. 60 0, supra, reatng to the aocaton of back pay awards to
perods for whch the back payments are made, are appcabe ony
wth respect to payments actuay made pror to anuary 1, 19 7.
6. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos rnT: RR.
oseph D. Nunan, r.,
Commssoner.
C PT R 9, SU C PT R . R ILRO D R TIR M NT T CT.
Secton 1500: Rate of ta . 19 7-3-12 8
Reguatons 100, rtce 202: Rates and Mm. 6096
computaton of empovees ta .
( so Secton 1510, rtce 302; and
Secton 1520, rtce 02.)
Rntes of ta es mposed by the Raroad Retrement Ta ct
(Subchapter of Chapter 9 of the Interna Revenue Code, as
amended by the ct approved uy 31, 19 6 (Pubc Law 572,
Seventy-nnth Congress, second sesson C. . 19 0-2, 2(59 ).)
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115
Regs. 100, rt. 21)2.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, anuary 8,19 7.
Coectors of Interna Revenue and Others Concerned:
1. arous changes n Subchapter of Chapter 9 of the Interna
Revenue Code were effected by the ct approved uy 31,19 6 (Pubc
Law 572, Seventy-nnth Congress, second sesson C. . 19 6-2, 269 ).
Ths mmeograph reates ony to the rates of ta es appcabe
wth respect to compensaton pad on or after anuary 1, 19 7. Other
changes n the aw w be ncuded n amendments to Reguatons 100
w hch are n the course of preparaton and whch w be made avaabe
at the earest practcabe date.
2. Tte of Subchapter. Subchapter of Chapter 9 of the In-
terna Revenue Code (formery the Carrers Ta ng ct of 1937) may
be cted as the Raroad Retrement Ta ct.
3. Rates of mpoyers Ta . The rates of empoyers ta app-
cabe wth respect to compensaton pad after December 31, 19 6, for
servces rendered after December 31,1936, are as foows:
Compensaton pad durng the caendar years: Percent.
10 7, 10 8 5
10 9, 1050, 1951 6
1952 and subsequent caendar years C
. Rates of mpoyees Ta Servces Rendered fter December
31, 19 6. The rates of empoyees ta appcabe wth respect to com-
pensaton pad after December 31, 19 6, for servces rendered after
such date are as foows:
Compensaton pad durng the caendar years: Per cent-
19 7, 19 8 5
19 0, 1950, 1951 G
1952 and subsequent caendar years 6
5. Rates of mpoyees Ta Servces Rendered Pror to anuary
1, 19 7. The rates of empoyees ta appcabe wth respect to com-
pensaton pad on or after anuary 1,19 7, for servces rendered pror
to such date are as foows:
Servces rendered durng caendar years: er cent-
1939 2
19 0, 19 1, 19 2 3
19 3, 19 , 19 5 - 3
19 6 8
6. Rates of mpoyee Representatves Ta . The rates of em-
poyee representatves ta appcabe wth respect to compensaton
pad after December 31,19 6, for servces rendered after such date are
as foows:
Compensaton pad durng the caendar years: Per cent-
19 7, 19 8 11
19 9, 1950, 1951 12
1952 and subsequent years 121/.
The empoyee representatves ta wth respect to compensaton
ether earned or pad pror to anuary 1,19 7, s computed by appyng
to the amount of compensaton wth respect to whch the empoyee rep-
resentatves ta s mposed the rate for the caendar year n whch the
compensaton was earned. ny ndvdua who earned compensaton
as an empoyee representatve pror to anuary 1,19 7 (regardess of
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Reg8. 100, rt. 602.
116
when pad), and who dd not report and pay empoyee representatves
ta wth respect to such compensaton, shoud not report such compen-
saton n a return fed for a quarter ended after December 31,19 6, but
shoud communcate wth the Unted States coector of nterna reve-
nue reatve to the reportng of such compensaton on one or more
returns, or amended returns, on Form CT-2 for the quarter or quarters
n whch such compensaton was earned.
7. copy of ths mmeograph shoud be furnshed at the earest
practcabe date to each person who fes returns on Form CT-1 or
Form CT-2.
8. Correspondence reatve to ths mmeograph shoud refer to ts
number and the symbos mT: RR.
oseph D. Nunan, r.,
Commssoner.
Secton 1501 (c) : d|ustments. 19 7-7-12517
Reguatons 100, rtce 602: d|ustment of Mm. 612
empoyees ta .
( so Secton 1521; Reguatons 100, rtce 603.)
Procedure governng credts and ad|ustments of overpayments of
empoyees ta and empoyers ta on Form CT-1 whch resut
from a faure to prorate propery the compensaton of empoyees
who perform servces for two or more empoyers.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. C, March 12, 19tf.
Coectors of Interna Revenue and Others Concerned:
1. Reguatons 100, ssued pursuant to the Carrers Ta ng ct of
1937 and made appcabe to Subchapter of Chapter 9 of the In-
terna Revenue Code, as amended, provde, n part, that f an em-
poyer pays compensaton to an empoyee who s aso pad compensa-
ton by any other empoyer for servces performed durng the same
caendar month, and f the aggregate compensaton pad to such
empoyee by a empoyers s more than 300 for the caendar month|
then there s ncuded n the measure of each empoyer s ta ony that
proporton of 300 whch each empoyer s payment to the empoyee
for the month bears to the aggregate compensaton pad to such em-
poyee by a of hs empoyers for that month. The reguatons further
provde that the empoyees ta sha be deducted by each empoyer
from the amount of compensaton wth respect to whch the empoyer s
(a s mposed. .
2. Under e stng procedure, an empoyer entted to enter an ad-
|ustment or credt on an empoyer s ta return, Form CT-1, to correct
an overpayment of empoyers and empoyees ta es occurrng by
reason of an mproper proraton of compensaton, s requred to sup-
port such ad|ustment or credt by a schedue showng (1) the aggre-
gate compensaton pad to the empoyee by a empoyers, (2) the
compensaton pad and reported by each empoyer, and (3) the pro-
portonate share whch shoud have been reported. mpoyers have
found t e ceedngy dffcut to procure the requred supportng data.
fc. The Raroad Retrement oard, through the admnstraton of
the Raroad Retrement and Raroad Unempoyment Insurance
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117
Regs. 107, S 03.227.
cts, mantans ndvdua empoyee records of compensaton re-
ported by empoyers under those cts, and on the bass of such records
w furnsh to a empoyers entted to an ad|ustment or credt by
reason of no proraton or mproper proraton for ta -return perods
from anuary 1, 19 3, through December 31, 19 6, a statement, n the
form attached,1 showng (1) the empoyer s name; (2) the ta -return
perod; (3) the empoyee s name; ( ) the empoyee s account number;
(5) the empoyer s dentfcaton number; (6) the amount of com-
pensaton reported for the empoyee for each month of the fea -return
erod by such empoyer; and (7) the amount of the e cess reported
y such empoyer resutng from the rendton of servces by the
empoyee for two or more empoyers. Such form when propery
e ecuted and attached to an empoyer s ta return, Form CT-1, n
support of an ad|ustment or credt w be accepted n eu of any
other supportng data, provded the ad|ustment or credt s camed
pror to the e praton of four years after the overcoecton of ta
was pad to a coector of nterna revenue.
. Correspondence reatng to ths mmeograph shoud refer to ts
number and the symbos mT: RR.
oseph D. Nunan, r.,
Commssoner.
Secton 1510: Rate of ta .
Reguatons 100, rtce 302: Rates and computaton
of empoyers ta .
Rates of ta es appcabe wth respect to compensaton pad on or
after anuary 1,19 7. (See Mm. 6096, page 11 .)
Secton 1520: Rate of ta .
Reguatons 100, rtce 02: Rates and computaton
of empoyee representatves ta .
Rates of ta es appcabe wth respect to compensaton pad on or
after anuary 1,19 7. (See Mm. 6096, page 11 .)
Secton 1521: d|ustments.
Reguatons 100, rtce 603: d|ustments of
empoyers ta .
Procedure for credts and ad|ustments of certan overpayments.
(See Mm. 612 , page 116.)
C PT R 9, SU C PT R C F D R L UN MPLOYM NT T CT.
Secton 1607: Defntons.
Reguatons 107, Secton 03.227: Wages.
ack pay awards made to renstated empoyees by order of the
Natona Labor Reatons oard. (See Mm. 6119, page 113.)
1 Not prnted In uetn servce.
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Msc. 118
T S UND R SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 811: Defntons.
Reguatons 91, rtce 1 : Wages.
ack pay awards made to renstated empoyees by order of the
Natona Labor Reatons oard. (See Mm. 6119, page 113.)
TITL I . T ON MPLOY RS OF IG T OR MOR .
Secton 907: Defntons.
Reguatons 90, rtce 207: Wages.
ack pay awards made to renstated empoyees by order of the
Natona Labor Reatons oard. (See Mm. 6119, page 113.)
S CTION 3 66 OF T R IS D ST TUT S.
19 7-3-12 85
Ct. D. 1680
soca securty ta es soca securty act, as amended revsed
statutes decson of supreme court.
State Proceedng Statutory Len tor Unempoyment Compensa-
ton Contrbutons Prorty of Cam of Unted States for
Federa Insurance Contrbutons Ta es Over Cam of State.
Upon qudaton of an Insovent company s assets, the recever had
nsuffcent funds to pay the cam of the Unted States for Federa
Insurance contrbutons ta es and the cam of the Drector of Labor
of the State of Inos for State unempoyment compensaton ta es.
The State contended that ts statutory en for the ta es due became
specfc and perfected when notces of en had teen fed and re-
corded and when the recever had been apponted, and that t was
therefore entted to prorty n payment over the cam of the Unted
States. ed, the Unted States Is entted to prorty, under sec-
ton 3 6C, Revsed Statutes, over the en of the State, Inasmuch as
the atter was not suffcenty specfc or perfected at the tme of the
appontment of the recever to defeat the Government s prorty, even
though the fng of the notces of en determned the amount thereof.
The ong-estabshed rue requres that the en must be defnte n at
east three respects as of the cruca tme, namey, dentty of the
enor, the amount of the en, and the property to whch t attaches.
In ths case the dentty of the enor was made certan before the
Government s prorty attached, both by the statute and by the no-
tces of en. The notces aso f ed the amounts of the en, but
nether the notces of en nor the appontment of the recever made
defnte and certan the property.
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119
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Supreme Court of the Unted States.

Peope of the State of Inos e re. Robert L. Gordon, Drector of Labor,
pettoner, v. Nge D. Campbe, Coector of Interna Revenue.
. On wrt of certorar to the Supreme Court of the State of Inos.
December 23, 19 6.
OPINION.
Mr. ustce Rot-edge devered the opnon of the Court.
Ths case was companon to Inos em re. Gordon v. Unted States (328
U. S., Ct. D. 1673, C. R. 19 6-1, 230 ), decded ast term, but brngs for sette-
ment other probems rased by a confct of cams between the Unted States and
the State of Inos. The confct concerns whether one or the other camant s
entted to prorty of payment from assets of a common debtor. The Inos
Supreme Court deat wth both cases n a snge opnon. (391 111., 29.) Cer-
torar was granted n each. (327 U. S., 771; 327 U. S., 772.) On the same
day that Inos e re. Gordon v. Unted States, supra, was decded ths case
was restored to the docket and assgned for reargument before a fu bench (328
U. S., ), because of the presence of the uestons not determned by that
decson.
The controversy arose on une 29, 19 2, when the drector of abor of Inos
brought sut n the Crcut Court of Cook County, 111., to enforce aganst the
Chcago Waste Te te Co. a statutory en for unempoyment compensaton
contrbutons due the State. ssocated gences. Inc.,1 was a credtor of the
Chcago Waste Te te Co. In hs compant the drector aeged that sso-
cated gences had obtaned a |udgment aganst ts debtor n the Muncpa
Court of Chcago and that e ecuton had ssued on ths |udgment une 3, 19 2,
but that the nterest of ssocated gences was subordnate to that of the en
sought to be forecosed. Ths, for the reason that the e ecuton upon sad
|udgment was ssued ong after notce of the en of the drector of abor was
recorded wth the recorder of deeds. 1 The drector aeged further upon nfor-
maton and beef that the Chcago Waste Te te Co. was nsovent and that
the persona property sub|ect to the en heren beng forecosed, s scant se-
curty for the debt due the drector of abor and that uness a recever
be apponted for a of sad property, pendng a fu and compete hearng upon
the ssues heren, the pantff w suffer fnanca oss and sad property w be
wasted.
Grantng the mmedate reef requested, the crcut court en|oned a credtors
of the Chcago Waste Te te Co. from nterferng wth the property of the
company, whether by |udca acton1 or otherwse, and aso apponted a recever
for the property of the Chcago Waste Te te Co.
Subsequenty respondent, the coector of nterna revenue for the frst dstrct
of Inos, fed cams on behaf of the Unted States amountng to 1,9. .07 pus
nterest. Of ths amount, 22.91 was for Federa nsurance contrbuton ta es
and 1, 31.16 was for Federa unempoyment ta es. Of the Federa nsurance
contrbuton ta es, 229.91 represented empoyees ta es (see everng v. Davs,
301 U. S., 619 Ct. I . 12,3 ), ( . . 1937-1, 360 ), coected by the empoyer under
statutory wthhodng provsons. (I. R. ( ., sectons 1 00, 1 01.) The coector
aso fed an ntervenng petton, aegng that the debtor was nsovent and
askng that the cams of the Unted States be aowed as cams entted to pr-
orty of payment Immedatey after costs of admnstraton and before payment of
other credtors. The drector of abor answered, denyng that the cams of the
Unted States were entted to prorty over the cams of Inos.
The recever reazed 677.81 from sae of the debtor s property and ths amount
was deposted wth the cerk of the crcut court. hearng was hed, and the
court ordered that 90 per cent of the funds on depost be gven to the drector of
abor and the other 10 per cent to the Unted States. The coector appeaed to
the ppeate Court for the Frst Dstrct. On moton of the appeee, the cause
was transferred to the Supreme Court of Inos on |ursdctona grourds.
ssocated gences was made a defendant In the sut brought by the drector of abor.
s e hbts to the drector s compant three notces of en wpre fed, one for 225.51,
one for 303.29, and one for 259.05. though these aggregate 788. 5, the e n sought to
be forecosed was for 767.29. See note 12.
The property of the Chcago Waste Te te Co. was to be sod at pubc aucton at
the behest of ssocated gences. The In|uncton prevented ths sae.
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120
The State Supreme Court hed that the Unted States was entted to prorty
over the State of Inos as to ts cam for Federa nsurance contrbuton ta es.
Whether t was correct to award ths prorty s the ssue we now have to decde.
Inos e re. Gordon v. Unted States (328 U. S., ) hed that n crcum-
stances whch caed nto appcaton Revsed Statutes, secton 3 66 (31 U. S. C,
secton 191), the cams of the Unted States for Federa nsurance contrbutons
ta es under tte 8 of the Soca Securty ct ( 9 Stat., 620, 636), and for Federa
unempoyment compensaton ta es under tte 9 of the Soca Securty ct
( 9 Stat, at 639), had prorty over cams of Inos for ta es under Its Unem-
poyment Compensaton ct. That decson s controng, of course, upon the
same feature of ths case, athough the Federa nsurance contrbutons ta es
camed by the Unted States arse under the 1939 amendments of the Soca
Securty ct, rather than, as n the case ast term, under the orgna ct tsef.
Compare sectons 801, 802, 80 , 807(c) of the orgna Soca Securty ct ( 9
Stat, 620) wth sectons 1 00, 1 01, 1 10, and 1 30 of the Interna Revenue Code
(53 Stat, 175, as amended by 53 Stat, 1381).
L
ut the State urges that secton 3 66 does not appy n the facts of ths case.
Ths argument, as we as another, that the en of the State was so specfc
and perfected as to defeat the prorty, f any, of the Unted States under Revsed
Statutes, secton 3 66, must be met before the case can be affrmed on the author-
ty of Inos e re. Gordon v. Unted States, supra.
Revsed Statutes, secton 3 66, provdes:
Whenever any person ndebted to the Unted States s nsovent, or whenever
the estate of any deceased debtor, n the hands of the e ecutors or admnstrators,
s nsuffcent to pay a the debts due from the deceased, the debts due to the
Unted States sha be frst satsfed; and the prorty estabshed sha e tend
as we to cases n whch a debtor, not havng suffcent property to pay a hs
debts, makes a vountary assgnment thereof, or n whch the estate and effects
of an abscondng, conceaed, or absent debtor are attached by process of aw,
as to cases n whch an act of bankruptcy s commtted.
The ffth act of bankruptcy, whch s the one on whch the Government rees
as havng brought secton 3 66 nto operaton, conssts of a person s0 havng,
(5) whe nsovent or unabe to pay hs debts as they mature, procured,
permtted, or suffered vountary or Invountary the appontment of a
recever or trustee to take charge of hs property. (52 Stat, 8 ; 11
U. S. C, secton 21(a).)
The State contends, frst, that the recever apponted at ts Instance was not a
recever wthn the meanng of ths provson and, second, that the Chcago Waste
Te te Co. was not shown by the record to be nsovent.
Ths Court has noted that the vew has been e pressed that to satsfy the ffth
act of bankruptcy the recevershp must be genera, as contrasted wth a
recevershp Incdenta to the enforcement of a en. (Duparquet uot
Monetse Co. v. vans, 297 U. S., 216, 22 . ) It has not determned the correctness
Ths dd not e haust the fund, and the court awarded the baance to the drector of
abor, Instead of to the Unted States In part payment of Its cam for Federa unempoy-
ment ta es. (391 III., 29, 32-3 . See aso Unted States v. Spencer, 65 Fed. Supp., 763.)
The Unted States has not pettoned for certorar, and therefore the correctness of ths
dsposton of the baance of the fund s not now n controversy.
ones 111. Stat. nn. (19 ). sectons 5.128- 5.161. The argument of the State n
that case was that, snce tte 9 contaned provsons Intended to nduce States to set
up sound unempoyment compensaton n accordance wth congressonay prescrbed stand-
ards and to ths end permtted the States to bud up ther own funds by coecton
from empoyers wthn the State of 90 per cent of the ta tho e empoyers woud otherwse
have to pay to the Federa Government, It was Congress Intenton to gve States prorty
over the Unted States for ther unempoyment compensaton cams. Ths argument was
appcabe, t may be noted, ony to Federa unempoyment compensaton ta es and not to
Federa nsurance contrbutons ta es whch are the ony ones Invoved In ths case, snce
as to Federa nsurance contrbutons ta es there are no provsons for Federa-State coop-
eraton as there are n tte 9. (Compare everno v. Davs, 301 U. S.. 319, wth Steward
Machne Co. v. DavU, 301 U. S.. 5 8 Ct. D. 1236, C. . 1937-1, . See aso Rvard
. |ou Furnture Co.. 68 R. I., 358, 361.)
The ankruptcy ct uses the term person (11 U. S. C, secton 21(a)) but the
ct defnes persons as Incudng corporatons, e cept where otherwse specfed, and
offcers, partnershps, and women. (52 Stat., 8 1; 11 U. S. C, secton 1(23).)
Snce decson of the vans case, the ffth act of bankruptcy has been amended to
ncude appontment of a recever when there s nsovency In the equty sense as we a
In the bankruptcy sense. (See 1 Coer on ankruptcy (1 th. ed.), 75.) ut under the
amended statute the same vew has been e pressed. ( fatt y. Lamb, 111 Fed. (2d), 3 ,
36.)
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121
Msc.
of that vew ( m v. Ianey, 318 U. S., 515, 521, n. 5). nor need we do so now.
For, though the recever was apponted at the nstance of a secured credtor, as
n Unted States v. Te as (31 U. S., 80, 83- 8 Ct. D. 153 , C. . 19 2-1, 3 5 ),
any mtatons upon the operaton of secton 3 tC whch mght otherwse
have fowed from ths crcumstance were removed by the subsequent
character of the proceedng. The recever was paced n contro of a the
assets of the Chcago Waste Te te Co., and a of the assets were qudated.
t east one party other than the secured credtor whch had nsttuted the
proceedng, namey, the Unted States, was aowed to ntervene and was heard.
We thnk that reates requre us to treat the proceedng as a genera equty
recevershp wthn the scope of secton 3 06. (Unted States v. Te as, supra.)
Moreover, t s questonabe whether the fact of nsovency s propery con-
testabe by the State of Inos. The recever was apponted upon the aegatons
of ts compant, whch Incuded nsovency, and the State admtted n ts
answer to the Government s ntervenng petton that the debtor was nsovent.
though ordnary the doctrne of estoppe or thut part of t whch precudes
nconsstent postons n |udca proceedngs Is not apped to States, n the
present tgaton Inos s n the poston of any en credtor.
It woud seem therefore that n these crcumstances the State shoud be hed
estopped to contest nsovency. ut n any event the record demonstrates that
the debtor was nsovent at the tme of the appontment of the recever, for when
ts property was qudated there was not enough to satsfy the cams of the
two contestng credtors at the bar.
Thus, the ffth act of bankruptcy was commtted nnd In consequence the
Unted States has the beneft of the prorty gven It by Revsed Statutes, secton
3 66. We therefore turn to the argument of the State thut the specfcty of
ts en defeated ths prorty.
II.

The Unted States was gven the prorty, now ncorporated n Revsed Statutes,
secton 3 66, n 1707 (1 Stat., 515 ). (See aso the dscusson In Prce v. Unted
States, 26 U. S., 92, 500-501.) . Yet the Court has never decded whether the
prorty s overcome by a fuy perfected and specfc en. (See Rogse, The
Dfferences n the Prorty of the Unted States n ankruptcy and n quty
Recevershps (1929), 1 arv. L. Rev., 251, 267-270.) The queston, however, has
been reserved many tmes n e press terms. (See Conard v. tantc Insurance
Co., 1 Pet., 386, 2; rent v. ank of Wa hngton, 10 Pet., 596, 611-612; Spokane
County v. Unted States, 279 U. S., 80, 95; Unted States v. Maeuy. 288 U. S., 290,
29 Ct. D. 635, C. . II-1, 150 (1933) ; Unted States v. Te as, 31 U. S., 80,
85- 86; Unted States v. WaddU Co., 323 U. S., 353, 355.10) nd agan we need
not decde t, for we are of the opnon that the Inos en was not suffcenty
specfc or perfected, n the purvew of controng decsons, to defeat the
Government s prorty.
The effect and operaton of a en In reaton to the cam of prorty by the
Unted States under Revsed Statutes, secton 3 66, s aways a Federa queston.
The prorty gven the Unted States can not he mpared or superseded by
8tate aw. (Unted States v. Okahoma, 261 U. S., 253, 200.) ence a State
court s characterzaton of a en as specfc and perfected s not concusve.
(Unted States v. Wadd Co., 323 U. S., 353, 357 Ct. D. 162 , C. . 19 5, 59 .)
The State characterzaton, though entted to weght, s aways sub|ect to
ree amnaton by ths Court.
On the other hand, f the State court tsef characterzes the en as nchoate,
ths characterzaton Is practcay concusve. Whatever mght have been
the effect of more competed procedure In the perfectng of the ens under the aw
of the State, upon the prorty of the Unted States heren, the atttude of the
State court reeves us of consderaton of It. (Spokane County v. Unted States.
279 U. S., 80, 95; cf. Unted States v. nott, 298 U. S., 5 .)
See note (10 6), 59 arv. L. Rev., 1132. 1136.
There are mnor dfferences In phraseoogy between 1 Stat.. 515, and Revsed Statutes,
secton 3 66, whch dd not work any change n the purpose or meanng.
(Prce v. Unted States, 269 U. ., 92, 5(11.)
The statement n Unted States . nott (298 U. S., 5 . 551) that such an nterest
an nchoate genera en created by the aws of Forda) acks the characterstcs of a
specfc perfected en whch aone bars the prorty of the rted Stntes was not ntended
to sette the probem and may be taken to have been made wth reference to the eary
mortgage en cases dscussed and dstngushed In Unted States . Te as (31 L . S. at
8 - 85), and ew York v: Macay (288 U. S. at 293 29 ).
75 70 7 9
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122
In ths case the Unted States argues that the Inos Supreme Court |udged
the en of the State nchoate and that therefore we may affrm ts |udgment
on ths bass. Inos, however, dsputes ths readng. It states that the
Inos court dd not consder the nature of the en In reaton to the facts
presented by ths case, but merey determned that under the facts of Inos
e re. Gordon v. Unted States, supra, the en had not become choate. We
can hardy accept ths vew In the face of the |udgment rendered and the
opnon s statement of the facts of ths case at the outset, together wth the
ater e pct reference to t n hodng the en not of a sort to defeat the Federa
prorty. ut we do not stop to anayze the opnon of the Supreme Court of
Inos In deta. For t s cear, qute apart from the opnon, that the en
was not so specfc and perfected as to defeat the prorty of the Unted States,
f that Is at a possbe.
The statute under whch the Inos en arses s set out In the margn.
The State asserts that the en became specfc and perfected when notce of
en had been fed and recorded and when the recever had been apponted.
In ts vew, upon appontment of the recever a substanta ads to the
enforcement of the State s en had been utzed.
Wth ths concuson we do not agree. It s true that the fng of notce of
en determned the amount of the en, though the State may have computed
wrongy the amount of ta es owed t.u (See Unted States v. Wadd Co., 323
U. S. at 357-358.) ut t s not enough that the amount of the en be known.
The en must attach to specfc property of the debtor. Ths the Inos en
had not done at the tme the recever was apponted. Indeed, as was stated
at the argument, not ony was the property not n the hands of the baff, but
so far as appears the amount or type of property beongng to the debtor was
not known to the State.
Under the Inos aw, where t s sought to forecose a en for unempoyment
compensaton ta es It s not necessary for the drector n hs compant to
descrbe the property to whch sad en has attached.1 On the contrary by
e press provson,
It sha be the duty of the empoyer aganst whom such petton
has been fed to fe n sad proceedngs, a fu and compete schedue, under
oath, of a persona property and rghts thereto whch he owned at the tme
the contrbutons, upon whch the en sought to be forecosed Is based,
become due, or whch he subsequenty acqured, ndcatng upon such
schedue the property so owned by such empoyer whch teas, or s used by
such empoyer n connecton wth hs trade, occupaton, professon or bus-
ness, and f such empoyer sha so fa to do after havng been so ordered
by the court, he may be punshed as n other cases of contempt of court.
( ones 111. Stat. nn. (19 ), secton 5.15 (e).) mphass added.
en Is hereby created n favor of the drector upon a the pergona property or
rghts thereto owned or thereafter acqured by any empoyer and used by hm n connecton
th hs trade, occupaton, professon or busness, from whom contrbutons, nterest, or
penates are or may hereafter become due. Such en sha be for a sum equa to the
amount at any tme due from such empoyer to the drector on account of contrbutons,
nterest and penates thereon. Such en sha attach to such property at the tme such
contrbutons, nterest or penates became, or sha hereafter become, due. In a cases
where a report settng forth the amount of such contrbutons has been fed wth the drec-
tor, no acton to enforce such en sha be brought after three years from the date of the
fng of such report and n a other cases no acton to enforce such en sha be brought
after three years from the date that the determnaton and assessment of the drector
made pursuant to the provsons of ths act became fna. ( ones 111. Stat. nn. (19 ),
secton 5. 15 (a).) mphass added. (See aso note 2.)
Such en sha be Invad ony as to any Innocent purchaser for vaue of stock n trade
of any empoyer n the usua course of such empoyer s busness, and sha be nvad as to
any Innocent purchaser for vaue of any of the other assets to whch such en has attached,
uness notce thereof has been fed by the drector n the offce of the recorder of deeds of
the county wthn whch the property sub|ect to the en s stuated. ( ones
111. Stat. nn. (18 ), secton 5.15 (b) (1). See note 2.)
Cf. note 2.
The prorty of the Unted States attaches upon appontment of the recever. (Unted
States v. Okahoma, 261 U. S., 253, 260 ; Spokane County v. Unted States, 279 U. S., 80,
93.)
ones 111. Stat. nn. (19 ). secton 5.15 (e), provdes for enforcement of the en
by |udca proceedngs for forecosure. The secton states : In a such cases. It sha
not be necessary that sad petton descrbe the property to whch sad en has attached ;
and contnues wth the further anguage quoted n the te t.
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Msc.
Not unt the debtor has fed the requred schedues woud the State know
the amount of property n the debtor s possesson or, more Important, the
property to whch the en attached. For the en attaches ony to persona
property used by the empoyer n connecton wth hs trade, occupaton,
professon or busness.
The appontment of a recever, then, was ony an Inua step n the perfecton
of the en. It, together wth the n|uncton, protected whatever rghts n the
property the State mght have. ut It was not a fna asserton or attachment
of rghts to specfc property, as s, for e ampe, the enforcement of a |udgment
by e ecuton and evy. (Canard v. tantc Ins. Co., 1 Pet.. 383, 3- .)
The State has not reed merey upon the recordng of the notces of en but
has rested on ths together wth the recever s appontment as accompshng
the requred specfcty and perfecton. ut now It s sad the fng of the
notces aone acheved ths resut. Nether vew s correct. oth have been
repudated by repeated decsons of ths Court, the atest beng Unted States v.
Wadd Co., supra.
t has never been suffcent to show merey a genera en, effectve to protect
the enor aganst others than the Government, but contngenty on takng sub-
sequent steps ether for gvng pubc notce of the en or for enforcng t.
(Conard v. tantc Ins. Co., 1 Pet., 386, ; Unted States v. Wadd Co., supra.)
The Federa prorty s not destroyed by State recordng acts any more than
by State statutes creatng or otherwse affectng ens, f the en as recorded
or otherwse e ecuted does not have the requred degree of specfcty and
perfecton. Under the decsons the test s not, and can not be, smpy whether
by hs takng further steps, the enor s rghts w be enforced aganst others
than the Government.
The ong estabshed rue requres that the en must be defnte, and not
merey ascertanabe n the future by takng further steps, n at east three
respects as of the cruca tme. These are: (1) the dentty of the enor
(Unted mates v. nott, 298 U. S., 5 , 5 9-551) ; (2) the amount of the en
(Unted States v. Wadd Co., 323 U. S. at 357-358) ; and (3) the property to
whch t attaches (Unted States v. Wadd Co., supra; Unted States v. Te as,
supra; . etc yor : v. Macny, supra.) It s not enough that the enor as power
to brng these eements, or any of them, down from the broad generaty to the
earth of specfc dentty.
In ths case the dentty of the enor was made certan, before the Govern-
ment s prorty attached, both by the statute and by the notces of en. The
atter aso f ed the amounts of the ens, though mscacuated. ut nether
the notces of en nor the appontment of the recever made defnte and certan
the property, as we have shown.
ere, as In Unted States v. Te as (31 U. S. at 87), property
devoted to or used n hs busness s nether specfc nor constant. s n
Unted States v. Wadd Co. (323 U. S. at 350), the goods sub|ect to the en had
not severed themseves from the genera and free assets of the tenant owner
from whch the cams of the Unted States were entted to prorty of pay-
ment. ere, as n that and other enses, there was merey a caveat of a more
perfect en to come (New York v. facay, 288 U. S. at 20 ), whether tested
by State aw (323 U. S. at 357), or by perfecton as a matter of fact, regardess
of how compete t the en may have been as a matter of State aw. (Ibd.,
30s .) . The State has acqured nether tte nor possesson (Theusson v. Smth,
2 Wheat, 396; New York v. Macay, 2.S8 U. S. at 290), snce the recever s posses-
son was that of the court, not of the State; and dd not sever the property from
the debtor s genera assets as of the cruca date.
To permt the recordng of the notces or the recever s appontment, or both,
In crcumstances ke these, to overcome the Government s prorty woud be n
substance to overrue te numerous decsons cted n whch ens no ess specfc
and perfected have been hed mpotent for that purpose. It woud open the
door, too, we thnk, to substanta nufcaton of the Government s prorty.
16 In h compant the drector of abor prayed. that an order he entered by ths honor-
abe court commandn; that the defendant, Chcago Waste Te te Co., a corporaton,
ne wthn a short day to be f ed by the court, a fu and compete schedue under oath,
n persona property and rghts thereto, whch t owned on the 1st day of May, 19 1,
or hereafter acqured, and to ndcate upon such schedue the property so owned by It
wnch was or s used by t n connecton wth ts trade, occupaton, professon or busness.
See the authortes cted In the tet at the begnnng of part II of ths opnon.
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12
For then ths coud be accompshed smpy by recorded notces.of en, dscosng
cams to property not segregated from the debtor s genera estate; desgnate
ony by genera words of cassfcaton, ncudng after acqured property as
here; and ascertanabe defntvey ony by further procedures. Congress aone
shoud make such n change, f t shoud be made at a.
The |udgment s affrmed.
Dssentng opnon by Mr. ustce Reed, n whch Mr. ustce ackson |ons.
b we affrm the udgment on the ground that the Unted States, under Revsed Statutes,
secton 3 00. has prorty over Inos as to n adern nsurance contrbutons ta es owrnr
It we do not consder the argument that even f ts genera prorty dd not e st, te
Unted States woud be entted to the amount ot the fund whch represents empoyees
ta es.
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MISC LL N OUS T RULINGS.
ST T T .
INT RN L R NU COD .
19 7-12-12567
T.D. 5565
TITL 26 INT RN L R NU . C PT R I; D C PT R , P RT 82.
T TION PURSU NT TO TR TI S. SU P RT UNIT D INGDOM.
Reguatons reatng to estate ta pursuant to conventon between
the Unted States and the Unted ngdom, procamed by the Pres-
dent of the Unted States on uy 30, 19 6 page 1 6, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 26, D. O.
To Coectors of Interna Revenue and Others Concerned:
Tabe of Contents.
Secton.
82.101. Procamaton of Presdent, te t of conventon, and statutory provsons
authorzng reguatons.
82.102. Scope of reguatons.
82.103. Domce and ctzenshp.
82.10 . Stus of property.
82.105. Ta aton on bass of domce, ctzenshp, or the aw governng dsposton
of property.
82.106. Ta aton on bass of stus of property.
82.107. Credt for estate dutes mposed n Great rtan and Northern Ireand.
82.108. Cam for credt or refund and Interest on refund.
82.109. Informaton furnshed by each contractng country to the other.
Secton 82.101. Procamaton of Presdent, Te t of Conventon,
and Statutory Provsons uthorzng Reguatons. The proc-
amaton of the Presdent of the Unted States, contanng the te t
of the conventon between the Unted States and the Unted ngdom
of Great rtan and Northern Ireand reatng to Federa estate ta es
and the estate dutes mposed n Great rtan and Northern Ireand
(herenafter referred to as the conventon), s set forth beow:
Y T PR SID NT OF T UNIT D ST T S OF M RIC PROCL M TION.
Whereas a conventon between the Unted States of merca and
the Unted ngdom of Great rtan and Northern Ireand for the
avodance of doube ta aton and the preventon of fsca evason wth
respect to ta es on the estates of deceased persons was sgned by
ther respectve penpotentares at Washngton on pr 10, 19 5,
the orgna of whch conventon s word for word as foows:
(125)
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126
The Government of the Unted States of merca and the Government of the
Unted ngdom of Great rtan aud Northern Ireand,
Desrng to concude a conventon for the avodance of douhe ta aton and
the preventon of fsca evason wth respect to ta es on the estates of deceased
persons,
ave apponted for that purpose as ther respectve penpotentares:
The Government of the Unted States of merca
Mr. dward R. Stettnus, r., Secretary of State, and
The Government of the Unted ngdom of Great rtan and Northern
Ireand:
The Rght onorabe the ar of afa , . G., mbassador traordnary
and Penpotentary n Washngton, v
Who, havng e hbted ther respectve fu powers, found n good and due
form, have agreed as foows:
rtce I.
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the Unted States of merca, the Federa estate ta , and
(6) In the Unted ngdom of Great rtan and Northern Ireand, the
estate duty mposed In Great rtan.
(2) The present conventon sha aso appy to any other ta es of a substan-
tay smar character mposed by ether contractng party subsequenty to the
date of sgnature of the present conventon or by the government of any terrtory
to whch the present conventon appes under rtce III or rtce I .
rtce II.
(1) In the present conventon, uness the conte t otherwse requres:
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense means the States, the Terrtores of aska
and of awa, and the Dstrct of Coumba.
(6) The term Great rtan means ngand, Waes and Scotand, and
does not ncude the Channe Isands or the Ise of Man.
(c) The term terrtory when used n reaton to one or the other con-
tractng party means the Unted States or Great rtan, as the conte t
requres.
(d) The term ta means the estate duty mposed n Great rtan or
the Unted States Federa estate ta , as the conte t requres.
(2) In the appcaton of the provsons of the present conventon by one of the
contractng partes, any term not otherwse defned sha, uness the conte t
otherwse requres, have the meanng whch t has under the aws of that con-
tractng party reatng to the ta es whch are the sub|ect of the present con-
venton.
rtce III.
(1) For the purposes of the present conventon, the queston whether a de-
cedent was domced In any part of the terrtory of one of the contractng partes
at the tme of hs death sha be determned In accordance wth the aw n force
In that terrtory.
(2) Where a person des domced n any part of the terrtory of one contract-
ng party, the stus of any of the foowng rghts or nterests, ega or equtabe,
whch for the purposes of ta form part of the estate of such person or pass on hs
death, sha, for the purposes of the mposton of ta and for the purposes of
the credt to be aowed under rtce , be determned e cusvey In accordance
wth the foowng rues, but n cases not wthn such rues the stus of such rghts
and nterests sha be determned for those purposes n accordance wth the aw
reatng to ta n force n the terrtory of the other contractng party:
(a) Rghts or nterests (otherwse than by way of securty) n or over
mmovabe property sha be deemed to be stuated at the pace where such
property s ocated;
(6) Rghts or nterests (otherwse than by way of securty) n or over
tangbe movabe property, other than such property for whch specfc pro-
vson s herenafter made, and In or over bank or currency notes, other forms
of currency recognzed as ega tender n the pace of ssue, negotabe bs
of e change and negotabe promssory notes, sha be deemed to be stuated
at the pace where such property, notes, currency or documents are ocated at
the tme of death, or, f n transtu, at the pace of destnaton;
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127
Msc.
(c) Debts, secured or unsecured, other than the forms of ndebtedness for
whch specfc provson s made heren, sha be deemed to be stuated at the
pace where the decedent was domced at the tme of death ;
(d) Shares or stock n a corporaton other than a muncpa or govern-
menta corporaton (ncudng shares or stock hed by a nomnee where the
benefca ownershp.s evdenced by scrp certfcates or otherwse) sha be
deemed to be stuated at the pace n or under the aws of whch such cor-
poraton was created or organzed;
(e) Moneys payabe under a pocy of assurance or nsurance on the fe ,
of the decedent sha be deemed to be stuated at the pace where the decedent
was domced nt the tme of death ;
f) Shps and arcraft and shares thereof sha be deemed to be stuated
at the pace of regstraton or documentaton of the shp or arcraft;
(g) Good w as a trade, busness or professona asset sha be deemed
to be stuated at the pace where the trade, busness or professon to whch It
pertans s carred on ;
(ft) Patents, trade-marks and desgns sha be deemed to be stuated at
the pace where they are regstered ;
() Copyrght, franchses, and rghts or censes to use any copyrghted
matera, patent, trade mark or desgn sha he deemed to be stuated at the
pace where the rghts arsng therefrom are e ercsabe;
(; ) Tghts or causes of acton e decto survvng for the beneft of an
estate of a decedent sha he deemed to be stuated at the pace where such
rghts or causes of acton arose;
(k) udgment debts sha be deemed to be stuated at the pace where the
|udgment s recorded;
Provded that f, apart from ths paragraph, ta woud be mposed by one
contractng party on any property whch s stuated n ts terrtory and passes
under a dsposton not governed by ts aw, ths paragraph sha not appy to such
property uness, by reason of Its appcaton or otherwse, ta Is mposed or woud
but for some specfc e empton be mposed thereon by the other contractng party.
bto.e I .
(1) In determnng the amount on whch ta s to be computed, permtted deduc-
tons sha be aowed n accordance wt the aw n force n the terrtory n whch
the ta s mposed.
(2) Where ta s mposed by one contractng party on the death of a person who
at the tme of hs death was not domced n any part of the terrtory of that
contractng party but was domced n some part of the terrtory of the other
contractng party, no account sha be taken n determnng the amount or rate
of such ta of propery stuated outsde the former terrtory: Provded that ths
paragraph sha not appy as respects ta mposed
(a) n the Unted States n the case of a Unted States ctzen dyng
domced n any part of Great rtan; or
(6) n Great rtan n the case of property passng under a dsposton
governed by the aw of Great rtan.
rtce .
(1) Where one contractng party mposes ta by reason of a decedent s beng
domced n some part of Its terrtory or beng ts natona, that party sha aow
aganst so much of ts ta (as otherwse computed) as s attrbutabe to property
stuated n the terrtory of the other contractng party, a credt (not e ceedng the
amount of the ta so attrbutabe) equa to so much of the ta mposed n the
terrtory of such other party as s attrbutabe to such property ; but ths para-
graph sha tot appy as respects any such property as s mentoned n paragraph
(2) of ths artce.
(2) Where each contractng party mposes ta by reason of a decedent s beng
domced n some part of ts terrtory, each party sha aow aganst so much
of ts ta (as otherwse computed) as s attrbutabe to property whch s stuated,
or s deemed under paragraph (2) of rtce III to be stuated,
( ) .n the terrtory of both partes, or
(6) outsde both terrtores,
a credt whch bears the same proporton to the amount of ts ta so attrbutabe
or to the amount of the other party s ta attrbutabe to the same property,
whchever s the ess, as the former amount bears to the sum of both amounts.
(3) For the purposes of ths artce, the amount of the ta of a contractng
arty attrbutabe to any property sha be ascertaned after takng nto account
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128
any credt, aowance or reef, or any remsson or reducton of ta , otherwse
than In respect of ta payabe n the terrtory of the other contractng party or
In any other country; and f, n respect of property stuated outsde the terrtores
of both partes, a contractng party aows aganst ts ta a credt for ta payabe
n the country where the property s stuated, that credt sha be taken nto
account n ascertanng, for the purposes of paragraph (2) of ths artce, the
amount of the ta of that party attrbutabe to the property.
rtce I.
(1) ny cam for a credt or for a refund of ta founded on the provsons of
the present conventon sha be made wthn s years from the date of the death
of the decedent n respect of whose estate the cam s made, or, n the case of a
reversonary nterest where payment of ta s deferred unt on or after the date
on whch the nterest fas Into possesson, wthn s years from that date.
(2) ny such refund sha be made wthout payment of nterest on the ancurt
so refunded.
rtce II.
(1) The ta aton authortes of the contractng partes sha e change such
Informaton (beng nformaton avaabe under the respectve ta atpn aws of
the contractng partes) as s necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the admnstraton of statu-
tory provsons aganst ega avodance n reaton to the ta es whch are the
sub|ect of the present conventon. ny nformaton so e changed sha be
treated as secret and sha not be dscosed to any person other than those con-
cerned wth the assessment and coecton of the ta es whch are the sub|ect
of the present conventon. No nformaton sha be e changed whch woud
dscose any trade secret or trade process.
(2) s used n ths artce, the term ta aton authortes means, In the
case of the Unted States, the Commssoner of Interna Revenue or hs authorzed
representatve; n the case of Great rtan, the Commssoners of Inand
Revenue or ther authorzed representatve; and, n the case of any terrtory
to whch the present conventon s e tended under rtce III, the competent
authorty for the admnstraton n such terrtory of the ta es to whch the
present conventon appes.
rtce III.
(1) ther of the contractng partes may, on the comng nto force of the
present conventon or at any tme thereafter whe It contnues n force, by a
wrtten notfcaton of e tenson gven to the other contractng party through
dpomatc channes, decare ts desre that the operaton of the present con-
venton sha e tend to a or any of Its coones, overseas terrtores, protec-
torates, or terrtores n respect of whch t e ercses a mandate, whch mpose
ta es substantay smar n character to those whch are the sub|ect of the
present conventon. The present conventon sha appy to the terrtory or terr-
tores named n such notfcaton as to the estates of persons dyng on or after
the date or dates specfed n the notfcaton (not beng ess than (O days from
the date of the notfcaton) or, f no date s specfed In respect of any such
terrtory, on or after the s teth day after the date of such notfcaton, uness,
pror to the date on whch the conventon woud otherwse become appcabe
to a partcuar terrtory, the contractng party to whom notfcaton s gven
sha have nformed the other contractng party n wrtng through dpomatc
channes that It does not accept such notfcaton as to that terrtory. In the
absence of such e tenson, the present conventon sha not appy to any such
terrtory.
(2) t any tme after the e praton of one year from the entry nto force of
an e tenson under paragraph (1) of ths artce, ether of the contractng
partes may, by wrtten notce of termnaton gven to the other contractng
party through dpomatc channes, termnate the appcaton of the present
conventon to any terrtory to whch It has been e tended under paragraph (1),
and n such event the present conventon sha cease to appy, as to the estates
of persons dyng on or after the date or dates (not beng earer than the s -
teth day after the date of such notce) specfed n such notce, or, f no date
s specfed, on or after the s teth day after the date of such notce, to the
terrtory or terrtores named theren, but wthont affectng ts contnued app-
caton to the Unted States, Great rtan or to any other terrtory to whch t
hns been e tended under paragraph (1) hereof.
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(3) In the appcaton of the present conventon n re aton to any terrtory
to whch t Is e tended by the Unted States or the Unted ngdom, references
to Unted States or, as the case may be, Great rtan, or to the terrtory
of one (or of the other) contractng party, sha be construed as references to
that terrtory.
( ) The provsons of the precedng paragraphs of ths artce sha appy to
the Channe Isands and the Ise of Man as f they were coones of the Unted
ngdom.
rtce I .
The present conventon sha appy n reaton to estate duty mposed In
Northern Ireand as It appes In reaton to estate duty Imposed n Great rtan,
but sha be separatey termnabe In respect of Northern Ireand by the same
procedure as Is ad down In paragraph (2) of rtce III.
rtc-e .
(1) The present conventon sha be ratfed and the Instruments of ratf-
caton sha he e changed at Washngton as soon as possbe.
(2) The present conventon sha come nto force on the date of e change
of ratfcatons and sha be effectve ony as to
(a) the estates of persons dyng on or after such date; and
(6) the estate of any person dyng before such date and after the 31st
day of December, 19 , whose persona representatve eects, n such manner
as may be prescrbed, that the provsons of the present conventon sha be
apped to such estate.
rtce I.
(1) The present conventon sha reman In force for not ess than three
years after the date of ts comng Into force.
(2) If not ess than s months before the e praton of such perod of three
years, nether of the contractng partes sha have gven to the other contractng
party, through dpomatc channes, wrtten notce of Its Intenton to termnate
the present conventon, the conventon sha reman In force after such perod of
three years unt ether of the contractng partes sha have gven wrtten notce
of such ntenton, n whch event the present conventon sha not be effectve as to
the estates of persons dyng on or after the date (not beng earer than the
s teth day after the date of such notce) specfed n such notce, or, f no date-
s specfed, on or after the s teth day after the date of such notce.
In wtness whereof the above-mentoned penpotentares have sgned the pres-
ent conventon and have aff ed thereto ther seas.
Done at Washngton, n dupcate, on the 16th day of pr, 19 5.
For the Government of the Unted States of merca :
sea . R. Stettnub, r.
For the Government of the Unted ngdom of Great rtan and Northern
Ireand:
sea afa .
nd whereas the sad conventon has been ratfed by both Govern-
ments, and the nstruments of ratfcaton of the two Governments were
e changed at Washngton on the 25th day of uy, 19 6;
nd whereas t s provded n rtce of the sad conventon that
on the date of the e change of ratfcatons the conventon sha be effec-
tve as to the estates of persons dyng on or after such date, and as to
the estate of any person dyng before such date and after the 31st day
of December, 19 , whose persona representatve eects, n such man-
ner as may be prescrbed, that the provsons of the sad conventon
sha be apped to such estate;
NoW| therefore, be t known that I, arry S. Truman, Presdent of
the Unted States of merca, do hereby procam and make pubc the
sad conventon to the end that the same and every artce and cause
thereof may be observed and fufed wth good fath by the Unted
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130
States of merca, and by the ctzens of the Unted States of merca
and a other persons sub|ect to the |ursdcton thereof, the sad con-
venton be ng deemed to have effect as provded n rtce thereof,
as aforesad.
In testmony whereof, I have hereunto set my hand and caused the
Sea of the Unted States of merca to be hereunto aff ed.
Done at the cty of Washngton ths 30th cay of uy n
r - the year of our Lord one thousand nne hundred forty-s
L and of the Independence of the Unted States of merca
the one hundred seventy-frst.
aert S. Truman.
y the Presdent:
Dean cheson,
ctng Secretary of State.
Secton 3791 of the Interna Revenue Code provdes as foows:
(a) uthorzaton.
(1) In genera. tne Commssoner, wth the approva
of the Secretary, sha prescrbe an pubsh a needfu rues and
reguatons for the enforcement of ths tte.
(2) In case of change n aw. The Commssoner may make a
such reguatons, not otherwse provded for, as may have become
necessary by reason of any ateraton of aw n reaton to nterna
revenue.
(b) Retroactvty of Reguatons or Rungs. The Secretary, or the
Commssoner wth the approva of the Secretary, may prescrbe the
e tent, f any, to whc any rung, reguaton, or Treasury decson, reat-
ng to the nterna revenue aws, sha be apped wthout retroactve
effect.
Sec. 82.102. Scope or Reguatons. Sectons 82.101 to 82.109, ncu-
sve, pertan to the appcaton of the Federa estate ta as modfed
under the provsons of the conventon n the case of a decedent who at
tme of death was domced n ether the Unted States or the Unted
ngdom of Great rtan and Northern Ireand, or was a ctzen of
the Unted States, and whose death occurred:
(a) On or after uy 25, 1916, the date of e change of ratfca-
tons, or
(b) fter December 31, 19 , and before uy 25, 19 6, f the
person charged wth the duty of fng the return eects that the
provsons of the conventon sha be apped. Such eecton sha
be made n a wrtten statement fed n dupcate wth the co-
ector of nterna revenue at the tme the return s fed or as soon
thereafter as possbe. ( rtce (2) of the conventon.)
Sectons 82.101 to 82.109, ncusve, aso pertan to reated admns-
tratve matters and to the furnshng of nformaton by the ta
authortes of each country to such authortes of the other country
whch may be needed n carryng out the provsons of the conventon
or n preventng fraud or avodance wth respect to th ta es whch
are the sub|ect of the conventon. ( rtce II of the conventon.)
The provsons of the conventon are restrcted to the estate ta
mposed by the Unted States, the estate duty mposed n Great rt-
an, and the estate duty mposed n Northern Ireand, and do not
comprehend any of the estate, nhertance, egacy, and successon
ta es mposed by the States, Terrtores, the Dstrct of Coumba, and
possessons of the Unted States or the egacy and successon dutes
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mposed n Great rtan and Northern Ireand. ( rtces I and I
of the conventon.)
The credts aganst the Federa estate ta , authorzed by secton
813(a) and secton 936 of the Interna Revenue Code for Federa gft
ta es and by secton 813(b) thereof for estate, nhertance, egacy, or
successon ta es pad any State, Terrtory, the Dstrct of Coumba, or
possesson of the Unted States, are not affected. ( rtce (3) of
the conventon.)
In the appcaton of the provsons of the conventon the estate
duty mposed n Great rtan and the estate duty mposed n North-
ern Ireand are to be separatey consdered, and the term Unted
ngdom as used n sectons 82.101 to 82.109, ncusve, may ether
refer to Great rtan or Northern Ireand, dependng upon the cr-
cumstances of the partcuar case.
Sec. 82.103. Domce and Ctzenshp. Determnatons wth re-
spect to the decedent s domce and ctzenshp at tme of death are
requred n order to ascertan whether the estate s wthn the scope
of the conventon, and f so, such determnatons are necessary for two
further purposes . e., frst, n order to ascertan the poperty that
may be ncuded n the appcaton of the ta , and, second, n order to
ascertan the credt for death dutes authorzed by the conventon.
For such purposes, domce and ctzenshp sha be determned n
accordance wth the aws of the contractng country whch mposes
the ta by reason of the decedent s beng domced theren or a ctzen
thereof. Where n a partcuar case ony one of the contractng coun-
tres asserts ta by reason of the decedent s beng domced theren,
the other contractng country s bound by such determnaton of
domce for a purposes of the conventon, and w not. for nstance,
n the mposton of ts ta on the bass of stus of property dsregard
the stus rues estabshed by rtce III by contendng that the
decedent was domced n a thrd country. ( rtce III(1), rtce
I (2) (a), and rtce of the conventon.)
For the purpose of determnng whether the decedent was domced
n ether contractng country at tme of death, the Unted States n-
cudes the States thereof, the Terrtory of aska, the Terrtory of
awa, and the Dstrct of Coumba, and the Unted ngdom of
Great rtan and Northern Ireand ncudes Great rtan ( ngand,
Waes, and Scotand) and Northern Ireand. For ths purpose the
Unted ngdom does not ncude the Channe Isands or the Ise of
Man. ( rtce 11(1) of the conventon.)
Sec 82.10 . Stus of Property. The determnaton of the stus of
property s necessary for two purposes, . e., frst, n order to ascertan
the property that may be ncuded n the appcaton of the ta f
|ursdcton s based upon stus of property wthn the country, and,
second, n order to ascertan the credt for death dutes authorzed by
the conventon snce the credtng country ony aows such credt
under paragraph (1) of rtce wth respect to property stu-
ated n the other contractng country and under paragraph (2) of
rtce wth respect to property stuated outsde both contractng
countres or wth respect to property deemed to be stuated n both
such countres. For such purposes, the conventon provdes rues of
stus for specfc casses of poperty as herenafter set forth. These
rues are appcabe ony n case the decedent was at tme of death
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132
domced n the Unted States or the Unted ngdom. The conven-
ton aso provdes that wth respect to property not wthn the de-
scrbed casses, f the decedent was domced n the Unted States the
stus thereof sha be determned n accordance wth the aw of the
Unted ngdom, or f the decedent was domced n the Unted
ngdom the stus thereof sha be determned n accordance wth the
aw of the Unted States. The rues of stus provded by the conven-
ton are not appcabe n the case of a deceased ctzen of the Unted
States who was not domced n ether country. ( rtce III(2) of
the conventon.)
Specfc appcatons of the foregong prncpes are shown by the
foowng:
(a) Ifone of the contractng countres ta es on the bass of domce
and the other on the bass of stus of property, the aowance of credt
by the former and the mposton of ta by the atter are determned
n accordance wth the stus rues of the conventon wth respect to
property of the descrbed casses and n accordance wth the stus rues
under the aw of the atter wth respect to any property not wthn
such casses.
(b) If the Unted States ta es on the bass of ctzenshp and the
Unted ngdom ta es on the bass of domce (the Unted States not
regardng the domce of the decedent as havng been n the Unted
States), the aowance of credt by each country s determned n ac-
cordance wth the stus rues of the conventon wth respect to property
of the descrbed casses and n accordance wth the stus rues under
the aw of the Unted States wth respect to any property not wthn
such casses.
(c) If the Unted States ta es on the bass of ctzenshp and the
Unted ngdom ta es on the bass of stus of property (both con-
tractng countres consderng that the decedent was domced n a
thrd country), the aowance of credt by the Unted States and the
mposton of ta by the Unted ngdom are determned n accord-
ance wth the stus rues under the aw of the Unted ngdom wth
respect to both the property of the descrbed casses and the property
not wthn such casses. In ths case the stus rues of the conventon
are not appcabe to any e tent.
(d) If both contractng countres ta on the bass of domce, the
aowance of credt by the Unted States s determned n accordance
wth the stus rues of the conventon wth respect to the property of the
descrbed casses and n accordance wth the stus rues under the aw
of the Unted ngdom wth respect to any property not wthn such
casses, and the aowance of credt by the Unted ngdom s deter-
mned n accordance wth the stus rues of the conventon wth respect
to the property of the descrbed casses and n accordance wth the stus
rues under the aw of the Unted States wth respect to any property
not wthn such casses.
Rues of stus provded by the conventon for specfc casses of prop-
erty foow:
(1) Rea property and easehods. Immovabe property sha
be deemed to be stuated at the pace where the and nvoved s
ocated. Immovabe property comprses rea property and eases
of rea property. The duraton of the ease s mmatera. Im-
movabe property does not ncude mortgages, ens, or any other
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rght or nterest n rea or mmovabe property by way of securty.
though for the purpose of ths stus rue easehods are cassed
wth rea property, ths provson of the treaty does not purport
to e tend the scope of the term rea property as used n the frst
paragraph of secton 811 of the Interna Revenue Code where-
under rea property (but not a ease of rea property) stuated
outsde the Unted States s e cuded from the gross estate. ( r-
tce 111(2) (a) of the conventon.)
(2) Tangbe persona property. Tangbe movabe property
(tangbe persona property , e cept as herenafter specfcay
rovded wth respect to shps ard arcraft, sha be deemed to
e stuated at the pace of physca ocaton at the tme of the
decedent s death, or, f n transtu, at the pace of destnaton.
Tangbe persona property ncudes bank notes and other forms
of currency recognzed as ega tender at the pace of ssue.
( rtce 111(2) (o) of the conventon.)
(3) Shps and arcraft. Shps and arcraft and fractona
nterests theren sha be deemed to be stuated at the pace of
regstraton or documentaton of such shps and arcraft.
( rtce 111(2) (/) of the conventon.)
( ) onds and other forms of ndebtedness. Debts ncuded
as assets of the estate (credts), e cept as herenafter specfcay
provded wth respect to |udgment debts and negotabe proms-
sory notes and bs of e change, sha be deemed to be stuated
where the decedent was domced at the tme of hs death. Ths
rue refers to both secured and unsecured debts, and compre-
hends bonds, smpe contract debts, and bank deposts char-
acterzed by the debtor-credtor reatonshp. Issues of stock,
such as are common n the Unted ngdom, whch are evdences
of debts and do not represent stockhoders propretary shares
are propery cassfabe wth bonds. Such ssues ncude stock
ssued by muncpa or governmenta corporatons, stock ssued
by pubc boards, and debentures or debenture stock of a corpo-
raton. ( rtce 111(2) (e) of the conventon.)
(5) udgment debts. udgment debts sha be deemed to be
stuated where the |udgment Is recorded. ( rtce 111(2) (k) of
the conventon.)
(6) Negotabe promssory notes and bs of e change. Ne-
gotabe promssory notes and bs of e change sha be deemed
to be stuated at the pace of the physca ocaton of the docu-
ments at the tme of decedent s death, or, f n transtu, at the
pace of destnaton. ( rtce III(2) (b) of the conventon.)
(7) Stock. Shares of stock of a corporaton sha be deemed
to be stuated at the pace n or under the aws of whch suc
corporaton was created or organzed. Ths rue comprehends
shares of stock hed by a nomnee where the benefca ownershp
s evdenced by scrp certfcates or otherwse. Ths rue has no
reference to ssues of stock, such as are common n the Unted
ngdom, whch are evdences of debts, do not represent stock-
hoders propretary shares, and are propery cassfabe wth
bonds. Such ssues ncude stock ssued by muncpa or govern-
menta corporatons, stock ssued by pubc boards, and deben-
tures or debenture stock of a corporaton. ( rtce 111(2) (d)
of the conventon.)
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(8) Lfe nsurance. Proceeds of nsurance on the fe of the
decedent sha be deemed to be stuated where the decedent was
domced at the tme of hs death. ( rtce 111(2)(e) of the
conventon.)
(9) Good w. Good w as a trade, busness, or professona
asset sha be deemed to be stuated at the pace where the busness
or professon, to whch t pertans, s carred on. ( rtce
111(2) (g) of the conventon.)
(10) Patents, trade-marks, and desgns. Patents, trade-marks,
and desgns sha be deemed to be stuated at the pace where they
are regstered. ( rtce 111(2) ( ) of the conventon.)
(11) Copyrghts and censes to use copyrghts, patents, trade-
marks, and desgns. Copyrghts, franchses, and rghts or censes
to use any copyrghted matera, patent, trade-mark, or desgn,
sha be deemed to De stuated at the pace where the rghts arsng
therefrom are e ercsabe. ( rtce III (2) (t) of the conventon.)
(12) ctons e decto. Rghts or causes of acton e decto
survvng for the beneft of the estate of a decedent sha be deemed
to be stuated at the pace where such rghts or causes of acton
arose. ( rtce 111(2) (; ) of the conventon.)
The rues whereunder property of certan casses sha be deemed to
be stuated at the pace of the decedent s domce are n effect rues
e emptng such casses of property from the ta mposed by reason
of stus of property wthn each contractng State s |ursdcton.
Under a speca provso at the end of rtce III of the conventon,
the foregong rues of stus are not appcabe n determnng whether
partcuar property may be sub|ected to ta by reason of ts stus wthn
the ta ng country f ( ) such property passes under a dsposton not
governed by ts aw, and () such property s not sub|ected to the ta
y the other contractng country for any reason other than the app-
caton of a specfc e empton. In such case the stus of the property
w be determned n accordance wth the aw of the ta ng country.
Ths speca provso s partcuary appcabe to cases of setted
property that come under the provsons of the estate duty statute of
Great rtan or Northern Ireand. s an e ampe of the operaton
of the speca provso under the estate duty statute, suppose the de-
cedent s father estabshed a trust governed by New York aw under
whch the decedent was gven a fe estate wth the remander over
absoutey to the trustor s grandson. The trustor, the fe tenant, and
the remanderman were domced n and ctzens of the Unted States.
Under ths speca provso, the corpus of the trust, consstng of shares
of stock of a Unted States corporaton evdenced by certfcates n
bearer form physcay ocated n Great rtan, woud be regarded
as stuated n Great rtan wthout the appcaton of the stus rues
of rtce III, and woud be sub|ected to the estate duty reachng
setted property snce () such property passes under a dsposton
not governed by the aw of Great rtan and () such property s
not sub|ected to the ta by the Unted States regardess of the 60,000
specfc e empton.
though the prmary purpose of ths speca, provso concerns set-
ted property under the estate duty statute of Great rtan or North-
ern Ireand, t s appcabe under the Federa estate ta statute n
some cases nvovng certan unusua crcumstances. s an e ampe
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Msc.
of the operaton of the speca provso under the Federa estate ta
statute, suppose the decedent n contempaton of death estabshed a
trust for the beneft of-hs chdren, the property transferred by gft
to the trust consstng of shares of stock of a rtsh corporaton ev-
denced by certfcates physcay ocated n the Unted States. The
gft was made s years before the decedent s death and the decedent
retaned no possesson or en|oyment or any other rght n the property.
The decedent and the benefcares were domced n Great rtan
and the trust s governed by rtsh aw. Under the speca provso,
the stus rues of rtce III woud be nappcabe and the shares of
stock woud be regarded as stuated n the Unted States and sub|ected
to the Federa estate ta , snce () such property passes under a ds-
poston not governed by Unted States aw and () such property s
not, regardess of any specfc e empton, sub|ected to the estate duty
mposed n Great rtan.
For the purpose of determnng whether property s stuated n
ether contractng country, the Unted States ncudes the States
thereof, the Terrtory of aska, the Terrtory of awa, and the
Dstrct of Coumba, and the Unted ngdom of Great rtan and
Northern Ireand ncudes Great rtan ( ngand, Waes, and Scot-
and) and Northern Ireand. For ths purpose the Unted ngdom
does not ncude the Channe Isands or the Ise of Man. ( rtce
11(1) of the conventon.)
Sec. 82.105. Ta aton on ass or Domce, Ctzenshp, or the
Law Governng Dsposton of Property. oth the Unted States
and the Unted ngdom assume |ursdcton for the ta upon the
bass of domce wthn the ta ng country. In addton, the Unted
States, but not the Unted ngdom, assumes |ursdcton for the ta
upon the bass of ctzenshp, and the Unted ngdom, but not the
Unted States, assumes |ursdcton for the ta upon the bass of the
aw governng the dsposton of the property- Thus, ta n Great
rtan s mposed n respect of property passng under a dsposton
(such as a trust) governed by the aw of Great rtan, even though
the decedent was not domced n Great rtan and the property s
not regarded as stuated n Great rtan. ( rtce I (2) (b) of the
conventon.
The appcaton of the ta (the Federa estate ta or the estate duty
mposed n Great rtan or Northern Ireand, as the case may be) n
any of the foregong cases s not affected by the conventon, e cept n
so far as credt s authorzed under rtce . The conventon does
not prohbt the sub|ecton to ta n any of the foregong cases, of any
property (rea or persona) stuated outsde the ta ng country and n
the other contractng country. owever, by secton 811 of the Interna
Revenue Code, rea property (but not a ease of rea property) stuated
outsde the Unted States s e cuded from the gross estate. Under the
present practce n the Unted ngdom, mmovabes ocated outsde
the Unted ngdom are, wth rare e cepton, not sub|ected to estate
duty.
Sec. 82.10G. Ta aton on ass of Stus of Property. In case
|ursdcton to mpose the ta by one of the contractng countres s
based upon stus of property wthn such country and the decedent
was at the tme of death domced n the other contractng country,
the conventon provdes that property stuated outsde the former
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sha not be taken nto account n determnng the amount or rate of
such ta . ( rtce I (2) of the conventon.) For the purpose of
determnng what property s stuated wthn the country and, there-
fore, sub|ect to ta aton on the bass of stus, the provsons of secton
82.10 are pertnent. The rues of stus for certan casses of property
prescrbed by rtce III of the conventon and secton 82.10 are ap-
pcabe to the mposton of the Federa estate ta n the case of a
decedent who at tme of death was not domced n or a ctzen of
the Unted States, and who was domced n the Unted ngdom.
The rues that certan casses of property sha be deemed to be stu-
ated where the decedent was domced are n effect rues e emptng
such casses of property from ta aton on the bass of stus.
The deductons from the. gross estate n the case of a nonresdent not
a ctzen of the Unted States authorzed by secton 861 of the Interna
Revenue Code, ncudng the specfc e empton of 2,000 prescrbed
thereunder, are unaffected. ( rtce I (1) of (he conventon.) The
restrctons of the precedng paragraph do not affect what s referred
to n secton 861(a)(1) of the Interna Revenue Code as the gross
estate wherever stuated, and utzed n ascertanng the proportonate
deductons for admnstraton e penses, debts, etc., as prescrbed n
secton 81.52 of Treasury Reguatons 105 26 CFR, 81.52 ,
Sec. 82.107. Crt:dt for state Dutes Imposed n (treat rtan
and Northern Ireand. (17) Genera. In the case of the estate of
a decedent who at tme of death was domced n or a ctzen of the
Unted States, credt s authorzed aganst the Federa estate ta for
Great rtan or Northern Ireand estate duty computed n accord-
ance wth the provsons of the conventon and pad n respect of
property stuated as herenafter provded and sub|ected to such ta es
by both the Unted States and Great rtan or Northern Ireand.
No credt s aowabe for any nterest or penaty pad n connecton
wth the estate duty. ( rtce of the conventon.)
Rea property stuated n the Unted ngdom s not sub|ected to
the Federa estate ta . so, Great rtan and Northern Ireand
sub|ect to estate duty trust propertv (as, for e ampe, on the death
of a fe tenant who was not the settor and who had no other nterest
n the propertv) whch s not sub|ected to Federa estate ta . Credt
s not aowabe under the conventon for estate duty pad n respect of
such propertv, snce the requrement of doube ta aton s not fu-
fed.
If ony a part of the property sub|ected to estate duty mposed n
Great rtan or Northern Ireand meets both of the requred cond-
tons (. e., as to stus and doube ta aton), t w be necessary to
determne the porton of such estate duty attrbutabe to such part.
Such porton of the estate duty (provded a property s sub|ected to
such estate duty at a unform rate) s an amount, , whch bears the
same rato to (the tota amount of such estate dutv) that C (the
vaue of the property stuated as herenafter provded and sub|ected
to such estate duty and to the Federa estate ta ) bears to D (the
vaue of a property sub|ected to such estate duty). The vaues used
n ths proporton are the net vaues determned for the purpose of the
Great rtan or Northern Ireand estate duty. If for any reason
property s sub|ected to such estate duty at other than a unform rate,
a separate computaton s to be made wth respect to property ta ed
at each rate.
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Msc.
s an e ampe of the determnaton of the amount of Unted ng-
dom estate duty attrbutabe to specfc property, assume that a de-
ceased resdent of the Unted States owned persona property n Great
rtan, 12,000, and rea property n Great rtan, 12,000, and owed
debts (not charged on any partcuar property) of ,000 to persons
resdent n Great rtan. Under the rtsh statute, the estate duty
s computed as foows:
Set vaue.
Net vaue of persona property ( 12,030 ess ,000) 8,000
Net vaue of rea property 12, ( )
Tota net vaue 20, 000
Rate of estate duty (per cent) ). 6
state duty 1,020
8 000
The anonst of estate duty attrbutabe to the persona property s ,020,
or 768. 20 0d0
Smary, the amount of the Federa estate ta attrbutabe to the
property whch meets the requred condtons (as to stus and doube
ta aton) s an amount, , wnch bears the same rato to (the Fed-
era estate ta ) as C (the vaue of the property stuated as herenafter
provded and sub|ected to both the estate duty mposed n Great
rtan or Northern Ireand and the Federa estate ta , or such vaue
ad|usted as herenafter ndcated) bears to D (the vaue of the gross
estate, or such vaue ad|usted as herenafter ndcated). The vaues
used n ths proporton are the vaues determned for the purpose of
the Federa estate ta , and amounts C and D of the proporton are
to be reduced by the amount of any deductons aowabe under secton
812 of the Interna Revenue Code n respect of such property (1) ost
durng the settement of the estate, (2) dentfed as prevousy ta ed
property, or (3) specfcay bequeathed or devsed for chartabe, etc.,
uses.
The amount of the estate ta or estate duty attrbutabe to specfc
property s, for the purposes of ths secton, the amount ascertaned
after the aowance of any appcabe credt, remsson or reducton of
ta , other than, frst, credt authorzed under ths conventon and,
second (e cept as otherwse provded n paragraph (c) of ths sec-
ton), credt authorzed under death duty conventons between the
Unted States and any other country. In determnng by proporton
the amount of estate ta or estate duty attrbutabe to property whch
meets the requred condtons to the aowance of credt the foowng
rues appy:
. () If the credt (as, for e ampe, the credt for State nher-
tance ta ) does not pertan to specfc property, the amount of ta
ascertaned after the aowance of such credt shoud be pro-
portoned.
() If the credt pertans to specfc property, the ta ascer-
taned before the aowance of such credt shoud be proportoned,
and the amount of ta thus found to be attrbutabe to the property
whch meets the requred condtons shoud then be reduced by
the amount of such credt pertanng to such property. ampes
of credt pertanng to specfc property are the Federa gft ta
credt, credts under death duty conventons, the rtsh quck
successon aowance, the rtsh aowance for coona death
75 70 7 10
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138
dutes, the rtsh aowance for settement estate duty, the rtsh
aowance for dutes pad before ugust 2,189 , and the remssons
of rtsh estate duty under the ed n War cts. (It may be
noted that n consequence of ths rue the estate duty mposed n
Great rtan or Northern Ireand s to be reduced by credt aow-
abe aganst such duty for the ta pad n a rtsh possesson or
n any other country ony f such credt pertans to the same prop-
erty n respect of whch credt s aowabe under ths secton.)
For the purpose of determnng the stus of property n respect of
whch credt s camed, the provsons of secton 82.10 are pertnent.
If at the tme the Federa estate ta return, Form 706, s fed, the
estate duty mposed n Great rtan or Northern Ireand has not
been determned and pad, credt therefor may be entered on the return
n an estmated amount. The computaton of the credt shoud be set
forth on Form 706e, Computaton of Credt for Unted ngdom
state Duty, the suppementa form prescrbed for the purpose.
owever, before credt for Greaf rtan or Northern Ireand estate
duty s fnay aowed, a statement by an authorzed offca of the
estate duty offce of Great rtan or Northern Ireand must be sub-
mtted certfyng (a) the fu amount of such estate duty (e cusve .
of any nterest or penates), as computed before aowance of any
credt, remsson, or reef; (b) the amount of any credt, aowance,
remsson, or reef and other pertnent nformaton, ncudng the
nature of such aowance and a descrpton of the property to whch t
pertans; ( ) the net estate duty payabe after any such aowance;
(d) the date on whch the estate duty was pad, or f not a pad at one
tme, the amount and date of each parta payment; and (e) a st
of the property stuated n Great rtan or Northern Ireand and sub-
|ected to the estate duty, showng the descrpton of each tem and
the vaue thereof. The certfcate sha aso show (a) that such amount
of estate duty was computed n accordance wth appcabe provsons
of the conventon, and (b) that no refund of such estate duty s pend-
ng and none authorzed, or f any such refund s pendng or has been
authorzed, the amount thereof and other pertnent nformaton. The
foowng nformaton shoud aso be certfed whenever appcabe:
(1) If any of the property sub|ected to such estate duty was
stuated outsde Great rtan or outsde Northern Ireand, as
the case may be, the descrpton of each tem of such property
and the vaue thereof.
(2) If for any reason property s sub|ected to such estate duty
at more than one rate, such nformaton pertanng thereto as s
necessary to determne the correct credt. ,
(3) If payment of any porton of such estate duty has been
postponed, a descrpton of the property n respect of whch
such postponement was granted.
( ) If paragraph (2) of rtce of the conventon s app-
cabe, such nformaton pertanng to stus of property as s
necessary to determne the correct credt.
Form 706f, Certfcaton of Unted ngdom state Duty, s
prescrbed for the above purpose. The Commssoner may requre
the submsson of any addtona proof deemed necessary to estabsh
the rght to credt.
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If subsequent to the aowance of credt for estate duty mposed
n Great rtan or Northern Ireand a refund s made of any over-
payment of such estate duty, then the person to whom the refund s
made s requred to advse the Commssoner thereof and pay any
further Federa estate ta resutng from any reducton n the credt.
(b) Decedent domced n or a ctzen of the Unted /States. In
the case of the estate of a decedent who at tme of death was dom-
ced n or a ctzen of the Unted States, credt s authorzed aganst
the Federa estate ta for any Great rtan or Northern Ireand
estate duty pad n respect of property stuated n Great rtan or
Northern Ireand and sub|ected to such ta es by both the Unted
States and Great rtan or Northern Ireand. owever, such credt
s not. aowabe n respect of any such property for whch credt s
authorzed under the provsons of paragraph (c) of ths secton and
paragraph (2) of rtce of the conventon. ( rtce () of the
conventon.)
Great rtan sub|ects to estate duty property stuated outsde Great
rtan on the death of the owner domced n Great rtan. Prop-
erty whch forms the sub|ect of a rtsh trust s sub|ected to estate
duty, even though such property s stuated outsde Great rtan and
passes on the death of a person domced outsde Great rtan.
Credt s not aowabe under ths paragraph for rtsh estate duty
pad n respect of such property, snce the requrement of stus s not
fufed.
For the purpose of determnng what property was at tme of
death stuated n the Unted ngdom, the provsons of secton 82.10
are pertnent. In the case of a decedent who was at tme of death dom-
ced n ether the Unted States or the Unted ngdom (but not n
the case of a ctzen of the Unted States not domced n ether the
Unted States or the Unted ngdom), the rues of stus for certan
casses of property prescrbed by rtce III of the conventon and
secton 82.10 are appcabe n determnng whether property was
stuated n the Unted ngdom. If the decedent was domced n
the Unted States and was not domced n the Unted ngdom,
such rues of stus are appcabe not ony for purposes of aowance
of credt by the Unted States but aso for purposes of mposton of
ta by the Unted ngdom (where |ursdcton to ta s based
on stus of property), and credt s aowabe ony for Unted ngdom
estate duty computed n accordance wth such rues of stus.
The credt s mted to the amount of the Great rtan or Northern
Ireand estate duty attrbutabe to property whch s (1) stuated n
Great rtan or Northern Ireand and (2) sub|ected to both such
estate duty and the Federa estate ta . The amount of the credt s
aso mted to the amount of the Federa estate ta attrbutabe to
such property.
ampe (). The decedent was domced n the Unted States at
tme of death. The gross estate conssts of shares of stocks of Unted
States corporatons, 50,000; bonds ssued by rtsh corporatons,
50,000; and shares of stocks of rtsh corporatons. 50,000. Debts
and admnstraton e penses tota 10,000. Under the stus rues of
the conventon the ony property sub|ected to the rtsh estate duty
comprses the shares of stocks of the rtsh corporatons. The
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1 0
amount of the rtsh estate duty as converted nto Unted States
money s 3,000. The amount of the Federa estate ta , after aow-
ance of the State nhertance ta credt, s 1 ,780. The credt can not
e ceed
5 S 1t Sh PTtr;y) 1 ,780 ,926.67
150,000 (gross estate)
(amount of estate ta attrbutabe to rtsh property). s the
amount of the rtsh estate duty s ess than the atter amount, credt
for rtsh estate duty s aowed n the amount of 3,000.
ampe (#). The facts are the same as n the precedng e ampe
e cept that 20,000 of the rtsh stocks are specfcay bequeathed to
a chartabe organzaton. The amount of the rtsh estate duty at-
trbutabe to the property douby ta ed s 3,000. The amount of the
Federa estate ta s 9,3 0. The credt can not e ceed the amount of
the Federa estate ta attrbutabe to the rtsh stocks whch s
30,000 (vaue of rtsh stocks ad|usted) ma eo kk na
130 000 (gross estate ad|usted) ),9,d U- M,155.3a.
The vaue of the rtsh stocks and the vaue of the gross estate are
ad|usted as e paned n paragraph (a) of ths secton. s the amount
of the Federa estate ta attrbutabe to the property douby ta ed s
ess than the amount of the rtsh estate duty so attrbutabe, the
credt s aowabe n the amount of the former, 2,155.38.
ampe (3). The facts are the same as n e ampe (1) e cept
that 20,000 of the Unted States stocks are specfcay bequeathed
to charty. The amount of the rtsh estate duty attrbutabe to the
property douby ta ed s 3,000. The amount of the Federa estate
ta attrbutabe to the property douby ta ed s
50,000 (vaue of rtsh stocks)
130,000 (grossestatead|usted) W 1-
The credt aowabe s the esser of the two amounts, 3,000.
Due to confcts between rues of stus, property whch under para-
graph (2) of rtce III of the conventon and secton 82.10 of ths
subpart s deemed to be stuated n Great rtan or Northern Ireand
may be sub|ected to ta n some other country. In such case (1)
credt may be aowabe aganst the Federa estate ta for estate duty
mposed n Great rtan or Northern Ireand wth respect to the
property, and (2) credt may be aowabe aganst such estate duty
for ta pad to the thrd country wth respect to the same property.
Under these crcumstances, the credt aowabe aganst the Federa
estate ta s mted to the amount of the Great rtan or Northern
Ireand estate duty attrbutabe to the property as computed after
aowance of credt for the ta pad n the thrd country.
ampe ( ). The facts are the same as n e ampe (1) e cept
that the certfcates of 10,000 of the stocks of the rtsh corporatons
were n bearer form physcay ocated n re, and were sub|ected
to duty n that country. Credt for the duty pad n re s aowed
aganst the rtsh estate duty. The credt aganst the Federa estate
ta s mted to the amount of the rtsh estate duty appcabe to
fhe rtsh stocks, 3,000, ess the amount of credt aowed aganst
such duty for the duty pad n re.
In case credt aganst the Federa estate ta s aowabe under the
conventon wth the Unted ngdom and under death duty conven-
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tons wth one or more other countres, such credts sha be combned
and the aggregate amount sha be credted aganst the Federa estate
ta . If because of any confct n stus rues the same property of the
gross estate s sub|ected to ta by two foregn countres, the tota
amount of both credts aowabe n respect of such property s mted
to the amount of the Federa estate ta attrbutabe to such property.
If for any reason t s necessary to ascertan, n any case n whch ths
mtaton appes, the proporton of the combned credt whch s
aowed under each death duty conventon, the combned credt sha
be dvded n proporton to the amount of credt aowabe (before
appcaton of ths mtaton) under each conventon n respect of
such property.
ampe (6). The gross estate ncudes stocks of rtsh corpora-
tons, represented by certfcates n bearer form physcay ocated n
Canada. Under the stus rues of Canada the rtsh stocks are re-
garded as stuated n Canada (ths rue not beng changed by the
Unted States-Canada conventon), and under the stus rues of the
Unted States-Unted ngdom conventon the rtsh stocks are re-
garded as stuated n Great rtan. The Federa estate ta attrbut-
abe to the property ta ed n the three countres s ,800, and credts
for rtsh estate duty and Canadan successon duty are determned
at ,000 and 2,000, respectvey, before appcaton of the mtaton
on ther combned amount. The combned credts are mted to
,800, the amount of the Federa estate ta attrbutabe to the stocks.
The credts for rtsh estate duty and Canadan successon duty are
therefore mted to 3,200 and 1,600, respectvey, whch amounts are
n the same proporton as ,000 and 2,000.
ampe (6). The facts are the same as n e ampe (1) e cept that
the gross estate ncudes 50,000 of stocks of Canadan corporatons
nstead of 50,000 of bonds of rtsh corporatons. nephew s the
soe egatee. The Canadan successon dut| s 2,823.33, n whch
amount credt s aowabe aganst the Federa estate ta under the
death duty conventon between the Unted States and Canada. The
amount of the rtsh estate duty attrbutabe to the rtsh stocks s
3,000. The amount of the Federa estate ta attrbutabe to the
rtsh stocks s
gff 1 ,780- ,926.67.
150,000 (gross estate)
It may be noted the 1 ,780 s the amount of the Federa estate ta
after aowance of State nhertance ta credt but before any aow-
ance of the Canadan successon duty credt. The amount of the
rtsh estate duty credt s 3,000, and the tota amount of the foregn
ta credts aowabe. aganst the Federa estate ta under both the
Canadan and rtsh death duty conventons s 5,823.33. Snce the
Canadan successon duty and the rtsh estate duty are not mposed
n respect of the same property, the mtaton ustrated n the
precedng e ampe does not appy.
(c) Decedent regarded as domced n the Unted States and n
the Unted ngdom. Whenever n any case t appears that both
contractng countres have asserted or are contempatng the asserton
of the ta on the bass of domce, the evdence adduced wth respect
to the decedent s domce w be carefuy revewed or facts pertan-
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112
ng thereto further nvestgated so that, f possbe, both countres
may agree upon the decedent s domce. Snce the basc prncpes
of the aw reatng to domce are ake n both countres, t s
antcpated that such agreement w usuay be reached.
owever, f n a partcuar case the Unted States determnes that
the decedent was domced n the Unted States and asserts estate ta
n accordance wth such determnaton, and Great rtan or Northern
Ireand aso determnes that the decedent was domced n Great
rtan or Northern Ireand and asserts estate duty n accordance
wth such determnaton, and no agreement s reached upon the dece-
dent s domce, then each contractng country w (n addton to any
credt authorzed under the provsons of paragraph (1) of rtce
of the conventon and paragraph (b) of ths secton) aow aganst ts
ta a credt n respect of property sub|ected to ta by both countres
and deemed stuated (1) n both countres or (2) outsde both coun-
tres. The tota of the credts authorzed under ths paragraph sha
be equa to the amount of ta mposed wth respect to such property
by the country mposng the smaer ta , and sh; be dvded between
the two countres n proporton to the amount of ta mposed by each
of the two countres wth respect to such property. ( rtce (2) of
the conventon.)
Property deemed stuated n both countres ncudes property whch
by the stus rues of paragraph (2) of rtce III of the conventon s
deemed to be stuated at the pace where the decedent was domced
at the tme of hs death. It aso ncudes any property not wthn
such rues whch each country cams to be stuated wthn ts terrtory.
For the purposes of ths paragraph the amount of the Federa estate
ta attrbutabe to property stuated as heren provded and douby
ta ed s be the amount determned as provded n paragraph (a) of
ths secton, reduced by the amount of any credt aowabe n respect
of such property under death duty conventons between the Unted
States and any thrd country.
ampe (1). fter a carefu revew of the evdence the Unted
States Government determnes that the decedent was at tme of death
domced n the Unted States and the rtsh Government determnes
that the decedent was at tme of death domced n Great rtan.
The gross estate conssts of 200,000 of rtsh stocks. 150,000 of
Unted States stocks, and 50,000 of bonds, the certfcates of whch
were at tme of death ocated n the Unted States. Debts and charges
are 20,000. The amount of the Federa estate ta , computed on the
whoe estate wherever stuated, after aowance for State nhertance
ta credt but before aowance for rtsh estate duty credt, s 81,9 0.
The amount of the rtsh estate duty, aso computed on the whoe
estate wherever stuated, before aowance for Unted States estate ta
credt, s 93,860. Under paragraph (1) of rtce of the conven-
ton, the Unted States aows credt for the rtsh estate duty attrb-
utabe to the 200,000 of rtsh stocks whch are regarded as stuated
n Great rtan under rtce III of the conventon. Such credt,
computed as e paned n paragraph (b) of ths secton, s 0,970.
Smary under paragraph (1) of rtce of the conventon. Great
rtan aows credt for the Unted States estate ta attrbutabe to the
150,000 of Unted States stocks, the amount of such credt beng
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30,727.50. Snce under rtce III of the conventon bonds are deemed
to be stuated n the country of the decedent s domce, n ths case the
bonds are regarded as stuated n both countres and wth respect
thereto credt s aowabe by each country under the provsons of
paragraph (2) of rtce of the conventon. The amount of the
Federa estate ta attrbutabe to the 50,000 of bonds, as computed
wthout aowance for rtsh estate duty credt, s
5 000 (bonds) 819 0 (egtate ta ) 10,2 2.50.
00,000 (gross estate)
The amount of the rtsh estate duty attrbutabe to the 50,000 of
bonds, as computed wthout aowance for Unted States estate ta
credt, s
50/)00 (bonds) 11,732.50.
00,000 (gross estate) v
Snce 10,2 2.50 s the smaer of the two amounts, such amount s the
tota of the credts aowabe by the two countres under paragraph (2)
of rtce of the conventon. The part thereof aowabe by the
o 9 .9
Unted States s 10,2 2.50 ,77 .01. The part aowabe
11 732 50
by Great rtan s 10,2 2.50 5, 68. 9.
The ta es and credts for both countres are shown n the foowng
summary:
Unted States.
Ta before treaty credts 81,9 0.00
Credt under () 0,070. 00
Cred t under (2) , 77 .01
Tota credts 5, 7 . 01
Net ta payabe 36,105.99
Great rtan.
Dutv before treaty credts 93, 86 . 00
Credt under () 30,727.50
Credt under (2) 5. 68. 9
Tota credts 36,195.99
Net duty payabe - 57,66 . 01
It may be noted that the tota of the ta es payabe to the two coun-
tres, the sum of 36,195. ) ) and 57,66 .01, equas 93,800, the amount
of the ta (before aowance of the treaty credts) of the country whch
mposes the hgher ta .
ampe (2). The facts are the same as n e ampe (1) e cept that
the bona certfcates were at the tme of death ocated n Canada and
under Canadan aw deemed stuated for successon duty purposes n
Canada. The amount of the Canadan successon duty s 2,823.33.
The amount of the Federa estate ta attrbutabe to the bonds, as
computed wthout aowance for ether the Canadan successon duty
credt or the rtsh estate duty credt, s 10,2 2.50. Snce under the
conventon wth Canada credt of 2,823.33 s aowabe, the amount of
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1
the Federa estate ta attrbutabe to the bonds, as computed wth
aowance of the Canadan successon duty credt but wthout aow-
ance of the rtsh estate duty credt, s 10,2 2.50 ess 2,823.33 or
7, 19.17. The amount of the rtsh estate duty attrbutabe to the
bonds, as computed wthout aowance for Unted States estate ta
credt, s 11,732.50. Snce 7, 19.17 s the smaer of the two amounts,
such amount s the tota of the credts aowabe by the Unted
States and Great rtan under paragraph (2) of rtce of the
conventon. The part thereof aowabe by the Unted States s
7 1 17
. . 7, 19.17 2,87 .11. The part thereof aowabe by Great
It/, ID 1 .t)
rtan s 7, 19.17 ,5 5.06.
19,151.07
The ta es and credts for the three countres are shown n the fo-
owng summary:
Canada.
Successon duty payabe 2,823.33
Unted States.
state ta before Canadan and rtsh duty credts 81, 9 0. 00
Canadan successon duty credt 2, 823. 33
rtsh estate duty credt under () 0,970.00
rtsh estate duty credt under (2) 2, 87 .11
Tota treaty credts 6, 667.
state ta payabe 35, 272. 56
Great rtan.
state duty before Unted States estate ta credt 93,860. 00
Unted States estate ta credt under () 30, 727. 50
Unted States estate ta credt under (2) , 5 5. 06
Tota treaty credts 35,272.56
state duty payabe 58,587.
Sec. 82.108. Cam for Credt or Refund and Interest on Re-
fund. Credt authorzed by secton 82.107 and rtce of the con-
venton w be aowed f camed wthn s years after the date
of the decedent s death, or to the e tent of any such credt for ta
attrbutabe to a reversonary nterest, wth respect to whch payment
of ta s postponed, f camed pror to s years after such reversonary
nterest fas nto possesson. ( rtce I(1) of the conventon.)
n overpayment of estate ta due to the aowance of the credt
or to the appcaton of any other provson of the conventon may
be refunded e cept that no refund due to the aowance of credt
may be made after the e praton of the appcabe perod heren-
before desgnated for the aowance of credt, and no refund due
to the appcaton of any other provson of the conventon may be
made after s years from the date of the decedent s death, uness
before the e praton of such perod a cam therefor has been fed,
or uness wthn such perod a petton aegng the rght to credt
or to other reef under the conventon has een fed wth The Ta
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Court of the Unted States. If a tmey petton has been fed wth
The Ta Court of the Unted States, no refund sha thereafter bo
made e cept as provded n secton 911 of the Interna Revenue Code.
cam for refund shoud set forth under oath each ground upon
whch the refund s camed and facts suffcent to apprse the Com-
mssoner of the e act bass thereof. ny cam for refund whch
does not compy wth the requrements of the precedng sentence w
not be consdered for any purpose as a vad cam for refund. Cam
for refund shoud be made on Form 8 3 and fed wth the coector
of nterna revenue, athough a cam for refund w not be con-
sdered defectve soey by reason of the fact that t s not made on
such form or that t s fed wth the Commssoner of Interna
Revenue.
ny refund of estate ta due to the appcaton of the provsons
of the conventon sha be made wthout nterest. ( rtce I(2)
of the conventon.)
Sec. 82.109. Informaton Furnshed by ach Contractng Coun-
try to the Other. The ta aton authortes of the contractng coun-
tres sha e change such nformaton avaabe under the ta aton
aws of the respectve countres as s necessary for carryng out the
provsons of the conventon or for the preventon of fraud or the
admnstraton of statutory provsons aganst ega avodance n
reaton to the ta es whch are the sub|ect of the conventon. Infor-
maton so furnshed w be kept secret and not dscosed to any
person other than those concerned wth the assessment and coecton
of the ta es whch are the sub|ect of the conventon. Suc nfor-
maton sha not ncude any trade secret or trade process. ( rtce
II(1) of the conventon.)
The term ta aton authortes means, for the Unted States, the
Commssoner of Interna Revenue or hs authorzed representatve,
for Great rtan, the Commssoners of Inand Revenue or ther au-
thorzed representatve, for Northern Ireand, the Mnster of Fnance
or hs authorzed representatve, and, for any terrtory to whch the
conventon s e tended under rtce III the competent authorty
admnsterng the ta to whch the conventon may be e tended. ( r-
tce II (2) of the conventon.)
(Ths Treasury decson s ssued under the authorty contaned n
secton 3791 of the Interna Revenue Code (53 Stat., 67; 2C U. S. C,
3791) and pursuant to the provsons of the conventon and chapter 3
of the Interna Revenue Code (53 Stat., 119; 26 U. S. C. 800 et seq.))
Ths Treasury decson sha be effectve on the thrty-frst day after
the date of ts pubcaton une ,1917 n the Federa Regster.
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved May 27,19 7.
oseph . O Conne , r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster une 3, 10 7, 8.50 a.m.)
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1 6
19 7-6-12511
Doube ta aton Ta es on estates of deceased persons Conven-
ton between the Unted States of merca and the Unted ng-
dom Sgned at Washngton pr 16, 19 5 Ratfcaton advsed by
the Senate of the Unted States of merca une 1, 19 6 Ratfed
by the Presdent of the Unted States of merca une 26, 19 6
Ratfcatons e changed at Washngton uy 25, 19 0 Procamed by
the Presdent of the Unted States of merca uy 30, 19 6.
Y T PR SID NT OF T UNIT D ST T S OF M RIC PROCL M TION.
Whereas a conventon between the Unted States of merca and
the Unted ngdom of Great rtan and Northern Ireand for the
avodance of doube ta aton and the preventon of fsca evason wth
respect to ta es on the estates of deceased persons was sgned by ther
respectve Penpotentares at Washngton on pr 1C, 19 5, the
orgna of whch conventon s word for word as foows:
The Government of the Unted States of merca and the Government of the
Unted ngdom of Great rtan and Northern Ireand,
Desrng to concude n conventon for the avodance of doube ta aton and the
preventon of fsca evason wth respect to ta es on the estates of deceased
persons,
ave apponted for that purpose as ther respectve Penpotentares:
The Government of the Unted States of merca :
Mr. dward R. Stettnus, r., Secretary of State, and
The Government of the Unted ngdom of Great rtan and Northern Ireand :
The Rght onorabe the ar of afa , . G., mbassador traordnary
and Penpotentary n Washngton,
Who, havng e hbted ther respectve fu powers, found n good and due form,
have agreed as foows:
rtce I. ,
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the Unted States of merca, the Federa estate ta , and
(6) In the Unted ngdom of Great rtan and Northern Ireand, the estate
duty mposed n Great rtan.
(2) The present conventon sha aso appy to any other ta es of a substantay
smar character mposed by ether contractng party subsequenty to the date of
sgnature of the present conventon or by the government of any terrtory to
whch the present conventon appes under rtce III or rtce I .
rtce II.
(1) In the present conventon, uness the conte t otherwse requres:
( ) The term Unted States means the Unted States of merca, and when
used n a geographca sense means the States, the Terrtores of aska and of
awa, and the Dstrct of Coumba.
(b) The term Great rtan means ngand, Waes and Scotand, and does
not ncude the Channe Isands or the Ise of Man.
(c) The term terrtory when used n reaton to one or the other contractng
party means the Unted States or Great rtan, as the conte t requres.
( f) The term ta means the estate duty mposed n Great rtan or the
Unted States Federa estate ta , as the conte t requres.
(2) In the appcaton of the provsons of the present conventon by one of
the contractng partes, any term not otherwse defned sha, uness the conte t
otherwse requres, have the meanng whch t as under the aws of that
contractng party reatng to the ta es whch are the sub|ect of the present
conventon.
rtce III.
(1) For the purposes of the present conventon, the queston whether a de-
cedent was domced n any part of the terrtory of one of the contractng partes
at the tme of hs death sha be determned n accordance wth the aw n force a
that terrtory.
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(2) Where a person des domced In any part of the terrtory of one con-
tractng party, the stus of any of the foowng rghts or Interests, ega or
equtabe, whch for the purposes of ta form part of the estate of such person or
pass on hs death, sha, for the purposes of the mposton of ta and for the
purposes of the credt to be aowed under rtce , be determned/e cusvey n
accordance wth the foowng rues, but n cases not wthn such rues the stus
of such rghts and nterests sha be determned for those purposes n accordance
wth the aw reatng to ta In force In the terrtory of the other contractng
party:
(0) Rghts or Interests (otherwse than by way of securty) In or over
mmovabe property sha be deemed to be stuated at the pace where such
property s ocated;
(6) Rghts or nterests (otherwse than by way of securty) In or over
tangbe movabe property, other than such property for whch specfc
provson s herenafter made, and n or over bank or currency notes, other
forms of currency recognzed as ega tender In the pace of Issue, negotabe
bs of e change and negotabe promssory notes, sha be deemed to be
stuated at the pace where such property, notes, currency or documents are
ocated at the tme of death, or, f n transtu, at the pace of destnaton;
(c) Debts, secured or unsecured, other than the forms of ndebtedness for
whch specfc provson s made heren, sha be deemed to be stuated at the
pace where the decedent was domced at the tme of death;
(d) Shares or stock n a corporaton other than a muncpa or govern-
menta corporaton (ncudng shares or stock hed by a nomnee where the
benefca ownershp s evdenced by scrp certfcates or otherwse) sha
be deemed to be stuated at the pace n or under the aws of whch such
corporaton was created or organzed;
(e) Moneys payabe under a- pocy of assurance or nsurance on the
fe of the decedent sha be deemed to be stuated at the pace where the
decedent was domced at the tme of death;
(f) Shps and arcraft and shares thereof sha be deemed to be stuated
at the pace of regstraton or documentaton of the shp or arcraft;
(g) Good w as a trade, busness or professona asset sha be deemed
to be stuated at the pace where the trade, busness or professon to whch
It pertans Is carred on ;
(ft) Patents, trade-marks and desgns sha be deemed to be stuated at
the pace where they are regstered;
(1) Copyrght, franchses, and rghts or censes to use any copyrghted
matera, patent, trade-mark or desgn sha be deemed to be stuated at
the pace where the rghts arsng therefrom are e ercsabe;
( ) Rghts or causes of acton e decto survvng for the beneft of an
estate of a decedent sha be deemed to be stuated at the pace where such
rghts or causes of acton arose;
(fc) udgment debts sha be deemed to be stuated at the pace where
the |udgment Is recorded;
Provded that f, apart from ths paragraph, ta woud be mposed by one con-
tractng party on any property whch Is stuated In ts terrtory and passes
under a dsposton not governed by ts aw, ts paragraph sha not appy to
such property uness, by reason of ts appcaton or otherwse, ta Is mposed
or woud but for some specfc e empton be mposed thereon by the other
contractng party.
btce I .
(1) In determnng the amount on whch ta Is to be computed, permtted
deductons sha be aowed n accordance wth the aw In force n the terrtory
n whch the ta s mposed.
(2) Where ta s mposed by one contractng party on the death of a person
who at the tme of hs death was not domced n any part of the terrtory of
that contractng party but was domced n some part of the terrtory of the other
contractng party, no account sha be taken In determnng the amount or
rate of such ta of property stuated outsde the former terrtory: Provded that
ths paragraph sha not appy as respects ta mposed
(a) n the Unted States n the case of a Unted States ctzen dyng
domced In any part of Great rtan ; or
(6) n Great rtan In the case of property passng under a dsposton
governed by the aw of Great rtan.
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rtce .
(1) Where one contractng party mposes ta by reason of a decedent s beng
domced n some part of Its terrtory or beng ts natona, that party sha
aow aganst so much of ts ta (as otherwse computed) as s attrbutabe to
property stuated n the terrtory of the other contractng party, a credt (not
e ceedng the amount of the ta so attrbutabe) equa to so much of the ta
mposed In the terrtory of such other party as s attrbutabe to such property;
but ths paragraph sha not appy as respects any such property as Is mentoned
n paragraph (2) of ths artce.
(2) Where each contractng party mposes ta by reason of a decedent s
beng domced n some part of Its terrtory, each party sha aow aganst so
much of Its ta (as otherwse computed) as s attrbutabe to property whch s
stuated, or s deemed under paragraph (2) of rtce III to be stuated,
(a) n the terrtory of both partes, or
(6) outsde both terrtores,
a credt whch bears the same proporton to the amount of ts ta so attrbutabe
or to the amount of the other party s ta attrbutabe to the same property,
whchever Is the ess, as the former amount bears to the sum of both amounts.
(3) For the purposes of ths artce, the amount of the ta of a contractng
party attrbutabe to any property sha be ascertaned after takng nto account
any credt, aowance or reef, or any remsson or reducton of ta , otherwse
than In.respect of ta payabe n the terrtory of the other contractng party
or n any other country; and f, n respect of property stuated outsde the
terrtores of both partes, a contractng party aows aganst ts ta a credt
for ta payabe n the country where the property s stuated, that credt sha
be taken nto account n ascertanng, for the purposes of paragraph (2) of ths
artce, the amount of the ta of that party, attrbutabe to the property.
rtce I.
(1) ny cam for a credt or for a refund of ta founded on the provsons
of the present conventon sha be made wthn s years from the date of the
death of the decedent n respect of whose estate the cam s made, or, n the
case of a reversonary nterest where payment of ta s deferred unt on or
after the date on whch the nterest fas Into possesson, wthn s years from
that date.
(2) ny such refund sha be made wthout payment of nterest on the
amount so refunded.
btc|s II.
(1) The ta aton authortes of the contractng partes sha e change such
Informaton (beng nformaton avaabe under the respectve ta aton aws
of the contractng partes) as s necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the admnstraton of statu-
tory provsons aganst ega avodance n reaton to the ta es whch are the
sub|ect of the present conventon. ny Informaton so e changed sha be
treated as secret and sha not be dscosed to any person other than those con-
cerned wth the assessment and coecton of the ta es whch are the sub|ect
of the present conventon. No nformaton sha be e changed whch woud
dscose any trade secret or trade process.
(2) s used n ths artce, the term ta aton authortes means, n the case
of the Unted States, the Commssoner of Interna Revenue or hs authorzed
representatve; n the case of Great rtan, the Commssoners of Inand Revenue
or ther authorzed representatve; and, n the case of any terrtory to whch the
present conventon s e tended under rtce III, the competent authorty for
the admnstraton In such terrtory of the ta es to whch the present conventon
appes.
rtce III.
(1) ther of the contractng partes may, on the comng nto force of the pres-
ent conventon or at any tme thereafter whe t contnues n force, by a wrtten
notfcaton of e tenson gven to the other contractng party through dpomatc
channes, decare ts desre that the operaton of the present conventon sha
e tend to a or any of ts coones, overseas terrtores, protectorates, or terr-
tores n respect of whch t e ercses a mandate, whch mpose ta es substantay
smar n character to those whch are the sub|ect of the present conventon.
The present conventon sha appy to the terrtory or terrtores named n such
notfcaton ns to the estates of persons dyng on or after the date or dates specfed
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In the notfcaton (not beng ess than 60 days from the date of the notfcaton)
or, f no date s specfed n respect of any such terrtory, on or after the s teth
day after the date of such notfcaton, uness, pror to the date on whch the con-
venton woud otherwse beconre appcabe to a partcuar terrtory, the con-
tractng party to whom notfcaton s gven sha have nformed the other con-
tractng party n wrtng through dpomatc channes that t does not accept such
notfcaton as to that terrtory. In the absence of such e tenson, the present
conventon sha not appy to any such terrtory.
(2) t any tme after the e praton of one year from the entry nto fare, of
an e tenson under paragraph (1) of ths artce, ether of the contractng partes
may, by wrtten notce of termnaton gven to the other contractng party through
d omatc channes, termnate the appcaton of the present conventon to any
terrtory to whch t has been e tended under paragraph (1), and n such event
the present conventon sha cease to appy, as to the estates of persons dyng on
or after the date or dates (not beng earer thaw the s teth day after the date
of such notce) specfed n such notce, or, f no date s specfed, on or after the
s teth day after the date of such notce, to the terrtory or terrtores named
theren, but wthout affectng ts contnued appcaton to the Unted States, Great
rtan or to any other terrtory to whch t has been e tended under paragraph
(1) hereof.
(3) In the appcaton of the present conventon n reaton to any terrtory
to whch t s e tended by the Unted States or the Unted ngdom, references
to Unted States or, as the ease may be, Great rtan, or to the terrtory of
one (or of the other) contractng party, sha be construed as references to that
terrtory.
( ) The provsons of the precedng paragraphs of ths artce sha appy to
the Channe Isands and the Ise of Man as f they were coones of the Unted
ngdom.
rtce I .
The present conventon sha appy In reaton to estate duty mposed n North-
ern Ireand as t appes n reaton to estate duty mposed n Great rtan, but
sha be separatey termnabe n respect of Northern Ireand by the same pro-
cedure as s ad down n paragraph (2) of rtce III.
rtce .
(1) The present conventon sha be ratfed and the nstruments of ratfcaton
sha be e changed at Washngton as soon as possbe.
(2) The present conventon sha come nto force on the date of e change of
ratfcatons and sha be effectve ony as to
(a) the estates of persons dyng on or after such date; and
(6) the estate of any person dyng before such date and after the 31st day
of December, 19 , whose persona representatve eects, n such manner as
may be prescrbed, that the provsons of the present conventon sha be
apped to such estate.
rtce I.
(1) The present conventon sha reman n force for not ess than three years
after the date of ts comng Into force.
(2) If not ess than s months before the e praton of such perod of three
years, nether of the contractng partes sha have gven to the other contractng
party, through dpomatc channes, wrtten notce of ts ntenton to termnate
the present conventon, the conventon sha reman n force after such perod of
three years unt ether of the contractng partes sha have gven wrtten notce
of such ntenton, n whch event the present conventon sha not be effectve as
to the estates of persons dyng on or after the date (not beng earer than the
s teth day after the date of such notce) specfed n such notce, or, f no date
s specfed, on or after the s teth day after the date of such notce.
In wtness whereof the above-mentoned Penpotentares have sgned the
present conventon and have aff ed thereto ther seas.
Done at Washngton, n dupcate, on the 16th day of pr, 19 5.
For the Government of the Unted States of merca:
sea . R. Stettnus, r.
For the Government of the Unted ngdom of Great rtan and Northern
Ireand:
sea afa
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nd whereas the sad conventon has been ratfed by both. Gov-
ernments, and the nstruments of ratfcaton of the two Governments
were e changed at Washngton on the 25th day of uy, 19 6;
nd whereas t s provded n rtce of the sad conventon
that on te date of the e change of ratfcatons the conventon sha
be effectve as to the estates of persons dyng on or after such date,
and as to the estate of any person dyng before such date and after
the 31st day of December, 19 , whose persona representatve eects,
n such manner as may be prescrbed, that the provsons of the sad
conventon sha be apped to such estate;
Now, therefore, be t known that I, arry S. Truman, Presdent of
the Unted States of merca, do hereby procam and make pubc
the sad conventon 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 by the ctzens of the Unted States of
merca and a other persons sub|ect to the |ursdcton thereof, the
sad conventon beng deemed to have effect as provded n rtce
thereof, as aforesad.
In testmony whereof, I have hereunto set my hand and cause the
Sea of the Unted States of merca to be hereunto aff ed.
Done at the cty of ashngton ths 30th day of uy n the
|-ear of our Lord one thousand nne hundred forty-s and
sea of the Independence of the Unted States of merca the
one hundred seventy-frst.
arry S. Truman.
y the Presdent:
Dean cheson,
ctng/ Secretary of State.
19 7-6-12512
Mm. 6117
state ta procedure and forms pursuant to death duty conven-
tons wth Unted ngdom and Canada.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March 6,19 7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. The death duty conventon between the Unted States and the
Unted ngdom (ratfcatons e changed on uy 25, 19 6 page 1 6,
ths uetn ) s n genera smar to the death duty conventon be-
tween the Unted States and Canada (ratfcatons e changed on
February 6, 19 5 T. D: 5 55, C. . 19 5, 381; Mm. 5872, C. . 19 5,
396 ). oth conventons afford reef from doube ta aton and pro-
vde the contractng Governments wth means for recproca admns-
tratve assstance n preventng ta evason. The death duty conven-
ton between the Unted States and Canada s appcabe to estates of
decedents who ded on or after une 1 ,19 1, and who at tme of death
were domced n ether country or were ctzens of the Unted States.
The death duty conventon between the Unted States and the Unted
ngdom s appcabe to estates of decedents who ded on or after
uy 25, 19 6, and who at tme of death were domced n ether
country or were ctzens of the Unted States. The atter conventon
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Msc.
aso provdes that the representatve of an estate of a decedent, who at
the tme of death was domced n the Unted States or the Unted
ngdom or was a ctzen of the Unted States, may eect to have the
provsons of the conventon apped f the decedent ded after
December 31,19 , and before uy 25,19 6. Such eecton must be n
the form of a wrtten statement fed n dupcate at the tme the
estate ta return s fed or as soon thereafter as possbe.
2. The conventon wth the Unted ngdom appes to the Federa
estate ta mposed n the Unted States, the estate duty mposed n
Great rtan and the estate duty mposed n Northern Ireand. The
conventon wth Canada appes to the Federa estate ta mposed n
the Unted States and the Domnon successon duty mposed n Can-
ada. Nether conventon affects nhertance or other death ta es m-
posed by any State, Terrtory, the Dstrct of Coumba, or possesson
of the Unted States, the egacy and successon dutes mposed n the
Unted ngdom, or the death dutes mposed by any Provnce or
Terrtory of Canada.
3. oth conventons provde that the contractng country n whch
the decedent was domced at the tme of death sha aow credt
aganst ts ta for the ta pad the other contractng country wth
respect to property stuated n such other country and whch woud
otherwse be sub|ected to ta by both countres. oth conventons aso
provde that the Unted States sha aow such credt f the decedent
was a ctzen of the Unted States regardess of hs pace of domce.
The conventon wth the Unted ngdom provdes a further credt
avodng doube ta aton wth respect to property stuated outsde the
contractng countres n case both countres assert ta es on the bass of
domce.
. Rues of stus of property set forth n the conventon wth the
Unted ngdom provde nter aa: (a) that shares of stock are
deemed to be stuated ony at the pace where the company was n-
corporated (whether ncorporated n the Unted ngdom, the Unted
States, or esewhere), and ( ) that bonds and other forms of ndebted-
ness whch consttute assets of the decedent s estate (e cept |udgment
debts and negotabe promssory notes and bs of e change) are
deemed to be stuated at the pace of the decedent s domce. The
atter rue s n effect an e empton from the ta mposed on the bass of
stus of property.
5. Under the conventon wth Canada stock of an mercan cor-
poraton (ncorporated n the Unted States) s deemed stuated ony n
the Unted States and stock of a Canadan corporaton (ncorporated n
Canada) s deemed stuated ony n Canada. The stus of stocks of
companes ncorporated esewhere and the stus of other casses of
property s determned n accordance wth the aw of the contractng
country mposng ta on the bass of stus of property. The conven-
ton wth Canada does provde that n the case of a decedent who at
tme of death was domced n Canada and not a ctzen of the Unted
States, the specfc e empton sha not be ess than the proporton of
the amount of the e empton authorzed n the case of a resdent de-
cedent that the vaue of the property stuated n the Unted States
bears to the vaue of the entre gross estate wherever stuated.
6. If credt for estate duty mposed n Great rtan or Northern
Ireand or for Domnon successon duty mposed n Canada s camed
at the tme the Federa estate ta return, Form 706, s fed, the amount
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152
thereof shoud be entered at tem 9, Credt for foregn death dutes,
under Computaton of Ta (set forth on sheet of the December,
19 6, revson of Form 706). Item 11 thereunder, Net estate ta
payabe, s the amount to be assessed and pad. In such case the
approprate suppementa form showng the computaton of the credt
must be nserted mmedatey after the sheet showng the Computa-
ton of Ta . For the computaton of credt for Unted ngdom
estate duty use Form 706e. For the computaton of credt for
Canadan successon duty use Form 7()6c, revsed anuary, 19 7.
Form 706e or Form 706c shoud be submtted even though cam for
credt s made subsequent to the fng of the return.
If such foregn death duty has not been fnay determned and pad
at the tme the Federa estate ta return s fed, credt may be camed
at tem 9 of Computaton of Ta n an estmated amount. ow-
ever, n any case, before the credt can be fnay aowed the amount of
the foregn death duty must be certfed by an authorzed offca of
the foregn death duty offce on the form provded, and for ths purpose
Form 706f must be used for the estate duty mposed n Great rtan
or Northern Ireand, and Form 706d must be used for the Domnon
successon duty mposed n Canada.
In any case n whch credt for two or more of the foregn death
dutes s camed at the tme the return s fed, the tota amount
shoud be entered at tem 9, Credt for foregn death dutes, under
Computaton of Ta . Thus, f credt s camed for Canadan
successon duty and for rtsh estate duty, the tota of the two credts
shoud be entered at tem 9, and Suppementa Forms 706c and 706e
must both be attached.
7. The rues of stus of property provded by the conventons wth
the Unted ngdom and Canada materay restrct the appcaton
of the Federa estate ta n cases of nonresdent aens of the Unted
States who at death were domced n ether of those countres. The
stus rues of the conventons are descrbed n the nstructons set
forth on Form 706, revsed December, 19 6, and on the smpfed
short form of return provded for estates of nonresdent aens, Form
706N . The practca usefuness of ths smpfed return s especay
advantageous n the ordnary nonresdent aen case n whch ony a
comparatvey few tems of property are stuated n the Unted States.
owever, n a case havng a arge number of tems comprehendng
a varety of the dfferent casses of property for whch partcuar
schedues are provded on Form 706 the atter form s more sutabe.
8. Provson s made at Schedue C of Form 706N for the compu-
taton of the prorated specfc e empton authorzed under the con-
venton wth Canada n the case of a nonresdent aen of the Unted
States domced n Canada, but f Form 706 s used n such a case, the
computaton of the prorated specfc e empton must be shown on
Suppementa Form 706b.
9. The offces of the nterna revenue agents n charge w advse the
representatves of estates of the requrements pursuant to the pro-
vsons of the conventons n cases pendng before those offces. The
representatves of estates of prevousy cosed cases shoud (wthn
the appcabe mtaton perod) fe cams for refunds of any over-
payments of estate ta es resutng from the appcaton of the con-
ventons. ny cam for refund of ta based upon the provsons
of the conventons shoud be fed wth the approprate coector of
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153 Regs. 105 (19 2), 81.67.
nterna revenue on Form 8 3 wth Suppementa Form 706b, Form
706c, or Form 708e, f appcabe, attached thereto n dupcate.
10. Correspondence reatve to the provsons of ths mmeograph
shoud refer to ts number and to the symbos MT: T.
ose h D. Nunan, r.,
Commssoner.
S CTION 86 , S M ND D.
Rectatons 105 (19 2), Secton 81.67: Return 19 7-5-12 99
of estates of nonresdents not ctzens. Mm. 6105
Nonresdent aen estate ta return, Form 706N .
Treasury Department,
Otfce of Commssoner or Interna Revenue,
Washngton 25, D. C, anuary 31,19 -7.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. Form 70GN , Nonresdent en state Ta Return, s
adapted for estates of persons who were at the tme of death nether
domced n nor ctzens of the Unted States. Ths smpfed form
w greaty factate the preparaton of the estate ta return n such
cases. Its use w aso ad the ureau n the e amnaton of such re-
turns. The use of Form 706N w aso resut n substanta savngs
of paper and postage, snce t requres ony sheets as compared wth
66 sheets for a set of Forms 706.
2. The part of the gross estate stuated n the Unted States s to
be set forth n Schedue. on the back of Form 706N . Schedue
shoud be e ecuted f t s desred to cam a deducton for prorated
debts and charges. Schedue C shoud be e ecuted, n con|uncton
wth the frst three tems of Schedue , f the decedent was domced
n Canada at the tme of hs death, for the purpose of camng the
prorated specfc e empton authorzed under the death duty con-
venton between the Unted States and Canada. Suppementa Form
706b s not requred when usng Form 706N . The net estate shoud
be computed under Schedue D. Credt for State nhertance, etc..
ta es may be camed under Computaton of ta on the face of
the return. The net estate ta to be assessed by and pad to the co-
ector shoud be entered at tem of Computaton of ta .
3. Snce the smpfed Form 70GN does not provde space to set
forth nformaton requred for deductons for property prevousy
ta ed or chartabe bequests and gfts, or for gft ta credt, and
does not contan nstructons as to powers of appontment and nter
vvos transfers reached by the statute, n cases nvovng such matters
(estmated at appro matey 2 per cent of the tota returns fed
for estates of nonresdents not ctzens of the Unted States) Form
706 shoud be used.
. stng nstructons as to the handng of Form 706 appy to
the handng of Form 706N .
5. Correspondence reatve to the contents of ths mmeograph
shoud refer to ts number and to the symbos MT: T.
oseph D. Nunan, r.,
Commssoner.
75 70 7 11 S
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15
MISC LL N OUS T S.
INT RN L R NU COD .
19 7-7-12523
Mm.6128
cse Ta ct of 19 7.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, March 20, 19 7.
Coectors of Interna Revenue and Others Concerned:
The cse Ta ct of 19 7 (Pubc Law 17. ghteth Congress,
frst sesson, page 220, ths uetn), approved March 11, 19 7, makes
certan changes n a number of provsons of the Interna Revenue
Code reatng to varous Federa e cse ta es. Treasury decsons to
gve effect to such changes are now n the course of preparaton and
w be ssued by the ureau at an eary date. In the meantme, for
the nformaton of coectors and other persons concerned, bref e pa-
natons of the changes made by the ct are set forth beow.
CONTINU TION OF W R CIS T R T S IMPOS D Y R NU CT
OF 19 3.
The prncpa changes made by the ct s to contnue wthout a
defnte termnaton date the war e cse ta rates mposed by the
Revenue ct of 19 3, as set forth n sectons 1050 and 1651 of the In-
terna Revenue Code. When these war e cse ta rates were mposed,
t was specfcay provded that they woud be appcabe ony wth
respect to the perod begnnng pr 1, 19 (the effectve date of
Tte III of the Revenue ct of 19 3), and endng on the 1st day of
the frst month whch begns s months or more after the date of the
termnaton of hosttes n the present war. Snce the termnaton
of hosttes n Word War II was procamed by the Presdent on
December 31, 19 6, n the absence of egsaton e tendng the perod
durng whch these war rates are appcabe, the rates woud have
e pred on une 30,19 7, after whch date the rates n effect pror to
pr 1,19 , woud have been restored. The effect of the cse Ta
ct of 19 7 s to contnue the war ta rates beyond une 30,19 7, and
wthout any defnte termnaton date.
MPTION OF DDITION L FUR RTICL S FROM R T IL RS T ON FURS
IMPOS D UND R S CTION 2 01 OF INT RN L R NU COD
Secton 7 of the ct amends secton 2 01 of the Interna Revenue
Code, whch mposes the retaers ta on furs, so that the ta appes
to the sae of artces of whch fur s a component matera (such as a
fur-trmmed coth coat) ony f the vaue of the fur component at the
tme of assembage of the artce s more than three tmes the vaue at
such tme of the ne t most vauabe component matera.
The amendment appes n the case of fur artces sod on or after
pr 1,19 7. Pror to that date, the ta apped to the sae of art ces
of whch fur was a component matera f the vaue of the fur compo-
nent at the tme of assembage of the artce merey e ceeded the vaue
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at such tme of the ne t most vauabe component matera. ence,
the effect of the amendment s to broaden the fed of e empt fur
artces.
It s mportant to note that the amendment does not specfcay
e empt fur-trmmed coth coats, or other artces of whch fur s a
component matera, merey because they reta beow a certan f ed
prce. Rather, the e empton s determned strcty on the bass of
the reatve vaue of the fur component at the tme of assembage of
the garment or other artce to the vaue at such tme of each other
component. The ureau w recognze as presumptve evdence of the
nonta abe status of a fur-trmmed garment or other fur artce a
wrtten statement furnshed by the manufacturer to the retaer show-
ng that, accordng to the manufacturer s records, the vaue of the fur
set at the tme of assembage of the garment or other artce was not
more than three tmes the vaue at such tme of the ne t most vauabe
component matera. Ths statement shoud be mantaned by the
retaer as a part of hs records and be avaabe for nspecton, when
necessary, by nterna revenue offcers.
MPTION OF C RT IN FOR IGN TR L FROM T ON TR NSPORT TION
OF I RSONS IMPOS D UND R S CTION 3 69 OF INT RN L R NU COD .
Secton 8(a) of the ct amends secton 3 69(a) of the Code, whch
mposes the ta on the transportaton of persons, by makng the ta
nappcabe wth respect to transportaton any part of whch s out-
sde the northern porton of the Western emsphere, e cept wth
respect to any part of such transportaton whch s from any port or
staton wthn the Unted States, Canada, or Me co to any other port
or staton wthn the Unted States, Canada, or Me co. The amend-
ment defnes the words northern porton of the Western emsphere
to mean the area yng west of the thrteth merdan west of Green-
wch, east of the nternatona date ne, and north of the quator, but
not ncudng any country of South merca. Thus, broady speak-
ng, the amendment e empts from ta aton trans- tantc and trans-
Pacfc trave and trave to South merca, but keeps wthn the ta
trave n or near North merca and Centra merca and the West
Indes.
The amendment appes to amounts pad on or after pr 1, 19 7,
for transportaton on or after that date.
R P L OF ST MP T ON P SS G TIC TS IMPOS D UND R S CTION 1806
OF INT RN L R NU COD .
Secton 1806 of the Interna Revenue Code mposes a ta on certan
passage tckets sod or ssued n the Unted States for passage by any
vesse to a port or pace not n the Unted States, Canada, Me co,
Cuba, or Puerto Rco. Secton 8(c) of the cse Ta ct of 19 7
repeas ths ta , effectve wth respect to tckets sod or ssued on or
after pr 1,19 7.
Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos MT: DC.
oseph D. Nunan, r.,
Commssoner.
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Regs. 6 (19 0), 316.180, etc. 156
M NUF CTUR RS CIS T S.
INT RN L R NU COD .
Reguatons 6 (19 0), Sectons 316.180 and 19 7-11-12560
316.181. T. D. 5563
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 316.
M NUF CTUR RS CIS T S.
Reguatons 6 (19 0 edton) amended to conform to the cse
Ta ct of 19 7 page 220, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, I). C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 6 (19 0 edton) 26 CFR, Part
316 , reatng to e cse ta es on saes by the manufacturer under the
Interna Revenue Code, to the cse Ta ct of 19 7 (Pubc Law 17,
ghteth Congress, frst sesson), approved March 11,19 7 page 220,
ths uetn , such reguatons are amended as foows:
Paragraph 1. Immedatey precedng secton 316.180 26 CFR,
316.180 , there s nserted the foowng:
S C. 2. CIS T CT OF 19 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng on
the frst day of the frst month whch begns s months or more after
the date of the termnaton of hosttes n the present war .
Par. 2. Secton 316.181, as amended by Treasury Decson 53 8
C. . 19 , 613 26 CFR, 316.181 , s further amended to read as
foows:
Seo. 316.181. Rate of Ta . In the case of eectrc ght bubs and tubes sod
on or after pr 1, 19 , the ta s payabe by the manufacturer at the rate of
20 per cent of the sae prce. In the case of eectrc ght bubs and tubes sod
durng the perod October 1, 19 1, through March 31, 19 , the ta was payabe
by the manufacturer at the rate of 5 per cent of the sae prce. The sae prce
sha be determned n accordance wth the provsons of sectons 316.8 to 316.15
26 CFR, 316.8 to 316.15 , ncusve.
(Ths Treasury decson s ssued pursuant to the authorty contaned
n sectons 3 50 and 3791 of the Interna Revenue Code (53 Stat., 18,
67; 26 U. S. C, 3 50, 3791).)
ecause of the technca nature of the amendments made heren, t
s found that t s unnecessary to ssue ths Treasury decson wth
notce and pubc procedure thereon under secton (a) of the d-
mnstratve Procedure ct, approved une 11,19 6, or sub|ect to the
effectve date mtaton of secton (c) of sad ct.
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved May 16,19 7.
oseph . O Conne., r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 22,19 7, 8. 6 a. m.)
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157 Regs, 61 (19 1), 320.0, etc.
R T IL RS CIS T S.
INT RN L R NU COD .
Reguatons 51 (19 1), Sectons 320.0, 320.1, 19 7-9-125 0
320.38, 320. 0, 320. 2, 320.51. T. D. 5558
TITL 26 INT RN L R NU C PT R I. SU C PT R C. P RT 320.
R T IL RS CIS T S.
Reguatons 51 (19 1 edton) amended to conform to the cse
Ta ct of 19 7.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 51 26 CFR, Part 320 . reatng
to retaers e cse ta es under Chapters 9 and 19 of the Interna
Revenue Code, to the cse Ta ct of 1917 (Pubc Law 17, ght-
eth Congress, frst sesson), approved March 11, 19 7 page 220, ths
uetn , such reguatons are amended as foows:
Paragraph 1. The subheadng mmedatey precedng the headng
Surpart Introductory , as amended by Treasury Decson
5353, approved March 31, 19 C. . 19 , 597 , s further amended
to read as foows:
Reguatons Reatng to cse Ta es on Saes by the Retaur ( Chapter 19
of the Interna Revenue Code, ddkd by Secton 552 of the Revenue ct
of 19 1, and Chapter 9 of the Interna Revenue Code, dded by Secton 210
of the Revenue ct of 19 0, and mended by Secton 302 of the Revenue
ct of 19 3 and by the cse Ta ct of 19 7).
Par. 2. The frst sentence of secton 320.0, as amended by Treasury
Decson 5353 26 CFR, 320.0 , s further amended to read as foows:
Secton 320.0. Scope of Reguatons. The reguatons contaned n ths part
dea wth e cse ta es mposed by Chapter 19 of the Interna Revenue Code, as
added by secton 552 of the Revenue ct of 19 1, and Chapter O of the Interna
Revenue Code, as added by secton 210 of the Revenue ct of 19 0, and amended
by secton 302 of the Revenue ct of 19 3 and by the cse Ta ct of 19 7,
on saes by the retaer of
(a) ewery.
(6) Furs.
(c) Toet preparatons.
(d) Luggage.
Par. 3. Immedatey precedng secton 320.1 26 CFR, 320.1 , there
s nserted the foowng:
CIS T CT OF 19 7 (PU LIC L W 17, IG TI T CON-
GR SS, FIRST S SSION), PPRO D M RC 11, 19 7.
Sec. 3. Sectons and 1655 (defnton of date of the ter-
mnaton of hosttes n the present war ) of such Code are hereby
repeaed.
Par. . Secton 320.1, as amended by Treasury Decson 5353 26
CFR, 320.1 , s further amended by strkng out paragraph (k)
thereof.
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Regs. 51 (19 1), 320.0, etc. 158
Par. 5. Immedatey precedng secton 320.2 26 CF , 320.2 , there
s nserted the foowng:
CIS T CT OF 19 7 (PU LIC L W 17, IG TI T CON-
GR SS, FIRST S SSION), PPRO D M RC 11, 19 7.
Sec. 3. Sectons 165 (termnaton of reta ta on uggage, etc.) and
1655 (defnton of date of the termnaton of hosttes n the present
war ) of such Code are hereby repeaed.
Par. 6. Immedatey precedng secton 320.30, as amended by Treas-
ury Decson 5353 26 CFR, 320.30 , there s nserted the foowng:
CIS T CT OF 19 7 (PU LIC L W 17, IG TI T CON-
GR SS, FIRST S SSION), PPRO D M RC 11, 19 7.
Sec. 2. Secton 1G50 of the Interna Revenue Code (war ta rates of
certan msceaneous ta es) s hereby amended by strkng out and
endng on the frst day of the frst mouth whch begns s months or
more after the date of the termnaton of hosttes n the present war .
Par. 7. Secton 320.38, as amended by Treasury Decson 5353 26
CFR, 320.38 , s further amended to read as foows:
Sec. 320.38. Rate of Ta . Wth respect to artces sod durng the perod
October 1, 19 1, through March 31, 19 , both dates ncusve, the ta s payabe
by the retaer at the rate of 10 per cent of the prce for whch sod. Wth respect
to artces sod on or after pr 1, 19 , the ta s payabe by the retaer at the
rate of 20 per cent of the prce for whch sod, e cept that n the case of watches
seng at reta for 65 or ess, and aarm cocks seng at reta for 5 or ess,
the ta s at the rate of 10 per cent of the prce for whch sod. The prce for
whch an artce s sod sha be determned n accordance wth the provsons of
sectons 320.5 to 320.10, ncusve 26 CFR, 320.5 to 320.10, ncusve , and secton
320.7 20 CFR, 320.7 .
Par. 8. Immedatey precedng secton 320. 0 26 CFR, 320. 0 ,
there s nserted the foowng:
CIS T CT OF 19 7 (PU LIC L W 17, IG TI T CON-
GR SS, FIRST S SSION), PPRO D M RC 11, 19 7.
Sec. 2. Secton 1650 of the Interna Revenue Code (war ta rates
of certan msceaneous ta es) s hereby amended by strkng out and
endng on the frst day of the frst month whch begns s months or
more after the date of the termnaton of hosttes n the present war .
Sec. 7. (a) Secton 2 01 of the Interna Revenue Code (reatng to
the ta on furs) s hereby amended by nsertng after the words chef
vaue a comma and the foowng: but ony f such vaue s more than
three tmes the vaue of the ne t most vauabe component matera .
(b) The amendment made by subsecton (a) sha appy n the case
of artces sod on or after the frst day of the frst month whch begns
more than twenty days after the date of the enactment of ths ct.
Par. 9. Secton 320. 0 26 CFR, 320. 0 s amended to read as
foows:
Sec. 320. 0. Scope of Ta . The ta attaches to the sae by the retaer of
certan artces as foows:
(a) rtces made of fur on the hde or pet sod on or after October 1,
19 1;
(6) rtces of whch fur on the hde or pet s the component matera
of chef vaue sod durng the perod October 1,19 1, through March 31, 19 7,
both dates ncusve; and
(c) rtces of whch fur on the hde or pet s a component matera, the
vaue of whch s more than three tmes the vaue of the ne t most vauabe
component matera, sod on or after pr 1, 19 7.
The ta does not appy to saes of raw fur.
The ta s not confned to the sae of fur artces used as wearng appare but
appes to saes of any fur artce sutabe for any use, such as fur rugs, fur
robes, etc.
In determnng, for the purposes of (6) and (o), above, whether the sae of
an artce of whch fur s a component matera s sub|ect to ta , the vaue of
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159
Regs 51 (19 1), 320.0, etc
such fur at the tme of assembage of the artce must be compared to the vaue
of each other snge component at such tme.
Where fur s a component matera of an artce and e empton wth respect
to the sae of such artce Is camed on the ground thnt the vaue of the fur
as compared wth that of the most vauabe of the other component materas
s not such as to render the sae ta abe under (6) or (c), above, the retaer
must mantan adequate records or have n hs possesson proper documentary
evdence to estabsh that fact to the satsfacton of the Commssoner. In the
absence of such records or documentary evdence, the ta must be pad wth
respect to the sae of such artce at reta.
Pab. 10. Secton 320. 2, as renumbered and amended by Treasury
Decson 5353 26 CFR, 320. 2 , s further amended to read as foows:
Sec. 320.-12. Rate of Ta . Wth respect to artces sod durng the perod
October 1, 19 1, through March 31, 19 , both dates ncusve, the t; s payabe
by the retaer at the rate of 10 per cent of the prce for whch sod. Wth
respect to artces sod on or after pr 1, 19 , the ta s payabe by the retaer
at the rate of 20 per cent of the prce for whch sod. The prce for whch an
artce Is sod sha be determned n accordance wth the provsons of sectons
320.5 to 320.10, ncusve 26 CFR, 320.5 to 320.10, Incusve , and secton 320.7
2t CFR, 320.7 .
Par. 11. Immedatey precedng secton 320.50 26 CFR, 320.50 ,
there s nserted the foowng:
CIS T CT OF 19 7 (PU LIC L W 17, IG TI T CON-
GR SS, FIRST S SSION), PPRO D M RC 11, 19 7.
Sec. 2. Secton 1650 of the Interna Revenue Code (war ta rates
of certan msceaneous ta es) s hereby amended by strkng out and
endng on the frst day of the frst month whch begns s months or
more after the date of the termnaton of hosttes n the present war .
Par. 12. Secton 320.51, as amended by Treasury Decson 5353 26
CFR, 320.51 , s further amended to read as foows:
Skc. 320.51. Rate op Ta . Wth respect to artces sod durng the perod
October 1, 19 1, through March 31, 19 , both dates ncusve, the ta s payabe
by the retaer at the rate of 10 per cent of the prce for whch sod. Wth respect
to artces sod on or after pr 1, 19 , the ta s payabe by the retaer at the
rate of 20 per cent of the prce for whch sod. The prce for whch an artce
Is sod sha be determned n accordance wth the provsons of sectons 320.5
to 320.10, ncusve 26 CFR, 320.5 to 320.10, ncusve , and secton 320.7 26
CFR, 320.7 .
ecause of the short perod of tme remanng between March 11,
19 7, the date of approva of the cse Ta ct of 19 7, and pr
1, 19 7, the date on whch, pursuant to such ct, the amendment to
secton 2 01 of the Interna Revenue Code becomes effectve, and be-
cause of the technca nature of the amendments made heren, t s
found that t s mpractcabe and unnecessary to ssue ths Treasury
decson wth notce and pubc procedure thereon under secton (a)
of the dmnstratve Procedure ct, approved une 11,19 6, or sub-
|ect to the effectve date mtaton of secton (c) of sad ct.
Ths Treasury decson sha be effectve on pr 1, 19 7.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n sectons 3791 and 2 10 of the Interna Revenue Code (53
Stat., 67 ; 55 Stat., 720 ; 26 U. S. C. and Sup., 3791, 2 10).)
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved pr 11, 19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 18, 19 7, 8. 7 a. m.)
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Regs. 2 (19 2), 130.0, etc. 160
MISC LL N OUS CIS T S.
INT RN L R NU COD .
T ON S F D POSIT O S, TC
Reguatons 2 (19 2), Sectons 130.0, etc 19 7-9-125
T. D. 5559
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 130.
T S ON S F D POSIT O S ND ON C RT IN TR NSPORT TION ND
COMMUNIC TIONS S R IC S.
Reguatons 2 (19 2 edton) amended to conform to the cse
Ta ct of 19 7 page 220, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25. D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 2 (19 2 edton) 26 CFR, Part
130 , reatng to the ta es on safe depost bo es, transportaton of o by
ppe ne, teephone, teegraph, rado and cabe messages and servces,
and transportaton of persons under the provsons of the Inferna
Revenue Code, to the cse Ta ct of 19 7 (Pubc Law 17, ghteth
Congress, frst sesson), approved March 11,19 7 page 220, ths ue-
tn , such reguatons are amended as foows:
Paraoraph 1. The frst paragraph of secton 130.0, as amended by
Treasury Decson 53 7 26 CFR, 130.0 , approved March 15, 19
C. . 19 , 627 , s further amended as foows:
( ) y nsertng mmedatey after Revenue ct of 19 3 n sub-
paragraph (c) and sectons 2, 3, and of the cse Ta ct of
19 7.
( ) y nsertng mmedatey after Revenue ct of 19 2 n sub-
paragraph (d) and secton 8(a) of the cse Ta ct of 19 7,
and by nsertng mmedatey after Revenue ct of 19 3 n such
subparagraph and sectons 2,3, and of the cse Ta ct of 19 7.
Par. 2. Immedatey precedng secton 130.1 26 CFR, 130.1 there
s nserted the foowng:
CIS T CT OF 19 7.
Sec. 3. Sectons 1655 (defnton of date of the termnaton
of hosttes n the present war ) of such Code are hereby repeaed.

Skc. 8. (a) For the purposes of ths secton, the words
northern porton of the Western emsphere mean the area yng
west of the thrteth merdan west of Greenwch, east of the Interna-
tona Date Lne, and north of the equator, but not ncudng any country
of South merca.
Par. 3. Secton 130.1, as amended by Treasury Decson 5521 26
CFR, 130.1 , approved une 1 , 19 6 C. . 19 6-2, 171 , s further
amended by strkng out paragraph (c) thereof and nsertng n eu
of such paragraph the foowng:
(c) Northern Porton of the Western emsphere. The term northern
porton of the Western emsphere means the area yng west of the thrteth
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161 (Regs. 2 (19 2), 130.0, etc.
merdan west of Greenwch, east of the nternatona date ne, and north of the
quator, but not ncudng any country of South merca.
Par. . Immedatey precedng secton 130.30 26 CFR, 130.30
there s nserted the foowng:
S C. 2. CIS T CT OF 10 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng on
the frst day of the frst month whch begns s months or more after
the date of the termnaton of hosttes n the present war .
Par. 5. The second paragraph of secton 130.30 26 CFR, 130.30 ,
added by Treasury Decson 53 7, s amended to read as foows:
The ncreases n rates made by secton 1050 of the Interna Revenue Code, as
amended by secton 302 of the Revenue ct of 10 3 and secton 2 of re cse
Ta ct of 19 7, are effectve as of pr 1, 19 , and appy to amounts pad on
and after that date for servces specfed n secton 3 65(n)() ( ) and ( )
whch were rendered on and after that date.
Par. 6. Secton 130.33, as amended by Treasury Decson 53 7 26
CFR, 130.33 , s further amended as foows:
( ) The frst paragraph of subsecton (a) s amended to read as
foows:
(a) Teephone and rado teephone messages, and conversatons. In the case
of each teephone or rado teephone message or conversaton where the charge
s more than 2 cents, the rate of ta s 25 per cent of the amount pad. Wth
respect to the perod November 1, 19 2, through March 31, 19 , the ta was at
the rate of 20 per cent of the amount pad. Pror to November 1, 19 2, the ta
was at the rate of 5 cents for each 50 cents or fracton thereof of the amount pad.
( ) The frst paragraph of subsecton (6) s amended to read as
foows:
(6) Teegraph, cabe, and rado dspatches and messages. The amount pad
for each teegraph, cabe, or rado dspatch or message s sub|ect to ta at the
rate of 25 per cent of the amount pad, e cept that n the case of each nternatona
dspatch or message the rate of ta s 10 per cent. Wth respect to the perod
November 1, 19 2, through March 31, 10 , the ta on each domestc teegraph,
cabe, or rado dspatch or message was 15 per cent. Pror to November 1, 10 2,
the ta on a teegraph, cabe, or rado dspatches or messages was 10 per cent.
Par. 7. Immedatey precedng secton 130.36, as amended by
Treasury Decson 53 7 26 CFR, 130.36 , there s nserted the foow-
ng:
S C. 2. CIS T CT OF 10 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng
on the frst day of the frst month whch begns s months or more after
the date of the termnaton of hosttes n the present war .
Par. 8. The second paragraph of secton 130.36 26 CFR, 130.36 ,
added by Treasury Decson 53 7, s amended to read as foows:
The ncreases n rates made by secton 1650 of the Interna Revenue Code,
as amended by secton 302 of the Revenue ct of 10 3 and secton 2 of the cse
Ta ct of 10 7, appy to amounts pad pursuant to bs rendered on or after
May 1, 19 , for servces furnshed on or after March 1, 10 , for whch no
prevous b was rendered.
Par. 9. Secton 130.38, as amended by Treasury Decson 53 7 26
CFR, 130.38 , s further amended as foows:
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Regs. 2 (19 2), 130.0, etc. 162
( ) The frst paragraph of subsecton (a) s amended to read as
foows:
(a) Leased nore, teetypewrter, or takng crcut speca servce. In the
case of eased wre, teetypewrter, or takng crcut speca servce, the ta
Is to be computed at the rate of 25 per cent of the amount pad therefor. In the
case of servce ta abe under secton 3 65(a) (2) pror to modfcaton by secton
302 of the Revenue ct of 19 3, the ta waR at the rate of 15 per cent of the
amount pad; and n the case of servce ta abe under secton 3 65(a) (2) pror
to amendment by secton 606 of the Revenue ct of 19 2, the ta was at the
rate of 10 per cent of the amount pad.
( ) The frst paragraph of subsecton () s amended to read as
foows:
(6) Wre and equpment servces. In the case of wre and equpment servce
the ta s computed at the rate of 8 per cent of the amount pad therefor. Tror
to pr 1, 19 , tne rate of ta was 5 per cent of the amount pad.
Par. 10. Immedatey precedng secton 130.39, as amended by
Treasury Decson 53 7 26 CFR, 130.39 , there s nserted the fo-
owng :
S C. 2. CIS T CT OF 19 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng on
the frst day of the frst month whch begns s months or more after
the date of the termnaton of hosttes n the present war .
Par. 11. The second paragraph of secton 130.39, as amended by
Treasury Decson 53 7 26 CFR, 130.39 , s further amended to read
as foows:
The ncrease n the rate made by secton 1650 of the Interna Revenue Code,
as amended by secton 302 of the Revenue ct of 19 3 and secton 2 of the -
cse Ta ct of 19 7, appes to amounts pad pursuant to bs rendered on and
after May 1, 19 , for servces furnshed on or after March 1, 19 , for whch
no prevous b was rendered.
Par. 12. The frst paragraph of secton 130. 1, as amended by
Treasury Decson 53 7 26 CFR, 130. 1 , s further amended to read
as foows :
Rate and ppcaton of Ta . The ta Is mposed at the rate of 15 per cent
of the amount pad by any subscrber for oca teephone servce or any other
teephone servce whch Is not sub|ect to the provsons of secton 3 65(a) (1) or
(2) of the Code, as amended. (See sectons 130.30 to 130.38 126 CFR, 130.30 to
130.38 .) In the case of servce ta abe under secton 3 65(a) (3) pror to mod-
fcaton by secton 302 of the Revenue ct of 19 3. the ta was at the rate of
10 per cent of the amount pad; and n the case of servce ta abe under secton
3 65(a) (3) pror to amendment by secton 606 of the Revenue ct of 19 2, the
ta was at the rate of 6 per cent of the amount pad.
Par. 13. Immedatey precedng secton 130.50, as amended by
Treasury Decson 53 7 26 CFR, 130.50 , there s nserted the fo-
owng :
S C. 2. CIS T OF 19 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng
on the frst day of the frst month whch begns s months or more
after the date of the termnaton of hosttes n the present war .
Par. 1 . Secton 130.50, as amended by Treasury Decson 53 7 26
CFR, 130.50 , s further amended by strkng out the ast two sen-
tences of such secton and nsertng n eu thereof the foowng:
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1G3 (Regs. 2 (19 2), 130.0, etc.
The further Increase n the rate of ta made by secton 1650 of the Interna
Revenue Code, as amended by secton 302 of the Revenue ct of 10 3 and secton
2 of the cse Ta ct of 19 7, s effectve pr 1,19 .
Par. 15. The second paragraph of secton 130.51 26 CFR, 130.511
s amended to read as foows:
The ta abty of a payment for transportaton s determned by (1) the
pace of payment, . e., whether wthn or wthout the Unted States, and (2)
the pace where the transportaton servce s furnshed, . e., whether wthn or
wthout the northern porton of the Western emsphere as provded n secton
130.6 .
Par. 16. The frst paragraph of secton 130.5-2, as amended bv
Treasury Decson 53 7 26 CFR, 130.52 , s further amended to read
as foows:
The ta s 15 per cent of the amount of the ta abe payment for transportaton.
Wth respect to the perod November 1, 19 2, through March 31, 19 , the rate of
ta was 10 per cent of the amount of such ta abe payment. Pror to November
1, 19 2, te rate of ta was 5 per cent of such amount.
Par. 17. Secton 130.53 26 CFR, 130.53 s amended by strkng out
the words The foowng are e ampes of ta abe payments for trans-
portaton as they appear mmedatey foowng the tte of the sec-
ton, and by nsertng n eu thereof the words The foowng are
e ampes of payments for transportaton whch, uness otherwse
e empt under sectons 130.61 through 130.6 26 CFR, 130.61 through
130.6 , ncusve, are sub|ect to ta .
Par. 18. Immedatey precedng secton 130.55, as amended by
Treasury Decson 53 7 26 CFR, 130.55 , there s nserted the
foowng:
S C. 2. CIS T CT OF 19 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng on
the frst day of the frst month whch begns s months or more after
the date of the termnaton of hosttes n the present war .
Par. 19. Secton 130.55, as amended by Treasury Decson 53 7 26
CFR, 130.55 , s further amended by strkng out the ast two sentences
of such secton and nsertng n eu thereof the foowng:
The further ncrease n the rate of ta made by secton 1650 of the Interna
Revenue Code, as amended by secton 302 of the Revenue ct of 19 3 and secton
2 of the cse Ta ct of 19 7, s effectve pr 1, 19 .
Par. 20. The frst paragraph of secton 130.57, as amended by Treas-
ury Decson 53 7 26 CFR, 130.57 , s further amended to read as
foows:
The ta Is 15 per cent of the amount of the ta abe payment for the seatng
or seepng accommodatons. Wth respect to the perod November 1, 19 2,
through March 31, 19 , the rate of ta was 10 per cent of the amount of such
ta abe payment. Pror to November 1, 19 2, the rate of ta was 5 per cent of
such amount.
Par. 21. Immedatey foowng secton 130.63, as amended by
Treasury Decson 5190 26 CFR, 130.63 , approved November 30,
19 2 C. . 19 2-2,237 , there s nserted the foowng:
S C. 8. CIS T CT OF 19 7.
(a) Secton 3 69(a) of the Interna Revenue Code (reatng to the
ta on transportaton of persons) s hereby amended by nsertng after
the frst sentence two new sentences to read as foows: The ta sha
not appy wth respect to transportaton any part of whch s outsde
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Regs. 2 (19 2), 130.0, etc. 16
the northern porton of the Western emsphere, e cept wth respect to
any part of such transportaton whch s from any port or staton wthn
the Unted States, Canada, or Me co to any other port or staton wthn
the Unted States, Canada, or Me co. For the purposes of ths secton,
the words northern porton of the Western emsphere mean the area
yng west of the thrteth merdan west of Greenwch, east of the Inter-
natona Date Lne, and north of the equator, but not ncudng any coun-
try of South merca.
(b) The amendment made by subsecton (a) sha appy to amounts
pad on or after the frst day of the frst month whch begns more than
twenty days after the date of the enactment of ths ct for transporta-
ton on or after such frst day.

Par. 22. Secton 130.6 26 CF , 130.6 s renumbered secton
130.65, and a new secton 130.6 s nserted, to read as foows:
Sec. 130.6 . Transportaton Outsde the Northern Porton of the Western
emsphere. No ta Is Imposed upon a payment made wthn the Unted States
on or after pr 1, 19 7, for transportaton, on or after such date, any part of
whch s outsde the northern porton of the Western emsphere (for defnton
of northern porton of the Western emsphere see secton 130.1(c)), e cept
that the ta sha be coected wth respect to any part of such transportaton
whch s from any port or staton wthn the Unted States, Canada, or Me co
to any other port or staton wthn the Unted States, Canada, or Me co.
In the case of through transportaton from a port or staton wthn the Unted
States, Canada, or Me co to a pont outsde the northern porton of the Western
emsphere wth ntermedate stops by the carrer en route, the ta attaches
wth respect to that part of such transportaton whch Is from the orgnatng
port or staton wthn the Unted States, Canada, or Me co to the ast stop
wthn the Unted States, Canada, or Me co, made for any purpose other than
an emergency, and rrespectve of whether the passenger dsembarks or a stopover
s permtted.
The foowng e ampes ustrate the appcaton of ths e empton.
ampe 1. purchases a tcket In New York for transportaton to Lsbon
aboard a vesse or arcraft bound from New York to Lsbon, wth a stop at er-
muda. No part of the amount pad by for hs tcket s sub|ect to the ta on
transportaton of persons.
ampe 2. If, n the foregong e ampe, decdes to dsembark at ermuda
and not to contnue to Lsbon, s abe for the ta wth respect to the amount
pad for transportaton to ermuda and, upon presentaton of hs tcket for re-
fund, the carrer s requred to wthhod such ta .
ampe 3. , C, and D purchase tckets n New York for transportaton
aboard a vesse bound from New York to San Francsco va the Panama Cana,
wth stops at Trndad and enezuea. s tcket enttes hm to transportaton
to Port of Span, Trndad; C s tcket s for suncon, enezuea; and D s tcket
s for San Francsco. The amount pad by s sub|ect to ta , snce Trndad
s not a country of South merca and Is wthn the northern porton of the
Western emsphere. The amount pad by C s not sub|ect to ta , snce suncon
s ocated on the sand of Nueva sparta and Is ncuded wthn enezuea, a
country of South merca. The amount pad by D s not sub|ect to ta even
though the voyage begns at a port wthn the Unted States and ends at another
port wthn the Unted States, snce part of the transportaton was to enezuea,
a country of South merca.
ampe . purchases n Chcago a round-trp tcket for transportaton by
ar from Chcago to New York to Newfoundand to London. The amount pad
for that part of the transportaton between Chcago and New York on both gong
and return trps s sub|ect to ta . If because of weather or other emergency
the arcraft s forced, whe on the New York-Newfoundand eg of the ourney,
to and at oston, no ta Is mposed by reason of such emergency stop.
ampe 5. F purchases a tcket n Detrot for transportaton from Ottawa
to ancouver to onouu to Shangha. Ony the amount pad for trans-
portaton from Ottawa to onouu s sub|ect to the ta .
ampe 6. G charters a pane n New York for transportaton to ogota
and pays the charter charges n New York. The pane stops at Mam for
refueng. The ta attaches wth respect to that part of the transportaton
whch Is between New York and Mam
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165 Regs 3 (19 1), 101.0, etc
Pah. 23. Immedatey precedng renumbered secton 130.65, there s
nserted the foowng:
S C. 8. CIS T OF 19 7.

(c) ffectve wth respect to tckets sod or ssued on or after the frst
day of the frst month whch begns more than twenty days after the
date of the enactment of ths ct, secton 1806 of the Interna Revenue
Code (reatng to stamp tu on passage tckets) s hereby repeaed.
Par. 2 . Renumbered secton 130.65 s amended to read as foows:
Sec. 130.65. Stamp Ta Secton 55 (c) of the Revenue ct of 19 1 made
the stamp ta mposed under secton 1806 of the Interna Revenue Code, as
amended, on passage tckets sod or ssued n the Unted States for passage
on any vesse to any port or pace not n the Unted States, Canada, Me o.
Cuba, or Puerto Rco nappcabe where the amount pad for the tcket s sub-
|ect to the ta mposed under secton 3 69 of the Code. (See Subpart of
Reguatons 71.) y reason of secton 8(c) of the cse Ta ct of 19 7,
passage tckets sod or ssued on or after pr 1, 19 7, are not sub|ect to the
stamp ta mposed by secton 1806 of the Interna Revenue Code, rrespectve
of whether the amount pad therefor s sub|ect to the ta mposed under sec-
ton 3 69 of the Code.
ecause of the short perod of tme between March 11, 19 7, the
date of approva of the cse Ta ct of 19 7, and pr 1, 19 7.
the date on whch, pursuant to such ct, the amendment to secton
3 69 of the Interna Revenue Code becomes effectve, and because of
the technca nature of the amendments made heren, t s found that
t s mpractcabe and unnecessary to ssue ths Treasury decson
wth notce and pubc procedure thereon tnder secton (a) of the
dmnstratve Procedure ct, approved une 11, 19 6, or sub|ect
to the effectve date mtaton of secton (c) of sad ct.
Ths Treasury decson sha be efectve on pr 1,19 7.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n sectons 3791 and 3 72 of the Interna Revenue Code (53
Stat., 67, 23; 55 Stat., 722; 26 U. S. C. and Sup., 3791, 3 72).)
W|, T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved pr 18, 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 23, 19 7, 8. 8 a. m.)
T S ON DMISSIONS, DU S, ND INITI TION F S.
Reguatons 3 (19 1), Sectons 101.0 and 19 7-11-12559
101.1. T. D. 5562
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 101.
T S ON DMISSIONS, DU S, ND INITI TION F S.
Reguatons 3 (19 1 edton) amended to conform to the cse
Ta ct of 19 7 page 220, ths uetn .
Trf.asury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 3 (19 1 edton) 26 CFR, Part
101 , reatng to the ta es on admssons, dues, and ntaton fees
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Regs. 3 (19 1), 101.0, etc.
166
under the provsons of the Interna Revenue Code, to the cse Ta
ct of 19 7 (Pubc Law 17, ghteth Congress, frst sesson), ap-
proved March 11,19 7 page 220, ths uetn , such reguatons are
hereby amended as foows:
Paragraph 1. The words appearng n parenthess n the headng
begnnng Part 101 mmedatey precedng Subpart . Intro-
ductory, as amended by Treasury Decson 5385, approved une 30,
19 C. . 19 , 637 , are further amended to read as foows:
(Chapter 10 of the Interna Revenue Code as mended by the Revenue cts
of 19 1 and 19 2; and Chapter O of the Interna Revenue Code as
mended by the Revenue ct of 19 3, the Pubc Debt ct of 19 , and the
cse Ta ct of 10 7).
Par. 2. The frst sentence of the frst paragraph of secton 101.0. as
amended by Treasury Decson 5385 26 CFR, 101.0 , s further
amended by strkng out the word and mmedatey precedng the
Pubc Debt ct of 19 , changng the perod at the end of the sen-
tence to a comma and addng mmedatey thereafter the foowng:
and the cse Ta ct of 19 7.
Par. 3. Immedatey foowng the quotaton of secton 1655 nserted
by Treasury Decson 53 9, approved March 17,19 C. . 19 , 639
26 CFR, Part 101 , under Defntons n Subpart . Genera
Provsons there s nserted the foowng:
S C. 3. CIS T CT OF 19 7.
Sectons 1655 (defnton of date of the termnaton of
hosttes In the present war ) of such Code are hereby repeaed.
Par. . Secton 101.1, as amended by Treasury Decson 5385 26
CFR, 101.1 , s further amended as foows:
( ) y changng the thrd sentence of the second paragraph to
read as foows:
The amendments made by the Revenue ct of 19 1, and a subsequent amend-
ments reatve to these ta es ncudng, by reason of sectons 2 and 3 of the
cse Ta ct of 19 7, the amendments made by the Revenue ct of 19 3, as
amended by the Pubc Debt ct of 10 , appy ndefntey.
( ) y changng the frst sentence of the thrd paragraph to read
as foows:
The effectve date of the amendments made by the Revenue ct of 19 3, and of
the amendments of these reguatons pursuant to the Revenue ct of 19 3, s
pr 1, 19 .
Par. 5. Immedatev precedng each of the foowng sectons, . e.,
secton 101.2 26 CFR 101.2 . secton 101.7 26 CFR, 101.7 , secton
101.9 26 CFR, 101.9 , secton 101.13 26 CFR, 101.13 , and secton
101.22 26 CFR, 101.22 , there s nserted the foowng:
S C. 2. CIS T CT OF 10 7.
Secton 1650 of the Interna Revenue Code (war ta rates of certan
msceaneous ta es) s hereby amended by strkng out and endng on
the frst day of the frst month whch begns s months or more after the
date of the termnaton of hosttes n the present war .
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n secton 3791 of the Interna Revenue Code (53 Stat., 67; 26
U. S.C.,3791).)
ecause of the technca nature of the amendments made heren, t s
found that t s unnecessary to ssue ths Treasury decson wth notce
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167 Regs. 3 (19 1), 101.0, etc
and pubc procedure thereon under secton (a) of the dmnstratve
Procedure ct, approved une 11,19 6, or sub|ect to the effectve date
mtaton of secton (c) of sad ct.
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved May 16,19 7.
oseph . O Con e, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 21,19 7, 8. 6 a. m.)
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Regs. 71 (19 1), I 113.90. 168
ST MP T S.
INT RN L R NU COD .
Reguatons 71 (19 1), Secton 113.90: Scope 19 7-9-125 1
of ta . T. D. 5557
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 113
DOCUM NT RY ST MP T S.
Reguatons 71 (19 1 edton) amended to gve effect to repea of
secton 1806 of the Interna Revenue Code, reatng to the stamp ta
on passage tckets.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 71 26 CFR, Part 113 to secton
8(c) of the cse Ta ct of 19 7 (Pubc Law 17, ghteth Con-
gress, frst sesson), approved March 11,19 7 page 220, ths uetn ,
such reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
113.90 26 CFR, 113.90 the foowng:
S C. 8. CIS T CT OF 19 7.

(c) ffectve wth respect to tckets sod or ssued on or after the
frst day of the frst month whch begns more than twenty days after
the date of the enactment of ths ct, secton 1806 of the Interna
Revenue Code (reatng to stamp ta on passage tckets) s hereby
repeaed.
Par. 2. Secton 113.90 26 CFR, 113.90 s amended as foows:
( ) y nsertng mmedatey foowng the headng Scope of
Ta . the foowng:
(a) Termnaton date. ffectve wth respect to tckets sod or ssued on or
after the 1st (ay of the frst month begnnng more than 20 days after the date
of the enactment of the cse Ta ct of 19 7, secton 180(3 of the Interna
Revenue Code was repeaed by secton 8(c) of such ct. The ct was approved
March 11, 19 7, and therefore the ta on passage tckets and the reguatons
n ths part reatng to such tckets are nappcabe to such tckets sod or
ssued on or after pr 1,19 7.
( ) y nsertng mmedatey precedng the frst sentence of such
secton as t appeared pror to amendment by ths Treasury decson,
as the begnnng of the second paragraph of such secton, the
foowng:
(b) ppcaton of ta pror to the termnaton date.
ecause of the short perod of tme between the date of the repeang
ct and the effectve date of the repea, t s found mpractcabe to
ssue ths Treasury decson wth notce and pubc procedure thereon
under secton (a) of the dmnstratve Procedure ct, approved
une 11,19 6, or sub|ect to the effectve date mtaton of secton (c)
of sad ct,
Ths Treasury decson sha be effectve on pr 1,19 7.
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169
Regs. 59 (19 1), 323.32.
(Ths Treasury decson s ssued under the authorty contaned
n secton 3791 of the Interna Revenue Code (53 Stat. 67; 26
U. S. C, 3791).)
Wm. T. Sherwood,
ctng Commssoner of Interna Revenue.
pproved pr 11,19 7.
. L. M. Wggns,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster pr 18,19 7,8. 7 a. m.)
SP CI L T S OWLING LL YS, ILLI RD ND POOL T L S.
Reguatons 59 (19 1), Secton 323.32: Rate 19 7-11-12558
and computaton of ta . T. D. 5561
TITL 26 INT RN L R NU . C PT R I. SU C PT R C, P RT 323.
SP CI L T S WIT R SP CT TO COIN OP R T D MUS M NT ND G M-
ING D IC S, OWLING LL YS, ILLI RD T L S, ND POOL T L S.
Reguatons 59 (19 1 dton) amended to conform to the cse
Ta ct of 19 7 page 220, ths uetn .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 59 (19 1 edton) 26 CFR, Part
323 , reatng to speca ta es wth respect to con-operated amuse-
ment and gamng devces, bowng aeys, bard tabes and poo tabes
under the provsons of the Interna Revenue Code, to the cse Ta
ct of 19 7 (Pubc Law 17, ghteth Congress, frst sesson), ap-
proved March 11, 19 7 page 220, ths uetn , such reguatons are
amended as foows:
Paragraph 1. Immedatey precedng secton 323.10 26 CFR,
323.10 there s nserted the foowng:
S C. 3. CIS T CT OF 19 7.
Sectons 10.15 (defnton of date of the termnaton of
hosttes n the present war ) of such Code are hereby repeaed.
Par. 2. Immedatey precedng secton 323.30 26 CFR, 323.30
there s nserted the foowng:
CIS T CT OF 19 7.
Sec. 2. Secton f50 of the Interna Itevenue Code (war ta rates of
certan msceaneous ta es) Is hereby amended by strkng out and
endng on the frst cay of the frst month whch begns s months or
more after the date of the termnaton of hosttes n the present
war .
Sec. 5. Secton 302(b) (2) of the Revenue ct of 1913 (perod appca-
be to ncrease of ta wth respect to bard and poo tabes and bowng
aeys) s hereby amended by strkng out , and contnung through
une 30 ne t foowng the frst day of the frst month whch begns s
months or more after the date of the termnaton of hosttes n the
present war (as defned n Chapter 9 of the Interna Revenue Code) .
75 70 7 12
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Regs. 85, rt. 85.
170
Par. 3. Secton 323.32, as amended by Treasury Decson 53 , ap-
proved March 1 ,19 C. . 19 , 663 26 CFR, 323.32 , s amended
by strkng out the frst two sentences of the frst paragraph and n-
sertng n eu thereof the foowng:
The rate of ta s 20 per year for each bowng aey, bard tabe, or poo
tabe operated by the ta payer. Pror to uy 1, 19 , the rate of ta was 10 per
year for each such aey or tabe.
ecause of the technca nature of the amendments made heren, t
s found that t s unnecessary to ssue ths Treasury decson wth
notce and pubc procedure thereon under secton (a) of the dmns-
tratve Procedure ct, approved une 11, 19 6, or sub|ect to the effec-
tve date mtaton of secton (c) of sad ct.
Ths Treasury decson sha be effectve upon fng wth the Dv-
son of the Federa Regster.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n secton 3791 of the Interna Revenue Code (53 Stat., 67; 26
U. S. C.,3791).)
oseph D. Nt|nan, r.,
Commssoner of Interna Revenue.
pproved May 1 ,19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 16, 19 7, 9.12 a. m.)
S CTION 1805. SIL R ULLION.
Reguatons 85, rtce 85: edges aganst 19 7-9-125 2
saes from necessary nventory. T. D. 5556
TITL 26 INT RN L R NU . C PT R 1, SU C PT R C, I RT 112.
T ON TR NSF RS OF INT R STS IN SIL R ULLION.
Inventory repacements rtce 85(c), Reguatons 85, amended.
Treasury Department,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
Paragraph 1. Reguatons 85 26 CFR, Part 112 , reatng to the
ta on transfers of nterests n sver buon, but ony as prescrbed
and made appcabe to the Interna Revenue Code by Treasury Dec-
son 887, approved February 11, 1939 C. . 1939-1 (Part 1), 397
26 CFR, Cum. Sup.. Part 112, note , are amended as foows:
rtce 85(c), as amended by Treasury Decson 5298, approved
September 22,19 3 C. . 19 3,1185 26 CFR, 112.85 (c) , s further
amended by strkng from the ast sentence thereof that porton whch
reads as foows:
and unt the date on whch the Presdent procams the hosttes n the present
war have termnated,
Par. 2. ecause the soe purpose of ths Treasury decson s to
reeve restrcton, t s found that t s unnecessary to ssue such Treas-
ury decson wth notce and pubc procedure thereon under secton
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171
Regs. 85, rt. 85.
(a) of the dmnstratve Procedure ct, approved une 11,19 6, or
sub|ect to the effectve date mtaton of secton (c) of sad ct.
Par. 3. Ths Treasury decson sha be effectve upon ts fng for
pubcaton n the Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned
n secton 1805 of the Interna Revenue Code (53 Stat., 198; 26 U. S. C,
1805).)
ohn W. Snyder,
Secretary of the Treasury.
pproved pr , 19 7.
arry S. Truman,
The Whte ouse.
(Fed wth the Dvson of the Federa Regster pr 1 , 19 7, 8.59 a. m.)
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Regs. 73.
172
TO CCO.
Reguatons 73. 19 7- -12 93
T. D. 55 9
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 51.
PORT TION WIT OUT P M NT OF T OF TO CCO M NUF CTUR S,
TC.
stabshment of bonded nterna revenue tobacco e port ware-
houses.
Treasure Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned:
Reguatons 73 (26 CFR, Part 51) as prescrbed and made app-
cabe to the Interna Revenue Code by Treasury Decson 885,
approved February 11, 1939 C. . 1939-1 (Part 1), 396 (26 CFR,
Cum. Supp., note, 5876), are amended as foows:
The foowng s added after Subpart of Part 51:
Subpart F onded Interna Revenue Tobacco port
, Warehouses.
Secton.
51. 0. Tobacco e port warehouses.
51. 1. ppcaton to estabsh warehouse.
51. 2. Warehouse bond.
51. 3. Sgn.
51. . Requrements n regard to operaton.
51. 5. Propretor s account.
51. G. Deveres to warehouses by manufacturers.
51. 7. Recepts n warehouse.
51. 8. Credt for shpment by a manufacturer.
51. 9. Wthdrawas from warehouse.
51.50. Inspecton and report by deputy.
51.51. Deay n remova; canceaton of shpment.
51.52. Change n consgnee.
51.53. Remova and devery of shpment.
51.5 . Dsposton of copes of Form 550 by propretor of warehouse.
51.55. Return of shpment to warehouse.
51.56. Ta abty.
51.57. Credt for shpment.
51.58. Penates.
Secton 51. 0. Tobacco port Warehouses. Sub|ect to the ap-
prova of the Commssoner of Interna Revenue, bonded nterna
revenue warehouses may be estabshed for the purpose of e portng n
accordance wth the reguatons n ths subpart, unstamped (nonta -
pad) tobacco products receved from factores bonded and regstered
under the nterna revenue aws and reguatons.
Sec. 51. 1. ppcaton To stabsh Warehouse. ny person
desrng to estabsh a bonded tobacco e port warehouse under the
reguatons n ths subpart must make appcaton n wrtng to the
coector of nterna revenue of the dstrct n whch the warehouse
w be ocated, gvng the ocaton and a detaed descrpton of the
premses to be bonded and used.
The coector sha deta one of hs deputes to make an nspecton
of the partcuar premses ntended to be used as the bonded tobacco
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173
Regs. 73.
e port warehouse. The deputy sha furnsh a report showng the
partcuars reatng to the ocaton, constructon, and dmensons of
the budng n whch t s proposed to estabsh the bonded tobacco
e port warehouse. If ess than the entre budng w be used, the
deputy shoud show what room or rooms are ntended to be used as
the tobacco e port warehouse premses, the ocaton of a doors,
wndows, and other openngs n the space to be used, and report any
other facts to show the sutabty of the premses for the purpose
ntended.
The appcaton, as we as the report of the deputy makng the
nspecton of the premses of the proposed tobacco e port warehouse,
sha be forwarded to the Commssoner wth the recommendaton of
the coector, who w state whether n hs opnon there s |ustfcaton
for the estabshment of such a warehouse.
Sec. 51. 2. Warehouse ond. When an appcaton to estabsh
a bonded tobacco e port warehouse s approved by the Commssoner,
the appcant must furnsh to the coector a bond on Form 5 9
appropratey modfed. The bond sha be e ecuted n dupcate n
a pena sum suffcent to cover the amount of ta whch may at any
tme consttute a charge aganst the bond and n no case ess than
1,000. bond may be e ecuted n antcpaton of approva of the
appcaton and be transmtted to the coector wth the appcaton.
When the bond, n dupcate, s submtted to the coector, he sha,
f the bond meets wth hs approva, make endorsement to that effect
on both the orgna and dupcate of the bond and forward the dup-
cate copy to the Commssoner. onds requred under the regua-
tons n ths subpart may be e ecuted wth corporate surety or wth
at east two ndvdua suretes. If gven wth ndvdua suretes,
each such surety sha be requred to furnsh affdavt n dupcate
on Form 33, whch sha be attached to the orgna and dupcate of
the bond, respectvey.
If the prncpa on the bond s an ncorporated company, there sha
be submtted n dupcate wth the bond, copes of the by-aws or
resoutons showng what offcer or offcers are authorzed to sgn the
corporate name and aff the corporate sea, aso transcrpts n dup-
cate showng the eecton of offcers, or a statement n dupcate show-
ng that such documents have been fed prevousy n connecton wth
another bond, a fu descrpton of whch bond sha be gven. The
copes requred must be authentcated by an offcer of the corporaton
under sea.
The coector of nterna revenue for the dstrct n whch the
bonded tobacco e port warehouse s ocated sha prompty notfy
the Commssoner of Interna Revenue of the death, fnanca rre-
sponsbty, nsovency, or wthdrawa of any of the partes to the
bond, or of any crcumstances requrng a new bond to protect the
nterest of the Government.
The abty under a bond furnshed under the reguatons n ths
subpart sha be a contnung one, sub|ect to ncrease upon recept n
the warehouse of unstamped tobacco products from bonded nterna
revenue factores and to decrease as proof of e portaton herenafter
requred s receved by the coector of nterna revenue for the ds-
trct n whch the warehouse s ocated. When the mt of abty
under any bond has been reached, no further shpments of unstamped
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Regs. 73.
17
tobacco products sha be receved nto or wthdrawn from the ware-
house unt the abty has been reduced suffcenty by credts for
wthdrawas for whch satsfactory proof of e portaton s furnshed
or unt a new bond has been fed. teratons n the premses of a
bonded nterna revenue tobacco e port warehouse may be made ony
upon the approva of the coector, and wth the consent of the surety
on the bond. The coector sha assgn a number to each warehouse
n hs dstrct, begnnng wth No. 1.
Sec. 51. 3. Sgn. conspcuous sgn n the ngsh anguage
must be paced at the man entrance to each warehouse, n form as
foows:
onded Interna Revenue Tobacco port Warehouse No. ,
dstrct of
The sgn must show ceary the number of the warehouse and
nferna revenue dstrct.
Negect to keep ths sgn posted sha be suffcent ground for the
wthdrawa of the rght to contnue the operaton of the warehouse.
Sec. 51. . Requrements n Regard to Operaton. No ware-
house sha be used unt the appcaton to estabsh has been approved
by the Commssoner and the warehouse bond has been approved by the
coector. the doors, wndows, and other openngs of a bonded
nterna revenue tobacco e port warehouse must be secured by sats-
factory ocks or fastenngs when the warehouse s not n operaton.
The warehouse premses may be nspected by an nterna revenue
offcer at any tme. No shpment of nonta pad tobacco products con-
sgned to the warehouse sha be receved nto the warehouse unt the
coector has been notfed and a deputy s detaed by hm to supervse
recept of the shpment nto the bonded premses of the warehouse and
to e ecute the necessary certfcate of recept on the appcaton, Form
550, appropratey modfed by the manufacturer to cover the shp-
ment. No shpment of nonta pad tobacco products may be wth-
drawn from the warehouse for e port uness approved by the coector
and nspected and reeased by one of hs deputes as hereafter requred
by the reguatons n ths subpart. The propretor sha see to t that
a nonta pad tobacco products receved are propery and con-
venenty stored wthn the bonded premses of hs tobacco e port
warehouse and see that no artces other than tobacco products n-
tended for e port are kept n such warehouse. n nventory of the
tobacco products on hand n such warehouse may be taken at any tme
at the drecton of the coector or of the Commssoner. Unstamped
tobacco products devered to the e port warehouse, whch are found
stored outsde of the bonded premses of the warehouse wthout the
approva of the Commssoner sha be sub|ect to sezure for for-
feture to the Unted States. The deputes detaed to supervse
recepts of shpments nto the warehouse and to nspect and reease any
shpments to be wthdrawn therefrom sha report any rreguarty
to the coector.
bonded nterna revenue tobacco e port warehouse may be ds-
contnued upon appcaton of the propretor or ts rght to operate
may be termnated by the Commssoner for reasonabe cause.
Sec. 51. 5. Propretor s ccount. The propretor of a bonded
nterna revenue tobacco e port warehouse must keep an accurate
account, whch w show wth respect to each month a tobacco
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175
Regs. 73.
manufactures on hand at the begnnng of the month, receved, wth-
drawn for e port, or returned to manufacturers durng the month,
and on hand at the cose of the month. The propretor sha render
a statement, n dupcate, to the coector for the dstrct 0 1 or before
the 10th day of each month, showng the above nformaton for the
precedng month.
Sec. 51. 6. Deveres to Warehouses by Manufacturers. The
provsons of Subpart of ths part e cept as modfed by the prov-
sons of ths subpart appy to shpments of tobacco, snuff, cgars, or
cgarettes, wthout payment of ta , from a factory to a bonded nter-
na revenue tobacco e port warehouse for subsequent e portaton.
manufacturer desrng to make such shpments sha frst ftrnsh to
the coector of the dstrct n whch hs factory s ocated consent of
the surety on hs factory e port bond, Form 5 9, to make such shp-
ments. The consent of the surety must be fed n dupcate on Form
5 2, appropratey modfed n accordance wth nstructons from the
coector. . ach such wthdrawa must be made under an appcaton
on Form 550, modfed n conformty wth nstructons from the co-
ector. The manufacturer sha prepare the modfed appcaton,
Form 550, n trpcate and sha type on the reverse sde thereof or
attach thereto a certfcate readng as foows:
C RTIFIC T of recept.
I certfy that the tobacco manufactures heren descrbed, e cept as sted
beow, have ths day of , 19 , been receved n bonded
nterna revenue tobacco e port warehouse No. , dstrct of
, under my supervson for subsequent e portaton.
Dscrepances:
(Name.)
The manufacturer sha fe hs appcaton wth the coector of
nterna revenue for hs dstrct. If the coector approves of the
appcaton he w e ecute the Coector s Order to Deputy on
each copy and deta a deputy to nspect the shpment. The deputy
at the concuson of hs nspecton sha e ecute the Deputy s
Report on each copy of the appcaton, Form 550, and sha return
one copy of the appcaton to the coector and dever the other
two copes to the manufacturer.
The manufacturer sha compete the copes of the appcaton,
Form 550, devered to hm by the deputy, to show date of remova
of the shpment and sha transmt both copes of the competed form
to the propretor of the warehouse to whch the shpment s made.
The responsbty for the devery to a bonded nterna revenue
e port warehouse of a shpment removed from the factory under
the reguatons n ths subpart sha rest upon the manufacturer
makng the wthdrawa, who w be abe for the nterna revenue
ta on tobacco products shpped or devered otherwse than n
accordance wth the reguatons n ths subpart.
Sec. 51. 7. Recepts n Warehouse. The coector of nterna
revenue for the dstrct n whch the warehouse s ocated must be
notfed mmedatey by the propretor upon arrva of each shpment
of tobacco products at the warehouse n order that the coector may
deta one of hs deputes to check the shpment and supervse recept
nto the bonded premses of the warehouse. t the concuson of hs
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Regs. 73.
176
deta the deputy sha e ecute the certfcate of recept on each copy
of the appropratey modfed Form 550 receved by the propretor of
the warehouse from the manufacturer and dever both competed
copes to hp coector. One copy of the Form 550 sha then be for-
warded prompty by the coector of the dstrct n whch the ware-
house s ocated to the coector of nterna revenue for the dstrct
from whch the shpment was made.
Sec. 51. 8. Credt for Shpment by a Manufacturer. Upon re-
cept of a copy of Form 550 e ecuted to show recept of the shpment n
the warehouse and where no dscrepancy or shortage s reported, the
coector of nterna revenue for the dstrct from whch the shpment
orgnated w enter the approprate credt n hs account kept wth
the manufacturer s e port bond, Form 5 9. In case a shortage s
reported, the coector w enter credt for the actua quantty receved
nto the warehouse and advse the manufacturer to tender at once
remttance of the ta due on the shortage reported.
Sec. 51. 9. Wthdrawas From Warehouse. The propretor
sha fe for each ntended wthdrawa from hs bonded nterna
revenue tobacco e port warehouse an appcaton on Form 550 appro-
pratey modfed n conformty wth nstructons from the coector
for hs dstrct. For shpments other than by parce post Form 550
sha be fed n trpcate and for shpments by parce post n dupcate.
number of separate parce post packages may be ncuded under one
appcaton, provded a st contanng a descrpton of each separate
parce covered by the appcaton s submtted wth each copy of the
appcaton. To factate the nspecton of such a parce post shp-
ment by the deputy, the parces shoud be grouped accordng to ther
sze and contents. ach appcaton sha be gven a sera number
by the propretor, begnnng wth No. 1 and commencng agan wth
No. 1 on uy 1 of each year. The copes of each appcaton must
bear the same sera number as the orgna, and the orgna and a
copes must be competey and egby fed n to show the nformaton
as requred on the form. The coector, f he approves of the app-
caton, sha e ecute hs order to hs deputy on a copes and dever
the copes to the deputy detaed to nspect the shpment and reease
t for e port.
Sec. 51.50. Inspecton and Report by Deputy. (a) Inspecton.
The deputy, upon recept of the copes of the appcaton on modfed
Form 550, wth the coector s order e ecuted thereon, sha nspect
the shpment to determne that t conssts of the cass and quantty of
merchandse as specfed n the appcaton and sha permt ony the
contaners or artces descrbed to be wthdrawn thereunder. Shppng
contaners sha not be cosed and fastened unt after ther contents
have been nspected and verfed by the deputy.
(b) Report. fter nspecton and verfcaton of the shpment have
been competed, and the shppng contaners have been made ready for
remova, the deputy sha f n and sgn hs report on each copy of the
appcaton, Form 550. The shpment sha then be reeased by the
deputy for remova from the warehouse for e port. The deputy sha
return one copy of the Form 550 to the coector of the dstrct at once,
and dever the other copes to the propretor or hs agent to be dsposed
of as herenafter requred.
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177
Rega. 73.
Sec. 51.51 Deay n Remova; Canceaton of Shpment. In
case a shpment s not removed from the bonded nterna revenue
tobacco e port warehouse wthn 10 days after beng nspected and
reeased by the deputy for that purpose, the propretor must advse
the coector of nterna revenue for the dstrct n whch the ware-
house s ocated as to the probabe date of remova. If the order for
shpment has been canceed, the propretor shoud so state and request
permsson to cance hs appcaton and retan the merchandse n the
stock n hs warehouse.
Sec. 51.52. Change n Consgnee. If, after nspecton and reease
by the deputy, but before remova of the shpment, the propretor for
good and suffcent reasons desres to change the name and address of
the consgnee, the propretor sha forward to the coector for cor-
recton and endorsement the copes of the Form 550 eft wth hm by
the deputy, accompaned by a etter settng forth hs reasons for the
change. ny other change wth respect to the shpment must be
approved by the Commssoner.
Sec. 51.53. Remova and Devery of Shpment. fter the shp-
ment has been reeased by the nspectng deputy for e port, the
shpment sha be handed by the propretor or hs agent as foows:
(a) If shpped other than by parce post. (1) If the warehouse
s ocated at the port of e portaton, the shpment sha be devered
drecty nto the custody of the proper customs offcer at the port for
customs nspecton, supervson of adng, and e portaton. (2) If
the warehouse s ocated esewhere than at the port of e portaton,
the shpment sha be consgned to the coector of customs at the port
of e portaton and sha be devered to the carrer for transportaton
to the port.
(b) Parce post shpments. Shpments ntended for e portaton
by parce post sha be presented drecty to the post offce by the
propretor or hs agent.
Sec. 51.5 . Dsposton of Copes of Form 550 by Propretor of
Warehouse. (a) If shpped other than by parce post. The severa
copes of the modfed appcaton, Form 550, devered by the deputy
to the propretor of the warehouse sha be dsposed of as foows:
(1) If the warehouse s ocated at the port of e portaton, the
propretor sha fe wth the coector of customs or customs offcer n
charge, at east s hours pror to adng, two copes of the Form 550.
One copy competed by the customs authortes at the port to show
nspecton and adng, and cearance or e portaton of the reated
shpment sha be fed wth the coector of nterna revenue for the
dstrct n whch s ocated the tobacco e port warehouse from whch
the shpment was made for e port. The other copy of the Form 550
w be retaned by customs.
(2) If the warehouse s ocated esewhere than at the port of e -
portaton, the propretor sha, after devery of the shpment to the
common carrer, forward to hs agent at the port of e portaton the
two copes of the reated Form 550, whch must reach the agent n
suffcent tme for hm to fe them wth the coector of customs or the
customs offcer n charge at the port at east s hours pror to adng.
The agent w see that Form 550 s fed n to show the name of the
e portng vesse and the pace or per where the shpment s to be
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Regs. 73.
178
aden and w subscrbe hs name as e porter. In the case of e -
portaton to a contguous foregn country by ra or ar through a
border port, the propretor of the warehouse w forward the two
copes of Form 550 to the coector of customs or customs offcer n
charge of the border port through whch the shpment w cear the
Unted States.
(b) Shpments by -parce post. If the shpment s to be made by
parce post, the propretor sha e ecute on each package n the shp-
ment a waver of hs rght to wthdraw the package from the mas
and then, at the tme of mang, present the orgna Form 550, wth
the st attached f a number of parces are covered by the Form 550
(see secton 51. 9), to the postmaster or hs agent for e ecuton of the
certfcate of mang, as provded for on the back of the Form 550.
The orgna Form 550 sha be forwarded prompty thereafter by the
propretor to the coector of nterna revenue for the dstrct n whch
the warehouse s ocated.
Sec. 51.55. Return of Shpment to Warehouse. If, after re-
mova, the propretor desres to return a shpment to the bonded
premses of hs tobacco e port warehouse, he must make appcaton
to the Commssoner for permsson to do so. The propretor must
dentfy the shpment, set forth where t has been snce t eft the ware-
house, where hed, and n whose custody t s at the tme of makng
appcaton, and the reasons for return. Permsson and approprate
nstructons must be receved from the Commssoner before the mer-
chandse s returned.
Sec. 51.56. Ta Labty. Responsbty for the proper e por-
taton to tobacco products wthdrawn from the warehouse under the
reguatons n ths subpart sha rest upon the propretor of the ware-
house makng the wthdrawa, and he w be abe for the nterna
revenue ta on the tobacco products shpped or devered otherwse
than n accordance wth the reguatons n ths subpart. .
Sec. 51.57. Credt for Shpment. Upon recept of a copy of the
appcaton, modfed Form 550, showng nspecton, adng, and
e portaton of a shpment under customs supervson, wth no ds-
crepancy or shortage reported, or n the case of a shpment made for
e port by parce post, upon recept of a copy of Form 550 wth cer-
tfcate of mang propery e ecuted, the coector of nterna revenue
sha enter the proper credt n hs account, Form 9 , kept wth the
bond of the propretor of the warehouse under whch the shpment
was wthdrawn. In case a shortage s reported, the coector sha
enter credt for the actua quantty of tobacco products e ported and
requre the propretor to pay the amount of ta due on the shortage
reported.
Sec. 51.58. Penates. Sectons 2160 and 2173 of the Interna
Revenue Code mpose severe penates for the possesson, use, or dea-
ng n, wthn the Unted States (ncudng ts Terrtores), of manu-
factured tobacco, snuff, cgars, and cgarettes upon whch the ta
propery due has not been pad. These provsons of aw appy to
tobacco products removed wthout payment of ta under the regua-
tons n ths subpart, and accordngy, any person possessng, usng,
or deang n such products otherwse than as authorzed by the regu-
atons n ths subpart may be sub|ect to the penates prescrbed n
such provsons of aw.
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Regs. 73.
Ths Treasury decson, beng a reef of restrctons wthn the
parenthetca e cepton to secton (c) of the dmnstratve Proce-
dure ct, sha be effectve upon ts fng for pubcaton n the
Federa Regster.
(Ths Treasury decson s ssued under the authorty contaned n
secton 2135 of the Interna Revenue Code (53 Stat., 23 ; 26 U. S. C,
2135).)
oseph D. Nun an, r.,
Commssoner of Interna Revenue.
pproved anuary 29, 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster February 3,19 7, 8.59 a. m.)
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F D R L FIR RMS CT. (1938)
19 7-12-12568
T. D. 556
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 315.
LIC NSING UND R T F D R L FIR RMS CT OF M NUF CTUR RS OF.
ND D L RS IN, FIR RMS OR MMUNITION.
Reguatons amended.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C, May 23,19 7.
To Coectors of Interna Revenue and Others Concerned:
In order to gve effect to the provsons of the ct approved March
10, 19 7 (Pubc Law 15, ghteth Congress, frst sesson), amendng
the Federa Frearms ct, as amended (52 Stat., 1250, 53 Stat., 1222;
15 U. S. C, 901-909), Treasury Decson 898, approved May 1, 19:39
C. . 1939-1 (Part 1), 36 , as amended by Treasury Decson 9 6,
approved September 23,1939 C. . 1939-2, 03 26 CFR, Part 315 ,
s further amended as foows:
Paragraph: 1. The statement at the begnnng of secton 315.0 26
CFR, 315.0 s amended to read as foows:
The Federa Frearms ct approved une 30, 1938, as amended ugust 6, 1939,
and March 10, 19 7 (52 Stat., 1250, 53 Stat., 1222; 15 U. S. C, 901-909; Pubc
Law 15, ghteth Congress, frst sesson), provdes:
Par. 2. The quotaton n secton 315.0 26 CFR, 315.0 of secton
1 (6) of the Federa Frearms ct s amended to read as foows:
(6) The term crme of voence means murder, mansaughter, rape, may-
hem, kdnapng, robbery, burgary, housebreakng; assaut wth ntent to k,
commt rape, or rob; assaut wth a dangerous weapon, or assaut wth ntent to
commt any offense punshabe by mprsonment for more than one year.
Par. 3. There s nserted mmedatey precedng the ast paragraph
of secton 315.0 the foowng:
Secton 1(8) of the Federa Frearms ct as above-quoted refects the amend-
ment made by the ct approved ugust 6. 1930 ( 53 Stat., 1222). and that amend-
ment s effectve as of ugust 6, 1939; and secton 1(6) of the Federa Frearms
ct as above-quoted refects the amendment made by the ct approved March 10,
19 7 (Pubc Law 15, ghteth Congress), and that amendment s effectve as
of March 10, 19 7.
(Ths Treasury decson s ssued under the authorty contaned n
secton 7 of the Federa Frearms ct (52 Stat., 1252: 15 U. S. C,
907).)
ecause the amendment made to the Federa Frearms ct by Pubc
Law 15, ghteth Congress, frst sesson, became effectve on March
10, 19 7, the date of enactment of such pubc aw, t s found that t
s mpractcabe to ssue ths Treasury decson wth notce and pubc
procedure thereon under secton (a) of the dmnstratve Procedure
ct, approved une 11,19 6, or sub|ect to the. effectve date mtaton
of secton (c) of sad ct.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster May 28,19 7, 9.01 a. m.)
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MISC LL N OUS RULINGS.
S L RY ST ILIZ TION.
19 7-7-12518
T. D.5553
TITL 29 L OR. C PT R III, P RT 1003 PROC DUR R L TI TO
D T RMIN TION T T S L RI S OR W G S SU CT TO T URISDICTION
OF T N TION L W G ST ILIZ TION O RD W R P ID IN CONTR -
NTION OF T CT OF OCTO R 2, 19 2, S M ND D.
Part 1003 added to provde procedure to mpement the functons
transferred to the Treasury Department by secton 10(b) of ecu-
tve Order 9800, dated December 12, 19 6 (11 F. R., 1 281), and
vested In the Commssoner of Interna Revenue by ths decson.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. C.
To Coectors of Interna Revenue and Others Concerned:
On ugust 28, 19 3, the conomc Stabzaton Drec tor promu-
gated amended reguatons reatng to wages and saares (8 F. R.,
119G0) by vrtue of the authorty vested n the Presdent by the ct
of October 2, 19 2, entted n ct to amend the mergency Prce
Contro ct of 19 2, to ad n preventng nfaton, and for other
purposes (Pubc, No. 729, Seventy-seventh Congress, second ses-
son C. . 19 2-2, 332 ), as amended by the Pubc Debt ct of 19 :5,
entted n ct to ncrease the debt mt of the Unted States, and
for other purposes (Pubc, No. 3 , Seventy-eghth Congress, frst
sesson), and vested n turn by the Presdent n the conomc Stab-
zaton Drector under ecutve Order 9328, dated pr 8, 19 3 (8
F. R., 681). These reguatons conferred on the Natona War Labor
oard, sub|ect to the provsons of sectons 1, 2, 3, , and 8 of Tte II
of ecutve Order 9250, dated October 3, 19 2 (7 F. R., 7871),
and e cept as otherwse provded n ecutve Order 9299, dated
February , 19 3 (8 F. R., 1669), prescrbng reguatons and pro-
cedure wth respect to wage and saary ad|ustments for empoyees
sub|ect to the Raway Labor ct, authorty to determne under ru-
ngs and orders ssued by t, whether any (a) wage payments, or ( )
saary payments not n e cess of 5,000 per annum to an empoyee
represented by a duy recognzed or certfed abor organzaton, or
not empoyed n a bona fde e ecutve, admnstratve, or professona
capacty are made n contraventon of the ct, or any rungs, orders,
or reguatons promugated thereunder. On December 31, 19 5, the
Presdent promugated ecutve Order 9672 (11 F. R., 221) estab-
(181)
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182
shng wthn the Department of Labor a oard to be known as the
Natona Wage Stabzaton oard, and provdng that the oard
sha have a the present powers, functons, and responsbtes of
the Natona War Labor oard reatng to the stabzaton of wages
and saares for the purpose of carryng out the ob|ectves authorzed
and drected by the mergency Prce Contro ct of 19 2, as amended,
and the Stabzaton ct of 19 2, as amended, n accordance wth the
poces and procedures provded by ecutve orders and reguatons
ssued pursuant to these cts. ecutve Order 9672 further pro-
vded that the presenty effectve rues, reguatons, procedures, and
orders of the Natona War Labor oard reatng to any functon
vested n the Natona Wage Stabzaton oard sha contnue to
be effectve n accordance wth ther terms. On December 12, 19 6,
the Presdent promugated ecutve Order 9809 (11 F. R., 1 281)
provdng that the Natona Wage Stabzaton oard s termnated
and that the functons heretofore vested n the oard pursuant to the
provsons of secton 5(a) of the Stabzaton ct of 19 2, as amended,
are transferred to the Department of the Treasury.
Paragraph 1. In the e ercse of the authorty conferred by ecu-
tve Order 9809 to determne whether saary or wage payments sub-
|ect to the |ursdcton of the Natona Wage Stabzaton oard
were made n contraventon of the ct of October 2,19 2. as amended,
the Commssoner of Interna Revenue hereby adopts the procedure
set out n 29 CFR, Part 1002, Subpart (T. D. 5 16 C. . 19 . 7171;
9F. R., 13195).
Par. 2. For the purposes of ths part, the sectons of Part 1002,
Subpart , numbered from 1002.36 to 1002. 6, ncusve, sha be
numbered as foows:
1003.1. Premnary nvestgaton.
1003.2. Submsson of report.
1003.3. Premnary notce.
1003. . Fna notce.
1003.5. Notce of hearng.
1003.6. earng offcer.
1003.7. Conduct of hearng.
1003.8. Fndngs of fact and recommendatons.
1003.9. Determnaton by the Commssoner.
1003.10. Petton for reconsderaton.
1003.11. Determnaton of contraventon.
and the word saary wherever t appears sha be read as saary or
wage.
Ths Treasury decson sha be effectve upon fng for pubcaton
wth the Federa Regster.
oseph D. Nunan, r.,
Commssoner of Interna Revenue.
pproved March 7, 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 12, 19 7, 8.58 a. m.)
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Msc.
F D R L LCO OL DMINISTR TION CT.
19 7-G-12507
T. D.5550
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 171.
MISC LL N OUS R GUL TIONS R L T D TO LI UOR.
mendng basc permt procedure under Federa coho dmns-
traton ct.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
The foowng amendments of Part 171 are made by vrtue of and
pursuant to the provsons of the Federa coho dmnstraton ct,
as amended (U. S. C, Tte 27, Chapter 8), secton 3170 of the Interna
Revenue Code (53 Stat., Part 1), secton 161 of the Revsed Statutes
(U. S. C, Tte 5, secton 22), and the dmnstratve Procedure ct
(Pubc Law 0 , Seventy-nnth Congress). These amendments are
ssued wthout compance wth the notce, pubc rue makng pro-
cedure, and effectve date requrements of the dmnstratve Pro-
cedure ct, such requrements beng found mpractcabe and contrary
to the pubc nterest n ths case for the reason that the mmedate
ssuance of the amendments s necessary for the conduct of proceedngs
reatng to the ssuance, amendment, dena, revocaton, suspenson,
and annument of basc permts as requred by the dmnstratve
Procedure ct (Pubc Law 0 , Seventy-nnth Congress).
Paragraph (c) of secton 171. d s revoked.
Secton 171. c, and the frst paragraph and paragraphs (d) and
(e) of secton 171. d are amended.
The amended paragraphs sha read as foows:
Sec. 171. c. Deegaton of Functons. The power and duty heretofore vested
n the Deputy Commssoner of the ureau of Interna Revenue n charge of the
coho Ta Unt and n dstrct supervsors of the coho Ta Unt, by Treasury
Department Order No. 30, dated une 12, 19 0 T. D. 97 , C. . 10 0-1, 269
(28 CFR, Cum. Supp. 171. a), and Treasury Decson 982 C. . 19 0-2, 26
(26 CFR, Cum. Supp. 171. a), respectvey, to ssue, amend, deny, suspend, revoke,
and annu basc permts under the provsons of the Federa coho dmnstra-
ton ct, are hereby deegated as foows :
(1) The Commssoner of Interna Revenue may Issue, amend, deny,
suspend, revoke, and annu basc permts;
(2) ny ssstant Commssoner of Interna Revenue, when desgnated to
do so by the Commssoner, upon consderaton of appeas and pettons for
revew, may order the dstrct supervsor to ssue, deny, suspend, revoke, and
annu basc permts.
(3) The Deputy Commssoner n charge of the coho Ta Unt, upon
consderaton of appeas and pettons for revew, may order the dstrct
supervsor to ssue, deny, suspend, revoke, and annu basc permts;
( ) Dstrct supervsors of the coho Ta Unt may ( ) ssue, and amend
e cept as to agency ntated curtament, basc permts, and (6) deny app-
catons for nta (orgna) basc permts and amendments of such permts;
(5) earng e amners may (a) make recommended decsons grantng
or denyng appcatons for nta (orgna) basc permts and amendments
of such permts, and (6) render decsons suspendng, revokng (n whoe
or n part), and annung basc permts.
Where, upon appea, the decson of an e amner denyng, suspendng, revokng,
or annung a basc permt, s affrmed, such acton sha not supersede the de-
cson of the e amner and such e amner s decson sha be the fna decson.
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18
Sec. 171. d. Pbocedube. cept as otherwse provded heren, the procedure
prescrbed by Reguatons 3, Industra coho, as amended (26 CFR, Part 182),
for the ssuance, amendment, and dena of permts, ssuance of ctatons, hodng
of hearngs, revocaton of permts, and appeas to the Commssoner under Part
II of Subchapter C of Chapter 26 of the Interna Revenue Code, s hereby e tended
to the ssuance, amendment, dena, revocaton, suspenson, and annument of
basc permts under the Federa coho dmnstraton ct, n so far as
appcabe and n so far as such procedure s not n confct wth the provsons
of such ct: Provded, That the tme and pace of the hearng sha be f ed by
the Commssoner or the dstrct supervsor, wthout regard to the mtatons
specfed n Reguatons 3 (26 CFR, Part 182), but wth due regard to the con-
venence and necessty of the partes or ther representatves: Provded further.
That such tme and pace may for good cause be changed thereafter by the
e amner. ppeas to the Commssoner from orders denyng permts sha be
taken n conformty wth the procedure appcabe to appeas from orders revokng
basc permts.

(d) Upon wrtten appcaton, the attendance and testmony of any person,
or the producton of documentary evdence, n proceedngs nsttuted under ths
secton may be requred by persona subpena (Form 16 ) or by subpena duces
tecum (Form 16 5). Subpenas may be ssued by the Commssoner, or the hear-
ng e amner, or any person desgnated by them. oth the appcaton and the
subpena sha set forth the tte of the proceedngs, the name and address of the
person whose attendance s requred, the date and pace of hs attendance, and,
f documents are requred to be produced, a descrpton thereof; and the appca-
ton sha set forth suffcent facts to show the reevancy of the testmony and
documents.
(e) Te Commssoner or the hearng e amner may order the takng of depos-
tons n the proceedngs at such tme and pace as he may desgnate before a
person havng the power to admnster oaths. The testmony sha be reduced
to wrtng by the person takng the deposton, or under hs drecton, and the
deposton sha be subscrbed by the deponent uness the subscrbng thereof
s waved n wrtng by the partes. ny person may be subpenaed to appear
and depose and to produce documentary evdence n the same manner as wtnesses
at hearngs.

oseph D. Nunan, r.,
Commssoner of Interna Revenue.
pproved March 5,19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 10, 19 7, 8. 6 a. m.)
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185
Regs. 3, 182.7c.
INDUSTRI L LCO OL.
Reguatons 3, Secton 182.7c: mergency 19 7-8-12530
producton of sugars and srups n n T. D. 555
dustra pants.
TITL 26 INT RN L R NU C PT R I, SU C PT R C, P RT 182.
INDUSTRI L LCO OL.
mendng Reguatons 3.
Treasury Department,
Offce of Commssoner of Interna Revenue,
Wa-sh/nyton 26, D. C.
To Dstrct Supervsors and Others Concerned:
1. The ct of February 1, 19 7 (Pubc Law 2, ghteth Con-
gress page 219, ths uetn ) amends secton 312G(a) of the Interna
Revenue Code (reatng to emergency producton of sugars and srups
n ndustra acoho pants) by strkng out February 1, 19 7, and
nsertng n eu thereof pr 30, 19 8.
2. Pursuant to the foregong provson of aw and sectons 3105,
312 (a), and 3176, Interna Revenue Code, rtce of Reguatons
3 (26 CFR, Part 182) s hereby amended by addng after secton
182.7b a new secton, 182.7c.
3. Notce and pubc procedure under secton , dmnstratve
Procedure ct, are found to be mpractcabe and unnecessary n con-
necton wth the ssuance of these reguatons for the reasons that (1)
the statute whch the reguatons are desgned to mpement merey
e tended the e praton date of pror temporary emergency egsa-
ton; (2) the statute was approved on the day foowng the e pra-
ton date of such pror egsaton; and (3) the reguatons are n
substance and effect the same as the reguatons whch mpemented
the pror egsaton. It s aso found necessary to make these regu-
atons mmedatey effectve to permt the benefcares of the
egsaton to quafy thereunder and avod confuson n conductng 1
operatons and keepng records.
Sec. 182.7c. mkbkrct Producton of Su.ars and Srups n Industra
coho Punts. Notwthstandng the provsons of secton 1S2.7, or other
provsons of these reguatons, unt pr 30, 19 8, sugars and srups from
potatoes and from hgh mosture or damaged gran may be produced n n-
dustra acoho pants smutaneousy wth, or aternatey wth, the producton
of acoho. ny propretor of an ndustra acoho pant ntendng to produce
such sugars and srups sha submt n accordance wth these reguatons a
suppementa appcaton. Form 1 31, to cover the use of the premses for that
purpose unt December 31, 19 7, and sha kewse submt a suppementa
appcaton to cover the use of the premses for that purpose from anuary 1,
19 8, to pr 29, 19 8, ncusve. The appcaton sha ncude a statement of
the equpment and the process to be used n producng such sugars and srups
and sha be accompaned by an approprate consent of surety, Form 1533, e e-
cuted n accordance wth these reguatons. Upon approva of such appcaton,
the dstrct supervsor sha ssue an amended permt, Form 1 . .3, to aow use
of the premses n accordance wth the suppementa appcaton. The pro-
pretor sha prepare each month and attach to hs monthy report on Form
1 2 a separate report showng a potatoes and hgh mosture or damaged gran
used day n the producton of sugars and srups by pounds and the quantty n
The-astersk ( ) at the end of the secton refers to sectons 3105, 312 (a), and 3176,
Interna Revenue Code.
75 70 7 -13
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Reus. 3, 182.220, etc.
186
pounds of sugars and srups produced and removed each day from the premses.
Ths report sha be deemed a part of Form 1 2. such materas receved
on the premses sha be reported n the reguar matera summares of Forms
1 2 and 1 52- and upon ther use under ths secton, sha be reported at a
speca ne n the summares as transferred for use n the producton of sugars
and srups. contaners of sugars and srups removed from the premses
must be abeed to show the nature of the contents and the name and address of
the manufacturer. The operatons authorzed heren sha be conducted n a
manner consstent wth the provsons of these reguatons. Ths secton sha
cease to be n force and effect after pr 29, 19 8. ( ; Sec. 3126, I. R. C.)
os rn D. Nt|nan, r.,
Commssoner of Interna Revenue.
pproved March 2 , 19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 27, 19 7, 8. 9 a. m.)
Reguatons 3, Sectons 182.220,182.222, etc. 19 7-6-12508
T. D. 5551
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 182.
INDUSTRI L LCO OL.
mendng Reguatons 3.1
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton 5, D. C.
To Dstrct Supervsors and Others Concerned:
Pursuant to sectons 311 , 3121(b), and 3176, Interna Revenue
Code, and sectons 5, 6, 7, 8, 9, 10, and 12 of the dmnstratve Pro-
cedure ct (Pubc Law 0 , Seventy-nnth Congress), Reguatons
3, Industra coho (26 CFR, Part 182), are hereby amended n
the foowng respects:
1. The foowng sectons are amended:
Sectons 182.220, 182.222. 182.22 , 182.225, 182.231, 182.235, 182.238,
182.239,182.2 1,182.2 2,182.2 3,182.2 5,182.2 7,182.2 8 ( ), 182.2 9,
182.250,182.253,182.25 ,182.255,182.256,182.257,182.258,182.282 (d),
182.292(a), and
2. The foowng new sectons are added:
Sectons 182.220a, 182.220b, 182.22 a, 182.2 0a, 182.2 0b, 182.250a,
182.252a, 182.257a, 182.257b, 182.257c.
The purpose of these amendments s (1) to provde for hearng, or
opportunty for hearng, pror to dsapprova of appcatons for per-
mts, and (2) to revse the ureau s hearng procedure to conform
to the provsons of the dmnstratve Procedure ct.
The effect of the amendments s that
1. ppcants for permts sha be afforded a hearng, or opportunty
for hearng, pror to dsapprova of ther appcatons.
2. Where the permt covers an actvty of a contnung nature and
the permttee has, n accordance wth the reguatons, fed a tmey
and suffcent appcaton for renewa of the permt or for a new permt
The astersk at the end of sectons refers to sectons 3105. 312 (a)(6), and 3176,
Interna Revenue Code.
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187
Regs. 3, 182.22U, etc.
and such appcaton has not been fnay acted upon by the Comms-
soner or the dstrct supervsor before the date of e praton specfed
n the permt, such permt sha contnue n force unt fna acton
s taken upon the appcaton.
3. earng offcers, desgnated e amners, w be apponted by the
Commssoner of Interna Revenue and, n the performance of ther
dutes as e amners, sha be responsbe to and sub|ect to the super-
vson and drecton of the Commssoner ony.
. cept as provded n secton 182.239 ( ), e amners may not
dscuss facts n ssue; and the decson that the permt be revoked,
or the proceedngs dsmssed, w be made by the,e amner or the
Commssoner, nstead of by the dstrct supervsor as heretofore.
5. The permttee or the dstrct supervsor may appea the de-
cson of the e amner to the Commssoner, but the permttee may
appy to the Federa court for revew of the e amner s decson, as
provded by aw, wthout appea to the Commssoner.
6. cept n cases of wfuness or where the pubc nterest re-
qures otherwse, the permttee must be afforded an opportunty to
demonstrate or acheve compance wth a awfu requrements
pror to the ssuance of ctaton for revocaton of hs permt.
7. The permttee must be afforded an opportunty for the sub-
msson of facts, offers of settement, or proposas of settement to
the dstrct supervsor, or other offcer desgnated by the dstrct
supervsor pror to the hearng for revocaton of hs permt, where
tme, the nature of the proceedng, and the pubc nterest permt.
8. The Deputy Commssoner n charge of the coho Ta Unt
w revew the e amner s decson, on appea or petton for revew,
uness such Deputy Commssoner engaged n the nvestgaton or
prosecuton of the case, or the Commssoner of Interna Revenue
desgnates an ssstant Commssoner to revew the e amner s
decson. In the event the Deputy Commssoner has engaged n
the nvestgaton or prosecuton of the case, he w n wrtng so
state and refer the case to the Commssoner for approprate acton.
The ssstant Deputy Commssoners, coho Ta Unt, may engage
n the nvestgaton and prosecuton of cases, and may dscuss wth
dstrct supervsors and others, but not the Deputy Commssoner,
cases on appea, or proposed to be appeaed, from the decsons of
the e amners.
It s found that compance wth the notce, pubc rue makng
procedure, and effectve date requrements of the dmnstratve
Procedure ct (Pubc Law 0 , Seventy-nnth Congress) s m-
practcabe and contrary to the pubc nterest for the reason that
the mmedate ssuance of these rues s necessary for the conduct
of proceedngs reatng to the dena and revocaton of basc permts
as requred by the dmnstratve Procedure ct (Pubc Law 0 ,
Seventy-nnth Congress).
The amended and new sectons sha read as foows:
rtce II. earngs on Dsapprova of ppcatons.
Seo. 182.220. Notce or Contempated Dsapprova of ppcaton. If upon
e amnaton of an appcaton for a basc permt, the dstrct supervsor has
reason to beeve that the appcant s not entted to such permt, as provded n
rtce II, he sha serve notce upon the appcant, settng forth the grounds
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Regs. 3, 182.220, etc.
188
upon whch dsapprova of hs appcaton s contempated. Servce of notce sha
be In accordance wth the procedure prescrbed n secton 182.2 for servce of
ctaton. ( ; Sec. 311 , I. R. C.)
Sec. 182.220a. ppcaton for earng. The appcant may fe appcaton In
wrtng wth the dstrct supervsor, wthn 15 days after recept of notce of
contempated dsapprova n whoe or n part of hs appcaton, for a hearng In
support of hs appcaton. ( ; Sec. 311 , I. R. C.)
Sec. 182.220b. Nonrequest for earng. If the appcant does not request
a hearng wthn the tme specfed n secton 182.220a, or wthn such further
tme as the dstrct supervsor n hs dscreton may aow, the dstrct supervsor
w, by order, dsapprove the appcaton, statng the fndngs whch are the bass
for hs order, and sha furnsh an orgna copy of such order to the appcant.
( ; Sec. 311 , I. R. C.)

Sec. 182.222. Proof. t such hearng the burden of proof sha be on the
appcant, but there sha be ncorporated n the record of the proceedngs the
testmony, reports, affdavts, and other documents upon whch the dstrct
supervsor-based hs contempated dsapprova of the appcaton. If requested,
the appcant sha be permtted to nspect a copy of the record of the proceedngs,
or furnshed wth copes thereof upon payment of the costs prescrbed n secton
182.252a (1). ( ; Sec. 311 , I. R. C.)

Sec. 182.22 . earngs. earngs on contempated dsapprova of appcaton
sha be governed n so far as appcabe by the provsons of rtce III of
these reguatons: Provded, That the e amner who presdes at the hearng sha
recommend a decson to the dstrct supervsor, who sha make the decson as
provded n secton 182.22 a. ( ; Sec. 311 . I. R. C.)
Sec. 182.22 a. cton by Dstrct Supervsor. -If the dstrct supervsor, after
consderaton of the record of evdence taken at the hearng, approves the fnd-
ngs, concusons, and recommended decson of the e amner, he sha approve or
dsapprove the appcaton n accordance therewth. If he dsapproves such
fndngs, concusons, and recommended decson, he sha make such fndngs and
order as, n hs opnon, are warranted by the aw and facts of the case. ( ;
Sees. 811 , 3170, I. R. C.)
Sec. 182.225. pp|caton for Reoonsuebaton ; ppea to the Comms-
soned. ppcaton for reconsderaton of the dsapprova of appcatons for
basc permts, and appeas for revew of the acton of the dstrct supervsor n
dsapprovng appcatons for basc permts, sha be fed n the manner and
wthn the tme specfed In sectons 182.255 and 182.257, respectvey, of these
reguatons, and sha be consdered n the manner specfed n sectons 182.255(6)
and S2.257b. ( ; Sec. 311 , I. R. C.)
rtce III. asc Permts.

ssuance of orgna basc permts.

Sec. 182.231. Duraton of Permts. basc permts ssued pursuant to the
provsons of these reguatons sha reman n force durng the caendar year
In whch ssued, uness vountary surrendered, revoked, or otherwse termnated,
as provded n these reguatons, e cept that any permt ssued after ugust 31
of any caendar year sha e pre on December 31 of the succeedng caendar
year, uness otherwse provded n the permt: Provded, That f the permt covers
an actvty of a contnung nature and the permttee has, n accordance wth
the reguatons, fed a tmey and suffcent appcaton for renewa of the permt
or for a new permt and such appcaton has not been fnay acted upon by the
Commssoner or the dstrct supervsor before the date of e praton specfed
n the permt, such permt sha contnue n force unt the appcaton s fnay
determned: Provded further. That permts ssued to the Unted States or any
governmenta agency thereof, to procure and use ta -free or specay de-
natured acoho sha reman n force unt surrendered or canceed. ( ; Sec.
311 , I. R. C; Sees. 9(b), 12, Pubc Law 0 , Seventy-nnth Congress.)

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189
Regs. 3, 182.220, etc.
e praton and termnaton.
Sec. 182.235. Date Specfed. basc permts ssued pursuant to the pro-
vsons of these reguatons sha e pre on the date specfed theren, e cept as
heren provded. ( ; Sec. 311 , I. R. C.; Sees. 9(b), 12, Pubc Law 0 , Seventy-
nnth Congress.)

R OC TION.
Sec. 182.238. y Whom May be Revoked. The authorty and power of re-
vokng basc permts ssued pursuant to the provsons of these reguatons s
conferred upon the Commssoner and upon the hearng e amners apponted
pursuant to secton 182.239(a). ( ; Sees. 311 , 3121(b), 3170, I. R. C.; Sees. 7,
8, 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.239. earng amners. There sha presde at the hearng for
the takng of evdence, one or more hearng offcers desgnated as e amners.
The functons of a offcers presdng at hearngs or partcpatng n decsons
sha be conducted n an mparta manner. ny such offcer sha, at any tme,
wthdraw as e amner n any case f he deems hmsef dsquafed; and, upon
the fng n good fath of a tmey and suffcent affdavt of facts showng
persona bas or facts otherwse warrantng the dsquafcaton of any such
offcer, the Commssoner, upon appea as provded n sectons 182.257, 182.257a,
and 182.257b, sha, f the e amner fas to so dsquafy hmsef, determne
the matter as a part of the record and decson n the case. If he decdes that
the e amner shoud have decared hmsef dsquafed and wthdrawn from
the case, he w, uness the respondent desres decson on the record as made,
remand the record for hearng de novo before another e amner. If the Com-
mssoner shoud decde aganst the dsquafcaton of the e amner, the case
w be revewed on ts merts as a case on appea.
(a) ppontment and responsbty. The Commssoner sha, n wrtng,
desgnate and appont such number of e amners as may be necessary to conduct
bearngs n the dena of appcatons for permts and the suspenson, revocaton,
and annument of permts. The e amners sha be under the admnstratve
contro of the Commssoner. They sha be responsbe for the conduct of hear-
ngs and sha render ther decsons as soon as possbe after the hearng s
cosed. amners sha aso be responsbe for the preparaton and forwardng
of reports of hearngs, and the admnstratve work reatng thereto, and, by
arrangement wth dstrct supervsors and representatves of the Chef Counse,
sha have access to factes and temporary use of personne at such tmes and
paces as are needed n the prompt dspatch of offca busness. The e amners
sha perform no dutes nconsstent wth, or whch w nterfere wth, ther
dutes and responsbtes as e amners. amners may be assgned dutes not
nconsstent wth the performance of ther functons as e amners.
(6) Separaton of functons. Save to the e tent requred for the dsposton
of e parte matters, as authorzed by aw, e amners sha not consut any person
or party on any fact n ssue, uness after notce a partes are permtted to
partcpate; nor sha such offcers be responsbe to or sub|ect to the supervson
or drecton of any offcer, empoyee, or agent engaged n the performance of
nvestgatve or prosecutng functons for any agency. To ths end, e amners
sha be responsbe to and sub|ect to the supervson or drecton of the Com-
mssoner ony. No offcer, empoyee, or agent engaged n the performance of
nvestgatve or prosecutng functons for any agency n any case sha, n that
or a factuay reated case, partcpate or advse n the e amner s or Com-
mssoner s decson, or n the agency revew on appea as provded n secton
182.257b, e cept as a wtness or counse n the proceedngs. The e amner may
not nformay obtan advce or opnons from the partes or ther counse, or
from any offcer or empoyee of the ureau, as to the facts or the weght or
nterpretaton to be gven to the evdence. The e amner may, however, n-
formay, obtan advce on matters of aw from offcers or empoyees of the
ureau who were not engaged n the performance of nvestgatve or prosecutng
functons n that or a factuay reated case. Ths mtaton does not appy to
the Commssoner, and the e amner may, at any tme, consut wth and obtan
nstructons from hm on questons of aw and pocy.
(c) earng powers. Offcers presdng at hearngs sha have authorty to
(1) admnster oaths and affrmatons, (2) rue upon offers of proof and receve
reevant evdence, (3) take or cause depostons to be taken whenever the ends
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Regs. 3, 182.220, etc.
190
of |ustce woud be served thereby, ( ) reguate the course of the hearng, (5)
hod conferences for the settement or smpfcaton of the ssues by consent of
the partes, (6) dspose of procedura requests or smar matters, (7) render
decsons n conformty wth secton 182.253, and (8) take any other acton
authorzed heren. ( ; Sees. 311 , 3121(b), 8170, I. R. C.; Sees. 5, 7, 8, 11, 12,
Pubc Law 0 , Seventy-nnth Congress.)

Sec. 182.2 0a. Oppobtunty foe Compance. cept n cases of wfuness or
those n whch the pubc nterest requres otherwse, and the dstrct supervsor
so fnds n hs ctaton or order to show cause, statng hs reasons therefor, no
permt sha be revoked, uness, pror to the nsttuton of proceedngs therefor,
facts or conduct warrantng such acton sha have been caed to the attenton
of the permttee by the dstrct supervsor n wrtng and the permttee sha
have been accorded an opportunty to demonstrate or acheve compance wth a
awfu requrements. If the permttee fas to meet a the requrements of the
aw and reguatons wthn such reasonabe tme as may be specfed by the
dstrct supervsor, proceedngs for revocaton of the permt sha be Intated
as herenafter provded. ( ; Sees. 311 , 3121(b), 3170, I. R. C; Sees. 9(b), 12,
Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.2 0b. Informa Settement. In a cases n whch a permttee s
cted to show cause why hs permt shoud not be revoked, he sha be afforded
opportunty for the submsson and consderaton of facts, arguments, -offers of
settement, or proposas of ad|ustment, where tme, the nature of the proceedng,
and the pubc nterest permt Suc submttas shoud be made to the dstrct
supervsor or other desgnated offcer. If proposas of settement are submtted,
and they arc consdered unsatsfactory, the dstrct supervsor, uness he deems
such course nadvsabe, sha nform the permttee of any condtons on whch
the voaton may be setted. Where necessary, the date of the hearng may be
postponed, pendng consderaton of such proposas, when they are made n good
fath and not for the purpose of deay.
(1) Notce of contempated acton. Where the dstrct supervsor beeves that
the matter may be setted nformay, . e., wthout forma revocaton proceedngs,
he sha, pror to the ssuance of ctaton, nform the permttee of the contempated
ssuance of an order to show cause why hs permt shoud not be revoked, and
that he s beng gven an opportunty for the submsson and consderaton of
facts, arguments, offers of settement, or proposas of ad|ustment. The notce
shoud Inform the permttee of the charges on whch the order to show cause
woud be based, f Issued, and afford hm a perod of 10 days from the date of
the notce, or such onger perod as the dstrct supervsor deems necessary, n
whch to submt proposas of settement to the dstrct supervsor or other desg-
nated offcer. Where nforma settement s not reached prompty because of
the nacton of the permttee or proposas are made for the purpose of deay,
ctaton sha ssue n accordance wth secton 182.2 2 and the hearng sha be
hed n accordance wth these reguatons.
(2) Lmtaton on nforma settement. Where the evdence s concusve
and the nature of the voaton Is such as to precude any settement short of
revocaton, or the voaton s of a contnung character that necesstates m-
medate acton to protect the pubc nterest, or where the dstrct supervsor
beeves that any nforma settement of the aeged voaton w not nsure
future compance wth the aw and reguatons, or n any smar case where
the crcumstances are such as to ceary precude nforma settement, and the
dstrct supervsor so fnds and states hs reasons therefor as provded n secton
182.210a, ho may restrct settement to that provded for n secton 182.2 8.
( ; Sec. 311 . I. R. C.; Sees. 5(b), 12, Pubc Law 0 . Seventy-nnth Congress.)
Sre. 182.2 1. Ctaton. ctatons for revocaton of permts must be sgned
by the Commssoner or dstrct supervsor, as the case may be. but the Com-
mssoner or dstrct supervsor may n wrtng desgnate any offcer under hs
|ursdcton to sgn hs name to any ctaton : Provded, That n no event sha
an e amner be requred to prepare or sgn a ctaton. ( ; Sees. 311 , 3121(b),
8170, I. R. C.; Sees. 5(c), 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.2 2. Form of Ctaton. The ctaton sha state (1) the tme,
pace, and nature of the hearng; (2) the ega authorty and |ursdcton
under whch the hearng s to be hed; and (3) the matters of fact and aw
asserte d. Item (1) sha be stated n accordance wth secton 182.2 3; Item
(2) sha cte the sectons of aw and reguatons reed upon for authorty
and ursdcton for the hearng; and tem (3) sha set forth fuy, In separate
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191
Regs. 3, 182.220, etc.
paragraphs, the matters of fact and aw consttutng voatons, specfyng
dates, paces, sectons of aw or reguatons voated, etc.
(a) Form 30. Ctatons, upon compant of persons other than the Com-
mssoner or dstrct supervsor, sha be ssued on Form 1 30, Order to Show
Cause why Permt Shoud not be Revoked, Copy of Compant ttached,
namng the companant, and there sha be attached thereto a copy of the
compant.
(6) Form 1 30- . If revocaton proceedngs are nsttuted at the nstance
of the Commssoner or dstrct supervsor, the order to show cause sha be
ssued on Form 1 30- , Order to Show Cause why Permt Shoud not be
Revoked.
(c) ecuton and dsposton. The order, Form 1 30 or 1 30- , sha be
e ecuted n quntupcate. The orgna copy w be served on the permttee,
one copy gven the e amner desgnated to conduct the hearng, one copy
paced n the offca fe contanng certfcate of manner of servce, one copy
ncuded n the record of the case, and the remanng copy w be paced n
the fe of such orders mantaned n the dstrct supervsor s offce. ( ; Sees.
311 , 3121(b), 3170, I. R. C; Sees. 5(a), 12, Pubc Law 0 , Seventy-nnth
Congress.)
Sec. 182.2 3. Tme anu Pace of earng. The ctaton sha, drect the
permttee to appear before a desgnated e amner at a tme and pace named
theren, to show cause why hs permt shoud not be revoked. The tme specfed
for the hearng sha not be ess than 15 days nor more than 30 days from the
date on whch such ctaton s served on the permttee, and the desgnated
pace of hearng sha be wthn the same Federa |udca dstrct, and wthn
50 mes of the pace where the acts consttutng the voaton are aeged to
have occurred. In f ng the tme and pace for the hearng, due regard sha
be had for the convenence and necessty of the partes or ther representatves,
sub|ect to the above statutory mtatons. The hearng may be waved by the
permttee, or contnued for cause or hed at another pace by agreement, n
wrtng, as provded n sectons 182.2- 8 and 182.2 9. ( .; Sec. 311 , I. R. C.;
Sees. 5(a), 12, Pubc Law 0 , Seventy-nnth Congress.)

Sec. 182.2 5. Suspenson or Wthdrawas ob Transportaton. fter cta-
ton for revocaton of basc permt has been ssued, wthdrawas of acoho or
specay denatured acoho by such permttee may, n the dscreton of the
dstrct supervsor or Commssoner who ssues the ctaton, be suspended or
restrcted o the quantty whch, together wth the quantty then on hand, s
necessary to carry on egtmate operatons under such permt. The dstrct
supervsor may. n restrctng the permttee to hs egtmate needs, refuse to
ssue ay purchase or wthdrawa permt. In the case of carrers, transporta-
ton of ta -free or specay denatured acoho by the carrer may be suspended
or restrcted to that whch s Intended for egtmate purposes ony. ( ; Sees.
311 , 3121(b), 3170, I. R. C.)

Sec 182.2 7. Tme of Fng greements or Wavers. Whenever practcabe
to do so, wavers of the hearng, or agreements changng the pace, or post-
ponng the tme of the hearng, sha be fed wth the e amner wthn 10 days
after the servce of ctaton, uness the e amner e tends such perod of tme.
( ; Sec. 311 , I, R. C.; Sees. 7(b), 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.2 8. Waver of earng.

(6) Surrender before ctaton. If a permttee surrenders hs permt before
ctaton, n any case where the evdence, n the opnon of the dstrct supervsor
or Commssoner, warrants ctaton for revocaton, such ctaton sha be ssued
and the permttee sha at the same tme be notfed that he may fe a forma
waver, as above provded. Shoud such forma waver not be fed after notce,
the e amner w proceed wth the hearng on ctaton, as provded for heren.
( ; Sec. 311 ,1. R. C.; Sees. 7,12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.2 9. earng. Uness the hearng s waved by the permttee, or post-
poned, or transferred to another pace, by a wrtten agreement sgned by the
permttee, or hs attorney, and the attorney representng the Unted States and
approved and fed by the e amner, or the Commssoner, or uness the hearng
s postponed or transferred (sub|ect to the statutory mtatons) by order of
the e amner, or the Commssoner, for good cause shown by ether party, It
sha be hed at the tme and pace stated In the ctaton, by the e amner named
n the ctaton, or any other duy desgnated and apponted e amner assgned
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Regs 3, 182.220, etc.
192
to hod such hearng ( ; Sees. 811 , 3121(b), 3170, I. R. C; Sees. 7, 12, Pubc
Law 0 , Seventy-nnth Congress.)
Sec. 182.250. vdence at earng. cept as otherwse provded by statute,
the proponent of an order sha have the burden of the proof. ny ora or
documentary evdence may be receved, but rreevant, mmatera, or unduy
repettous evdence sha be e cuded. No sancton sha be mposed or order be
ssued e cept upon consderaton of the whoe record or such portons thereof
as may be cted by any party and as suported by and In accordance wth reabe,
probatve, and substanta evdence. very party sha have the rght to present
hs ease or defense by ora or documentary evdence, to submt rebutta evdence,
and to conduct such reasonabe cross-e amnaton as may be requred for a fu
and true dscosure of the facts. The e amner sha, at the begnnng of the
hearng and throughout the proceedngs, requre that the partes attempt to
arrve at such stpuatons as w emnate the necessty of takng evdence
wth respect to facts concernng whch there s no substanta dspute. The ev-
dence ntroduced at the revocaton hearng on behaf of the Unted States or
the permttee may consst of affdavts, depostons, duy authentcated copes
of records and documents, and ora testmony of wtnesses. ffdavts are not to
be used f the persona attendance of the affant as a wtness s reasonaby possbe,
and the e amner may requre a showng that the persona attendance of the
affant s not reasonaby possbe before admttng an affdavt In evdence. When
the record s made to show that the persona attendance of the wtness s not
reasonaby possbe, or such wtness w not e ecute an affdavt or sgn a wrtten
statement, the offca report of the nvestgator or nspector of the resuts of
hs nvestgaton n that partcuar regard, ncudng any statements made to
hm, dentfed by hm as a wtness at such hearng, as havng been made Immed-
atey foowng the nvestgaton, may be ntroduced n evdence.
(a) Further evdence. efore cosng a hearng the e amner sha defntey
Inqure of each party whether he has any further evdence to offer, whch nqury
and the response thereto must be shown n the record. ( ; Sec. 311 , I. R. C.;
Sees. 7(c 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.250a. Proposed Fndngs and Concusons ; ceptons. Pror to
each decson of the e amner, or decson of the Commssoner upon appea, the
permttee sha be afforded a reasonabe opportunty to submt (1) proposed fnd-
ngs and concusons, or (2) e ceptons to the decsons of the e amner, and (3)
supportng reasons for such e ceptons or proposed fndngs or concusons. The
record sha show the rung upon each such fndng, concuson, or e cepton
presented. ( ; Sec. 311 , I. R. C.; Sees. 8(b), 12, Pubc Law 0 , Seventy-nnth
Congress.)

Sec 182.252a. Record. The transcrpt of testmony and e hbts, together
wth a papers and requests fed n the proceedng, sha consttute the e cusve
record for decson n accordance wth secton 182.253. Where the decson rests
on offca notce of a matera fact not appearng n the evdence n the record,
any party sha on tmey request be afforded an opportunty to show the con-
trary. copy of the record sha be avaabe for nspecton by the permttee or
hs attorney of record durng busness hours at the offce of the e amner or the
dstrct supervsor, or copes thereof may be procured upon payment of the costs
prescrbed n paragraph (1).
(1) Cost of copes of record. Copes of the record desred by the permttee or
hs attorney of record w be charged for at the owest prevang rates charged
by pubc reporters n the regon where the hearng s hed. Remttance sha be
by certfed check, casher s or treasurer s check drawn on a Natona or State
bank or trust company; or posta, bank, e press, or teegraph money order, made
payabe to Treasurer of the Unted States. Cash sha not be accepted under
any crcumstances. The e amner or dstrct supervsor, who furnshes the
copy or copes of the record and receves the remttance, sha e ecute a recept
therefor n dupcate and gve the orgna of the recept to the person from whom
the remttance s receved and pace the copy n the fe of the record. Dstrct
supervsors sha schedue such remttances and forward them to the proper
regona dsbursng offce for depost as Msceaneous Recepts. ( ; Sec. 311 ,
I. R. C.; Sees. 7(d), 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec 182.253. Fndngs and Decson of amner. Wthn a reasonabe tme
after the concuson of a hearng, the e amner sha render hs decson.
decsons sha become a part of the record and sha consst of (1) a bref state-
ment of the ssues of fact Invoved n the hearng; (2) a summary of the ev-
dence offered by both partes; (3) the e amner s fndngs and concusons, as
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193
Regs. 3, 182.220, etc.
we as the reasons or bass therefor, upon a the matera ssues of fact, aw,
or dscreton presented on the record; and ( ) the decson of the e amner.
Upon renderng hs decson, the e amner sha mmedatey transmt the entre
record of the case, ncudng hs decson, to the dstrct supervsor: Provded,
That the e amner sha send one copy of hs decson to the permttee and retan
one copy thereof for hs fes. ( ; Sec. 311 , I. R C.; Sees. 8, 12, Pubc Law 0 ,
Seventy-nnth Congress.)
Sec. 182.25 . Order Revokng Permt or Dsmssng Proceedngs. The dstrct
supervsor sha make an order revokng the permt or dsmssng the proceedngs
n accordance wth the e amner s fndngs and decson, uness he dsagrees wth
such fndngs and decson and fes a petton wth the Commssoner for revew
thereof, as provded n secton 182.257a. If the dstrct supervsor fes such pet-
ton, he sha wthhod Issuance of the order, pendng the Commssoner s decson,
upon recept of whch he sha ssue the order n accordance therewth. n
orgna copy of the order of the dstrct supervsor and of the Commssoner
upon revew, f any, sha be forwarded to the permttee or hs attorney of record
n the proceedngs.
(o) Notce to Commssoner. When the dstrct supervsor makes an order
revokng a permt, he w furnsh a copy of the order to the Commssoner.
Shoud such order be subsequenty set asde upon reconsderaton, or revew by a
court of equty, the dstrct supervsor w so advse the Commssoner. ( ; Sees.
311 , 3121(b), 3170, I. R. C.; Sees. 8,12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.255. Reconsderaton of Order Revokng Permt. (a) Tme for fng
appcaton. Wthn 20 days after an order s made by the dstrct supervsor
revokng a basc permt, the permttee may, f he desres, fe an appcaton wth
the e amner for a reconsderaton of such order, on one or more of the foowng
grounds :
(1) The order s contrary to aw or reguatons, or
(2) Is not supported by the evdence, or
(3) ecause of newy dscovered evdence whch the permttee wth
due dgence, was unabe to produce at the hearng.
If the appcaton s based on grounds (1) or (2), the permttee sha specfy
theren, by reference to the record, n what respects the order s contrary to aw
or s not supported by the evdence, as the case may be. If the appcaton s
based on ground (3), the permttee sha summarze theren the newy dscovered
evdence and set forth why he was unabe to produce such evdence pror to the
cosng of the record.
(6) Tme of hearng. The e amner, wth whom such appcaton s fed, may
hear the appcaton on a date and at a pace to be f ed by hm, and, after hearng
such appcaton, may ether affrm the decson of revocaton prevousy made,
or may vacate and set asde such decson and dsmss the proceedngs or ;order
a new or suppementa hearng of the evdence.
(o) Permt prveges. Durng the perod above provded for fng appca-
ton for reconsderaton, and unt fna decson s rendered after such recon-
sderaton, f such appcaton s fed wthn the tme provded therefor, the per-
mt nvoved sha contnue n force and effect, e cept as to restrctons on wth-
drawas or transportaton as may be ordered bv the Commssoner or dstrct
supervsor, as provded n secton 1S2.2 5. ( ; Sees. .311 , 3121(b), 3170, I. R. O.;
Sees. 7(a), 8(a), 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.256. Proceedngs When oaton Occurs Outsde of Dstrct Where
Permt was Issued. If voatons whch furnsh the bass for proceedngs to
revoke a permt are aeged to have occurred at a pace not wthn the dstrct
where the permt was ssued, the ctaton sha be ssued by the dstrct super-
vsor of the dstrct havng |ursdcton of the pace where the voaton occurred
and the hearng sha be hed by an e amner assgned to that dstrct, who sha
make hs fndngs and decson, as provded In secton 182.253.
(a) Certfed transcrpt of proceedngs. In a such cases, the e amner sha
mmedatey forward a compete and duy certfed transcrpt of the entre record
of such proceedngs and a copy of hs decson to the dstrct supervsor of the
dstrct n whch the basc permt was ssued, who sha take approprate acton
n accordance wth secton 182.25 . ( ; Sees. 311 , 3121 (b), 3170, I. R. C.; Sees.
7(a), 8(a), 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.257. ppea by Permttee to the Commssoner. ppea to the Com-
mssoner s not requred pror to appcaton to the Federa court for revew of
an e amner s decson and the order ssued pursuant thereto. owever, the
Commssoner may, n hs dscreton, n order to nsure unformty of admnstra-
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19
tve acton, entertan an appea from an order of revocaton of a basc permt, f
fed wth the dstrct supervsor or Commssoner wthn 10 days of the date of the
fna order.
(a) Petton. The appea must set forth facts tendng to show acton (1) of
an arbtrary nature, (2) wthout reasonabe warrant n fact, or (3) contrary to
aw or reguatons. The petton may be ted drect wth the Commssoner, but
a copy thereof must be fed wth the dstrct supervsor.
(61 Permt prveyes. If such appea s fed wthn the requred tme, the
permt nvoved sha contnue n force and effect unt the fna order by the
Commssoner, e cept as to such restrctons upon wthdrawas or transportaton
as may be mposed by the dstrct supervsor, as provded n secton 182.2 5.
( ; Sec. 311 , I. R. C.; Sees. 8(a), 12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.257a. I etton by Dstrct Supervsor fob Revew by Comms-
soner. The Comssoner may, n hs dscreton, n order to nsure unformty of
admnstratve acton, entertan a petton by the dstrct supervsor to revew
the decson of the e amner. Such petton must set forth facts tendng to show
acton (1) of an arbtrary nature, (2) wthout reasonabe warrant n fact,
or (3) contrary to aw or reguatons, and sha be fed wth the Commssoner
wthn 10 days of the date of the e amner s decson of whch revew s re-
quested. copy of the petton sha be furnshed to the permttee by the
dstrct supervsor. ( ; Sees. 311 , 3121(b), 3170, L R. C.; Sees. 8(a), 12,
Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.2f)7b. Commssoner s Revew. The Commssoner on appea or
petton for revew may ater or modfy any fndng of the e amner and may
affrm, reverse, or modfy the decson of the e amner, or he may remand the
case for further hearng, but the Commssoner w not consder evdence
whch s not a part of the record. ppeas and pettons for revew to the
Commssoner sha be consdered and decded by the Deputy Commssoner n
charge of the coho Ta Unt: Provded, That the Deputy Commssoner sha
not revew the decson of an e amner n any case n whch he has engaged In
the nvestgaton or prosecuton of the case, n whch event e sha so state hs
dsquafcaton n wrtng and refer the record to the Commssoner for appropr-
ate acton : Provded further. That the Commssoner may desgnate an ssstant
Commssoner to consder any case nstead or n eu of the Deputy Commssoner:
nd provded further. That the dstrct supervsor may n advance of such appea
dscuss the proposa to so appea, and the facts and aw of the case wth any
of the ssstant Deputy Commssoners, coho Ta Unt, or any other offcer
or empoyee of the Treasury Department, e cept the Deputy Commssoner n
charge of tne ceho Ta Unt.
Sue. 182.257c. uthorty of Commssoner. s used n sectons 182.238 to
182.258, ncusve, Commssoner, sha not ncude the Deputy Comssoner
n charge of the coho Ta Unt, uness otherwse ndcated. The Commssoner
sha have a the authorty granted heren to e amners and dstrct supervsors,
and may e ercse any of ther functons. The Commssoner may ssue ctatons,
conduct hearngs, make nta decsons, and e ercse any other functon pre-
scrbed heren, the same as e amners and dstrct supervsors, and he may of
hs own moton, n any case, revew the decson of the e amner or requre the
entre record to be certfed to hm for nta decson. ( ; Sees. 311 , 3170,
I. R. C.; Sees. 5, 7, 8,12, Pubc Law 0 , Seventy-nnth Congress.)
Sec. 182.258. Coukt Revew. If the permttee ntends to have an order re-
vokng a permt revewed on appea by the Federa court, as provded by aw,
the e amner, or Commssoner, upon request therefor, w have prepared, n
trpcate, a compete transcrpt of the record of the revocaton proceedngs,
ncudng a e hbts ntroduced at such hearng, the fndngs of fact and con-
cusons upon whch the revocaton was based, a decsons, and the order of
revocaton.
(a) Certfcaton. The e amner or Commssoner, as the case may be, w
certfy as to the correctness of suc transcrpt of the record and furnsh two
copes thereof to the permttee or hs attorney of record, upon payment of the
costs prescrbed n secton 182.252a(), and one copy to the attorney who w
represent the Unted States n the revew of such case n such court. ( ; Sec.
311 , I. R. C.; Sees. 10, 12, Pubc Law 0 , Seventy-nnth Congress.)
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195 Regs. 3, 182.220, etc.
|mouc II. cton by Dstrct Supervsor.
ORIGIN L ST LIS M NT.

Sec. 182.282(d). Dsapprova of ppcaton. Whore, after hearng or oppor-
tunty for hearng, as provded n rtce II, the dstrct supervsor fnds, from
facts suffcent to warrant such fndngs, that the appcant s not entted to the
confdence of the Department, or s precuded by secton 311 (a), Interna Rev-
enue Code, and secton 182.196(a) of these reguatons from recevng a permt,
he sha, wthout reference to the Commssoner, note hs dsapprova on a
copes of the appcaton wth bref statements of hs reasons therefor and return
to the appcant by regstered ma one copy of the dsapproved appcaton,
together wth one set of the supportng documents and a copes of the bond,
wthout acton thereon. The dstrct supervsor sha forward one copy of the
dsapproved appcaton and one set of the supportng documents to the Com-
mssoner, and retan the remanng papers n hs fe.

Skc. 182.202. Dsapprova of uafyng Documents. (a) y Comms-
soner. In the case of an ndustra acoho pant, bonded warehouse, or
denaturng pant, f the dstrct supervsor fnds, after hearng or opportunty
for hearng, as provded n rtce II, from facts suffcent to warrant such
fndngs, that the appcant has not comped n a respects wth the requre-
ments of the aw and reguatons, or that the stuaton of the premses s such as
woud enabe the appcant to defraud the Unted States, or that the appcaton
or bond shoud be dsapproved under secton 182.282(e), he w note hs recom-
mendaton for dsapprova on the appcaton, Form 1 31, bond, Form 1 32- ,
and consent, Form 1602 (f any), or ndemnty bond. Form 160 , fed n eu of
such consent and w forward to the Commssoner for fna acton such copes
of the quafyng documents as are requred to be so forwarded by the precedng
secton n the case of recommendaton for approva, together wth a copy of a
nspecton reports. Where an appcaton or bond s recommended for dsap-
prova, the dstrct supervsor w furnsh the Commssoner wth a fu state-
ment of the reasons therefor.

oseph D. Nt|nan, r.,
Commssoner of Interna Revenue.
pproved March 5,19 7.
oseph . O Conne, r.,
ctng Secretary of the Treasury.
(Fed wth the Dvson of the Federa Regster March 10, 19 7, 9.23 a. m.)
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Regs. , 183.11 . 196
DISTILL D SPIRITS.
INT RN L R NU COD .
S CTION 2833(a). DISTILLING WIT OUT GI ING OND: P N LTY ND
FORF ITUR .
Reguatons , Secton 183.11 : pprova 19 7-6-12509
requred. Ct. D. 1681
LI UOR T INT RN L R NU COD D CISION OP SUPR M COURT.
1. Dsted Sprts Indctment Operaton of St Wth In-
tent to Defraud.
There was adequate evdence to support a fndng of gut on the
frst count of the ndctment whch charged that the pettoner and
another had carred on the busness of a dster wth
Intent wfuy to defraud the Unted States of the ta
on sprts so dsted In voaton of secton
2833(a), Interna Revenue Code. The ury propery concuded that
a person who actvey heps to operate a secret dstery knows that
he Is hepng to voate Government revenue aws.
2. Doube eopardy.
The acton of the tra |udge n announcng sentence of Imprson-
ment ony and fve hours thereafter recang the pettoner from
detenton |a and mposng a fne aong wth the Imprsonment does
not consttute doube |eopardy, where the statute under whch pet-
toner was convcted carres a mnmum mandatory sentence of fne
of 100 and Imprsonment. The court ony set asde what t had no
authorty to do and substtuted drectons requred by the aw to be;
done upon convcton of the offender.
Supreme Court of the Unted States.
Zachary ozza, pettoner, v. Unted States of merca.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
February 17, 19 7.
OPINION.
Mr. ustce ack devered the opnon of the Court.
The pettoner and one Chrcho were convcted In a Federa dstrct court
on a counts of a 5-count ndctment aganst them whch charged voaton of the
Interna revenue aws n connecton wth the operaton of a st. The court of
appeas reversed pettoner s convcton on counts and 5 because of Insuffcent
evdence, but affrmed as to counts 1, 2, and 3. (155 Fed. (2d), 592.) We granted
certorar. ( U. S., .) Count 1 charged that the defendants had carred
on the busness of a dster wth Intent wfuy to defraud the
Unted States of a ta on sprts so dsted
In voaton of 26 U. S. C, secton 2833(a). Count 2 charged them wth havng
had possesson and custody of the st n voaton of 26 U. S. C, secton 2810(a).
Count 3 charged that they had made and fermented mash for the producton of
acoho n voaton of 26 U. S. C, secton 283 . It s argued that the evdence
was nsuffcent to support any of the three counts here at ssue. The Govern-
ment concedes ts nsuffcency as to counts 2 and 3.
There was testmony to show the foowng: Chrcho rented a farmhouse
under an assumed name and Instaed a 300-gaon st wth a equpment
necessary to ferment mash and dst acoho. The st was operated day and
nght. Chrcho hmsef m ed the ngredents to make the mash n the attc
of the 2 a-story frame budng, but the acoho dstaton was carred on In
another part of the budng. Pettoner was at the house two or three tmes a
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197
Regs. , 183.11 .
week. When there he took nstructons from Chrcho and heped m n the
operaton of the st; he heped manufacture the acoho. When Chrcho
carred hs products to Newark, the car n whch he carred the cty dsted
acoho woud foow aong behnd another car sometmes pettoner s, some-
tmes another heper s. The farmhouse where the ct busness was carred
on appeared from the outsde to be deserted; the wndows were wthout shades
and the house had been practcay strpped of furnture.
We accept the Government s concesson that the evdence fas to show that
ths pettoner had made, or heped to make, the mash as charged n count 3.
of the evdence showed that Chrcho aone handed and m ed the n-
gredents of the mash, and there s nothng whatever to ndcate that the pe-
ttoner ever took any part n, or aded and abetted, ths partcuar part of the
unawfu process n any manner, or, ndeed, that he was ever n or around the
attc where the mash was made from Ingredents stored there. The nterna
revenue statutes have broken down the varous steps and phases of a con-
tnuous ct dstng busness and made each-of them a separate offense.
Thus, these statutes have ceary carved out the conduct of makng mash as
a separate offense, thereby dstngushng t from the other offenses nvovng
other steps and phases of the dstng busness. Consequenty, testmony to
prove ths separate offense of makng mash must pont drecty to conduct wthn
the narrow margns whch the statute aone defnes. One who nether engages n
the conduct specfcay prohbted, nor ads and abets t, does not voate he
secton whch prohbts t.
The suffcency of the evdence as to count 2 whch charged that the pet-
toner had custody or possesson of the st s a coser queston. It mght be
possbe that pettoner s hepng to make the acoho aded and abetted n ts
custody or possesson. ut that woud be a very straned nference under
any crcumstances. ere agan the statutes treat custody or possesson as
a whoy dstnct offense. Yet there was no testmony that the pettoner ever
e ercsed, or aded the e ercse of, any contro over the dstery. s partc-
paton n carryng the fnshed product by car does not ft the category of cus-
tody and possesson so neary as t resembes the transportaton of ega
quor (26 U. S. C, secton 2803) an offense whch the crcut court of appeas
has found the evdence nsuffcent to prove. Nor was there any testmony that
the pettoner acted n any other capacty cacuated to factate the custody
or possesson, such as, for ustraton, servce as a caretaker, watchman, ookout,
or n some other smar capacty. Under these crcumstances, we accept the
Government s concesson that a udgment of guty shoud not have been ren-
dered on the second count.
We thnk there was adequate evdence to support a fndng of gut on the
frst count whch charged operaton of the busness of dstng to defraud
the Government of ta es. There was certany ampe evdence to show that
Chrcho carred on the busness of a dster and that the pettoner heped
hm to do t. 18 . S. C, secton 550, provdes that one who ads and abets
another to commt a crme s guty as a prncpa. Consequenty, the |ury
had a rght to fnd, as t dd, that the pettoner and Chrcho were equay
guty of operatng the busness of the dstery. (See Unted States v. ohnson,
319 U. S., 503, 515, 518.)
ut, t s argued, there was no evdence that the pettoner acted wth know-
edge that the dstery busness was carred on wth an ntent to defraud the
Government of ts ta es. The same evdence as to knowedge of ths guty
purpose, however, that apped to Chrcho was amost, f not qute, equay
persuasve aganst both defendants. Pettoner asssted n the manufacture
of acoho n Chreho s st whch was operated under condtons of secretve-
ness n an apparenty abandoned farmhouse. The fnshed acoho was carred
to Newark n a car whch foowed another car, sometmes the pettoner s. The
members of the |ury coud propery draw on ther own e perence and observa-
tons that awfu sts, unke the st n whch pettoner worked, usuay are
not operated candestney and do not dever ther products n the fashon
empoyed here. The members of the |ury were not precuded from drawng
nferences as to frauduent purposes from these crcumstances, nor were they
compeed to beeve that ths pettoner was obvous of the purposes of what
went on around hm. Men n the |ury bo , ke men on the street, can concude
that a person who actvey heps to operate a secret dstery knows that he s
hepng to voate Government revenue aws. That s a we known ob|ect of
an ct dstery. Doubtess few who ever worked n such a pace, or even
heard about one, woud fa to understand the cry: The revenuers are comng
We hod that the verdct of guty on the frst count must stand.
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Regs. , 183.11 .
198
The ony statute for voaton of whch pettoner s convcton Is sustaned hy
us carres a mnmum mandatory sentence of fne of . 100 and mprsonment.
(26 U. S. C, secton 2833(a).) In announcng sentence at a mornng sesson, the
tra |udge mentoned mprsonment ony. Thereafter the pettoner was taken
brefy to the Unted States marsha s offce and then to a oca Federa detenton
|a awatng transportaton to the pententary where he was fnay to be con-
fned. ut about fve hours after the sentence was announced, the |udge recaed
the pettoner and, accordng to stpuaton, stated n the presence of pettoner
and hs counse that n the mposton of sentence ths mornng t
has been caed to my attenton that there are certan mandatory fnes and
penates whch I omtted to mpose. For the record now mnmum mandatory
fnes and penates w e mposed. Thus a 100 fne was f ed as requred by
aw, aong wth the mprsonment sentence. Pettoner charges that ths acton
consttuted doube |eopardy forbdden by the Federa Consttuton.
It s we estabshed that a sentence whch docs not compy wth the etter of
the crmna statute whch authorzes t s so erroneous that t may be set asde
on appea Reynods v. Unted Staes, 98 U. S., 1 5, 168-109; Murphy v. Massa-
chusetts , 177 U. S., 155, 157) or In habeas corpus proceedngs. (In re Ronntr,
151 U. S., 2 2.) ut n those cases t was recognzed that an e cessve sentence
shoud be corrected, even though the prsoner had aready served part of hs
term, not by absoute dscharge of the prsoner, but by an approprate amend-
ment of the nvad sentence by the court of orgna ursdcton, at east dur-
ng the term of court n whch the nvad sentence was mposed.1 (Cf. De
Ienque v. Unted States, 85 Fed. (2d), 202.) In the ght of these cases, the fact
that pettoner has been twce before the |udge for sentencng and In a Federa
pace of detenton durng the 5-hour nterm can not be sad to consttute doube
|eopardy as we have heretofore consdered t. Pettoner contends, however,
that these cases are nappcabe here because correcton of ths sentence so as to
make t awfu ncreases hs punshment. (Cf. Unted States v. Rem, 282 T . S.,
30 , 309.) If ths nadvertent error can not be corrected n the manner used here
by the tra court, no vad and enforceabe sentence can be mposed at a. (Cf.
ordan v. Unted States, 60 Fed. (2d), , 6, wth arrow v. Unted States, 295
Fed., 9 9.) Ths Court has re|ected the doctrne that a prsoner, whose gut
s estabshed, by a reguar verdct, s to escape punshment atogether, because
the court commtted an error n passng the sentence. (In rc Runner, supra, at
260.) The Consttuton does not requre that sentencng shoud be a game n
whch a wrong move by the |udge means mmunty for the prsoner. (See ng
v. Unted States, 98 Fed. (2d), 291, 290.) In ths case the court ony set asde
what t had no authorty to do and substtuted drectons requred by the aw
to be done upon convcton of the offender. (In re Ronner. supra, at 260.) It
dd not twce put pettoner n |eopardy for the same offense.- The sentence, as
corrected, mposes a vad punshment for an offense nstead of an nvad punsh-
ment for that offense.
Other contentons here do not mert our dscusson. The |udgment as to count
1 s affrmed. The |udgment s reversed as to counts 2 and 3.
It s so ordered.
Mr. ustce Dotous, Mr. ustce Murphy, and Mr. ustce utedoe dssent
as to the affrmance of the |udgment on count 1; Mr. ustce Rutedge reserves
e presson of opnon concernng the egaty of the sentence.
1 Compare rue 5c, ues of Crmna Trocedure for the Dstrct Courts of the Unted
States.
3 In parte Langc (18 Wa.. 163), reed on by pettoner here, the defendant had been
sentenced to fne and Imprsonment for voaton of a statute whch authorzed a sentence
ony of fne or Imprsonment. Snce he had pad hs fne and therefore suffered punshment
under a vad sentence, t was hed that hs sentence had been e ecuted by fu satsfac-
ton of one of the aternatve penates of the aw. (Murphy . Massachusetts,
upra, at 100.) Therefore, Lange s ea, that the tra court coud not correct the sentence
wthout causng hm to sufTer doube punshment, was sustaned. (Cf. In re radey,
318 U. S., 50.) ut here the pettoner had not suffered any awfu punshment unt the
court had announced the fu mandatory sentence of mprsonment and fne.
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(Msc.
OL OM RG RIN .
19 7-2-12 77
MS. 306
Schedue of oeomargarne produced and materas used durng the month of
November, 19 6, as compared wth November, 19 5.
November,
19 6.
November,
19 5.
Tota producton of uneoored oeomargarne
Tota wthdrawn ta -pad
Ingredent schedue of uncourt 1 oeomargarne:
utter cuture
utter favor
Ctrc acd _
Corn o.
Cottonseed fakes
Cottonseed o
Cottonseed stearn
Dervatve of gycerne -
DacetyL
stearne..
Oeo o. ..
Oeostearne
Oeo stock
Peanut o
Sat
Soda (benzoate of)
Soya bean o.
Soya bean stearne .
Taow
tamn concentrate
Tota
Tota producton of coored oeomargarne.
Tota wthdrawn ta-pad
Ingredent schedue of coored oeomargarne:
utter favor _
Coconut o
Coor
Com o
Cottonseed o
Dervatve of gycerne
Dacety
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Peanut o
Sat
Soda (benzoate of)
Soya bean o
tamn concentrate .
Tota
55. 682, 10
5 .983.819
125
38
7 . 130
26. 36 . , 67
9 , 597
99
67, 1 9
163, 770
63, 75
198, 351
322, 818
217,990
7, 975
708, 515
712,310
39. 276
026, 175
9,96
56,517,328
7, 283, 97
1,566,218
11
, 060, 122
,357
52
731,5 5
6, 92
271
1,
5,696
2 5, 331
5, 187
19, 296
12, 199
95
238,787
3,293
022,7 3
1,2 0
7,356,717
fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
Of the amount produced, 370 pounds were reworked.
1 Of the amount produced, 18,361 pounds were reworked.
1 Of the amount produced, 96 pounds were reworked.
Ths o used soey n oeomargarne manufactured for e port by, or from, the Unted States.
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#
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Msc.
200
19 7- -12 9
MS. 307
Schedue of oeomargarne produced and materas used durng the month of
December, 19)6, as compared wth December, 19 5.

December,
19 6.
December,
19 5.
Povndt.
5 .835, 858
Pound .
1,101,982
Tota wthdrawn ta -pad
55, 807, 998
1.388,957
Ingredent schedue of uncoored oeomargarne:
utter favor
391
358
33.031
550
679
133
615,330
Ctrc acd
Corn o
Cottonseed fakes
Cottonseed o
2 ,606, 751
1 , 15,335
655
8 . 1 2
7
8.582
9.57
6,88 . 8 5
26. 139
233. 26
228. 129
290.792
13.610
1.290. 53
1,266.685
26.252
16,331.108
1,800
9.596
Cottonseed stearne
Dervatve of gycerne
88,383
76
Mk
68,788
9,212,713
6 ,892
303,20
527,101
309.365
72, 00
757,828
1,696. 567
39,20
17. 556, 515
,050
9, 396
Neutra ard... _
Oeo o
Ooo stock
Sat
8od (Iwnzottte of)
Taow
Tota
55,752.161
1.777.339
Tota producton of coored oeomargarne
, 935. 507
1 3.3 1. 287
Tota wthdrawn ta -pad
1.872, 1 8
1.618,602
Ingredent schedue of coored oeomargarne:
25
27
Coor
2, 199,872
2,618
27
672,039
,731
8
2,500
Com o
311
626,717
,776
12
510
2.333
635,570
602
112,566
306. 639
12,9 0
10 . 5
1.820
1,637.906
1,082
Cottonseed o
Dervatve of gycerne
3,760
806.581
2,029
21.715
15.957
1.200
16 . 62
2,90
1,136. 2 8
610
Mk
Monostearne.
Neutra ard _.
Oeo o
Peanut o
oda (benzoate of) ._
oya bean o
tamn concentrate _.
Tota v
6,035,073
3.350.825
1 Of the amount product, 6,277 pounds were reworked.
Of the amount produced, 2 pounds were reworked.
;Ths o used soey u oeomargarne manufactured for e port by, or from, the Unted States.
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201
Msc.
19 7-6-12510
MS. 308
Schedue of oeomargarne produced and materas used durng the month, of
anuary, 19 ,T, as compared wth anuary, 19 6.
anuary,
19 7.
Tota producton of uncoored oeomargarne..
Tota wthdrawn ta -pad
Pound .
6 . 771,313
Ingredent schedue or uncoored oeomargarne:
utter cuture
utter favor
Ctrc acd _
Coconut o1
Corn o -
Cottonseed fakes
Cottonseed o
Dervatve of gycerne -
Dacetv _
stearnc .
Lecthn
Mk
Monostearne.. , _
Neutra ard
Oeo o -
Oeo stearn
Oeo stock ---
Peanut o -
Sat
Soda (benzoatc of)..
Soya bean o --
Soya hean tcarne __
feoya he
Taow.
tamn concentrate..
Tota..
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
utter favor
Coor
Corn o
Coconut o
Cottonseed fakes.
Cottonseed o
Dervatve of gycerne
Dacety
stearnc
Lecthn
Mk
Monostearne
Neutra ard
Oeo o.
Peanut o.
Sat
Soda (benzoatc of)
Soya beanoL ...
tamn concentrate
Tota.
63, 751, 161
SIS
558
31.363
39(1, 359
8,600
29, 29 , 57
10 ,06
161
8 , 185
10, 8 , 76
77, 15S
312,568
70, 082
262,822
67,270
989, 563
2, 007. 7 3
7, 233
20,391,786
1 ,995
11.379
65, 817, 7 2
3, 17 ,69
2, 510, 809

2.052
15,597
2 ,0 0
365
821,887
,209
5
I. M
521,823
L 109
27. 77
30, 228
9,828
97,307
I. 28(1
1,236, 692
3. 196.002
1 Of the amount produced, 2,539 pounds were reworked.
s Of the amount produced, 3,167 pounds were reworked.
Ths o used n 377, 3 pounds of oeomargarne manufactured Tor e port by, or from, the Unted Rme
and 77,960 pounds for domestc consumpton.
Of the amount produced, 100 pounds were reworked.
75 70 7 1
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#
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o
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Msc.
202
1-9 7-8-12531
MS. 309
Schedue of oeomargarne produced and materas used durng the month of
February 19 7, as compared wth February, 19 6.
February,
19 7.
February.
19 6.
Tota producton of uncoored oeomargarne
Poundt.
16 .R50.050
Pounds.
3.203.128
Ingredent schedue of uncoored oeomargarne:
utter cuture
6 ,15 , 1
2,807,960
utter favor
3
91
78
383
205
Ctrc acd....
391
Coconut o|1
1,223,57
85,531
8,730
27, 121,3 1
108
106,933
27
Com o
626.888
Cottonseed fakes
Cottonseed o _
17,39 ,990
Cottonseed stearne
Dervatve of gvcerne
83,2 5
93
10.528
51.216
7,315.508
30,93
222,855
2 8. 7 7
195.065
27,67
1.966,021
1,3 1.193
28,5 8
1 , 55,633
Dacetv
Lecthn
76,082
10,876.78
72.952
2 8.536
306. 33
3 1,390
37,915
1,327.397
2.030,290
6,359
21, 508, 703
23,805
Mk
Monostearne
Neutra ard
Oeo stock
Sat
Taow..
1,866
10,061
8,006
Tota
65, 853,837
,009,610
Tota producton of coored oeomargarne
3.105,001
2.299,355
Tota wthdrawn ta -pad _
2,315,812
816,712
Ingredent schedue of coored oeomargarne:
8
22
Coconut o1
380,6 7
1,918
1 ,928
Coor. _
Com o

Cottonseed fakes v
Cottonseed o
886,276
,010
1
638.760
3, 0
1
Dervatve of gycerne..
Dacety
stearne
1,885
516,533
1,361
18,081
17,7 0
50
2 ,233-
97,129
1,299
1,160,362
385
1.5 6
379,615
78
25,331
15,066
Mk
Neutra ard
Oeo o
Oeo stock _
26,032
72,908
862
1,1 9,965
850
M
Sat ._
Soda (benzoate of)
Soya bean o
Soya bean stearne _
338
Tota
8,126,839
2,320, 85
Of the amount produced, 1,965 pounds were reworked.
Of the amount produced, 665 pounds were reworked.
380,6 7 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 1,223,575 pounds used n producton of the product for domestc consumpton.
. Of the amount produced, 33 pounds were reworked.
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#
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203
Msc.
19 7-10-12551
MS. 310
Schedue of oeomargarne produced and materas used durng the month of
March, 19 7, as compared wth March, 19 6.
March, 19 7.
March, 19 6.
Tota producton of uncoorcd oeomargarne
Pmndt.
1 65.11.1,958
Pnnnfo.
3. 676, 076
Tota wthdrawn ta -pad
0 , 031. 0 3
3.919.975
Ingredent schedue of uncoorcd oeomargarne:
689
217
1,593. 365
605, 379
2. 120
23,582,782
111
109. 21
237
272
320
220
Corn o
790,970
Cottonseed fakes
Cottonseed o
17,956, 982
I)ac ty
102. 09
91
Mk
79.937
11. 12 . 305
69. 171
239.686
306.960
352. 5 9
56.265
2,69Z 83
2,032. 170
5. 03
2 , 020.869
17. 60
Id ItW
53. 55
7. 95, 012
36.281
137.2 3
191.6 6
198. 397
25. 625
1.811.59
1,3 2. 355
30.661
1 .308.332
Oeo stock
Peanut o
Sat
Taow
10. 71
1.800
7,520
Tota-
66.9 2. 76
. 501, 37
Tota producton of coored oeomargarne
.800, 273
3,000,830
Tota wthdrawn ta -pad
2, 595, 13
1, 589, 83
Ingredent schedue of coored oeomargarne:
106
1. 93, 267
3,721
11,655
735
891. 78
9, 13
8
11
Coconut o :
Coor
3, 051
5, 61
Dervatve of gycerne ._
,506
785.691
1.316
1 . 2 6
11,798
850
95,580
156, 060
2.325
1, 10. 3 6
591
533,570
8,831
2
2 2
3,667
96.5
536
30,531
20. 065
8. 00
27, 827
96.665
1.902
1,807, 958
30
Mk
Oeo stock
Peanut of.
Sat _
Soya bean o :
Tota
,893,692
3, 0 5, 693
1 Of the amount produced, 3,726 pounds were reworked.
Of the a|nount produced, 6,030 pounds were reworked.
1, 30,717 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 1,655,915 pounds used n producton of the product for domestc consumpton.
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Msc.
20
19 7-13-12579
MS. 311
Schedue of oeomargarne produced and materas used durng the month of
pr, 19 T, as compared wth pr, 19 6.
Tota producton of uncoorod oeomargarne..
Tota wthdrawn ta -pad
Ingredent schedue of uncoored oeomargarne:
utter cuture
utter favor -
Ctrc acd
Coconut o ..
Corn o
Cottonseed fakes --
Cottonseed o
Cottonseed s tear I no
Dervatve of gycerne
Dacety
stearne
Lecthn
Mk
Monostearne -
Neutra ard --
Oco o
Oeo stearne
Oeo stock -
Peanut o
Sat
Soda (benRoato of)
Soya bean o r -
Soya bean stearne --
Taow
tamn concentrate
Tota-
Tota producton of coored oeomargarne.
Tota wthdrawn ta -pad
Ingredent schedue of coored oeomargarne:
utter favor. -
Coconut o
Coor
Corn o
Cottonseed fakes
Cottonseed o,
Dervatve of gycerne
Daoety -
stearne
Lecthn
Mk
Monostearne
Neutra ard
Oeo o -
Peanut o -
Sat -
Soda (benr-oate of)
Soya bean o
tamn concentrate
Tota.
pr, 19 7.
Pound .
M. 016. 000
:7. . . |s
262
73
007.730
287. 361
5, 500
898,972
5
67,638
1 2
53,270
7,003,960
5.630
103. 973
97.818
2 1, 0
7,830
2, 162.300
1, 265.072
32,760
16. 528,328
6,280
6, 7
1.N22. S22
5. 700, 65
1, 789, 723
63
2,828,263
5.681
2,525
50
586,320
11.676
11
6,529
9 7,201
1.600
12, 619
10,90
5 ,06
177,658
. 1 8
, 100, 807
859
6, 750, 876
pr, 19 6.
Pounds.
1, 02, 55
1 Of the amount produced, 2,167 pounds were reworked.
1,303,928 pounds of ths o used n oeomargarne manufactured for e port by, or from, the Unted States,
and 2,632,065 pounds used In producton of the product for domestc consumpton.
Of the amount produced, 2 pounds were reworked.
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#
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205
Msc.
TO CCO.
19 7-1-12 71
T. 176
Statement of manufactured tobacco produced, by casses, durng the month of October,
19 S, as compared wth October, 19 5.
October,
19 6.
October,
19 5.
Pnt;
Pounds.
,821,026
ft, 30
3 8,311
. 620, 063
11,676,290
3,639,058
Pounds.
5, O , 151
63 ,09
Twst.
Fnc-cnt chewng
373. 510
3,62 , 507
16,8 9,1 8
.008,973
Snuf
Tota
25, 673, 552
31,096, 3
19 7-3-12 86
T. 178
Statement of manufactured tobacco produced, by casses, durng the month of Novem-
ber, 19 6, as compared wth November, 19 5.
November,
19 6.
November,
19 5.
Pug
Pounds.
,096, 51
62,015
31 ,978
3, 79 . 033
11,266. 186
3,302. 793
pounds.
, 702,663
513.29
391, 735
Twst
2. 957, 36
1 , 6IS, 503
nuf -. -
3, 27, 237
Tota
23, 236, 56
26, 607, 796
19 7-5-12500
T. 180
Statement of manufactured tobacco produced, by casses, durng the month of Decem-
ber, 19 0, as compared wth December, 19 5.
December,
19 6.
December,
19 5.
Pug
Pounds.
3, 99. 698
397,999
295,851
8, 2 ,987
7, 09,977
8,332, 136
Pounds.
3,065,815
33 ,76
278,633
3,069,319
6,953,836
2,952,803
Twst
Tota
18,360,6 8
16,655,170
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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Msc. 206
19 7-7-12519
T. 182
Statement of manufactured tobacco produced, by casses, durng the month of anuary,
19 7, as compared wth anuary, 19 6.
anuary, 19 7 .
anuary, 19 6.
Pound).
Pound).
,106, 28
22.891
331. 0.
3,975,836
7, 979. 352
3. 705. 653
Pue
,380,358
98,779
311,362
3, 679. 902
7, 788. 2
3, 7, 28
Scrap chewng
Tota
20,106,669
20, 521, 215
19 7-9-125 3
T. 18
Statement of manufactured tobacco produced, by casses, durng the month of February,
19 7, as compared wth February, 19 6.
February.
19 7.
February.
19 6.
Pug --
Pound).
3, 762.103
2.037
272, 52
3. 326, 8 5
6, 960. 722
2,9 7. 752
Pound).
. 317, 259
65,933
261,81
3.9 8.370
5.9 3,682
3, 127.632
Twst
Tota
17,711,911
18. O6 , 690
Statement of manufactured tobacco produced, by casses, durng the month of March,
19 7, as compared wth March, 19 6.
19 7-12-12569
T.186
March, 19 7.
March, 19 6.
Pound).
3,592, 0
33,863
2 8,08
3, 28,908
8,309, 512
3,199, 588
Pound).
Pug
,372,782
507,651
281,90
,099,100
6,386,133
3, 19,1 6
Twst .
Snuf
Tota
19,212,395
19,066,716
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207 Msc.
CIG R TT S.0
19 7-1-12 72
T. 177
Premnary statement of sma cgarettes removed for consumpton durng the month
of November, 19 6, as compared wth removas for the same month of 19 5.
Removas.
November, 19 6.
November, 19 5.
Ta -pad
Number.
27.360. 115.030
3,165, 329, 951
Number.
2 . 998. 898, 770
I, 3 8. 23, 78
Tota..
30, 525, , 981
26, 3 7, 322, 55
19 7-3-12 87
T. 179
Premnary statement of sma cgarettes removed for consumpton durng the month
of December, 19 6, as compared wth removas for the same month of I .
cmovas.
December, 19 6.
December, 19 5.
Ta -tree
Number.
22.688, 232,670
2, 958, 769, 035
Number.
17.0 9.377,208
1, 66, 5 , 9 3
Tota
25, 6 7,001,705
18,515,832,151
19 7-5-12501
T. 181
Premnary statement of sma cgarettes removed for consumpton durng the month
of anuary, 19 7, as compared wth removas for the same month of 19 6.
Removas.
anuary, 19 7.
anuary, 19 6.
Ta -pad
Number.
28, 70.99 .735
3, 518, 703, 725
Number.
2 .7S8. 02,2 2
2, 282, 721, 162
Tota
31,989,698, 60
27,0 1,123, 0
10 7-7-12520
T. 183
Premnary statement of sma cgarettes removed for consumpton durng the month
of February, 19 7, as compared wth removas for the same month of 19 6.
Removas.
February, 19 7.
February, 19 6.
Number.
25.59 , 115.730
2, 722,912,109
Number.
23,922, 77, 516
1,737, 67,880
Tota
28,317,027,839
25,659,9 5,396
fgures are sub|ect to revson unt pubshed n the Commssoner s annua report.
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208
19 7-10-12552
T. 185
Premnary statement of sma cgarettes removed for consumpton durng the month
of March, 19 7, as compared wth removas for the same month of 19 6.
Remova.
March, 19 7.
March, 19 6.
Number.
26, 9 5,827,165
3. 2 2,873.899
Number.
26.251.199,6
2.396,170,3 2
Tota
30,188,701,06
28,6 7,369,986
19 7-12-12570
T.187
Premnary statement of sma cgarettes removed for consumpton durng the month
of pr, 19 7, as compared wth removas for the same month of 19 6.
Removas.
pr, 19 7.
pr, 19 6.
Ta -pad
Number.
27, 2 ,132, 08
2, SIM, 976,676
Number.
25,586.528.829
3,388,2 9,867
Tota.
30,0 9, 109.08
28,97 ,778,696
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209
Msc.
MISC LL N OUS.
19 7- -12 95
Doube ta aton Ta es on ncome Conventon between the
Unted States of merca and the Unted ngdom and protoco
Sgned at Washngton pr 16. 19 5. and une 6, 19 0, respectvey
Ratfcaton advsed by the Senate of the Unted States of merca
une 1, 19 6, and une 19, 19 6, respectvey Ratfed by the Pres-
dent of the Unted States of merca une 20, 19 0 Ratfcatons
e changed at Washngton uy 2, . 19 0 Procamed by the Pres-
dent of the Unted States of merca uy 3U. 10 0.
Y T PR SID NT OF T UNIT D ST T S O M RIC PROCL M TION.
Whereas a conventon between the Unted States of merca and
the Unted ngdom of Great rtan and Northern Ireand for the
avodance of doube ta aton and the preventon of fsca evason wth
respect to ta es on ncome was sgned by ther respectve Penpo-
tentares at Washngton on pr 16, 19 5;
nd whereas a suppementary protoco modfyng n certan re-
spects the sad conventon was sgned by the respectve Penpoten-
tares of the Unted States of merca and the Unted ngdom of
Great rtan and Northern Ireand at Washngton on une 15, 19 6;
nd whereas the orgnas of the sad conventon and the sad sup-
pementary protoco are word for word as foows:
The Government of the Unted States of merca nnd the Government of the
Unted ngdom of Great rtan and Northern Ireand,
Desrng to concude a conventon for the avodance of doube ta aton and
the preventon of fsca evason wth respect to ta es on ncome,
ave apponted for that purpose as ther Penpotentares:
The Government of the Unted States of merca:
Mr. dward R. Stettnus. r.. Secretary of State, and
The Government of the Unted ngdom of Great rtan and Northern
Ireand:
The Rght onorabe the ar of afa , . G., mbassador traordnary
and Penpotentary n Washngton,
Who, havng e hbted ther respectve fu powers, found n good and due
form, have agreed as foows:
rtce I.
(1) The ta es whch are the sub|ect of the present conventon are:
(a) In the Unted States of merca:
The Federa ncome ta es, ncudng surta es and e cess profts ta es
(herenafter referred to as Unted States ta ).
(6) In the Unted ngdom of Great rtan and Northern Ireand:
The ncome ta (ncudng surta ), the e cess profts ta and the natona
defense contrbuton (herenafter referred to as Unted ngdom ta ).
(2) The present conventon sha aso appy to any other ta es of a substan-
tay smar character mposed by ether contractng party subsequenty to the
date of sgnature of the present conventon or by the government of any terrtory
to whch the present conventon s e tended under rtce II.
rtce II.
(1) In the present conventon, uness the conte t otherwse requres:
(a) The term Unted States means the Unted States of merca, and
when used n a geographca sense means the States, the Terrtores of aska
and of awa, and the Dstrct of Coumba.
(6) The term Unted ngdom means Great rtan and Northern Ireand,
e cudng the Channe Isands and the Ise of Man.
7D 70 7 15
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Msc.
210
(c) The terms terrtory of one of the contractng partes and terrtory
of the other contractng party mean the Unted States or the Unted ngdom
as the conte t requres.
(d) The term Unted States corporaton means a corporaton, assocaton
or other ke entty created or organzed n or under the aws of the Unted States.
(e) The term Unted ngdom corporaton means any knd of |urdca
person created under the aws of the Unted ngdom.
(/) The terms corporaton of one contractng party and corporaton of
the other contractng party mean a Unted States corporaton or a Unted
ngdom corporaton as the conte t requres.
(g) The term resdent of the Unted ngdom means any person (other
than a ctzen of the Unted States or a Unted States corporaton) who s res-
dent n the Unted ngdom for the purposes of Unted ngdom ta and not
resdent n the Unted States for the purposes of Unted States tu . corpora-
ton s to be regarded as resdent n the Unted ngdom f ts busness s man-
aged and controed n the Unted ngdom.
(h) The term resdent of the Unted States means any ndvdua who s
resdent n the Unted States for the purposes of Unted States ta and not res-
dent n the Unted ngdom for the purposes of Unted ngdom ta , and any
Unted States corporaton and any partnershp created or organzed n or under
the aws of the Unted States, beng a corporaton or partnershp whch s not
resdent n the Unted ngdom for the purposes of Unted ngdom ta .
( ) The term Unted ngdom enterprse means an ndustra or com-
merca enterprse or undertakng carred on by a resdent of the Unted
ngdom.
(/) The term Unted States enterprse means an ndustra or commerca
enterprse or undertakng carred on by a resdent of the Unted States.
(k) The terms enterprse of one of the contractng partes and enterprse
of the other contractng party mean a Unted States enterprse or a Unted
ngdom enterprse, as the conte t requres.
(1) The term permanent estabshment when used wth respect to au enter-
prse of one of the contractng partes means a branch, management, factory or
other f ed pace of busness, but does not ncude an agency uness the agent has,
and habtuay e ercses, a genera authorty to negotate and concude contracts
on behaf of such enterprse or has a stock of merchandse from whch he regu-
ary fs orders on Its behaf. n enterprse of one of the contractng partes
sha not be deemed to have a permanent estabshment n the terrtory of the
other contractng party merey because It carres on busness deangs n the
terrtory of such other contractng party through a bona fde commsson agent,
broker or custodan actng n the ordnary course of hs busness as such. The
fact that an enterprse of one of the contractng partes mantans n the terr-
tory of the other contractng party a f ed pace of busness e cusvey for the
purchase of goods or merchandse sha not of tsef consttute such f ed pace
of busness a permanent estabshment of such enterprse. The fact that a
corporaton of one contractng party has a subsdary corporaton whch s a
corporaton of the other contractng party or whch s engaged n trade or bus-
ness n the terrtory of such other contractng party (whether through a per-
manent estabshment or otherwse) sha not of tsef consttute that subsdary
corporaton a permanent estabshment of ts parent corporaton.
(2) For the purposes of rtces I, II, III, I , and I a resdent of
the Unted ngdom sha not be deemed to be engaged In trade or busness n the
Unted States n any ta abe year uness such resdent has a permanent estab-
shment stuated theren n such ta abe year. The same.prncpe sha be
apped, mutats mutands, by the Unted ngdom n the case of a resdent of
the Unted States.
(3) In the appcaton of the provsons of the present conventon by one of
the contractng partes any term not otherwse defned sha, uness the conte t
otherwse requres, have the meanng whch t has under the aws of that con-
tractng party reatng to the ta es whch are the sub|ect of the present conventon.
rtce III.
(1) Unted ngdom enterprse sha not be sub|ect to Unted States ta n
respect of ts ndustra or commerca profts uness t Is engaged n trade or
busness n the Unted States through a permanent estabshment stuated theren.
If t s so engaged, Unted States ta may be mposed upon the entre Income of
such enterprse from sources wthn the Unted States.
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211
Msc.
(2) Unted States enterprse sha not be sub|ect to Unted ngdom ta n
respect of ts ndustra or commerca profts uness t s engaged n trade or bus-
ness n the Unted ngdom through a permanent estabshment stuated theren.
If t s so engaged, Unted ngdom ta may be mposed upon the entre Income
of such enterprse from sources wthn the Unted ngdom: Provded that
nothng n ths paragraph sha affect any provsons of the aw of the Unted
ngdom regardng the mposton of Unted ngdom e cess profts ta and
natona defense contrbuton n the case of nterconnected companes.
(3) Where an enterprse of one of the contractng partes s engaged n trade
or busness n the terrtory of the other contractng party through a permanent
estabshment stuated theren, there sha be attrbuted to such permanent es-
tabshment the Industra or commerca profts whch t mght be e pected to
derve f t were an ntependent enterprse engaged n the same or smar actv-
tes under the same or smar condtons and deang at arm s ength wth the
enterprse of whch t s a permanent estabshment, and the profts so attrbuted
sha, sub|ect to the aw of such other contractng party, be deemed to be ncome
from sources wthn the terrtory of such other contractng party.
( ) In determnng the ndustra or commerca profts from sources wthn
the terrtory of one of the contractng partes of an enterprse of the other con-
tractng party, no profts sha be deemed to arse from the mere purchase of
goods or merchandse wthn the terrtory of the former contractng party by
such enterprse.
rtce I .
Where an enterprse of one of the contractng partes, by reason of ts partcpa-
ton n the management, contro or capta of an enterprse of the other contractng
party, makes wth or mposes on the atter, n ther commerca or fnanca rea-
tons, condtons dfferent from those whch woud be made wth an ndependent
enterprse, any profts whch woud but for those condtons have accrued to one
of the enterprses but by reason of thos;; condtons have not so accrued, may be
ncuded n the profts of that enterprse and ta ed accordngy.
rtce .
(1) Notwthstandng the provsons of rtces III and I of the present con-
venton, profts whch an ndvdua (other than a ctzen of the Unted States)
resdent n the Unted ngdom or a Unted ngdom corporaton derves from
operatng shps documented or arcraft regstered under the aws of the Unted
ngdom, sha be e empt from Unted States ta .
(2) Notwthstandng the provsons of rtces I and I of the present con-
venton, profts whch a ctzen of the Unted States not resdent n the Unted
ngdom or a Unted States corporaton derves from operatng shps documented
or arcraft regstered under the aws of the Unted States, sha be e empt from
Unted ngdom ta .
(3) Ths artce sha be deemed to have superseded, on and after the 1st day
of anuary, 19 5, as to Unted States ta , and on and after the 6th day of pr,
19 5, as to Unted ngdom ta , tte arrangements reatng to recproca e emp-
ton of shppng profts from ncome ta effected between the Government of the
Unted States and the Government of the Unted ngdom by e change of notes
dated ugust 11, 192 . November 18, 192 , November 26, 192 , anuary 15,
1925, February 13, 1925, and March 16, 1925, whch sha accordngy cease to
have effect.
rtce I.
(1) The rate of Unted States ta on dvdends derved from a Unted States
corporaton by a resdent of the Unted ngdom who s sub|ect to Unted ng-
dom ta on such dvdends and not engaged n trade or busness n the Unted
States sha not e ceed 15 per cent: Provded that such rate of ta sha not
e ceed 5 per cent f such resdent s a corporaton controng, drecty or n-
drecty, at east 95 per cent of the entre votng power n the corporaton payng
the dvdend, and not more than 25 per cent of the gross ncome of such payng
corporaton s derved from nterest and dvdends, other than nterest and dv-
dends receved from ts own subsdary corporatons. Such reducton of the rate
to 5 per cent sha not appy f the reatonshp of the two corporatons has been
arranged or s mantaned prmary wth the ntenton of securng such reduced
rate.
(2) Dvdends derved from sources wthn the Unted ngdom by an nd-
vdua who s (a) a resdent of the Unted States, (6) sub|ect to Unted States
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ta wth respect to such dvdends, and (c) not engaged n trade or busness n
the Unted ngdom, sha be e empt from Unted ngdom surta .
(3) ther of the contractng partes may termnate ths artce by gvng
wrtten notce of termnaton to the other contractng party, through dpomatc
Channes, on or before the 30th day of une n any year after the year 1W5, and
n such event paragraph (1) hereof sha cease to be effectve as to Unted States
ta on and after the 1st day of anuary, and paragraph (2) hereof sha cease
to be effectve as to Unted ngdom ta on and after the 6th day of pr, n the
year ne t foowng that n whch such notce s gven.
rtce II.
(1) Interest (on bonds, securtes, notes, debentures, or on any other form of
Indebtedness) derved from sources wthn the Unted States by a resdent of
the Unted ngdom who s sub|ect to Unted ngdom ta on such Interest and
not engaged n trade or busness n the Unted States, sha be e empt from
Unted States ta ; but such e empton sha not appy to such nterest pad by
a Unted States corporaton to a corporaton resdent n the Unted ngdom con-
trong, drecty or ndrecty, more than 50 per cent of the entre votng power
n the payng corporaton.
(2) Interest (on bonds, securtes, notes, debentures, or on any other form
of ndebtedness) derved from sources wthn the Unted ngdom by a resdent
of the Unted States who s sub|ect to Unted States ta on such nterest and
not engaged n trade or busness n the Unted ngdom, sha be e empt from
Unted ngdom ta ; but such e empton sha not appy to such nterest pad
by a corporaton resdent In the Unted ngdom to a Unted States corporaton
controng, drecty or ndrecty, more than 50 per cent of the entre votng
power In the payng corporaton.
rtce III.
(1) Royates and other amounts pad as consderaton for the use of, or for
the prvege of usng, copyrghts, patents, desgns, secret processes and formuae,
trade-marks, and otrer ke property, and derved from sources wthn the
Unted States by a resdent of the Unted ngdom who s sub|ect to Unted
ngdom ta on such royates or other amounts and not engaged n trade or
busness In the Unted States, sha be e empt from Unted States ta .
(2) Royates and other amounts pad as consderaton for the use of, or
for the prvege of usng, copyrghts, patents, desgns, secret processes and
formuae, trade-marks, and other ke property, and derved from sources wthn
the Unted ngdom by a resdent of the Unted States who s sub|ect to Unted
States ta on such royates or other amounts and not engaged In trade or
busness n the Unted ngdom, sha be e empt from Unted ngdom ta .
(3) For the purposes of ths artce the term royates sha be deemed
to Incude rentas n respect of moton pcture fms.
btce I .
(1) The rate of Unted States ta on royates n respect of the operaton
of mnes or quarres or of other e tracton of natura resources, and on rentas
from rea property or from an Interest n such property, derved from sources
wthn the Unted States by a resdent of the Unted ngdom who s sub|ect
to Unted ngdom ta wth respect to such royates or rentas and not en-
gaged n trade or busness n the Unted States, sha not e ceed 15 per cent:
Provded that any such resdent may eect for any ta abe year to be sub|ect
to Unted States ta as f such resdent were engaged n trade or busness n
the Unted States.
(2) Royates n respect of the operaton of mnes or quarres or of other
e tracton of natura resources, and rentas from rea property or from an
Interest n such property, derved from sources wthn the Unted ngdom by
an ndvdua who s (a) a resdent of the Unted States, (ft) sub|ect to Unted
States ta wth respect to such royates and rentas, and (c) not engaged n
trade or busness n the Unted ngdom, sha be e empt from Unted ngdom
surta .
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rtce .
(1) ny saary, wage, smar remuneraton, or penson, pad by the Govern-
ment of the Unted States to an ndvdua (other than a rtsh sub|ect who
s not aso a ctzen of the Unted States) n respect of servces rendered to the
Unted States n the dscharge of governmenta functons, sha be e empt from
Unted ngdom ta .
(2) ny saary, wage, smar remuneraton, or penson, pad by the Govern-
ment of the Unted ngdom to an ndvdua (other than a ctzen of the Unted
States who s not aso a rtsh sub|ect) n respect of servces rendered to the
Unted ngdom n the dscharge of governmenta functons, sha be e empt
from Unted States ta .
(3) The provsons of ths artce sha not appy to payments n respect of
servces rendered n connecton wth any trade or busness carred on by ether
of the contractng partes for purposes of proft.
rtc- I.
(1) n ndvdua who s a resdent of the Unted ngdom sha be e empt
from Unted States ta upon compensaton for persona (ncudng professona)
servces performed durng the ta abe year wthn the Unted States f (a) he s
present wthn the Unted States for a perod or perods n t e ceedng n the
aggregate 183 days durng such ta abe year, and (ft) such servces are per-
formed for or on behaf of a person resdent n the Unted ngdom.
(2) n ndvdua who s a resdent of the Unted States sha be e empt from
Unted ngdom ta upon profts, emouments, or other remuneraton n respect
of persona (ncudng professona) servces performed wthn the Unted
ngdom n any year of assessment f (o) he s present wthn the Unted ng-
dom for a perod or perods not e ceedng n the aggregate 183 days durng that
year, and (b) such servces are performed for or on behaf of a person resdent
n the Unted States.
(3) The provsons of ths artce sha not appy to the compensaton, profts,
emouments, or other remuneraton of pubc entertaners such as stage, moton
pcture or rado artsts, muscans and athetes. See Protoco, sgned une 6,
.19 6, page 217, ths uetn.
rtce II.
(1) ny penson (other than a penson to whch rtce appes), and any
fe annuty, derved from sources wthn the Unted States by an ndvdua who
s a resdent of the Unted ngdom sha be e empt from Unted States ta .
(2) ny penson (other than a penson to whch rtce appes), and any
fe annuty, derved from sources wthn the Unted ngdom by an ndvdua
who s a resdent of the Unted States sha be e empt from Unted ngdom ta .
(3) The term fe annuty means a stated sura payabe perodcay at
stated tmes, durng fe or durng a specfed or ascertanabe perod of tme,
under an obgaton to make the payments n consderaton of money pad.
btce III.
(1) Sub|ect to secton 131 of the Unted States Interna Revenue Code as n
effect on the 1st day of anuary, 19 5, Unted ngdom ta sha be aowed as a
credt aganst Unted States ta . For ths purpose, the recpent of a dvdend
pad by a corporaton whch s a resdent of the Unted ngdom sha be deemed
to have pad the Unted ngdom ncome ta approprate to such dvdend f such
recpent eects to ncude n hs gross ncome for the purposes of Unted States
ta the amount of such Unted ngdom ncome ta .
(2) Sub|ect to such provsons (whch sha not affect the genera prncpe
hereof) as may be enacted n the Unted ngdom, Unted States ta payabe n
respect of ncome from sources wthn the Unted States sha be aowed as a
credt aganst any Unted ngdom ta payabe n respect of that ncome. Where
such ncome s an ordnary dvdend pad by a Unted States corporaton, such
credt sha take Into account (n addton to any Unted States ncome ta
deducted from or mposed on such dvdend) the Unted States Income ta
mposed on such corporaton n respect of ts profts, and where t Is a dvdend
pad on partcpatng preference shares and representng both a dvdend at the
f ed rate to whch the shares are entted and an addtona partcpaton n
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21
profts, such ta on profts sha kewse be taken Into account In so far as the
dvdend e ceeds such f ed rate.
(3) For the purposes of ths artce, compensaton, profts, emouments, and
other remuneraton for persona (Incudng professona) servces sha be deemed
to be ncome from sources wthn the terrtory of the contractng party where
such servces are performed.
rtce I .
resdent of the Unted ngdom not engaged In trade or busness n the
Unted States sha be e empt from Unted States ta on gans from the sae or
e change of capta assets.
rtce .
Dvdends and nterest pad on or after the 1st day of anuary, 19 5, by a
Unted ngdom corporaton sha be e empt from Unted States ta e cept
where the recpent s a ctzen of or a resdent of the Unted States or a Unted
States corporaton.
rtce I.
Unted ngdom corporaton sha be e empt from Unted States ta on Its
accumuated or undstrbuted earnngs, profts, ncome or surpus, f ndvduas
who are resdents of the Unted ngdom contro, drecty or Indrecty, through-
out the ast haf of the ta abe year, more than 50 per cent of the entre votng
power n such corporaton.
rtce II.
(1) The Unted States ncome ta abty for any ta abe year begnnng pror
to anuary 1, 1936, of any ndvdua (other than a ctzen of the Unted States)
resdent n the Unted ngdom, or of any Unted ngdom corporaton, reman-
ng unpad on the date of sgnature of the present conventon, may be ad|usted
on a bass satsfactory to the Unted States Commssoner of Interna Revenue:
Provded that the amount to be pad n settement of such abty sha not
e ceed the amount of the abty whch woud have been determned f
(a) the Unted States Revenue ct of 1936 9 Stat., 16 8 (e cept n the
case of a Unted ngdom corporaton In whch more than 50 per cent of
the entre votng power was controed, drecty or Indrecty, throughout
the atter haf of the ta abe year, by ctzens or resdents of the Unted
States), and
(6) rtces and I of the present conventon, had been n effect
for such year. If the ta payer was not, wthn the meanng of such Revenue
ct, engaged n trade or busness n the Unted States and had no offce or
pace of busness theren durng the ta abe year, the amount of nterest
and penates sha not e ceed 50 per cent of the amount of the ta wth
respect to whch such Interest and penates have been computed.
(2) The Unted States ncome ta unpad on the date of sgnature of the
present conventon for any ta abe year begnng after the 31st day of December,
1935, and pror to the 1st day of anuary, 19 5, n the case of an ndvdua (other
than a ctzen of the Unted States) resdent of the Unted ngdom, or In the
case of any Unted ngdom corporaton sha be determned as f the provsons
of rtces and I of the present conventon had been n effect for such
ta abe year.
(3) The provsons of paragraph (1) of ths artce sha not appy
(a) uness the ta payer fes wth the Commssoner of Interna Revenue
on or before the 31st day of December, 19 7, a request that such ta abty
be so ad|usted and furnshed such Informaton as the Commssoner may
requre; or
(6) n any case n whch the Commssoner s satsfed that any defcency
n ta s due to fraud wth ntent to evade the ta .
rtce III.
professor or teacher from the terrtory of one of the contractng partes who
vsts the terrtory of the other contractng party for the purpose of teachng,
for a perod not e ceedng two years, at a unversty, coege, schoo or other
educatona Insttuton n the terrtory of such other contractng party sha be
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e empted by such other contractng party from ta on hs remuneraton for such
teachng for such perod.
rtce I .
student or busness apprentce from the terrtory of one of the contractng
partes who s recevng fu-tme educaton or tranng n the terrtory of the
other contractng party sha be e empted by such other contractng party from
ta on payments made to hm by persons wthn the terrtory of the former
contractng party for the purposes of hs mantenance, educaton, or tranng.
rtce .
(1) The ta aton authortes of the contractng partes sha e change such
nformaton (beng nformaton avaabe under the respectve ta aton aws of
the contractng partes) as s necessary for carryng out the provsons of the
present conventon or for the preventon of fraud or the admnstraton of statu-
tory provsons aganst ega avodance n reaton to the ta es whch are the sub-
|ect of the present conventon. ny nformaton so e changed sha be treated
as secret and sha not be dscosed to any person other than those concerned
wth the assessment and coecton of the ta es whch are the sub|ect of the
present conventon. No nformaton sha be e changed whch woud dscose
any trade secret or trade process.
(2) s used n ths artce, the term ta aton authortes means, n the
case of the Unted States, the Commssoner of Interna Revenue or hs authorzed
representatve; n the case of the Unted ngdom, the Commssoners of Inand
Revenue or ther authorzed representatve; and, n the case of any terrtory to
whch the present conventon s e tended under rtce II, the competent
authorty for the admnstraton n such terrtory of the ta es to whch the
present conventon appes.
rtce I.
(1) The natonas of one of the contractng partes sha not, whe resdent
n the terrtory of the other contractng party, be sub|ected theren to other or
more burdensome ta es than are the natonas of such other contractng party
resdent n ts terrtory.
(2) The term natonas as used n ths artce means
(a) n reaton to the Unted ngdom, a rtsh sub|ects and rtsh
protected persons, from the Unted ngdom or any terrtory wth respect
to whch the present conventon s appcabe by reason .of e tenson made
by the Unted ngdom under rtce II; and
(6) n reaton to the Unted States, Unted States ctzens, and a per-
sons under the protecton of the Unted States, from the Unted States or any
terrtory to whch the present conventon s appcabe by reason of e tenson
made by the Unted States under rtce II;
and ncudes a ega persons, partnershps and assocatons dervng ther status
as such from, or created or organzed under, the aws n force n any terrtory
of the contractng partes to whch the present conventon appes.
(3) In ths artce the word ta es means ta es of every knd or descrpton,
whether Natona, Federa, State, provnca or muncpa.
rtce II.
(1) ther of the contractng partes may, at the tme of e change of nstru-
ments of ratfcaton or thereafter whe the present conventon contnues n
force, by a wrtten notfcaton of e tenson gven to the other contractng party
through dpomatc channes, decare ts desre that the operaton of the present
conventon sha e tend to a or any of ts coones, overseas terrtores, pro-
tectorates, or terrtores n respect of whch t e ercses a mandate, whch mpose
ta es substantay smar n character to those whch are the sub|ect of the
present conventon. The present conventon sha appy to the terrtory or
terrtores named n such notfcaton on the date or dates specfed n the notfca-
ton (not beng ess than 60 days from the date of the notfcaton) or, f no
date s specfed n respect of any such terrtory, on the s teth day after the
date of such notfcaton, uness, pror to the date on whch the conventon woud
otherwse become appcabe to a partcuar terrtory, the contractng party to
whom notfcaton s gven sha have nformed the other contractng, party n
wrtng through dpomatc channes that t does not accept such notfcaton as
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216
to that terrtory. In the absence of such e tenson, the present conventon sha
not appy to any such terrtory.
(2) t any tme after the e praton of one year from the entry nto force of
an e tenson under paragraph (1) of ths artce, ether of the contractng partes
may, by wrtten notce of termnaton gven to the other contractng party
through dpomatc channes, termnate the appcaton of the present conventon
to any terrtory to whch t has been e tended under paragraph (1), and n such
event the present conventon sha cease to appy, s mouths after the date of
such notce, to the terrtory or terrtores named theren, but wthout affectng
ts contnued appcaton to the Unted States, the Unted ngdom or to any
other terrtory to whch t has been e tended under paragraph (1) hereof.
(3) In the appcaton of the present conventon In reaton to any terrtory
to whch t s e tended by notfcaton by the Unted States or the Unted ng-
dom references to the Unted States or, as the case may be, the Unted
ngdom sha be construed as references to that terrtory.
( ) The termnaton n respect of the Unted States or the Unted ngdom
of the present conventon under rtce I or of rtce I sha, uness
otherwse e pressy agreed by both contractng partes, termnate |the appca-
ton of the present conventon or, as the case may be, that artce to any terrtory
to whch the conventon has been e tended by the Unted States or the Unted
ngdom.
(5) The provsons of the precedng paragraphs of ths artce sha appy to
the Channe Isands and the Ise of Man as f they were coones of the Unted
ngdom.
btck III.
(1) The present conventon sha be ratfed and the nstruments of ratfca-
ton sha be e changed at Washngton as soon as possbe.
(2) Upon e change of ratfcatons, the present conventon sha have effect
(a) as respects Unted States ta , for the ta abe years begnnng on or
after the 1st day of anuary, 19 5;
(6) () as respects Unted ngdom ncome ta , for the year of assess-
ment begnnng on the fth day of pr, 19 5, and subsequent years; () as
respects Unted ngdom surta , for the year of assessment begnnng on the
6th day of pr, 19 , and subsequent years; and () as respects Unted
ngdom e cess profts ta and natona defense contrbuton, for any charge-
abe accountng perod begnnng on or after the 1st day of pr, 19 5,
and for the une pred porton of any chargeabe accountng perod current
at that date.
rtce I .
(1) The present conventon sha contnue n effect ndefntey but ether of
the contractng partes may, on or before the 30th day of une n any year after
the year 19 6, gve to the other contractng party, through dpomatc channes,
notce of termnaton and, n such event, the present conventon sha cease to
be effectve
(a) as respects Unted States ta , for the ta abe years begnnng on or
after the 1st day of anuary n the year ne t foowng that n whch such
notce s gven;
(6) () as respects Unted ngdom ncome ta , for any year of assess-
ment begnnng on or after the 6th day of pr n the year ne t foowng
that n whch such notce s gven; () as respects Unted ngdom surta ,
for any year of assessment begnnng on or after the 6th day of pr In the
year n whch such notce s gven; and () as respects Unted ngdom
e cess profts ta and natona defense contrbuton, for any chargeabe
accountng perod begnnng on or after the 1st day of pr In the year ne t
foowng that n whch such notce s gven and for the une pred porton
of any chargeabe accountng perod current at that date.
(2) The termnaton of the present conventon or of any artce thereof sha
not have the effect of revvng any treaty or arrangement abrogated by the present
conventon or by treates prevousy concuded between the contractng partes.
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217
Msc.
In wtness whereof the above-mentoned Penpotentares have sgned the
present conventon and have aff ed thereto ther eas.
Done at Washngton, n dupcate, on the 16th day of pr, 19 5.
For the Government of the Unted States of merca:
sea . It. Stkttnus. r.
For the Government of the Unted ngdom of Great rtan and Northern
Ireand:
sea afa .
protoco.
The Government of the Unted States of merca and the Govern-
ment of the Unted ngdom of Great rtan and Northern Ireand,
Desrng to concude a suppementary protoco modfyng n certan
respects the conventon for the avodance of doube ta aton and the
preventon of fsca evason wth respect to ta es on ncome whch
was sgned at Washngton on pr 16, 19 5 page 209, ths uetn ,
ave agreed as foows:
rtce I.
Paragraph (8) of rtce I of the conventon of pr 16, 19 5, for the
avodance of doube ta aton and the preventon of fsca evason wth respect
to ta es on ncome sha he deemed to be deeted and of no effect.
rtce II.
Ths protoco, whch sha be regarded as an ntegra part of the sad conventon,
sha he ratfed and the Instruments of ratfcaton thereof sha be e changed
at Washngton.
In wtness whereof the undersgned Penpotentares, beng authorzed thereto
by ther respectve Governments, have sgned ths protoco and have aff ed
thereto ther seas.
Done at Washngton, n dupcate, tts 0th day of une, 19 6.
For the Government of the Unted States of merca :
sea ames F. yrnes,
Secretary of State of the Unted States of merca.
For the Government of the Unted ngdom of Great rtan and Northern
Ireand:
sf.a ohn afour,
s Ma|esty s nvoy traordnary and Mnster Penpotentary n
Wushnyton.
nd whereas the sad conventon and the sad suppementary pro-
toco have been ratfed by both Governments, and the nstruments of
ratfcaton of the two Governments were e changed at Washngton
on the 25th day of uy, 19 6;
nd whereas t s provded n rtce III of the sad conventon
that upon the e change of nstruments of ratfcaton the conventon
sha have effect as respects Unted States ta , for the ta abe years
begnnng on or after the 1st day of anuary, 19 5, and sha have
effect as respects Unted ngdom ncome ta , for the year of assess-
ment begnnng on the 6th day of pr, 19 5, and subsequent years,
and sha have effect as respects Unted ngdom surta , for the year
of assessment begnnng on the 6th day of pr, 19 , and subsequent
years, and sha have effect as respects Unted ngdom e cess profts
ta and natona defense contrbuton, for any chargeabe accountng
perod begnnng on or after the 1st day of pr, 19 5, and for the
une pred porton of any chargeabe accountng perod current at
that date;
75 70 7 15
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218
nd whereas t s provded n rtce II of the sad suppementary
protoco that the protoco sha be regarded as an ntegra part of the
sad conventon;
Now, therefore, be t known that I, arkt S. Truman, Presdent
of the Unted States of merca, do hereby procam and make pubc
the sad conventon and the sad suppementary protoco 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 by
the ctzens of the Unted States of merca, and a other persons
sub|ect to the |ursdcton thereof, the sad conventon as modfed by
the sad suppementary protoco beng deemed to have effect as pro-
vded n rtce III of the sad conventon, as aforesad.
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 30th day of uy n the year
of our Lord one thousand nne hundred forty-s and of
sea the Independence of the Unted States of merca the one
hundred seventy-frst.
arry S. Truman.
y (he Presdent:
Dean cheson,
ctng Secretary of State.
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L GISL TION.
19 7-5-12502
. . R S. 57. PU LIC L W 2, IG TI T CONGR SS
C PT 2, FIRST S SSION .
ont Resouton tendng for ffteen months the perod of tme
durng whch acoho pants are permtted to produce sugars or
srups smutaneousy wth the producton of acoho.
Resoved by the Senate and ouse, of Representatves of the Unted
States of merca n Congress assembed, That secton 3126(a) of the
Interna Revenue Code (reatng to emergency producton of sugars
and srups n ndustra acoho pants) s amended bv strkng out
February 1, 19 7, and nsertng n eu thereof pr 30, 19 8, .
pproved February 1, 19 7.
19 7-5-12503
. . R S. 121. PU LIC L W 7, IG TI T CONGR SS
C PT 7. FIIST S SSION .
ont Resouton Grantng, n (e case of ncome, estate, and gft ,
ta es, deductons for contrbutons to the Unted Natons.
Resoved by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed, That secton 23(o) of the
Interna Revenue Code (reatng to the so-caed chartabe contr-
buton deducton) s amended by strkng out the word or at the
end of paragraph ( ) thereof, and bv nsertng at the end of para-
graph (5) the word or , and by addng after paragraph (5) a new
paragraph to read as foows:
(6) the Unted Natons, but ony f such contrbutons or gfts ( ) are to
be used e cusvey for the acquston of a ste n the cty of New York for
ts headquarters, and ( ) are made after December 1, 19 6. and before De-
cember 2, 19-17;
Sec. 2. Secton 23(q) of such code (reatng to the so-caed char-
tabe contrbuton deducton) s amended by nsertng at the end
of paragraph (3) the word or , and by addng after paragraph (3)
a new paragraph to read as foows:
( ) the Unted Natons, but ony f such contrbutons or gfts ( ) are
to be used e cusvey for the acquston of a ste n the cty of New York for
ts headquarters, and ( ) are made after December 1, 19 0, and before De-
cember 19 7;
(219)
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220
Sec. 3. Secton 100 (a) (2) of such code (reatng to deductons for
purposes of gft ta ) s amended by strkng out the perod at the end
of subparagraph ( ), and nsertng n eu thereof a semcoon, and
by addng after subparagraph ( ) a new subparagraph to read as
foows:
(F) the Unted Natons, but ony f such gfts () nre to be used
e cusvey for the acquston of a ste n the cty of New York for Its
headquarters, and () are made after December 1, 19 6, and before
December 2, 19 7.
Sec. . Secton 100 (b) of such code (reatng to deductons for
purposes of gft ta ) s amended by strkng out the perod at the
end of paragraph (6), and nsertng n eu thereof a semcoon, and
by addng after paragraph (6) a new paragraph to read as foows:
(7) the Unted Natons, but ony f such gfts ( ) are to be used e cusvey
for the acquston of a ste n the cty of New York for ts headquarters, and
(R) are made after December 1, 19 6, and before December 2, 19 7.
Sec. 5. The frst sentence of secton 812(d) and the frst sentence
of secton 861(a)(3) of such code (reatng to transfers for pubc,
etc., uses) are hereby amended by nsertng after the words to nfu-
ence egsaton a comma and the words: or to or for the use of the
Unted Natons, but ony f such bequests, egaces, devses, or transfers
to or for the use of the Unted Natons are to be used e cusvey for
the acquston of a ste n the cty of New York for ts headquarters,
and the death of the decedent occurred after December 1, 19 6, and
before December 2,19 7 .
pproved February 26,19 7.
19 7-7-12521
. R. 1030. TU LIC L W 17. IG TI T CONGR SS
C PT R 17, FIRST S SSION .
n ct To contnue n effect certan war e cse ta rates, 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 cse Ta ct of 19 7 .
Sec. 2. Secton 1650 of the Interna evenue Code (war ta rates
of certan msceaneous ta es) s hereby amended by strkng out
and endng on the frst day of the frst month whch begns s
months or more after the date of the termnaton of hosttes n the
present war .
Sec. 3. Sectons 165 (termnaton of reta ta on uggage, etc.)
and 1655 (defnton of date of the termnaton of hosttes n the
present war ) of such Code are hereby repeaed.
Sec. . Secton 1659 of such Code s hereby amended to read as
foows:
S C. 1659. D FINITION OF R T R DUCTION D T .
For the purposes of ths chapter the term rate reducton date means such
date as the Congress sha by aw prescrbe.
Sec. 5. Secton 302(b) (2) of the evenue ct of 19 3 (perod ap-
pcabe to ncrease of ta wth respect to bard and poo tabes
and bowng aeys) s hereby amended by strkng out , and con-
tnung through une 30 ne t foowng the frst day of the frst month
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221
whch begns s months or more after the date of the termnaton of
hosttes n the present war (as defned n Chapter 9 of the Interna
Revenue Code) .
Sec. 6. Secton 309(b) of the Revenue ct of 19 3 (reatng to
draw-back on dsted sprts) s hereby amended by strkng out
and endng on the frst day of the frst month whch begns s
months or more sfter the date of the termnaton of hosttes n the
present war, .
Sec. 7. (a) Secton 2 01 of the Interna Revenue Code (reatng
to the ta on furs) s hereby amended by nsertng after the words
: chef vaue a comma and the foowng: but ony f such vaue s
more than three tmes the vaue of the ne t most vauabe component
matera .
(b) The amendment made by subsecton (a) sha appy n the case
of artces sod on or after the frst day of t he frst month whch begns
more than twenty days after the date of the enactment of ths ct.
Sec. 8. (a) Secton 3 69(a) of the Interna Revenue Code (reatng
to the ta on transportaton of persons) s henby amended by nsert-
ng after the frst sentence two new sentences to read as foows: The
ta sha not appy wth respect to transportaton any part of whch
s outsde the northern porton of the Western emsphere, e cept
wth respect to any part of such transportaton whch s from any
port or staton wthn the Unted States, Canada, or Me co to any
other port or staton wthn the Unted States, Canada, or Me co.
For the purposes of ths secton, the words northern porton of
the Western emsphere mean the area yng west of the thrteth
merdan west of Greenwch, east of the Internatona Date Lne,
and north of the quator, but not ncudng any country of South
merca.
(b) The amendment made by subsecton (a) sha appy to amounts
pad on or after the frst day of the frst month whch begns more
than twenty days after the date of the enactment of ths ct for
transportaton on or after such frst day.
(c) ffectve wth respect to tckets sod or ssued on or after the
frst day of the frst month whch begns more than twenty days after
the date of the enactment of ths ct, secton 1806 of the Interna
Revenue Code (reatng to stamp ta on passage tckets) s hereby
repeaed.
pproved March 11, 19 7.
19 7-10-12553
. R. 2 01. PU LIC L W 2, IG TI T CONGR SS
C PT R 5, FIRST S SSION .
n ct To suspend certan mport ta es on copper.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That the mport
ta mposed under secton 3 25 of the Interna Revenue Code sha not
appy wth respect to artces (other than copper suphate) entered
for consumpton or wthdrawn from warehouse for consumpton
durng the perod begnnng wth the day foowng the date of the
enactment of ths ct and endng wth the cose of March 31,19 9.
pproved pr 29, 19 7.
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222
19 7-13-12580
S. 1073. PU LIC L W 93, IG TI T CONGR SS
C PT R 105, FIRST S SSION .
n ct To e tend unt une 30, 19 9, the perod of tme durng
whch persons may serve n certan e ecutve departments and agen-
ces wthout beng prohbted from actng as counse, agent, or
attorney for prosecutng cams aganst the Unted States by reason
of havng so served.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed, That subsecton (|)
of the Renegotaton ct (50 U. S. C, Supp. , pp. sec. 1191 (|)) s
amended to read as foows:
(|) Nothng n sectons 109 and 113 of the Crmna Code (U. S. C, tte IS,
sees. 198 and 203) or n secton 190 of the Revsed Statutes (U. S. C, tte 5, sec.
99) sha be deemed to prevent any person by reason of servce n a department
or the oard durng the perod (or a part thereof) begnnng May 27, 19 0, and
endng on une 30,19 9, from actng as counse, agent, or attorney for prosecutng
any cam aganst the Unted States: Provded, That such person sha not prose-
cute any cam aganst the Unted States (1) Invovng any sub|ect matter d-
recty connected wth whch such person was so empoyed, or (2) durng the
perod such person s engaged n empoyment n a department.
pproved une 1 , 19 7.
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IND
.
ccrua perod, ncome from retroactve ncrease of ar ma
rates
dmssons, Reguatons 3 amended. (See Msceaneous
ta es.)
ffated corporatons, fng consodated returns, fsca years
endng n 19 6, eecton to fe separate returns
r ma rates, ncome from retroactve ncrease of, accrua
perod 1
coho, ndustra:
Reguatons 3 amended
Sugars and srups, emergency producton n ndustra
acoho pants
en, nonresdent:
enefcary of ncome of domestc trust, aocaton of
e pense
Smpfed estate ta return
mendments:
uetn on Secton 722
Substanta detrment rue n commtment cases..
Federa coho dmnstraton ct
Sectons 171. c, 171. d
Interna Revenue Code
Sectons 23(o), 23(q), 812(d), 861(a)(3), 100 (a)(2),
and 100 (b)
Secton 3126(a)
War e cse ta rates, certan, contnued n effect
(P. L. 17)
Reguatons 112
Secton 35.722-2(6)
Reguatons 111
Secton 29.116-5 (added).
Reguatons 109
Secton 30.722-2(6)
Reguatons 85
rtce 85
Reguatons 71 (19 1)
Secton 113.90
Reguatons 59 (19 1)
Secton 323.32
Reguatons 51 (19 1)
Sectons 320.0, 320.1, 320.38, 320. 0, 320. 2, 320.51..
Reguatons 6 (19 0)
Secton 316.181
Reguatons 3 (19 1)
Sectons 101.0 and 101.1
Reguatons 2 (19 2)
Sectons 130.0, 130.1, 130.30, 130.33, 130.36, 130.38,
130.39, 130. 1, 130.50, 130.51, 130.52, 130.53,
130.55, 130.57, 130.6 (added), 130.65..
Rung No.|
12556
12565
12556
12508
12530
12 81
12 99
12566
12507
12503
12502
12521
125 8
12528
125 8
125 2
125 1
12558
125 0
12560
12559
125
(223)
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22
mendments Contnued
Reguatons 3
Sectons 182.220,
(added), 182.222,
182.225, 182.231,
182.2 0a (added),
182.2 2, 182.2 3,
182.2 9, 182.250,
(added), 182.253-
182.257b (added),
182.220a (added), 182.220b
182.22 , 182.22 a (added),
182.235, 182.238, 182.239,
182.2 0b (added), 182.2 1,
182.2 5, 182.2 7, 182.2 8(6),
182.250a (added), 182 252a
182.257, 182.257a (added),
182.257c (added), 182.258,
182.282(d), and 182.292(a).
Secton 182.7c (added)
Treasury Decson
898 (C. . 1939-1 (Part 1), 36 )
nttrust aws, earnngs attrbutabe to voatons of, treatment.
rgentna, natona emergency ta , credt aganst Federa n-
come ta
rzona, communty property, ncome from survvng spouse s
nterest durng perod of admnstraton of decedent s estate.
rmy offcer, deceased, mtary pay and aowances, treatment
for ncome ta purposes
ttorney fees pad by wfe n effort to ncrease amony pay-
ments, and by husband n resstng such sut, deductbty..
utomobe furnshed dsabed veteran by ct of Congress,
vaue of, treatment
verage base perod net ncome:
Computaton
Constructve, determnng
No,
.
ankruptcy ct, e changes n reorganzaton, canceaton of
ndebtedness
asc permt procedure under Federa coho dmnstraton
ct, amended
ard and poo tabes. (See Msceaneous ta es: Speca
ta es.)
owng aevs. (See Msceaneous ta es: Speca ta es.)
uetn on Secton 722, commtment cases, substanta detr-
ment rue amended
ureau of Interna Revenue:
Pocy wth respect to so-caed famy partnershps
Procedure wth respect to fed determnatons of ta
abty, etc
Canada, state ta procedure and forms, death duty conven-
tons wth Unted ngdom and
Canceaton of ndebtedness, e changes n reorganzaton
under ankruptcy ct
Capta e pendtures, cost of me spread on farm ands, deduct-
bty
Capta gans, benefcares of e empt empoyees trust, ta abty
Check for wages not cashed before death of recpent to be re-
ssued n face amount
Cgarettes:
Statement of remova of, for consumpton
November, 19 6 and 19 5. _
December, 19 6 and 19 5
anuarv, 19 7 and 19 6
February, 19 7 and 19 6.
March, 19 7 and 19 6
pr, 19 7 and 19 6
12508
12530
12568
12 98
12 80
12 90
12576
1257
12573
12577
12578
12575
12507
12566
12515
12527
12512
12575
12505
12529
12 82
12 72
12 87
12501
12520
12552
12570
Page.
186
185
180
78
56
36
5
23
9
90
92

183
89
66
0
150

12
65
207
207
207
207
208
208
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225
Communcaton and transportaton servces, certan, regua-
tons amended
Communty property, rzona, ncome from survvng spouse s
nterest durng perod of admnstraton of decedent s estate.
Compensaton, mtary pay and aowances of deceased rmy
offcer, treatment
Constructve average base perod ended uy 31, 19 0, corpora-
ton opens new stores after December 31, 1939, treatment
Contrbutons:
mpoyer to empoyees trust, etc., deductbty
Gfts to Unted Natons, deductbty
Conventon and protoco, doube ta aton, Unted States and
Unted ngdom
Conveyances or transfers of rea estate or securtes by traders
or nondeaers, deductbty, for Federa ncome ta purposes,
of stamp ta es pad
Copper, suspenson of certan mport ta es on (P. L. 2)
Corporatons:
ffated
ecton to fe separate ncome ta returns, fsca years
endng n 19 7
Dstrbutons, dvdends, gan or oss
Operatng stores n dfferent ctes, base perod ended uy
31, 19 0, new stores opened after December 31, 1939,
treatment
Predecessor, effect on earnngs or profts of certan ta -free
e changes, etc
Refund, cam for, surta on undstrbuted profts
Corporatons, foregn, rtsh ta es pad by nsurance com-
panes dong busness n the Unted States, determnaton of
ratabe part deductbe for Federa ncome ta purposes
Court decsons:
ozza v. Unted States
Campbe; Peope of the State of Inos, etc., v
Commssoner; Crane v
Commssoner v. ohn, r
Commssoner v. Munter
Crane v. Commssoner
ectrc Storage attery Co.; Rohenses v
ohn, r.; Commssoner v
Munter; Commssoner v
Ogve ardware Co., Inc.; Unted States v
Peope of the Stae of Inos, etc., v. Campbe
Rotnenses v. ectrc Storage attery Co
Unted States; ozza v
Unted Sates v. Ogve ardware Co., Inc
Credts:
rgentne natona emergency ta
Indvduas
Ta payer s wfe ded durng ya abe year 19 6, he re-
marryng same year, status
Credts of ndvdua aganst net ncome, chd born to member
of armed forces and aen mother, treatment
Rung No.
Deductons:
mount pad by essee as damages for faure to sur-
render property n as good order, etc
rtsh ta es pad by nsurance companes dong busness
n the Unted States, determnaton of ratabe part de-
ductbe for Federa ncome ta purposes
Contrbutons, gfts to Unted Natons
Contrbutons of an empoyer to an empoyees trust, etc..
Cost of me spread on farms
125
12 90
12576
12 92
12533
12503
12 95
12 67
12553
12565
125 7
12 92
1256
12550
12 70
12509
12 85
125 9
1253
1250
125 9
12 76
1253
1256
12550
12 85
12 76
12509
12550
12 80
12168
12535
12555
12 70
12503
12533
12505
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226
Rung No.I
Deductons Contnued.
Insurance companes other than fe or mutua, unearned
premums from reserves mantaned for noncanceabe
poces
New York State franchse ta , accrua date
Porta-to-porta back pay and qudated damages
Traveng e penses of State egsators
Dependent:
Chd born to member of armed forces and aen mother
eteran enroed for educatona tranng under Servce-
men s Read|ustment ct, status
Deprecaton, farm and, cost of me spread thereon
Dsted sprts, operaton of st wth ntent to defraud Govern-
ment of ta es, doube |eopardy
Dvdends, dstrbutons by corporatons, gan or oss :
Doube ta aton, conventon and protoco:
state ta , Unted ngdom and Unted States
Income ta , Unted States and Unted ngdom
Dues, reguatons amended. (See Msceaneous ta es.)
.
arnngs attrbutabe to voatons of anttrust aws, treatment.
arnngs, 1939, constructve, use of nde es n determnng con-
structve base perod net ncome from
ectrc ght bubs and tubes, Reguatons 6 amended
mpoyees trusts:
Ta abty of benefcary under trust meetng requrements
of secton 165(a)
Termnaton or curtament, appcaton of prncpes affect-
ng pror quafcaton
mpoyment ta es:
Federa nsurance contrbutons ta es, prorty of Unted
States cams
Interna Revenue Code
Raroad Retrement Ta ct
d|ustment and credt procedure
Changes n rates of ta
Wages, back pay awards made by order of Natona
Labor Reatons oard
quty, meanng of term
state ta :
Conventons wth Unted ngdom and Canada
Doube ta aton, conventon wth Unted ngdom
Procedure and forms pursuant to death duty conventons
wth Unted ngdom and Canada
state ta return, nonresdent aen, smpfed form
cess profts ta , constructve average base perod net ncome,
computaton of, reguatons amended
cess Profts Ta Counc:
verage base perod net ncome
Computaton
Constructve, determnng
Commtment cases, substanta detrment rue amended.
Constructve average base perod net ncome of corporaton
openng new stores after December 31, 1939, treatment..
Corporaton changng operatng methods durng base
perod, such change not resutng n hgher eve of earn-
ngs, may quafy for reef under secton 722(b)(5)
arnngs attrbutabe to voatons of anttrust aws, treat-
ment
Inadequate standard of norma earnngs, meanng of
12557
125 6
12 79
12 97
12535
12 7
12505
12509
125 7
12511
12 95
12 98
12 91
12560
12529
12536
12 85
12517
12 8
12516
125 9
12511
12567
12512
12 99
125 8
12577
12578
12566
12 92
12522
12 98
12571
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227
Rung No.
cess Profts Ta Counc Contnued.
Recognton of fuctuaton, abnorma varaton, and
growth n determnaton of constructve average base
perod net ncome
Subsecton (b) cases, tests of the event or condton n
Use of nde es n determnng constructve average base
perod net ncome from 1939 constructve earnngs
arabe credt rue
cse ta :
Recoupment of, treatment for ncome ta purposes
Tennessee, accrua date
emptons:
Farmers cooperatve marketng and purchasng assoca-
tons
aue of automobe furnshed dsabed veteran by ct of
Congress
emptons, persona, ta payer s wfe ded durng ta abe year
19 6, he remarryng same year, status
portaton of tobacco manufacturers, etc., wthout payment
of ta , reguatons
tenson of tme durng whch acoho pants may produce
sugars or srups (P. L. 2)
F.
Farmers cooperatve marketng and purchasng assocatons,
when e empt
Farmers, cost of me spread on farm and, deductbty
Federa Frearms ct of 1938. reguatons amended
Federa Trade Commsson, nspecton of returns
Frearms ct, Federa, 1938, reguatons amended
Foregn corporatons, onduras satsfes equvaent e empton
provsons of Code
Foregn Servce personne, e cuson from gross ncome of certan
aowances
Franchse ta , Tennessee, accrua date - _
Furs. (See aso Retaers e cse ta .)
empton of addtona artces from retaers e cse ta .
G.
Gan or oss:
Dvdends dstrbuted by corporaton
Federa stamp ta es pad on sae or conveyance of rea
estate or securtes by traders or nondeaers, computaton
of :
Proceeds of sae of a put or ca, status for ncome ta
purposes..
Property, sae of; equty defned
Reorganzaton, e changes n, under ankruptcy ct, can-
ceaton of ndebtedness
Gross ncome:
utomobe furnshed dsabed veteran by ct of Congress,
vaue of, deductbty
Contrbutons of an empoyer to an empoyees trust, etc.,
deductbty
Deceased rmy offcer, mtary pay and aowances, de-
ductbty
cuson of certan aowances of Foregn Servce personne
Federa stamp ta es on conveyance or sae of securtes or
rea estate by traders or nondeaers, deductbty
Fees pad by husband n resstng wfe s sut for ncreased
amony, deductbty
12538
12537
12-191
12539
12 76
12525
12526
12563
12573
12 68
12 93
12502
12563
12505
12568
12513
12568
12506
12528
12525
12526
12523
125 7
12167
12 75
125 9
12575
12573
12533
12576
12528
12 67
1257
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228
Gross ncome Contnued.
onduras satsfes equvaent e empton provsons of sec-
tons 212(b) and 231(d)
Income from retroactve ncrease of ar ma rates, accrua
perod
Insurance companes other than fe or mutua, unearned
premums, reserves mantaned for noncanceabe po-
ces, deductbty
Losses
mount pad by essee as damages for faure to sur-
render propertv n as good order, etc., deduct-
bty
Lump sum accepted from ta payer n compromse of ta
defcences, deductbty
Payments to wdow or hers under terms of vountary death
benefts pan of empoyer
Proceeds of sae of put or ca
.
onduras, satfes equvaent e empton provsons of sectons
212(b) and 231(d)
usband and wfe:
rzona, ncome from survvng spouse s nterest durng
perod of admnstraton of decedent s estate
ttorneys fees n sut by wfe for ncreased amony, de-
ductbty
Losses from saes or e change of property between, treat-
ment
Wfe ded durng ta abe year 19 6, ta payer remarred
same year, status as to persona e empton
I.
Inadequate standard of norma earnngs, meanng of
Inde es, use of, n determnng constructve average base perod
net ncome from 1939 constructve earnngs
Intaton fees, reguatons amended. (See Msceaneous ta es.)
Inspecton of returns:
Federa Trade Commsson
Nava ffars Commttee, ouse of Representatves
Insurance companes (other th n fe or mutua):
Ta es pad by rtsh, dong busness n Unted States, de-
termnaton of part deductbe for Federa ncome ta
purposes
Other than fe or mutua, unearned premums from
reserves mantaned for noncanceabe poces, deduct-
bty
Interest:
Lump sum accepted n compromse of ta defcences,
deductbty
Money borrowed n 1911 and 19 2 for farm operatons,
nterest pad n 19 5, deductbty
.
eopardy, doube, court resentence docs not pace defendant n.
ewery. (See Retaers e cse ta .)
Legsaton:
ghteth Congress
Pubc Law o. 2..
Pubc Law No. 7..
Pubc Law No. 17.
Pubc Law No. 2.
Pubc Law No. 93.
L.
Rung No.)
12506
12556
12557
12555
12562
12 89
12 75
12506
12 90
1257
1253
12 68
12571
12 91
12513
12 69
12 70
12557
12562
12 06
12509
12502
12503
12521
12553
12580
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229
Losses:
mounts pad by essee as damages for faure to surrender
property n as good order, etc., deductbty
usband and wfe, transactons between, deductbty
Luggage. (See Retaers e cse ta .)
M.
Manufacturers e cse ta es, eectrc ght bubs and tubes,
Reguatons 6 amended
Manufactures, tobacco, etc., e portaton of, wthout payment
of ta , reguatons
Msceaneous ta es:
dmssons, dues, and ntaton fees, Reguatons 3
amended
Passage tckets, repea of stamp ta on t
Sver buon, nventory repacements
Speca ta es
owng aeys, bard and poo tabes, Reguatons 59
amended
Stamp tu es
Passage tckets, Reguatons 71 (19 1) amended
Transportaton of persons, certan foregn trave, e empton
from ta
War e cse ta rates, contnuaton
Money borrowed n 19 1 and 19 2 for farm operatons, deduct-
bty of nterest pad n 19 5
N.
Nava ffars Commttee, ouse of Representatves, nspecton
of returns by _
Net ncome, computaton of constructve average base perod,
reguatons amended
New York, State franchse ta , accrua date for ncome ta pur-
poses
0.
Oeomargarne:
Schedue of producton and materas used
November, 19 6 and 19 5
December, 19 6 and 19 5..
anuary, 19 7 and 19 6
February, 19 7 and 19 6.
March, 19 7 and 19 6.
pr, 19 7 and 19 6
Partnershps, ureau of Interna Revenue pocy wth respect
to so-caed famy partnershps 12515
Passage tckets:
Reguatons 71 (19 1) amended.. I 125 1
Repea of stamp ta on I 12523
Payments to wdow or hers under terms of vountary death
benefts pan of empoyer, ta abty 12 89
Porta-to-porta back pay and qudated damages, when de-
ductbe 12 79
Procedure, ureau, fed determnatons of ta abty 12527
Profts, surta on undstrbuted, cam for refund 12550
Property acqured by devse, etc., sae of, gan or oss 125 9
Rung No.
12555
1253
12560
12 93
12559
12523
125 2
12558
125 1
12523
125
12523
12 66
12 69
125 8
125 6
12 77
12 9
12510
12531
12551
12579
G
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-
0
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230
Pubc Laws:
ghteth Congress
No. 2, e tendng tme durng whch acoho pants
may produce sugars and srups
No. 7, deductons, contrbutons to Unted Natons
No. 17, contnung n effect certan war e cse ta rates
No. 2, suspendng certan mport ta es on copper
No. 93, e tendng unt une 30, 19 9, perod durng
whch persons may serve as attorneys, etc., n e ecu-
tve departments, etc
Put or ca, proceeds of sae of, gan or oss
R.
Recoupment, doctrne of, as affectng offset of one transacton
aganst another...,
Reguatons. See mendments: Reguatons.)
Saary Stabzaton, amended; Part 1003 added
Refunds, cams for, surta on undstrbuted profts
Reproducton of Form W-2, Wthhodng statement for 19 7,
rues for
Retaers e cse ta :
Furs, e empton of certan artces from
Reguatons 51 (19 1) amended
Returns:
state ta , nonresdent aen, form smpfed
amnaton and determnaton of ta
Inspecton by Commttee on Nava ffars, ouse of
Representatves
Inspecton by Federa Trade Commsson
Separate ncome ta , eecton of affated corporaton to
fe..
S.
Safe depost bo es, reguatons amended
Saary stabzaton, reguatons amended
Secton 722 cases:
Cams, egbty, requrements n subsecton (b) cases..
Recognton of fuctuaton, abnorma varaton, and growth
n determnaton of constructve average base perod net
ncome
arabe credt rue
Servcemen s Read|ustment ct of 19 , as amended, veteran s
status as to dependency
Sver buon, nventory requrements, Reguatons 85 amended
South Carona, husband and wfe, osses from transactons be-
tween, treatment
Stamp ta es:
Federa, deductbty by traders or nondeaers upon trans-
fers, etc., of rea estate or securtes
Passage tckets, Reguatons 71 (19 1) amended
State:
Legsators, traveng e penses
New York franchse ta accrua date for ncome ta pur-
poses
Prorty of Unted States cams for Federa nsurance con-
trbutons ta es
Stock, e changed for stock n new corporaton n reorganza-
ton, treatment for ncome ta purposes
Sugars and srups:
mergency producton at ndustra acoho pants
tenson of tme durng whch acoho pants mav produce
(P. L. 2)....
Rung No.
12502
12503
12521
12553
12580
12 75
12 76
12518
12550
12 83
12523
125 0
12 99
12527
12 69
12513
12565
125
12518
12537
12538
12539
12 7
125 2
1253
12 67
125 1
12 97
125 6
12 85
1256
12530
12502
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231
Rung No.
Ta Court of the Unted States, The. formery Unted States
oard of Ta ppeas:
Decsons of, st of acquescences and nonaequescenses
Ta es, foregn, rgentne natona emergency ta , credt for
Ta es on copper, certan mport, suspenson
Tennessee, e cse and franchse ta es, accrua date
Tobacco:
portaton wthout payment of ta of manufactures of,
etc., reguatons . .
Statement of manufactured, produced, bv casses
October, 19 6 and 19 5 .
November, 19 6 and 19 .5
December, 19 0 and 19 5...
anuary, 19 7 and 19
February, 19 7 and 19 6
March, 19 7 and 19 0
Toet preparatons. (See Retaers e cse ta )
Trade or busness, money borrowed n 19 1 and 19 2 for farm
operatons, deductbty of nterest pad n 19 5-
Transportaton of persons, certan foregn trave, e empton
from ta
Trave, certan foregn, e empton from transportaton ta
Traveng e penses, State egsators
Trust, ncome of a domestc, dstrbutabe to nonresdent aen
benefcary, aocaton of e pense
Trusts:
mpoyees
Ta abty of benefcary under trusts meetng re-
qurements of secton 105(a)
Termnaton or curtament, appcaton of prncpes
affectng pror quafcatons
U
Unted ngdom:
Doube ta aton, conventon and protoco wth Unted
States .
state ta , doube ta aton conventon wth
state ta procedure and forms, death duty conventons
wth Canada and
Unted Natons, contrbutons to, deductbty
12572
12 80
12553
12525
12520
12 93
12 71
12 S6
12500
12519
125 3
13569
12 66
12523
125
12523
12197
12 81
12529
12536
12 95
12507
12512
12503
eteran enroed for educatona tranng under Servcemen s
Read|ustment ct, status as a dependent
oaton of nterna revenue aws wth ntent to defraud Gov-
ernment of ta es, doube |eopardy
W
Wages:
Check for, not deposted before death of recpent, to be
ressued n face amount
Porta-to-pbrta back pay, when deductbe
Wages and saares, procedure to mpement functons vested
n Commssoner of Interna Revenue
War e cse ta rates, contnuaton
Wt hhodng statement for 19 7, rues for reproducton
Wthhodng ta at source, aocaton of e pense of ncome of a
domestc trust, dstrbutabe to nonresdent aen
12 7
12509
12182
12179
12518
12523
12 83
12 81
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