Bureau of Internal Revenue Cumulative Bulletin 1945

SP CI L TT NTION faceted to the cautonary notce on ths page that pub-
shed rungs of the ureau do not have the force and effect
of Treasury Decsons and that they are appcabe ony to facts presented n the pubshed case
Treasury Department : : : : ureau of Interna Revenue
Interna Revenue uetn
Cumuatve uetn 1945
NU RY-D C M R 1945
IN T IS ISSU
Pe
Introductory Notes I
Contents - II
Rungs Nos. 11917-12200
Ta Court of the Unted States, The, formery Unted
States oard of Ta ppeas . . .... 1-9
Income Ta
Part I ( . Interna Revenue Code and . 193
ct) 10-352
Part n (1937 and 1936 cts) 353-366
Part III (1935 and 1934 or Pror cts) .... 367-36
mpoyment Ta es 369-3 0
Msceaneous Ta es
state and Gft Ta es 3 1-429
Saes Ta es, Stamp Ta es, etc 430-15
Msceaneous Rungs 459-529
Legsaton 530-561
Commttee Reports 565-657
Inde 659-67
The rungs reported n the Interna Revenue uetn are for the nformaton of ta payers nd ther counse as
showng the trend of offca opnon n the admnstraton of the ureau of Interna Revenue the rungs other than
Treasury Decsons have none of the force or effect of Treasury Decsons and do no I commt the Department to
any nterpretaton of the aw whch has not been formay approved and promugated by the Secretary of the
Treasury- ach rung embodes the admnstratve appcaton of the aw and Treasury Decsons to the entre
te of facts upon whch a partcuar case rests. It s especay to be noted that the same resut w not neces-
sary be reached n another case uness a the matera1 facts are dentca wth those of the reported case. s t s
not aways feasbe to pubsh a compete statement of the facts underyng each rung, (here can be no assurance
that aay new case s dentca wth the reported case. s bearng out ths dstncton, t may be observed that the
ra tngs pubshed from tme to tme may appear to reverse rungs prevousy pubshed.
Offcers af the ureau of Interna Revenue are especay cautoned aganst reachng a concuson n any case
merey on the bass of smarty to a pubshed rung, and shoud base ther |udgment on the appcaton of a
pertnent provsons of the aw and Treasury Decsons to a the facts n each case. These rungs shoud be used
as ads n studyng the aw and ts forma constructon as made n the reguatons and Treasury Decsons pre-
vousy ssued.
In addton to pubshng a Interna Revenue Treasury Decsons, t s the pocy of the ureau of Interna
Revenue to pubsh a rungs and decsons, ncudng opnons of the Chef Counse for the ureau of Interna
Revenue whch, because they announce a rung or decson upon a nove queston or upon a queston n regard
fo whch there e sts no prevousy pubshed rung or decson, or for other reasons, are of such mportance as
to be af genera nterest- It s aso the pocy of the ureau to pubsh a rungs or decsons whch revoke,
modfy, amend, or affect n any manner whatever any pubshed rung or decson- In many nstances opnons
of the Chef Counse for the ureau of Interna Revenue are not of genera nterest because they announce no
new rung or new constructon of the revenue aws bat smpy appy rungs aready made pubc to certan
vauatons 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
s tca caUy ndcated, a pubshed rungs and decsons have receved the consderaton and approva of the
Chef Counse for the ureau of Interna Revenue.
UNIT D ST T S GO RNM NT PRINTING O IC : W S INGTON : 946
for sae by Superntendent of Documents. U. S. Government Prntng Offce Washngton 25. D. C
See back of tte for prces
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The Interna Revenue uetn servce for 1946 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
(ncudng 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. 4, 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 cents per copy.
Persons desrng to obtan the Interna Revenue uetn servce for
the years 1922 to 1945, ncusve, may do so at prces as foows:
Year.
1922.
1923-
1924.
1925-
1926-
1927.
192 .
1929.
1930.
1931.
1932.
1933.
1934.
1935.
1936.
1937.
193 .
1939.
1940.
1941.
1942.
1943.
1944.
1945.
Camu atve uetn.,
rst 6 months. Second 6 months.
1-1
II-
III-
I - 1
-
I-
II-1
I II-
I -1
-
. I-1
II 1
III- 1
I - 1
-1
1937- 1
193 - 1
1939-1
Part 1
1 Part 2
1940- 1
1941- 1
1942- 1
1-2
II-2
III- 2
I - 2
-2
I-2
LI-2
II1-2
I -2
-2
I-2
I1-2
III- 2
I - 2
-2
1937- 2
193 - 2
1939- 2
1940- 2
1941- 2
1942- 2

Prce (cents).
40, 30
30, 40
50, 50
40, 35
40, 30
40, 40
35, 50
50, 55
50, 50
65, 30
30, 55
30, 50
50, 60
50, 50
55, 45
60, 5
60, 50
1
30, 60
45, 60
40, 60
1. 25
SI. 50
1. 00
ouse, Senate, and conference reports on revenue bs from October 3, 1913, to Revenue
ct of 193 , ncusve: and on amendments thereto.
Persons desrng to obtan the servce n dgest form may do so at
prces as foows: Dgest No. 13 (1922-1924), 60 cents Dgest No. 17
(1925), 25 cents Dgest No. 21 (1926), 15 cents Dgest No. 22 (1925-
1927), 35 cents and Dgest (ncome ta rungs ony, pr, 1919, to
December, 1930, ncusve), 1.50.
nqures n regard to these pubcatons and subscrptons shoud
be sent to the Superntendent of Documents, Government Prntng
Offce, Washngton 25, D. C.
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INTRODUCTORY NOT S.
The Interna Revenue Cumuatve uetn for 1945, 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,
msceaneous ta es, and commttee reports, as ndcated on the tte
page of ths uetn, pubshed n the semmonthy uetns (1945,
No . 1 to 24, ncusve) for the perod anuary 1 to December 31,
1945. It aso contans a st of announcements reatng to decsons
of The Ta Court of the Unted States, formery Unted States oard
uetns from anuary 1, to December 31, 1945.
Income Ta rungs are prnted n three parts. The rungs n
Part I are prnted as Part I, (Interna Revenue Code) and
(Revenue ct of 193 ), the aw headngs correspondng wth the
sectons of the Code, as amended, and the 193 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-
mgsof Reguatons 94. Rungs under the Revenue cts of 1935 and
1934 or pror cts are prnted as Part III, the aw headngs corre-
spondng wth the secton headngs of the Revenue ct of 1934 and the
reguatons headngs correspondng wth the artce headngs of
Reguatons 6.
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, 1940, 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
1,1940, are pubshed under the secton headngs of Reguatons 106
md 107, respectvey rungs 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
The foowng abbrevatons are used throughout the uetn:
. , C, etc. The names of ndvduas.
. R. M. Commttee on ppeas and Revew memorandum.
R. R. Commttee on ppeas and Revew recommendaton.
. T. coho Ta Unt.
. T. oard of Ta ppeas.
C. . Cumuatve uetn.
Ct. D. Court decson.
Interna Revenue
R I TIONS.
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I
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.
. 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.
Mm. Mmeographed etter.
MS. or M. T. Msceaneous Dvson.
O. or L. 0. Soctor s aw opnon.
0. D. Offce decson.
Op. . G. Opnon of the ttorney Genera.
P. T. Processng Ta Dvson.
S. T. Saes Ta Dvson.
S. Sver Ta Dvson.
S. M. Soctor s memorandum.
So. Op. Soctor s opnon.
S. R. Soctor s recommendaton.
S. S. T. 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 O T T COURT O T UNIT D
ST T S, ORM RLY NOWN S T UNIT D ST T S O RD O 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 Reve-
nue as precedents n the dsposton of other cases.
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CUMUL TI CONT NTS
Ttasry
SI ..
S O...
SOI...
S ...
S ...
SW...
3437..
set...
S440...
SMI..
S442..
SW..
S444..
S44S...
S445...
S 7..
S44 ...
S449..
SSO..
sts...
StM..
5)53..
MM..
55...
545 ...
57..
Rung No.
1915-1-11917
1945-1-11921
1945-1-11929
1945-2-11936
1945-2-11937
1945-2-11942
1945-2-U946
1945-3-11950
1945-3-11955
1945-3-11953
1945-3-11949
194.5-3-11961
1945-3-11962
1915-4-11965
1945-4-11970
1945-4-11974
1945-4-11977
1945-5-119 5
1945-5-119 9
1945- -11994
1945-6-11993
1945-6-1199
1945-6-11999
1945-7- 12O04
1945-7-12006
1945-7-12011
1945-7-12013
1945-7-12014
1945- -12027
1945-9-12034
1945-9-12041
1945-10-12043
1945-13-12064
1945-12-12063
1945-12-1200
1945-13-12070
1945-13-12074
1945-13-12075
1945-14-120 6
1945-14-12037
1945-14-120
1945-14-120S9
1945-14-12090
1945-14-12091
1945-15-12104
1945-16-12111
1945-17-12123
1945-17-12122
1945-17-12124
1945-17-12125
1945-17-12120
1945-17-12121
1945-1 -12135
1945-1 -12133
1945-19-12146
1945-19-12142
1945-19-12144
1945-19-12140
1945-19-1214
1945-21-12162
1945-22-12173
1915-23-121 4
1945-24-12197
1945-1-11924
1945-2-11941
1945-2-11943
1945-3-1195
1945-4-11969
1945-4-11973
1945-4-11972
1945-4-11971
1945-5-119 1
1945-5-119 2
Page.
70
2 rO
10
196
243
462
474
:t .9
oa
IS,
15
4 1
471
115
413
509
453
154
214
2 9
2.11
471
475
10
251
256
17
472
120
206
14
6
3 1
333
149
45
193
260
2 4
472
4 2
too
492
496
494
332
415
402
411
4 9
279
2 0
435
226
496
202
439
234
456
4 0
277
I S
479
s
316
459
433
343
421
110
4U.1
IM
40
Rung.
Court decsons Contnued.
1632
1633
1633 (modfed)
1634
1635
1636
1637
163
1639
1640
1641
1912
1613
1614
1615
164
1647
164
1649
1650
1551
1652
1653
1654
1055
Chef Counse s memoranda
24423 .:
24461
24599
24017
24702
24749 ..
Ta Court of Unted States:
77
159
200
221
350
399
425
420
556
656
577
57
679
5 2
695
596
01
6 5
692
70
15
34
1021
1024
1060
1145
1146..
1193.
1275
1276
1277
136
13 2
1497
149
1527
1565
1506
1567
1616
Rung No.
1946-6-119 3
1945- 6-11991
194.5- -1202
1946- 0-U9 5
1945-0-11996
1945-7-12002
1945- -12023
1945- -12022
1945-9-12036
1945- - 20.r,7
1946- 11-1205 )
1945-12-12067
1945-13-12071
1915-13-12077
1945-14-120 4
1945-19-1213
1945-22-12104
1915-22-12169
1945-23-121S5
1945-23-121 3
1915 2.1 121 1
194 23-I21S2
1945-24-12190
1945-24-1219
1945-24-12199
1945-1-11920
1945-15-12090
1945-9-12032
1945- -12021
1945-19-12141
1945-1 -12134
1945-9-12029
1945-4-11963
1945-10-12042
1945-7-12001
1945-20-12149
1045-21-12153
1945- 11-1204
1946- 11-1204
194.1-10-12105
1946-16-1210
1945-16-12105
11(45-16-12105
1945- 16-12105
1946- 13-12069
1946-15-12095
194.5-15-12095
191.5-13-12069
1945-13-12069
1945- 9-12029
1946-4-11963
1945-9-12029
1945-9-12029
1046-3-11947
1945-3-11917
1045- 16-12105
1945-0-11990
1945- 6-11900
1945-21-12153
1946- -12015
11(15- -12015
1946- -12016
1945-13-12069
1 4.1-9 12029
1046- 22-12163
1046-22-12163
1046-11-1204
1046-20-12140
194. .- 20-12149
1915-20-12149
/1045-2I-12163
11945-17-12117
( )
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Rung.
3721
vn
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3731...
ste...
3733...
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3715...
3736...
37...
373 ...
3739...
re...
3741...
3712...
3743...
3744...
3745...
3745...
S47...
374 ...
49...
3750...
3751...
S...
3754...
37M...
3756...
3759...
ISO...
377
3773
3774....
dersons ( . T.):
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a.
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Rung No.
1945-6-11992
1945-7-12O03
1945-7-12005
1945-7-12010
1945- -12016
1945- -12017
1945- -1201
1945- -12019
1945- -12020
1945- -12024
1945-9-12030
1945-9-12031
1945-9-12033
1945-9-12035
1945-10-12044
1945-10-12045
1945-10-12046
1945-10-12047
1945-11-12049
1945-11-12050
1945-11-12051
1945-11-12052
1945-12-120 1
1945-12-12062
1945-13-12072
1945-13-12073
1945-13-12076
1945-14-120 3
1945-14-12( 5
1945-15-12097
1945-15-1209
1945-16-12106
1945-16-12107
1945-15-12109
1945-16-12110
1945-17-1211
1945-17-12119
1945-1 -12132
1945-19-12139
1945-20-12150
1945-20-12151
1945-21-12154
1945-21-12155
1945-21-12156
1945-21-12157
1945-22-12165
1945-22-12166
1945-22-12167
1945-22-1216
1945-23-12177
1945-23-1217
1945-24-12191
1945-24-12192
1945-24-12193
1945-9-12037
1945-19-12145
1945-6-11997
1945-24-12195
1945-3-11957
1945-1-11925
1945-4-11976
1945-5-119 6
1945-7-12009
1945-9-1203
1945-11-12054
1945-13-1207
1945-16-12112
1945-17-12126
1945-19-12147
Page.
164
7
122
57
M
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70
7
21 P
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O

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109
319
90
61
109
124
320
142
ISO
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351
152
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321
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159
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54
76
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113
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204
225
13
194
367
151
204
431
432
452
444
430
1(7
49
499
500
M
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503
504
505
506
Rung.
Offce dccsons(MS.)-Con.
292
293
Offce dedsons (f ):
127
12 ..
129
130
131
132
133
134
135..
136
137
13
139
140
141
142
143
144
145
146
147
14
149 -.
ISO
151
Mmeographs:
6790
5796
5 06
5 07
5 2
5 43
5 70
5 72
5 77
5 3
5 93
5 95
5 97 _
5925
5937
5947
952
6957
Crcuars:
179 ._
1 16
1 37
Msceaneous.
Rung No.
1945-22-12170
194.5-24-12196
1945-1-11926
1945-3-11959
1945-3-11960
1945-4-11975
1945-5-119 S
1945-5-119 7
1945-6-12000
1945-7-1200
1945- -1202
1915-9-12039
1945-9-12040
1945-11-12055
1945-11-12056
1945-13-12079
1945-13-120 0
1945-15-12102
1945-15-12103
1945-17-12127
1945-17-12130
1945-1 -12136
1945-20-12152
1915-21-1215
1945-21-12159
1945-23-121 6
1945-23-121 S
1945-1-1191
1945-2-11944
I94 2-11939
1945-2-11940
1945-5-119 4
1945-7-12007
1945-12-12060
1945-12-12065
1945-12-12066
1945-13-120 1
1945-15-12101
1915-15-12099
1945-16-1210
1945-19-12143
1945 21-12160
1945-23-12179
1945-24-12194
1945-24-12200
1945-11-12053
1945-15-12100
1945-23-121 0
1945-1-11927
1945-1-1192
1945-1-11930
1945-1-11931
1945-2-11945
1945-7-12012
194.5- -12025
194.5-14-12092
1945-14-12003
1915-14-12094
1945-16-12113
1945-16-12114
1945-16-12115
1945-16-12116
1945-17-1212
1945-17-12129
1945-21-12161
1945-22-12171
1945-22-12172
1945-22-12174
1945-22-12175
1945-23-121 7
Page.
507
SOI
514
514
51
IS
515
519
519
515
S19
619
515
616
520
516
620
516
520
517
520
517
621
617
521
51
521
7.
379
272
573
43
440
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396
444
244
440
276
131
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235
323
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327
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329
512
542
543
544
66
530
522
530
631
531
632
566
592
545
539
540
595
540
541
621
664
546
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CONT NTS O CUMUL TI ULL TINS (L T.) 1 to 5 S. T. OR 1920 ND 1921 INT RN L
R NU 1-1.1-2. II-. II-2. I-. III-2. I -1. I -2. -I. -2, I-1. I-2. -1, D-2, III-1. ID-2.
I -1. 1 -2. -. -2, I I. -2. -1. II-2. III-1. III-2, I -1. I -2. -1. -2. 1 37-1. 1937-2.
I93S-1. 193 -2, 939-1 (P RT 1 ND P RT 2). 1939-2, 1940-1. 1940-2. 1941-1. 1941-2, 1942-1. 1942-2. ND
NNU L ULL TINS OR 1943. 1944, ND 1915.
Cumuatve uetn.
Income Ta :
December, 1919 (No. 1).. . -
anuarv- une 1920 ( o. 2)
uv-December, 1920 (No. 3)
anuarv- une, 1921 (No. 4).
uy-December, 1921 (No. 5)
Saes Ta :
1920 (S. T. 1-20).
anuarv- une, 1921
uy-December, 1921...
Interna Revenue uetn:
anuary- une, 1922 (No. 1-1)..
uv-December, 1922 (No. 1-2)
anuary- une, 1923 (No. II 1) -
uv-December, 1923 (No. 11-2)
anuarv- une, 1924 (No. III-)
uy-December, 1924 (No. 111-2) _ _
anuarv- une, 1925 (No. I -1)-
uv-December, 1925 (No. I -2)
anuarv- une, 1926 (No. -)
uv-December, 1926 (No. -2)..
anuarv- une, 1927 (No. I-1)
uy-December, 1927 (No. I-2)
anuarv- une, 192 (No. II-1)
uv-December, 192 (No. TI-2)
anuarv- une, 1929 (No. III-1)
uy-December, 1929 (No. T1I-2)
anuarv- une, 1930 (No. I -1)-
uv-December, 1930 (No. I -2).
anuarv- une, 1931 (No. -)
uy-December, 1931 (No. -2)
anuarv- une, 1932 (No. I-1)
uv-D ccember, 1932 (No. I-2)
anuary- une, 1933 (No. II-1)
uv-December, 1933 (No. II-2)
anuary- une, 1934 (No. III-1)
uv-December, 1934 (No. III-2)..
anuarv- une, 1935 (No. I -1)
uy-December, 1935 (No. I -2)..
anuarv- une, 1936 (No. -1)
uv-December, 1936 (No. -2)
anuary- une, 1937 (1937-1)
uv-December, 1937 (1937-2)
anuarv- une, 193 (193 -1)..
uy-December, 193 (193 -2)..
anuarv- une, 1939 (1939-1 Part 1 and Part 2).
uv-December, 1939 (1939-2)
anuarv- une, 1940 (1940-1)..
uv-December, 1940 (1940-2)
anuarv- une, 1941 (1941-1)
uv-December, 1941 (1941-2)
anuarv- une, 1942 (1942-1).. -
uy-December, 1942 (1942-2)
anuary-December, 1943 (12 months).
1-3 3
3 4-665
666-956
957-1276
1277-1641
1642-1949
1950-2251
2252-2523
2524-2 13
2 14-3026
3027-3291
3292-3557
355 -37 4
37 .5-4052
4053-424
4249-44 7
44 -46 3
46 4-4 7
4 -5124
5125-533
5339-5531
5532-5961
5962-6262
6263-65 1
65 2-6 71
6 72-7224
7225-7563
7564-7 4
7 5- 149
150- 459
460- 792
793-911
9119-9424
9425-9654
9655-9 96
9 97-10126
10127-10304
10305-1054
10549-10761
10762-10943
10944-1113
11139-11302
11303-11590
11591-11916
11917-12200
( III)
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T T COURT O T UNIT D ST T S
CUMUL TI LIST O NNOUNC M NTS R L TING TO
D CISIONS O T T COURT O T UNIT D ST T S,
ORM RLY T UNIT D ST T S O RD O T PP LS,
PU LIS D IN T INT RN L R NU ULL TIN S R -
IC ROM NU RY 1, 1945, TO D C M R 31, 1945, IN-
CLUSI .
I nnouncements reatng to the acquescence or nonacquescence of the Commssoner In dec-
dons o The Ta Court of the Unted States, formery the Unted States oard of Ta peas,
as prnted n the weeky Interna Revenue uetns from December 22,1924, to December 31,
19 1, ncusve, are pubshed In Cumuatve uetn -2 (1931), pages 1-109. Those prnted
a 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,
1910, to December 31. 1942, Incusve, and n semmonthy uetns from anuary 1, 1943. to
December 31. 1944, ncusve, are pubshed n Cumuatve uetn 1944, pages 1-51. The st
beow, therefore, contans ony sucb announcements prnted n semmonthy uetns from
anuary 1 to December 31,1944.)
1945-24-121 9
The Commssoner acquesces n the foowng decsons:
Ta payer.
Docket No.
oume.
Page.
dran ames, Inc
en, en|amn L., estate of 11
en, r., et aL, en|amn L., e ecutors of estate of
en|amn L. en 11
mercan Depostor Corporaton, depostor under
trust agreements wth The Chase Natona ank
of the Cty of New York
rnett, R. ., agent for wthhodng account of G.
P. tzgerad
rnett, R. ., trustee for G. P. tzgerad Trust -..
wrey et a., ton R., e ecutors of estate of
etcher . wTey1
wrey, etcher ., estate of 1
.
acon, Inc., Cyde.
arta ct a., L.
arthoomew, rederck Cec, a mnor, estate of4.
arthoomew, Mycent, guardan of estate of red-
er k Cec arthoomew, a mnor4
eard, Staney D
eeken, r., bert C
ecker, ce ., e ecutr of estate of ohn .
ckardt1
f)S5
399
399
93 54
93 55
93 56
93 57
1566
1567
3 27
4223
3026
200
3711
4600
3511
4
3
3
41
4
5
70S
44
44
430
494
222
1107
10
349
756
OS
673
oard of Ta ppeas.
state ta decson.
1 Notscquescence pubshed In Cumuatve uetn 1944, page 32, wthdrawn.
Nonacqueseence pubshed In Cumuatve uetn 1940-1, page 6, wthdrawn.
cquescence reates ony to the Issue nvovng tbe deductbty of compensaton pad for the servces
os a chauffeur and bodyguard.
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cquescences Contnued.
Ta payer.
Docket No
oume.
ecker, ce ., e ecutr of estate of ate L.
ckhardt1
edford, Chares . ---
e et a., Maud ., e ecutors of estate of Ida .
Whte
dde et a., Chares ., e ecutors of estate of Sae
ouston enry 1 4
dde et a., Sydney G., trustees of rances
dde trust 1
dde trust, rances 1 5
ngham, Mary Ly ( ager), trust u/w of
shop, dward
by cta., Percva G., cotrustees of ce . no
trust
by et a., Percva G., cotrustees of ames .
no trust -
by et a., Percva G., cotrustees of ce .
Scobe trust
ack, Donad S -
ones, Water I
oyes, Lucy Latham, estate of 1
rennen, George
urkhartsmeer, Dane, estate of
urkhartsmeer, Dane, trust u/w of
urney et a., enry P., e ecutors of estate of I. .
urney 1
urney, I. ., estate of 1
C.
Cammack, dward rthur
Cammack, oward
Camp Woters Land Co
Campanar et a., Chrstopher C., e ecutors of estate
of Nna M. Campanar1
Campanar, Nna M., estate of1
Chase Natona ank of the Cty of New York, The,
trustee under trust agreements wth mercan
Depostor Corporaton
Cark, George ., estate of -
Cochran, Wams
Cohen, Moses -
Congress Square ote Co
Corporaton of merca. -
Crawford, nne Laure
D.
Dennson, Robert S
Dobson, Mary Margaret, estate of, transferee, P. T.
Love, guardan 9
3512
6314
93575
109972
112209
1093 4
I 692
3124
10 701
10 700
10 702
6190
1666
4750
3567
356
164
176
305
3 22
3 23
4709
43 4
93 54
93 55
93 56
93 57
4129
1 36
9 164
4277
109579
4 92
2495
110 1
6
5
-41
4
3
2
4
41
4
4
44
4
4
5
oard of Ta ppeas.
1 state a decson.
(ft ta decson.
1 Nonacquescenco pubshed n Cumuatve uetn 1910-1, page 5. wthdrawn.
cquescence reates to the ssue nvovng the far market vaue o decedent s Interest n certan reaty
and the ssue whether any porton of the corpus of a trust created by the decedent n 1916 s ncudbe n
ber toss estate.
Nonacquoscence pubshed n Cumuatve uetn 1944, page 33, wthdrawn.
Nonncquesccncc pubshed n Cumuatve uetn 1943, page 27, wthdrawn.
1 Nonacqucscencc pubshed n Cumuatve uetn 1940-1, page ft, wthdrawn.
1 Nonacquescenco pubshed n Cumuatve uetn 1941-2, page 10, wthdrawn.
Un|ust enrchment ta decson.
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3
cqttescencks Contnued.
11
Donad et a., Macom, e ecutors of estate of Mary
. unnewe 1
Dorson, Lous ., estate of1
Dumar Te te Co., Inc.
.
ar, r., Guy C -
ckhardt, ohn ., estate of
ckhardt, ate L., estate of
conomy Savngs Loan Co., The
ery, . C --
mpre Dstrct ectrc Co., The
stes, rgean
.
ahnestock et a., Georgette G. ., e ecutors of
estate of arrs ahnestock 1
ahnestock, arrs, estate of 1
arthng et a., trustees of the credtors and stock-
hoders of Man Propertes, Inc., dssoved
eton, Samue M
restone Tre Rubber Co., The s
scher, Wam
tzgerad Trust , G. P
tzgerad, G. P., wthhodng account of
emng, bert -
emng, Cavn
ynn Manufacturng Co., Mchae
orrester, D. ruce 1
G.
Gabreath, Mary Margaret, Margaret W. Ga-
breath endrckson, aeged trustee-guardan 4
Genera Smetng Co
Gbert, anche ., estate of
Grard Trust Co., e ecutor of estate of anche .
Gbert1
Great Isand odng Corporaton, The
Greene Motor Co
Grgsby Trust, Lews ugene
.
arman, C. enry
arman, Sayers
arrs Trust Savngs ank, trustee of ohtz am-
y Trust -
arsaghy, een rusko (formery knowu as een
rusko)
ash et u ., G. Lester
oard o Ta ppeas.
1 state ta decson.
Nonacqacscence pubshed In Cumuatve uetn 1942-2, page
Nonaou escence pubshed n Cumuatve uetn 1944, page
I n.tast enrchment ta decson.
pubshed n Cumuatve uetn 1943, page 33. wthdrawn.
Docket No.
4151
2502
100 75
5 2
3511
3512
350
/109937
I 4173
3247
4607
1615
15
47 3
1707
1193
1567
1566
3196
3205
77
2634
10904
2795
3562
3334
49 4
3397
1146
1145
4372
111263
425
426
24, wthdrawn.
. wthdrawn
oume.
Page
I
4
47
112
463
639
76
673
543
407
925
691
1096
364
256
27
507
494
494
16
932
907
231
313
1006
150
314
51
335
554
4 4
7
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4
Ta payer.
endrckson, Margaret W. Gabreath 1
endrckson, Margaret W. Gabreath, formery ad-
mnstratr of estate of ugh . Gabreath 1
endrckson, Margaret W. Gabreath, aeged trus-
tee-guardan of Mary Margaret Gabreath and
aeged transferee of assets of estate of ugh .
Gabreath -.
endrckson, Margaret W. Gabreatu aeged
transferee of assets of estate of ugh . Gabreath
and of estate of W. C. Thomas --.
enry, Sae ouston, estate of
ggfns Co., Wm.
offord, Wam ., estate of2 4
ouston Land Trust Co. et a., e ecutors of es-
tate of Lucy Latham oyes1
oward, . M.s -
unnewe, Mary ., estate of
I.
Iron reman Manufacturng Co
Irvng Trust Co. et a., e ecutors of estate of Lous .
Dorson 2
ensen et u ., rthur R
son et a., Leon R., e ecutors of estate of ames
Mer2
ohnson Lumber Co., The .
eett et u ., Wam W
eogg, Cornea . W., e ecutr of estate of
rederc R. eogg 2 7 - -
eogg, rederc R., estate of27
enan, r., et a., Wam R., trustees u/w of Mary
Ly ( ager) ngham
enny, Norbert
nowes, rank T -
no trust, ce ._
no trust, ames
ohtz amy trust
omar ct u ., erman
oussevtsky, Nathae, estate of2 .-.
oussevtsky, Serge, e ecutor of estate of Nathae
oussevtsky 2
rusko, een (now known as een rusko
arsaghy)5
Docket No.
109046
1090 4
109045
10901S
109047
109972
1527
1 45
4750
33271
4151
190
2502
4017
2092
3019
3264
9143
1093 4
3102
4016
10 701
10 700
4372
3056
4163
111263
oume.
4
4
4
4
22
4
5
40
oard of Ta ppeas.
Un|ust enrchment ta decson.
3 state ta decson.
1 cquescence reates to the ssue nvovng the far market vaue of decedent s Interest In certan reaty
and the ssue whether any porton of the corpus of a trust created by the decedent n 1916 s ncudbe n her
gross estate.
cquescence reates to a Issues e cept the Issue whether the vauo of certan stock transferred In trust s
ncudbe n gross estate under secton 11(c) of the Interna Revenue Code.
1 Nonacquescence pubshed In Cumuatve uetn -2 0931), page 90, wthdrawn.
Nonacquescence pubshed n Cumuatve uetu 1944, page 41, wthdrawn.
Nonacquescence pubshed n Cumuatve uetn 1940-1, page 7, wthdrawa
4 Nonacquescence pubshed n Cumuatve uetn 1943, page 34, wthdrawn.
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5
cquescence Contnued.
Ta payer.
Docket No
oume.
Lake re Pttsburg Ry. Co., The
Lehman et a., Cece S., e ecutr and e ecutor of
estate of arod M. Lehman
Lehman, arod M., estate of
Leonard, . M
Leonard, . M., trustee of Martha Leonard Trust
No. L
Leonard, . M., trustee of Mary Leonard Trust
No. 1 .
Leonard, . M., trustee of Mranda Leonard Trust
No. 1 -
Leonard, Mary (Mrs. . M. Leonard)
Leonard Trust No. 1, Martha...
Leonard Trust No. 1, Mary -.
Leonard Trust No. 1, Mranda
LeRoy, Robert1
Lghtner, Came .
Lndback oundaton, The C. R
Love, P. T., guardan of estate of Mary Margaret
Dobson, transferee
M.
Man Propertes, Inc., dssoved
Manufacturers Lfe Insurance Co., The 4
Marke ankng Trust Co. et a., e ecutors of
estate of Wam . offord 5
Matthae, mma, estate of
Mathae, rederck C
Matthae, rederck C, e ecutor of estate of mma
Matthae
Matthae, Ltta..
McCttchn, e ...
McCutchn, ma..
Mc egh, Chares S
Meer, eanor .
Metu ., orace -
Mer, ames, estate of 9.
Mnnesota Mortuares, Inc
N.
New ersey Mortgage Tte Co
Newman, r., et u ., . efer -
Northern New York Trust Co. et a.. The, e ecutor
and e ecutr of estate of George . Cark
Northern Trust Co., The, dstrbutee of estate of
Dane urkhartsmeer -
Northern Trust Co., The, trustee u/w of Dane
urkhartsmeer --
355
2455
555
579
57
577
556
579
57S
577
2291
596
1617
110 1
15
136
1 45
2991
3220
2991
2990
1497
149
221
112332
55 2
2092
2355
109011
2311
4129
164
176
cquescence reates ony to the Issue nvovng the e stence of a bona fde ndebtedness and ts worth-
essness n the year n queston.
1 Nonacquescence pubshed n Cumuatve uetn 1944, page 43, wthdrawn.
1 Cn ust enrchment a decson.
cquescence reates ony to the ssue whether the pettoner (on cash bass) reazed ncome In the
ount of 124,446.5 . representng accrued nterest on mortgage oans, when t acqured mortgaged prop-
ertes through forecosure proceedngs.
1 state ta decson.
1 cquescence reates to a Issues e cept the ssue whether the vaue of certan stock transferred n trust
ncudbe n gross estate under secton 11(c) of tho Interna Revenue Codo.
Nonacqaescence pubshed n Cumuatve uetn 1943, pase 36, wthdrawn.
Nonacquescence pubshed In Cumuatve uetn 1944, page 44, wthdrawn.
G
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2
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c uresc NC S Contnued.
Ta payer.
Over, Lawrence.
Pacfc Pubc Servce Co --
Patterson et a., Proctor, trustees of Maron C.
Tyer trust1
Peebes, r., Isaac S
Peeer ardware Co
Peps Coa Co --
Pow Reatv Co. of Te as
Porter, Gadys C.
Post et a., adron ntzng, e ecutors of estate
of Carone Whte
Pratt, arod I., estate of -
Reserve Loan Lfe Insurance Co. of Te as.
R chter, . Nathane
Rvervew State ank, The
Roach, ohn R
Roberts Co., Inc., The
S.
Scobe trust, ce
Securty- rst Natona ank of Los ngees et a.,
trustees of Lews ugene Grgsby Trust
Semnoe avor Co
Shamberg, e ander ., estate of
Shamberg. Isdor W., admnstrator of estate of
e ander . Shamberg
Sheabarger Gran Products Co.
Smster, r., et u ., Water.
Smmons, Grant G
Smth et u ., Lester
Southeastern nance Co
Southern Caforna dson Co., Ltd
Southern Loan Investment Co
Standsh et u ., . M
Thornton, Davs
Tyer trust, Maron C.1.
Docket No.
111745
2159
6640
4512
5 49
345
13 2
595
10 930
2509
3676
2779
112140
4305
5524
10 702
3397
1060
2332
107713
109510
3970
1 91
2 01
2 02
601
70
33 2
34
3949
3950
3545
6640
U.
Unted Cooperatves, Inc
Unted States Trust Co. of New York et a., e e-
cutors of estate of arod I. Pratt3
oume.
112767
2509
1 cquescence reates to resut ony.
Nonacqueseence pubshed n Cumuatve uetn 1944, page 40, wthdrawn.
1 state ta decson.
Nonacquescencc pubshed m Cumuatve uetn 1 M3, page 3 , wthdrawn.
Nonacqueseence pubshed In Cumuatve uetn 1943, page 39, wthdrawn.
G
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Unversa Stee Co., The.
L phara, Samue
W.
Waggoner et u ., T. .1
Waker et a., atharne W., e ecutors and trustees
of estate of Wam Waker1
Waker, Wam, estate of 2
Webster. . D.
Wengton und, Inc
Whte, Carone, estate of
Whte, Ida ., estate of
Wams, George T., transferee of Seekonk Corpo-
raton
Wttschen et a ., Otto ...
Yeomans, Lucen I
Your eath Cub, Inc.
er, r., et u ., Wam.
Docket No
4546
4022
104161
104162
159
f 3777
4399
112046
10 930
93575
2172
3026
4 22
35 9
3449
oume
47
4
4
4
3
41
3
5
Page.
627
1120
699
390
1169
1 5
156
525
1002
10
70
3 5
150
oard of Ta ppeas.
1 Nonac ueyoence pubshed In Cumuatve uetn 1943, pace 41. wthdrawn
state ta decson.
Nooacquesoence pubshed In Cumuatve uetn 1940-1. pape 9. wthdrawn.
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The Commssoner does NOT acquesce n the foowng decsons:

Ta payer.
Docket No. oume.
rnett, R. ., agent for G. P. tzgerad
runde- rooks Concrete Corporaton
thens Roer Ms 1
very, Sewe L.1
.
arthoomew, rederck Cec, a mnor, estate of3.
arthoomew, Mycent, guardan of estate of
rederck Cec arthoomew, a mnor
dde et a., Chares ., e ecutors of estate of Sae
ouston enrv 5
auvet et u ., rnest
oard of Regents of the Unversty of Coorado
C.
Cornett, . ., admnstrator of estate of orace G.
Wether
Crane, euah
Crocker rst Natona ank of San rancsco,
ndvduay and as trustee of orace G. Weth-
er trust
Cure, Chares, estate of 4 -
.
vans et u ., Samue S
.
. P. . Notehoders Corporaton.
tzgerad, G. P
Gracey, ueon ock.
G.
.
enry, Sae ouston, estate of 4.
offord, Wam ., estate of19
L.
LeRoy, Robert
Los ngees Sat Lake R. R. Co
Lowe et a., Samue L., trustees of Motor Mart
trust
1565
4291
112562
112526
200
109972
1023
1277
1275
110361
1276
2142
1024
2 04
1565
3394
109972
1 45
2291
106462
2412
Page.
1 Un|ust enrchment ta decson.
1 Gft ta decson.
1 Nonacquescence reates ony to the Issue Invovng the deductbty o attorneys fees and court costs
pad pursuant to court orders n connecton wth numerous awsuts.
1 state ta decson.
Nonacqucscence reates ony to the ssue whether there shoud be ncuded n the cross estate any
amount (a) on account of the recept and dsposton of stock dvdends, rghts, etc., by the trustees of a trust,
creatod by decedent s father, of whch decedent was one of the benefcares, and (o) as property owned
by her, whch had been acqured as an her, egatee, or devsee of her mother.
Nonncqucscence reates ony to the ssue whether te vaue of certan stock transferred n trust Is ncud-
be n toss estate under secton SI 1(c) of the Intcrnn Revenue Code.
Nonacquescence reates ony to the ssue nvovng the deductbty of Now York Cty rea estate ta es
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Nonacquescences Contnued.
Tapayer.
M.
Mahn, Dorothy (formery Mrs. . . Gracey)
Manufacturers Lfe Insurance Co., The 1 -
Marke ankng Trust Co. et a., e ecutors of
estate of Wam . offord 3
Me Wams, rooks
McWams, ohn P
McWarns, ohn P., e ecutor of estate of Susan
P. McWarns
McWarns, Susan P., estate of
Moore, Incorporated
Motor Mart Trust
N.
Newman, Sydney R
P.
Paatne Insurance Co., Ltd
Pearson, orrest G
S.
Second Natona ank of Paterson, The, e ecutor
of estate of Chares Cure
Swent etus., . W
U.
Unversty of Coorado, oard of Regents of the
W.
Wade, zabeth
Wether, orace G., estate of
WetherU Trust, orace G. -
Docket No
oume.
3395
136
1 45
5947
5945
5946
5946
3799
2412
3952
2446
2761
2142
43 1
1277
5206
1275
1276
| reates on y to the Issue whether the pettoner may deduct as Interest the amount
(1 pad on suppementary contracta notnvovng fe contngences u cases n whch such contracts
ere ssued pursuant to optons seected by the nsured (rather than by the benefcary).
1 state ta decson.
escence reates ony to the ssue whether the vaue of certan stock transferred n trust s
1 gross estate under secton 11(c) of the Interna Revenue Code.
eSMS 46-t 2
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INCOM T RULINGS. P RT L
. INT RN L R NU COD .
C PT R L INCOM T .
SU C PT R R G N R L PRO ISIONS.
P RT 1. T S O T .
S CTION 11. NORM L T ON INDI IDU LS.
Secton 29.11-1: Income ta on ndvduas. 1945-1-11929
( so Secton 12, Secton 20.12-2 Secton 22(m), T.D.5425
Secton 29.22 (m)- Secton 22 (n), Secton
29.22(n)- Secton 23(aa), Secton 29.23 (aa)-
Secton 25, Secton 29.25-1 Secton 51, Secton
29.51-1 Secton 400, Secton 29.400-1.)
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RT 29.
INCOM T T L Y RS GINNING T R D C M R 31. 1 41.
Reguatons 111 amended to conform to sectons 2, 3, 4, 5, 6, 7, ,
9, 10, 11, and 12 of the Indvdua Income Ta ct of 1944, reatng
to smpfcaton of the ndvdua ncome ta .
Treasury Department,
Offce of Commssoner of Interna Revenue,
Washngton, D. 0.
To Coectors of Interna Revenue and Others Concerned:
In order to conform Reguatons 111 Part 29, Tte 26, Code of
edera Reguatons, Cum. Sup. to sectons 2, 3, 4, 5, 6, 7, , 9, 10,
11, and 12 of the Indvdua Income Ta ct of 1944 (Pubc aw
315, Seventy-eghth Congress), approved May 29, 1944, such regua-
tons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng secton
29.3-1 the foowng:
S C. 6. R P L O ICTORY T . (INDI IDU L INCOM
T CT OP 1944, P RT I.)

(b) Technca mendments.
(1) Secton 3 (reatng to cassfcaton of provsons) Is
amended by strkng out the foowng:
Subchapter D ctory ta on Indvduas, dvded Into parts and
sectons.

(10)
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11 f 29.11-1.
S C 2. T L Y RS TO W IC PPLIC L . (INDI ID-
U L INCOM T CT O 1944. P RT L)
cept as otherwse e pressy provded, the amendments made by ths
part sha be appcabe wth respect to ta abe years begnnng after
December 31, 1943.
Par. 2. There s nserted mmedatey precedng secton 29.4-1 the
foowng:
S C. 5. LT RN TI T ON INDI IDU LS WIT D UST D
GROSS INCOM O L SS T N 5/ ). (INDI IDU L INCOM
T CT O 1944. P RT I.)

(b) Technca mendment. Secton 4 (reatng to speca casses
of ta payers) s amended by strkng out subsecton (1) and nsertng
In eu thereof the foowng:
(1) Indvduas wth ad|usted gross ncome of ess than 5,000,
Suppement T.
S C. 2. T L T RS TO W IC PPLIC L . (INDI ID-
U L INCOM T CT O 1941, P RT I.)
December 31, 1943.
Pab. 3. Secton 29.4-1 s amended by strkng out the foowng:
Indvduas wth gross ncome from certan sources of 3,000 or ess sectons
400 to 404, ncusve.
and nsertng n eu thereof the foowng:
Indvduas entted to eect to pay the ta under Suppement T sectons
400 to 404, ncusve.
Pah. 4. There s nserted mmedatey precedng secton 29.11-1 the
foowng:
C. 3. NORM L T ON INDI IDU LS. (INDI IDU L IN-
COM T CT O 1944, P RT I.)
Secton 11 (reatng to the norma ta on Indvduas) Is amended to
read as foows
S C. 11. NORM L T ON INDI IDU LS.
There sha be eved, coected, and pad for each ta abe year
upon the net ncome of overy ndvdua a norma ta of 3 per centum
of the amount of the net ncome n e cess of the credts aganst net
ncome provded n secton 25(a). or aternatve ta whch may be
eected If ad|usted gross Income s ess than 5,000, see Suppement T.
S C. 2. T L Y RS TO W IC PPLIC L . (INDI ID-
December 31, 1943.
Par. 5. Secton 29.11-1 s amended as foows:
( ) y nsertng mmedatey after the headng the foowng
subheadng: (a) Ta abe years begnnng pror to anuary 1,191 .
( ) y nsertng at the end thereof the foowng:
() Ta abe years begnnng after December SI, 19S. or ta abe years
begnnng after December 31,1943, Chapter 1 Imposes an ncome ta on ndvduas
consstng of a norma ta (secton 11) and a surta (secton 12). or optona
ta In the case of ta payers wth ad|usted gross ncome of ess than 5,000 see
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I 29 11-1.1
12
secton 400 and secton 29.400-1 (6). The norma ta on ndvduas s at the
rate of 3 per cent and s upon net ncome reduced by the amount of the norma
ta e empton provded n secton 25(a)(3) and by the credts under secton
25(a) (1) and (2), reatng to nterest on certan obgatons of the Unted States
und obgatons of nstrumentates of the Unted States.
foowng:
S C. 4. SURT ON INDI IDU LS. (INDI IDU L INCOM T
CT O 1944, RT I.)
(a) Imposton of Ta . Secton 12(b) (reatng to the surta on
ndvduas) s amended to read as foows:
(b) Rates of Skta . There sha be eved, coected, and pad for
each ta abe year upon the surta net ncome of every ndvdua the sur-
ta shown n the foowng tabe:
If the surta net ncome Is: The surta sha be:
Not over 2,000 20 of te surta net ncome.
Over 2,010 but not over 4,000 400, pus 22 of e cess over 2,000.
Over 4,( ) but not over 0,000 S40, pus 20 of e cess over 4,000.
Over 0,000 but not over ,000 1,300, pus 30 of e cess over 0,000.
Over ,000 but not over 10,000 , 0, pus 34 of e cess over S,0C0.
Over 10,000 but not over 12,000 2,040, pus 3 of e cess over
10,000.
12,000.
Over 14,000 but not over 16,000 -1,260, pus 47 of e cess over
14,000
Over 10,000 but not over 1 ,000 5,200, pus 50 of e cess over
16,C00.
Over 1 ,000 but not over 20.000 6,200, pus 53 of e cess over
1 ,000.
20,000.
Over 22,000 but not over 20,000 ,3S, pus 59 - of e cess over
22.0(0.
2f,CO0.
Over 32,000 but not over 3 ,000 14,460, pus 05 of e cess over
32,000.
Over 3 ,000 but not over 44,000 1 ,300, pus 09 of e cess over
: ,ooo.
Over 44,000 but not over 50,000__. 22,500, pus 72 of e cess over
44,000. .
Over 50,000 but not over 60,000 26. 20, pus 75 of e cess over
50,000.
60,000.
Over 70,000 but not over SO,000___ 42,120. pus 1 of e cess over
70,000.
Over S0,000 but not over 90,000 50,220, pus 4 of e cess over
S0,000.
Over 90,000 but not over 100,000 5 ,020, pus 7 of e cess over
90,000.
Over 100,000 but not over 150,000. 07,320, pus 9 of e cess over
100 000
Over 150,000 but not over 200,000. 111, 20, pus 90 of e cess over
150,000.
Over 200,000 150, 20, pus 91 of e cess over
2( .0,000.
(b) Lmtaton on gobeoate Ta . Secton 12 s amended by strkng
out subsecton (g) and Insertng n eu thereof the foowng:
(g) Lmtaton on Ta . The ta Imposed by ths secton and sec-
ton 11, computed wthout regard to the credts provded In sectons 31,
32, and 35, sha In no event e ceed n the aggregate 90 per centum of the
net ncome of the ta payer for the ta abe year.
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13
29.11-1.
(h) ternatve Ta . or aternatve ta whch may be eected 11
ad|usted gross ncome s ess than 155,000, see Suppement T.
S C. 2. T L Y RS TO W IC PPLIC L . (INDI-
IDU L INCOM T CT O 1944, P RT I.)
part sha be appcabe wth respect to ta abe years begnuug after
December 31, 194a
Pab. 7. Secton 29.12-1 s amended as foows:
( ) y strkng out Surta . In and nsertng n eu thereof
the foowng: Surta . (a) Ta abe years begnnng before an-
uary /, 1,944- or ta abe years begnnng before anuary 1,1944, n .
( ) y addng at the end thereof the foowng:
( ) Ta abe years begnnng after December SI, 19 /3. or ta abe years
begnnng after December 31, 1943, there Is mposed, n addton to the norma
ta of 3 per cent provded n secton 11, a surta at the rates specfed In secton
12, as amended, upon the surta net ncome of every Indvdua, resdent or
nonresdent, e cept nonresdent aen ndvduas sub|ect to the ta mposed
by secton 211(a). The surta net ncome for such years s the net Income mnus
the credts for surta e emptons provded n secton 25(b).
Pah. . Secton 29.12 2 s amended as foows:
( ) y amendng the frst sentence to read as foows:
The foowng tabes show the surta due upon certan specfed amounts of
surta net ncome.
( ) y changng the headng of the tabe to read as foows: Sur-
ta Tabe Ta abe Years egnnng fter December 31,1941, and
efore anuary 1,1944.
(C) y addng at the end thereof the foowng surta tabe:
Surta Tabe Ta abe Years egnnng fter December 31, 1943.
Surta not ncome.
Tota surta .
SO to 2,000.
2,000 to 4,000
4,000 to 6,000
6,000 to ,000
,000 to 10,000
10,000 to 12,000
12,000 to 14,000
14,000 to 16,000
16,000 to 1 ,000
1 ,000 to 20,000
20,000 to 22,000
22,000 to 26,000
26,000 to 32,000
32,000 to 3 ,000
3 ,000 to 44,000
44,000 to 50,000
50,000 to 60,000
60,000 to 70,000
70,000 to 0,000
0,000 to 90,000
90,000 to 100,000.-.
100,000 to 150,000..
150,000 to 200,000..
200,000 up
20
400
22
40
26
1, 300
30
1, 960
34
2, 640
3
3, 400
11
4, 260
47
5, 200
50
6, 200
53
7, 260
56
, 3 0
59
10, 740
62
14, 460
65
1 , 360
09
22, 500
72
26, 20
75
34, 320
7
42, 120
1
50, 220
4
5 , 620
7
67, 320
9
111, 20
90
156, 20
91
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S 29.11-1.)
14
Par. 9. There s nserted mmedatey after secton 29.12-2 the fo-
owng new secton:
Sec. 29.12-3. Lmtaton on mount or Ta . or ta abe years begnnng
after December 31,1943, the aggregate amount of the surta and the norma ta ,
computed before the appcaton thereto of the credt provded In secton 31
(reatng to the credt for foregn Income ta ), secton 32 (reatng to the credt
for ta wthhed at the source under secton 143 or secton 144), and secton 35
(reatng to the credt for ta wthhed on wages), can not e ceed an amount
equa to 90 per cent of the ta payer s net ncome for the ta abe year.
Par. 10. There s nserted mmedatey precedng secton 29.22(b)
(4)- the foowng:
S C. 11. R TURNS. (INDI IDU L INCOM T CT O 1944,
P RT I.)

(d) Informaton ab to Whoy Ta empt Interest. The second
sentence n secton 22(b)(4) s amended to read as foows: very
person ownng any of the obgatons enumerated n cause ( ), ( ),
or (C) sha, when so requred by reguatons prescrbed by the Com-
mssoner wth the approva of the Secretary, submt In the return
requred by ths chapter a statement showng the number and amount of
such obgatons owned by hm and the Income receved therefrom, n
such form and wth such nformaton as such reguatons may prescrbe.

cept as otherwse e pressy provded, the amendments made by
ths part sha be appcabe wth respect to ta abe years begnnng after
December 31. 1943.
Par.-11. Secton 29.22.(k)- s amended by strkng out the ast
sentence thereof.
Par. 12. There s nserted mmedatey after secton 22(1) the fo-
owng:
S C. 7. S R IC S O C ILDR N. (INDI IDU L INCOM T
CT O 1944, P RT I.)
Secton 22 (reatng to gross Income) Is amended by Insertng at the
end thereof the foowng:
(m) Servces of Chd.
(1) mounts receved In respect of the servces of a chd sha be
Incuded In hs gross ncome and not In the gross Income of the
parent, even though such amounts are not receved by the chd.
(2) e pendtures by the parent or the chd attrbutabe to
amounts whch are ncudbe n the gross Income of the chd and
not of the parent soey by reason of paragraph (1) sha be deemed
to have been pad or ncurred by the chd.
(3) or the purposes of ths subsecton, the term parent
ncudes an ndvdua who s entted to the servces of a chd by
reason of havng parenta rghts and dutes n respect of the chd.
(4) ny ta assessed aganst the chd, to the e tent attrbutabe
to amounts ncudbe In the gross Income of the chd and not of the
parent soey by reason of paragraph (1), sha, f not pad by the
chd, for a purposes be consdered as havng aso been propery
assessed aganst the parent
December 31, 1943.
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15
15 29.11-1.
Sec. 29.22(m)-. Servces of Chd. or tabe years begnnng after De-
cember 31, 1943, compensaton for persona servces of a chd sha, regardess
of the provsons of State aw reatng to who s entted to the earnngs of the
chd, and regardess of whether the ncome s n fact receved by the chd, be
deemed to be the gross ncome of the chd and not the gross ncome of the parent
of the chd. Such compensaton, therefore, sha be ncuded n the gross ncome
of the chd and refected n the return rendered by or for such chd f the gross
ncome for the ta abe year amounts to 500 or more. The ncome of a mnor
chd, whether more or ess than 500, s not requred to be ncuded In the gross
ncome of the parent for ncome ta purposes- or requrements for makng
the return by such chd, or for such chd by hs guardan, or other person charged
wth the care of hs person or property, see secton 29.51-3. ny ta assessed
aganst the chd, to the e tent of the amount attrbutabe to Income ncuded n
the gross ncome of the chd soey by reason of secton 22(m) (1), If not pad
by the chd, sha, for the purposes of a provsous of aw reatng to the assess-
ment and coecton of the ta mposed by Chapter 1, be consdered as havng
aso been propery assessed aganst the parent. In any case n whch the earn-
ngs of the chd are ncuded n the gross ncome of the chd soey by reason
nf secton 22(m),(), the parent s abty Is an amount equa to the amount by
whch the ta assessed aganst the chd has been Increased by reason of the
ncuson of such, earnngs n the gross ncome of the chd. Thus, f for 1944
the chd has Income of 1,000 from nvestments and of 3,000 for servces
rendered, and the atter amount s ncudbe n gross ncome of the chd under
secton 22(m) (1), and the chd has no wfe or dependents, the ta abty
determned under Suppement T s 741. If the chd had ony the nvestment
ncome of . 1,000, hs ta abty woud be 95. If the ta of 741 Is assessed
aganst the chd, the dfference between 741 and 95, or 640, Is the amount of
snch ta whch s consdered to have been propery assessed aganst the parent.
In the determnaton of net Income or ad|usted gross ncome, as the case may
be, a e pendtures made by the parent or the chd attrbutabe to amounts
whch are ncudbe In the gross ncome of the chd and not of the parent
soey by reason of secton 22(m) (1) are deemed to have been pad and ncurred
by the chd. In such determnaton, the chd Is entted to take deductons
not ony for e pendtures made on hs behaf by hs parent whch woud be
commony consdered as busness e penses, but aso for other e pendtures
sorb, as chartabe contrbutons made by the parent In the name of the chd
and out of the chd s earnngs.
or the purposes of secton 22(m), the term parent Incudes any ndvdua
who Is entted to the servces of te chd by reason of havng parenta rghts
and dutes In respect of the chd.
C. . D UST D GROSS INCOM . (INDI IDU L, INCOM
T CT O 1944, P RT I.)
(a) In Genera. Secton 22 (reatng to gross ncome) Is amended
by nsertng at the end thereof the foowng:
(n) Defnton of d|usted Gross Income . s used In ths chap-
ter the term 4 ad|usted gross ncome means the gross Income 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. If such trade or busness does not consst of the
performance of servces by the ta payer as an empoyee
(2) penses of trave and odgng n connecton wth em-
poyment. The deductons aowed by secton 23 whch consst of
e penses of trave, meas, and odgng whe away from home, pad
or ncurred by the ta payer n connecton wth the performance by
hm of servces as an empoyee
(3) Rembursed e penses n connecton wttt empoyment.
The deductons aowed by secton 23 (other than e penses of trave,
meas, and odgng whe away from home) whch consst of e penses
pad or ncurred by the ta payer, n connecton wth the perform-
ance by hm of servces as an empoyee, under a rembursement or
other e pense aowance arrangement wth hs empoyer
(4) Deductons attrbutabe to bents and royates. The
deductons (other than those provded In paragraph (1), (5), or
(6)) aowed by secton 23 whch are attrbutabe to property hed
for the producton of rents or royates
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I 29.11-1.1
16
(5) Certan deductons of fe tenants and ncome bene-
fcares of pbopebty. The deductons (other than those provded
In paragraph (1)) for deprecaton and depeton, aowed by sec-
ton 23 (1) and (m) to a fe tenant of property or to an Income
benefcary of property hed n trust and
(6) Losses from saes ob e change of pbopebty. The deduc-
tons (other than those provded n paragraph (1)) aowed by sec-
ton 23 as osses from the sae or e change of property.

cept as otherwse e pressy provded, the amendments made by ,
December 31, 1943.
Sec 29.22(n)-. d|usted Gross Income. The term ad|usted gross n-
come means the gross ncome computed under secton 22 mnus such of the
deductons aowabe under secton 23 as are specfed n secton 22(n). d-
|usted gross ncome s used as the bass for the determnaton of the foowng:
The ta under Suppement T the amount of the stnndard deducton the amount
of the deducton for chartabe contrbutons under secton 23(o) the amount
of the deducton for medca and denta e penses under secton 23( ) and the
amount of the norma-ta e empton In the case of a |ont return by husband
and wfe.
Secton 22(n) does not create any new deductons, but merey specfes whch
of the deductons provded n secton 23 sha be aowed n computng ad|usted
gross ncome. The crcumstance that a partcuar tem Is specfed In one of
the causes under secton 22(n) and s aso embraced wthn the terms of an-
other of such causes does not permt the Item to be twce deducted In computng
ad|usted gross ncome.
The deductons specfed n secton 22(n) for the purpose of computng ad|usted
gross ncome are: (1) Deductons.aowabe under secton 23, whch are at-
trbutabe to a trade or busness carred on by the ta payer not consstng of
servces performed as an empoyee (2) deductons aowabe by secton 23
whch consttute e penses of trave, meas, and odgng whe away from home,
pad or ncurred by the ta payer n connecton wt the performance by hm of
servces as an empoyee (3) deductons aowabe by secton 23 (other than
e penses of trave, meas, and odgng whe away from home) whch consst
of e penses pad or ncurred n connecton wth the performance of servces as
an empoyee under a rembursement or other e pense-aowance arrangement
wth hs empoyer (4) deductons aowabe under secton 23 whch are attrbut-
abe to rents and royates (5) deductons for deprecaton and depeton aow-
abe under secton 23 (1) and (m) to a fe tenant of property or to an ncome
benefcary of property hed n trust and (G) deductons whch are aowabe
under secton 23 as osses from the sae or e change of property.
or the purpose of the deductons specfed n secton 22(n) the performance
of persona servces as an empoyee does not consttute the carryng on of a trade
or busness. The practce of a professon, not as an empoyee, s consdered the
conduct of a trade or busness wthn the meanng of such secton. To be
deductbe for the purposes of determnng ad|usted gross ncome, e penses must
be those drecty, and not those merey remotey, connected wth the conduct of
the trade or busness. or e ampe, ta es are deductbe In arrvng at ad|usted
gross ncome ony f they consttute e pendtures drecty attrbutabe to the
trade or busness or to property from whch rents or royates are derved. Thus,
property ta es pad or ncurred on rea property used n the trade or busness
are deductbe but State Income ta es are not deductbe even though the ta -
payer s Income s derved from the conduct of a trade or busness.
Traveng e penses pad or ncurred by an empoyee n connecton wth hs
empoyment whe away from home whch are deductbe from gross ncome n
computng net Income may be deducted from gross ncome n computng ad|usted
gross ncome. mong the tems Incuded n traveng e penses are charges for
transportaton of persons or baggage, e pendtures for meas and odgng, and
payments for the use of sampe rooms for the dspay of goods. See secton
29.23(a)-2.
penses, other than traveng e penses, pad or Incurred by an empoyee whch
are deductbe from gross ncome In computng net ncome and for whch he s
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15 29.11-1.
rembursed by the empoyer under an e press greement for rembursement or
pursuant to an e pense aowance arrangement may aso be deducted from gross
ncome n computng ad|usted gross ncome.
Pah. 13. There s nserted mmedatey precedng secton 29.23(o)-
the foowng:
S C. a D UST D GROSS INCOM . (INDI IDU L INCOM T
CT O 1944, P RT I.)

(b) Chartabe Contrbutons. Secton 23(o) (reatng to the so-
caed chartabe deducton ) s amended by strkng out net ncome as
computed wthout the beneft of ths subsecton or of subsecton ( )
and nsertng n eu thereof ad|usted gross ncome .

U L INCOM T CT O 1944. P RT I.)
December 31, 194a
Par. 14. Secton 29.23(o)- s amended as foows:
( ) y strkng from the thrd paragraph 15 per cent of hs net
ncome computed wthout the beneft of the deducton for contrbu-
tons and nsertng n eu thereof the foowng: 15 per cent of
hs ad|usted gross ncome or, for ta abe years begnnng pror to an-
uary 1,1944,15 per cent of hs net ncome computed wthout the beneft
of the deducton for contrbutons.
( ) y strkng out the fourth paragraph and nsertng n eu
thereof the foowng:
In the case of husband and wfe makng a ont return, the deducton for con-
trbatons or gfts s the aggregate of such contrbutons or gfts made by the
spouses, and s mted to 15 per cent of the aggregate ad|usted gross ncome of
te spouses or, for ta abe years begnnng pror to anuary 1, 1944, 15 per cent
of the aggregate net Income of the spouses computed wthout the beneft of the
deducton for contrbutons.
Par. 15. There s nserted mmedatey precedng secton 29.23 ( )-
the foowng:
S C. . D UST D GROSS INCOM . (INDI IDU L INCOM T
CT O 1944, P RT I.)

(c) Muhca pense Deducton. Secton 23( ) (reatng to the so-
caed medca e pense deducton ) s amended to read as foows:
( ) Medca, Denta, tc., penses. penses pad durng the
ta abe year, not compensated for by nsurance or otherwse, for medca
care of the ta payer, hs spouse, or a dependent specfed n secton
25(b)(3), to the e tent that such e penses e ceed 5 per centum of the
ad|usted gross ncome. If ony one surta e empton Is aowed under
secton 25(b) for the ta abe year, the ma mum deducton for the ta -
abe year sha be not n e cess of 1,250. If more than one surta e -
empton s so aowed, the ma mum deducton sha be not In e cess of
2,500. The term medca care , as used n ths subsecton, sha ncude
amounts pad for the dagnoss, cure, mtgaton, treatment, or preventon
of dsease, or for the purpose of affectng any structure or functon of the
body (ncudng amounts pad for accdent or heath nsurance).

December 31, 1943.
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29.11-1.1
1
Par. 16. Secton 29.23( )- s amended as foows:
( ) y strkng out the fourth paragraph thereof and nsertng n
eu thereof the foowng:
Ony such medca e penses are deductbe for ta abe years begnnng pror
to anuary 1, 1944, as e ceed 5 per cent of the net ncome for the ta abe year
computed wthout the deducton for medca e penses. Where the ta payer has
aowabe deductons n a ta abe yer begnnng pror to anuary 1, 1044, for
chartabe contrbutons and medca e penses, the aowabe. deductons for
chartabe contrbutons shoud be computed frst wthout regard to the deducton
for medca e penses, and thereafter, the deducton for medca e penses for such
ta abe year shoud be computed (see secton 29.23(o)-). The ma mum deduc-
ton aowabe for medca e penses pad n any one ta abe year begnnng pror
to rfnuary 1, 1944, s 2,500 n the case of a head of a famy, or husband and
wfe fng a |ont return for such ta abe year. In a other cases the ma mum
for such years s 1,250.
or ta abe years begnnng after December 31,1943, ony such medca e penses
are deductbe as e ceed 5 per cent of the ad|usted gross ncome for the ta abe
year. s to what consttutes ad|usted gross ncome see secton 22(n). The
ma mum deducton aowabe for medca e pense pad n any one ta abe year
begnnng after December 31, 1943, s 1,250 n the case of a ta payer havng ony
one surta e empton and 2,500 In the case of a ta payer entted to more than
one surta e empton. deducton for medca e penses sha not be deemed
to have been aowed for any ta abe year for whch the ta payer camed and
was aowed the standard deducton under secton 23(aa).
Par 17. Secton 29.23(y)-, added by Treasury Decson 5371, ap-
I roved May 11, 1944 C. . 1944, 0 , s amended by strkng out the
ast sentence of the frst paragraph.
Par. 1 . There s nserted mmedatey after secton 29.23(z)- the
foowng:
S C. 9. OPTION L ST ND RD D DUCTION. (INDI IDU L IN-
(a) In Genera. Secton 23 s amended by addng at the end thereof
a new subsecton to read as foows:
(aa) Optona Standard Deducton fob Indvduas.
(1) owance. In the case of an ndvdua, at hs eecton a
standard deducton as foows:
( ) d|usted Gross Income 5,C00 or More. If hs ad-
|usted gross ncome Is 5,000 or more, the standard deducton
sha be 500.
( ) d|usted Gross Income Less Than 5,000. If hs ad-
usted gross Income s ess than 5,000, the standard deducton
sha be an amount equa to 10 per centum of the ad|usted
gross ncome upon the bass of whch the ta appcabe to the
ad|usted gross Income of the ta payer s determned under the
ta tabe provded n secton 400.
(2) In eu of certan deductons and credts. The standard
deducton sha be n eu of: ( ) a deductons other than those
whch under secton 22(n) are to be subtracted from gross Income
n computng ad|usted gross ncome, ( ) a credts wth respect to
ta es of foregn countres and possessons of the Unted States,
(C) a credts wth respect to ta es wthhed at the source under
secton 143(a) (reatng to nterest on ta -free convenant bonds),
and (D) a credts aganst net ncome wth respect to nterest on
certan obgatons of the Unted States nnd Government corpora-
tons of the character specfed In secton 25(a) (1) and (2).
(3) Mkthou and effect of eecton.
( ) If the ad|usted gross ncome shown on the return s
5,000 or more, the standard deducton sha be aowed ony f
the ta payer so eects In hs return, and the Commssoner, wth
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19 29.11-1.
the approva of the Secretary, sha by reguatons prescrbe the
manner of sgnfyng such eecton n the return.
( ) If the ad|usted gross ncome shown on the return s
ess than 5,000, the standard deducton sha be aowed ony
If the ta payer eects, n the manner provded n Suppement T,
to pay the ta mposed by such suppement.
(C) If the ta payer does not sgnfy, n the manner provded
by subparagraph ( ) or ( ), hs eecton to take the standard
deducton, t sha not be aowed. If he does so sgnfy, such
eecton sha be rrevocabe.
(D) If the ad|usted gross ncome shown on the return Is
5,000 or more, but the correct ad|usted gross ncome s ess
than 5,000, then an eecton by the ta payer under subpara-
graph ( ) to take the standard deducton sha be consdered as
hs eecton, to pay the ta mposed by Suppement T and hs
faure to make under subparagraph ( ) an eecton to take
the standard deducton sha be consdered hs eecton not to
pay the ta mposed by Suppement T. If the ad|usted gross
: ncome shown on the return s ess than 5,000, but the correct
ad|usted gross ncome s 5,000 or more, then an eecton by
the ta payer under subparagraph ( ) to pay the ta mposed
by Suppement T sha be consdered as hs eecton to take
the standard deducton and, hs faure to eect under sub-
paragraph ( ) to pay the ta Imposed by Suppement T sha
be consdered hs eecton not to take the standard deducton.
(4) usband and wfe. In the case of husband and wfe vng
together, the standard deducton sha not be aowed to ether f
the net ncome of one of the spouses s determned wthout regard
to the standard deducton. or the purposes of ths paragraph the
determnaton of whether an ndvdua s marred and vng wth
hs spouse sha be made as of the ast day of the ta abe year,
nness hs spouse des durng the ta abe year, n whch case such
determnaton sha be made as of the date of such spouse s death.
(5) Short- perod. In the case of a ta abe year of ess than
tweve months on account of a change n the accountng perod, the
Standard deducton sha not be aowed.

ths part sha be appcabe wth respect to ta abe years begnnng
after December 31, 1943.
Sec. 29.23 (aa)-. Standard Deducton. (a) Genera. or ta abe years be-
gnnng after December 31, 1043, the ta payer may eect to take, n addton to
the deductons from gross ncome aowabe n computng ad|usted gross ncome,
a standard deducton n eu of a nonbusness deductons (that s, deductons
other than those aowabe under secton 22(n)) and n eu of certan credts
aowabe to the ta payer had he not so eected. Such credts are the credt
provded by sectons 31 and 131 for Income ta pad to foregn countres or pos-
sessons of the Dnted States, the credt provded by secton 32 for ta pad at
the source umer secton 143(a) by the obgor on ta -free covenant bonds wth
respect to nterest on such bonds, and the credt provded by secton 25(a) (1) and
(2) for norma ta purposes wth respect to Interest on Unted States obgatons
and nterest on obgatons of Instrumentates of the Unted States. The
standard deducton Is 500, In the case of ta payers whose ad|usted gross Income
s 5, )0 or more, and, n the case of ta payers whose ad|usted gross ncome s
es3 than 5,000, about 10 per cent of the ad|usted gross ncome upon whch
the ta s determned n the tabe provded n secton 400. ta payer havng
ad|usted gross ncome of ess than 5,000, who does not eect to pay the ta m-
posed by Suppement T, may not take the standard deducton.
The standard deducton s not aowabe
(1) n the case of a ta abe year of ess than 12 months where such
ta abe year arses because of a change In accountng perod under secton
47(a)
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(2) In the case of a return for a fractona part of a year under secton
146(a) (1)
(3) n the case of an estate or trust
(4) n the case of common trust funds
(5) n the determnaton of the net ncome of a partnershp
(6) n the case of nonresdent aen Indvduas (ncudng those who
enter and eave the Unted States at frequent ntervas) and
(7) n the ease of a ctzen of the Unted States entted to the benefts
of secton 251.
n eecton to take the standard deducton Is not precuded by reason of the
fact that the return s made for a ta abe year of ess than 12 months on account
of the death of the ta payer.
(6) Manner and effect of eecton to take the standard deducton. The fo-
owng rues nre prescrbed wth respect to the manner of sgnfyng an eecton
by a ta payer to take the standard deducton:
(1) ta payer whose ad|usted gross Income as shown by hs return s 5,000
or more sha be aowed the standard deducton ony f he sgnfes on hs return
hs eecton to take such deducton. Such ta payer sha so sgnfy on hs return
by camng thereon a deducton of 500 nstead of temzng the deductons a-
owabe under secton 23 other than those specfed In secton 22(n). The eecton
so sgnfed sha be rrevocabe for the ta abe year for whch such eecton s
made. If n any case the ad|usted gross Income shown on the return of the
ta payer Is 5,000 or more, but the correct ad|usted gross ncome s ess than
5,000, then
(1) f the ta payer has eected on hs return to take the standard deduc-
ton such eecton sha be deemed to be an Irrevocabe eecton by the ta -
payer to pay the ta mposed by Suppement T and
() f the ta payer has not so eected upon hs return, It sha be deemed
that the ta payer has rrevocaby eected not to pay the ta under Suppe-
ment T.
(2) If the ad|usted gross Income shown on the return s ess than 5,000, the
standard deducton s aowabe ony f the ta payer eects n the manner pro-
vded n Suppement T to pay the ta Imposed by such suppement. s to the
manner nnd effect of eecton to pay the ta under Suppement T, see secton
29.402-1. In any case, however, n whch ad|usted gross Income shown on the
return s ess than 5,000 but the correct ad|usted gross ncome s n fact 5,000
or more, then
() f te ta payer has eected to pay the ta mposed under Suppe-
ment T, t sha be deemed that he has eected to take the standard de-
ducton and
() f the ta payer has not eected on hs return to pay the ta under
Suppement T, t sha be deemed that he has made an eecton not to take
the standard deducton.
(c) usband and wfe. In the case of husband and wfe vng together, f
the net ncome of one spouse s determned wthout regard to the standard
deducton, the other spouse may not eect to take the standard deducton. If
a ont return s fed and eecton made thereon to take the standard deducton,
such deducton sha be determned by reference to the aggregate ad|usted
gross ncome of both spouses. If orm W-2 (Rev.) s fed as a combned
return, the standard deducton s aowed through the appcaton to the ad|usted
gross ncome shown on such return of the ta tabe n Suppement T. See
secton 29.51-2 mtng the use of orm W-2 (Rev.) as a combned return to
cases n whch the aggregate ad|usted gross ncome of the spouses s ess than
5,000.
If each spouse fes orm 1040 both must eect to take the standard deducton
or both are dened the standard deducton. If one spouse fes orm 1040 and
does not eect to take the standard deducton, the other spouse may not eect
to take the standard deducton and, hence, may not fe orm W-2 (Rev.) as
hs or her return. Thus, f and hs wfe have nd|usted gross ncomes of
6,000 and 3,500, from wages sub|ect to wthhodng, respectvey, for the ca-
endar year 1 44, and fes orm 1040 and does not eect thereon to take the
standard deducton, may not fe orm W-2 (Rev.) but must fe orm 1040,
takng thereon ony her actua aowabe deductons and not the standard deduc-
ton. In such case, however, f both eect to take the standard deducton.
must fe orm 1040, but may fe orm W-2 (Rev.) or, u the aternatve.
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21
5 29.11-1.
she may fe orm 1040 nnd compute the ta under Suppement T. Under ether
aternatve effect s gven to the standard deducton through the appcaton
of Suppement T.
The restrcton upon the rght of a marred person to eect the standard deduc-
ton n hs separate return s appcabe wth respect to the ta abe years of
the husband and wfe endng In the same caendar year, e cept that n the event
of the death of one spouse the restrcton s appcabe wth respect to the ta abe
year ended wth death and the ta abe year of the survvng spouse n whch such
cttth occurs. The restrcton appes ony n the case of a husband and wfe
Ikng together and for such purpose the spouses are consdered as vng together
uness they are permanenty separated. The determnaton of whether an n-
dvdua Is marred and vng wth hs spouse sha be made as of the ast day
of such ndvdua s ta abe year uness hs spouse des durng such ta abe year,
n whch event the determnaton sha be made as of the date of death of such
spouse.
ampe (1). Ta payer makes hs returns on the bass of a fsca year
endng une 30. s wfe makes her returns on the caendar year bass. On
the return for the fsca year ended une 30, 1945, temzed and camed hs
actua deductons. In October, 1945, and were permanenty separated, n
her separate return for the caendar year 1945, may eect the standard deduc-
ton snce she s not marred and vng wth her husband on the ast day of
her ta abe year.
ampe (2). ssume the facts as stated n e ampe (1) e cept that. Instead
of the spouses separatng, ded n October, 1945. In such ease, snce and
were marred and vng together as of the date of death, may not eect the,
standard deducton for the caendar year 1945, f the ncome of for the short
ta abe year endng wth the date of hs death s determned wthout regard to
foowng:
S C. 10. CR DITS G INST N T INCOM . (INDI IDU L IN-
(a) ob Norma Ta . Secton 25(a) (reatng to credts aganst net
ncome for the purposes of the norma ta ) s amended by addng at the
end thereof a new paragraph to read as foows:
(3) Norma-ta e empton. norma-ta e empton of 500.
In the case of a ont return by husband and wfe under secton 51,
the norma-ta e empton sha be 1,000, e cept that f the ad|usted
gross ncome of one spouse s ess than 500, the norma-ta e emp-
ton sha be 500 pus the ad|usted gross ncome of such spouse.
(b) ob Surta . Secton 25(b) (reatng to credts for both norma
ta and surta ) s amended to read as foows:
(b) Credts for Surta Ony.
(1) Credts. There sha be aowed for the purpose of the
surta , but not for the norma ta , the foowng credts aganst
net ncome:
( ) surta e empton of 500 for the ta payer
( ) surta e empton of 500 for the spouse of the ta -
payer f
() a ont return Is made by the ta payer and hs
spouse under secton 51, n whch case the surta e empton
of the spouses under subparagraph ( ) and ths subpara-
graph sha be ony 1,000 n the aggregate, or
() a separate return s made by the ta payer, and hs
spouse has no gross ncome for the caendar year n whch
the ta abe year of the ta payer begns and s not the
dependent of another ta payer
(C) surta 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, e cept that f such de-
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29.11-1.
22
pendent Is marred the e empton In respect of such dependent
sha not be aowed f such dependent has made a |ont return
wth the other spouse under secton 51 for a ta abe year be-
gnnng n such caendar year.
(2) Determnaton of status. The determnaton of whether
an ndvdua s 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.
(3) Defnton of dependf.nt. s used n ths chapter the term
dependent means any of the foowng persons over haf of whose
support, for the caendar year n whch the ta abe year of the
ta payer begns, was receved from the ta payer:
( ) a son or daughter of the ta payer, or a descendant of
ether,
( ) a stepson or stepdaughter of the ta payer,
(C) a brother, sster, stepbrother, or stepsster of the
ta payer,
(D) the father or mother of the ta payer, or an ancestor of
ether,
( ) a stepfather or stepmother of the ta payer,
( ) a son or daughter of a brother or sster of the ta payer,
(G) a brother or sster of the father or mother of the ta -
payer,
( ) a son-n-aw, daughter-n-aw, father-n-aw, mother-n-
aw, brother-n-aw, or sster-n-aw of the ta payer.
s used n ths paragraph, the terms brother and sster ncude
a brother or sster by the haf-bood. or the purposes of determn-
ng whether any of the foregong reatonshps e st, a egay
adopted chd of a person sha be consdered a chd of such person
by bood. The term dependent does not ncude any Indvdua
who Is a ctzen or sub|ect of a foregn country uness such Ind-
vdua Is a resdent of the Unted States or of a country contguous
to.the Unted States. payment to a wfe whch s ncudbe
under secton 22(k) or secton 171 n the gross ncome of such wfe -
sha not be consdered a payment by her husband for the support
of any dependent.

IDU L INCOM T CT O 1944, P RT L)
Par. 20. Secton 29.25-1, as amended by Treasury Decson 5373,
approved May 23, 1944 C. . 1944, 143 , s further amended as
foows:
( ) y changng the headng thereof to read as foows: u Credts
of Indvduas ganst Net Income. (a) Ta abe years begnnng
before anuary 1,19W
( ) y strkng from the second sentence thereof the words for
ta abe years begnnng before anuary 1,1944,
(C) y addng at the end thereof the foowng:
(6) Tamabe years begnnng after December 31, /9 3. or ta abe years
begnnng after December 31, 1943, the ta payer s net Income as determned
pursuant to sectons 21 to 24, ncusve, s reduced, for the purpose of computng
the norma ta , by (1) the ncome e empt from norma ta ony receved upon
certan obgatons of the Unted States and upon certan obgatons of cor-
poratons organzed under ct of Congress whch are nstrumentates of the
Unted States, and (2) one norma-ta e empton of 500, or n the case of a
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23
29.11-1.
|ont return by husband and wfe a norma-ta e empton of 1,000, but If one
of the spouses has ess than 500 ad|usted gross Income the norma-ta e empton
s 300 pus the amount of the ad|usted gross Income of such spouse. No e emp-
ton for dependents Is aowed for norma ta purposes.
Pab. 21. Secton 29.25-3 s amended as foows:
( ) y strkng out mount of Persona empton ow-
abe. and nsertng n eu thereof the foowng: Persona
empton and Surta emptons. (a) Ta abe years begnnng
before anuary , 1944- r ta abe years begnnng before anuary
1.1944,a.
(6) Ta abe years begnnng after December 31, 19. 3. or the purpose of
the surta on ndvduas for ta abe years begnnng after December 31, 1943,
there are aowed as credts aganst net ncome a surta e empton of 500 for
the ta payer and, provded certan prescrbed condtons are met, a surta
e empton of 500 for the spouse of the ta payer and for each dependent of the
ta payer. Two surta e emptons of 500 each are aowabe n case a |ont
return s fed under secton 51 by a husband and wfe or n case a separate return
s made by the ta payer, and hs spouse has no gross ncome for the caendar
year n whch the ta payer s ta abe year begns, and hs spouse s not the
dependent of another ta payer. If n any case a |ont return s made by the
ta payer nd hs spouse, no surta - e empton Is aowed any other person for
such spouse even though such other person woud have been entted to cam a
surta e empton for such spouse as a dependent f such |ont return had not
been made. In addton to the surta e emptons aowed to a ta payer for hm-
sef and for. hs spouse, he s entted to a surta e empton of 500 for each
ndvdua whose gross ncome for the- caendar year n whch the ta abe year
of the ta payer begns s ess than 500, who receves more than one-haf of hs
support from the ta payer for such caendar year, who does not fe a ont
return wth hs spouse and who s reated to the ta payer wthn one of the
foowng reatonshps: Chd the descendants of such chd stepchd brother
sster brother or sster by the haf-bood stepbrother or stepsster parent the
ancestors of such parent stepfather or stepmother son or daughter of the ta -
payer s brother or sster brother or sster of the ta payer s father or mother
son-n-aw daughter-n-aw father-n-aw mother-n-aw brother-n-aw or
sster-n-aw. In the case of a |ont return t s not necessary that the prescrbed
reatonshp e st between the person camed as a dependent and the spouse
who furnshes the support t s suffcent f the prescrbed reatonshp e sts
wth respect to ether spouse. Thus, a husband and wfe makng a ont return
may cam as a dependent a daughter of the wfe s brother (wfe s nece) even
though the husband s the one who furnshes the chef support. The reatonshp
of affnty once e stng w not termnate by dvorce or the death of a spouse.
egay adopted chd of a person sha be consdered a chd of such person by
bood. ctzen or sub|ect of a foregn country mny not be camed as a depend-
ent, uness he Is a resdent of the Unted States, Canada, or Me co at some
tme durng the caendar year In whch the ta abe year of the ta payer begns.
Whether or not over haf of a person s support, for the caendar year In whch
the ta abe year of the ta payer begns, was receved from the ta payer, sha
be determned by reference to the amount of e pense ncurred by the ta payer
for such support. payment to a wfe whch Is ncudbe under secton 22(k)
or secton 171 n the gross ncome of such wfe sha not be consdered a payment
by her husband for the support of any dependent.
( ) y strkng out the headng and nsertng n eu thereof the
foowng: Persona empton or Marred Person for Ta abe
Years egnnng efore anuary 1,1944.
( ) y nsertng at the end thereof the foowng sentences:
or ta abe years begnnng after December 31, 1943, the persona e empton, as
such, of marred persons Is not appcabe and there are substtuted therefor the
norma-ta e empton and the surta e emptons. See secton 29.25-1,
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29.11-1.
24
( ) y strkng out Credt for Defendents. and nsertng
n eu thereof the foowng: Credt for Dependents. (a) Ta -
abe years begnnng before anuary 1, 1944- or ta abe years be-
gnnng before anuary 1,1944, a.
(6) Ta abe years begnnng after December 31, 1943. oT ta abe years
begnnng after December 31, 1943, the provsons of subsecton (a) of ths
secton have no appcaton. or surta e emptons for dependents for such
ta abe years, see secton 29.25-3.
foowng:

(c) Redccton or Credts n Case or eopardy. Secton 47(e) (reat-
ng to reducton of certan credts aganst net ncome n case of |eopardy)
s amended by strkng out persona e empton and credt for de-
pendents and nsertng In eu thereof norma ta e empton and sur-
ta e emptons and by strkng out the fu credts provded and
nsertng n eu thereof the fu norma ta e empton (n the case of
the nor ma ta ) and the fu surta e emptons (n the case of the
surta ) .

part sha be appcabe wth respect to ta abe years_begnnng after
December 31, 1943.
approved ugust 6, 1944 C. . 1944, 204 , s further amended as
foows:
( ) y strkng out the s th sentence and nsertng n eu thereof
the foowng:
If, for ta abe years begnnng after December 31, 1943, a return s made for a
fractona part of a year resutng from termnaton by the Commssoner under
secton 146 of the ta abe perod, the norma-ta e empton and the surta e -
emptons sha be reduced to that proporton of the fu norma-ta e empton (In
the case of the norma ta ) and the fu surta e emptons (n the case of the
surta ) whch the number of months n the perod for whch the return s made
bears to 12 months, but such e emptons sha not be reduced for a fractona part
of a year otherwse resutng.
( ) y nsertng n the seventh sentence after the word e emp-
ton the words or the norma-ta e empton, as the case may be, .
foowng:
P RT L)
(a) In Ge era. Secton 51 (a) and (b) (reatng to Indvdua re-
turns) s amended to read as foows:
(a) Requrement. very ndvdua havng for the ta abe year a
gross Income of 500 or more sha make a return, whch sha contan or
be verfed by a wrtten decaraton that t Is made under the penates of
per|ury. Such return sha set forth n such cases, and to such e tent,
and n such deta, as the Commssoner wth the approva of the Secre-
tary may by reguatons prescrbe, the Items of gross Income and the
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25 f 29.11-1.
deductons and credts aowed under ths chapter and such other Infor-
maton for the purpose of carryng out the- provsons of ths chapter as
may be prescrbed by such reguatons.
(b) usband and Wfe. husband and wfe may make a snge re-
turn onty. Such a return may be made even though one of the spouses
bag nether gross ncome nor deductons. If a |ont return s made the
ta sha be computed on the aggregate ncome and the abty wth re-
spect to the ta sha be |ont and severa. No |ont return may be made
f ether the husband or wfe s a nonresdent aen or f the husband and
wfe have dfferent ta abe years. The status of ndvduas as husband
and wfe sha be determned as of the ast day of the ta abe year.
(b) Returns by Wage arners. Secton 51 (reatng to returns by
Indvduas) s amended by strkng out subsecton (f) and Insertng n
en thereof the foowng:
(f) Ta Computed by Coector n Case of Waoe arners.
(1) Return requrements. n ndvdua entted to eect to
pay the ta mposed by Suppement T whose gross ncome Is ess
than 5,000 and Is entrey from one or more of the foowng sources:
Remuneraton for servces performed by hm as an empoyee, dv-
dends, or nterest and whose gross ncome from sources other
than wages, as defned n secton 1621(a), does not e ceed 100,
sha at hs eecton be reeved, by usng the form prescrbed as
the form for the return for the purposes of ths subsecton, from
showng on the return the ta Imposed by ths chapter. In such
case the ta sha be computed by the coector.
(2) Resut of computaton. fter the coector has computed
the ta , he sha ma to the ta payer a notce statng the amount
determned by the coector as payabe and makng demand there-
for.
(3) Reguatons. The Commssoner wth the approva of the
Secretary sha prescrbe reguatons for carryng out ths subsec-
ton, and such reguatons may provde for the appcaton of the
rues of ths subsecton to cases where the gross Income Incudes
tems other-than those enumerated n paragraph (1), to cases
where the gross Income from sources other than wages on whch the
ta has been wthhed at the source s more than 100 but not more
than 200, and to cases where the gross Income s 5 000 or more
but not more than 5,200. Such reguatons sha provde ( )
for the appcaton of ths subsecton n the case of husband and
wfe, ncudng provsons determnng when a |ont return under
ths subsecton may be permtted or requred and what consttutes
a |ont return, whether the abty sha be ont and severa,
and whether one spouse may make return under ths subsecton
and the other wthout regard to ths subsecton, and ( ) whether
and the e tent to whch the benefts of ths subsecton may be
avaed of, n the case of ta abe years begnnng n the caendar
year 1944, by persons requred to make or makng payments of
estmated ta wth respect to any such ta abe year.
(4) Method of eecton. The eecton to have the benefts of
ths subsecton sha be made by makng return on the form pre-
scrbed as the form for the return for the purposes of ths subsecton.
n eecton so made sha consttute an eecton to pay the ta m-
posed by Suppement T.

December 31,194a
Pah. 27. Secton 29.51-1, as amended by Treasury Decson 5373,
s further amended as foows:
( ) y strkng out Indvdua eturns for Ta abe Years
egnnng efore anuary 1, 1944. (a) In genera and nsertng
6 43W 40 3
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29.11-1.
26
n eu thereof the foowng: Indvdua Returns. (a) In gen-
era. (1) Ta abe years begnnng before anuary 1, 1944
( ) There s nserted mmedatey precedng subsecton (b) thereof
the foowng:
(2) Ta abe years begnnng after December SI, 19),S. or each ta abe
year begnnng after December 31, 1943, a return of ncome sha be made by
each ctzen of the Unted States, whether resdng at home or abroad, and
every ndvdua resdng wthn the Unted States though not a ctzen thereof,
regardess of famy or marta status, f such ctzen or resdent has for such
ta abe year a gross ncome of 500 or more, or a gross ncome n e cess of
the credt aowed by secton 25(a)(3), prorated as provded n secton 47(e).
(C) y amendng the frst paragraph of subsecton ( ) thereof
to read as foows:
or ta abe years begnnng pror to anuary 1, 1944, a husband and wfe,
f vng together at the cose of the ta abe year may eect to make a ont
return (see secton 51(b)), that s, to ncude n a snge return made by them
|onty the ncome and deductons of each, even though one has no gross ncome.
or ta abe years begnnng after December 31, 1943, a husband and wfe occupy-
ng the marta status as of the ast day of the ta abe year may eect to make
a |ont return even though one of the spouses has no gross ncome or deductons,
and even though the spouses are not vng together at any tme durng the
ta abe year. If a |ont return s made the ta sha be computed on the aggre-
gate Income. The abty wth respect to the ta sha be |ont and severa.
If one spouse des pror to the ast day of the ta abe year, the survvng spouse
may not ncude the ncome of the deceased spouse n a |ont return for such
ta abe year. |ont return may not be made f ether the husband or wfe
s a nonresdent aen.
Par. 2 . Secton 29.51-2 s amended as foows:
( ) y strkng out orm of Return. The and nsertng n
eu thereof the foowng: orm of Return. (a) Ta abe years
begnnng before anuary 1, 1944- or ta abe years begnnng be-
fore anuary 1 1944, the.
(6) Ta abe years begnnng after December SI, 1943. (1) Genera. or
ta abe years begnnng after December 31, 1943, the return sha be on orm
1040, e cept n the case of a ta payer entted to eect, and who so eects, to use
the orm W-2 (Rev.) n accordance wth the rues prescrbed n subsecton
(6) (2) of ths secton. ta payer, even though entted to use orm W-2 (Rev.)
for the ta abe year may, nevertheess, use orm. 1040 as hs return. Such
ta payer otherwse entted to use orm W-2 (Rev.) as hs return for the
ta abe year but who does not desre to take the standard deducton provded n
secton 23(aa) s requred to use orm 1040 as hs return for such ta abe year.
Use of the short orm 1040 s dscontnued wth respect to ta abe years be-
gnnng after December 31, 1943. The provsons of subsecton (a) of ths sec-
ton n so far as they appy to the tme and manner of makng a return on orm
1040 are equay appcabe to ta abe years begnnng after December 31, 1943.
(2) Use of optona return on orm W-2 (Rev.) n genera. or ta abe
years begnnng after December 31, 1943, an Indvdua entted to eect to pay
the ta mposed by Suppement T (e cept a ta payer makng hs returns on a
fsca year bass) may at hs eecton use as hs return orm W-2 (Rev.) pro-
vded hs gross ncome s ess than 5,000, conssts entrey of remuneraton for
persona servces performed by hm as an empoyee, dvdends, or nterest, and
hs gross ncome from sources other than wages, as defned n secton 1621(a),
does not e ceed 100. ta payer who makes hs return on a bass other than
the cash recepts and dsbursements bass may not use orm W-2 (Rev.) as hs
return. owever, n the case of marred persons domced n a communty
property State, orm W-2 (Rev.) may not be used as a return by ether spouse
uness the aggregate gross ncome of husband and wfe meets the tests prescrbed
above and they make a combned return. If they desre to fe separate returns,
orm 1040 must be used.
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27
29.11-1
n eecton to make a return on orm W-2 (Rev.) sha be e ercsed by
propery e ecutng and fng such form, together wth a other orms W-2
or W-2 (Rev.) receved for the ta abe year, wth the coector on or before the
doe date of the ta payer s return.
orm W-2, as dstngushed from orm W-2 (Rev.), may not be used as
the optona return. n ndvdua who has been furnshed by hs empoyer
wth orm W-2 wth respect to wages pad n 1944 and who, pror to the tme
prescrbed for the fng of the return for that year, has not been furnshed
orm W-2 (Rev.) by hs empoyer, may obtan from the coector a bank
orm W-2 (Rev.). Such orm W-2 (Rev.) when fed out and e ecuted and
havng attached thereto a orms W-2 receved wth respect to wages pad
n 1944, sha, when tmey fed, consttute such ndvdua s return for 1944
If he s egbe under secton 51(f) to use the optona return.
The fact that an ndvdua made payments of estmated ta n the caendar
rear-1944 does not, f such ndvdua Is otherwse entted to use as hs return
for 1944 the optona return. orm W-2 (Rev.), precude such ndvdua from
eectng to fe hs return on orm W-2 (Rev.) for such year.
(3) Combned return of husband and wfe on orm W-2 (Rev.). If durng
the ta abe year a husband and wfe derve ncome from wages, as defned n
secton 1621(a), and are furnshed one or more orms W-2 or orms W-2
ev.), and the aggregate gross Income of both spouses Is ess than 5,000,
conssts soey of remuneraton for servces performed as an empoyee, dvdends,
or nterest, and ncudes a tota of not more than 100 from dvdends, Interest,
and remnneraton for persona servces other than such wages, the spouses may
eect to fe a combned return on orm W-2 (Rev.). Such eecton sha be
e ercsed by the fng of one of the orms W-2 (Rev.) sgned by both spouses
sod the other orms W-2 and W-2 (Rev.) shoud be attached thereto.
The ta computed by the coector upon the bass of a combned return on orm
W-2 (Rev.) sha be the esser of the foowng amounts:
(1) a ta computed as though the combned return on orm W-2 (Rev.)
consttuted the separate returns of the spouses, and
() a ta computed as though the combned return on orm W-2 (Rev.)
consttuted a |ont return.
If a combned return s made by husband and wfe on orm W-2 (Rev.), the
abty for the ta sha be |ont and severa.
Pah.29. Secton 29.51-3 s amended as foows:
( ) y strkng out Return of Income of Mtnor. n and
nsertng n eu thereof the foowng: Return of Income of
Mnor . ( ) Ta abe years begnnng before anuary 1, 1944- or
ta abe years begnnng before anuary 1. 1944, an.
(6) Ta ab e pears begnnng after December SI. 1943. or ta abe years bo-
nnng after December 31, 1943, an ndvdua, athough a mnor, who s snge,
s requred to render a return of ncome f he has gross Income (ncudng com-
pensaton for persona servces ncudbe n hs gross ncome under secton 22
n)()) of 500 or over for the tn abe year regardess of the amount of hs
net Income. If the aggregate of the gross Income of such a mnor from any
Property whch he possesses, and from any funds hed n trust for hm by a
trustee or guardan, and from hs earnngs s at enst 5110, regardess of the
amount of hs net ncome, a return, as n the case of any other ndvdua, must
e made by hm or for hm by hs guardan or other person charged wth the
tare of hs person or property. See secton 29.142-2. If he s marred see sec-
ton 29.51-1.
Pab. 30. There s nserted mmedatey precedng secton 29.56-1
the foowng:
S C 6. R P L O ICTORY T . (INDI IDU L INCOM T
CT O 1944, P RT I.)


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29.11-1.)
2
(2) Secton 56(f) (cross reference) Is amended by strkng out
, 144, and Part II of Subchapter D and nsertng In eu thereof
and 144 .

S C. 12. P YM NT IP T NOT COMPUT D Y T P Y R.
(INDI IDU L INCOM T CT O 1944, P RT I.)
Secton 56 (reatng to payment of ta ) s amended by nsertng at
the end thereof the foowng:
() Payment of Ta f Not Computed by Ta payer. Where under
secton 51(f) a ta payer who Is an Indvdua s permtted to fe return
wthout showng the ta thereon, and the ta s to be computed by the
coector, the amount determned by the coector as payabe sha be
pad wthn thrty days after the mang by the coector to the ta payer
of a notce statng such amount and makng demand therefor.
December 31, 1943.
Pah. 31. Secton 29.56-1, as amended by Treasury Decson 5305, ap-
proved November 12, 1943 C. . 1943, 260 , s further amended as
foows:
( y strkng from the frst sentence The ta and nsertng n
eu thereof the foowng: cept n the case of an ndvdua ta -
payer permtted, for ta abe years begnnng after December 31,1943,
to fe hs return wthout showng the ta thereon, the ta .
( ) y nsertng as the second paragraph thereof the foowng:
In any case n whch an ndvdua ta payer for any ta abe year begnnng
after December 31, 1943, s entted to eect, and does so eect, to fe as ha
return orm W-2 (Rev.) as provded n secton 29.51-2(6), the amount of the
ta determned by the coector sha be pad wthn 30 days after the date of
mang by the coector to the ta payer of a notce statng the nmount payabe
by the ta payer and makng demand upon the ta payer therefor.
Par. 32. There s nserted mmedatey after secton 103 the fo-
owng:
. S C. 6. R P L O ICTORY T . (INDI IDU L INCOM T
CT O 1944, P RT I.)

(b) Techna mendments.

(3) Secton 103 (reatng to rates of ta on ctzens and corpora-
tons of certan foregn countres) s amended by strkng out and
450 wherever appearng theren and nsertng In eu thereof and
400 .

December 31, 1943.
Par. 33. There s nserted mmedatey precedng secton 29.117-1
the foowng:
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S 29 11-1.
S T. a D UST D GROSS INCOM . (INDI IDU L INCOM T
CT O 1944, P RT I.)

(d) Capta Gans and Losses.
(1) Defnton of capta nt gans. Secton 117(n) (10) ( )
Is amended by addng at the end thereof a new sentence to rend as
foows: If the ta s to be computed under Suppement T, net
ncome as used n ths subparagraph sha be read as ad|usted
gross ncome .
(2) Lmtaton on capta .os ks. Secton 117(d)(2) s
amended by addng at the end thereof a new sentence to read as
foows: If the ta s to be computed under Suppement T, net
ncome as used n ths paragraph sha be read as ad|usted gross
Income .
part sha be appcabe wth res ect to ta abe years begnnng after
December 31. 1943.
( ) y nsertng n the tenth paragraph as the fourth and ffth
sentences thereof the foowng:
or ta abe years begnnng after December 31, 1943, n the case of a ta payer
whose ta abty s computed under Suppement T, the term net ncome,
us nsed In the precedng sentence, sha be rend as ad|usted gross ncome.
In the determnaton of ad|usted gross ncome (pror to the determnaton of
net capta gan ) there sha be taken nto account the same percentages
of the gan or oss as are taken Into account n computng net ncome.
Par. 35. Secton 29.117-2(6) s amended by nsertng at the end
thereof the foowng sentence:
In ease the ta s computed under Suppement T, the term net Income sha,
for ta abe years begnnng after December 31, 1943, be read as ad|usted gross
ncome.
Par. 36. Secton 29.125-1 (b) s amended by addng at the end of the
second paragraph the foowng sentence:
In the case of a ta payer whose ta s computed under Suppement T (secton
400), or wbo eects to take the standard deducton (secton 23(aa)), and thus
no specfc deducton s permtted under secton 125(a)(1) for amortzaton of
bond premums as such. It sha be deemed. If the ta payer has eected to amortze
bond premum n accordance wth the provsons of secton 125, that the deduc-
ton for amortzaton of amortzed bond premum has been aowed for the pur-
pose of determnng the ad|usted bass of the bond.
the foowng:
sec. e repea of ctory ta . (ndvdua ncome ta
CT O 1944, P RT I.)


(4) Secton 131(a) (reatng to ta es of foregn countres and of
possessons of the Unted States) s amended by strkng out or sec-
ton 450 .
(5) Secton 131(1) (reatng to ta wthhed at source) Is
amended by strkng out 466(e) and by nsertng n eu thereof
35 .

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29.11-1.
30
U L INCOM T CT OP 1944, P RT L)
December 31, 1943.
Par. 3 . There s nserted mmedatey precedng secton 29.142-1
the foowng:
P RT I.)

(c) ducary Returns. Secton 142(a) (reatng to fducary re-
turns) s amended by strkng out paragraphs (1) to (5), Incusve,
(1) very ndvdua havng a gross ncome for the ta abe year
of 500 or over
(2) very estate the gross Income of whch for the ta abe year
s 500 or over
(3) very trust the net ncome of whch for the ta abe year
s 100 or over, or the gross ncome of whch for the ta abe year
s 500 or over, regardess of the amount of net ncome
(4) very estate or trust of whc any benefcary Is a non-
resdent aen.

ths part sha he appcabe wth respect to ta abe years begnnng after
December 31,1943.
( ) y redesgnatng subdvsons (a) and (6) thereof subdv-
sons (1) and (2), respectvey.
foowng: ducary Returns. (a) Ta abe years begnnng be-
fore anuary 1,19 4-
(C) y strkng out the frst two sentences of the paragraph be-
gnnng wth the words The return n case, and nsertng n eu
thereof the foowng:
The return n case (1) sha be on orm 1040 or 1040 . In case (2) a return
s requred on orm 1041. If the gross ncome of the decedent from the be-
gnnng of the ta abe year to the date of hs death was equa to, or n e cess
of, the credt aowed hm by secton 25(b) (1) and (3) (computed wthout
regard to hs status as head of a famy), the e ecutor or admnstrator sha
make a return for such decedent.
(6) Ta abe years begnnng after December 31, 1943. very fducary, or at
east one of |ont fducares, for ta abe years begnnng after December 31, 1943,
must make a return of ncome
(1) Returns for ndvduas. or the Indvdua whose ncome Is In hs
charge, f the gross ncome of such ndvdua s 500 or over.
(2) Returns for estates and trusts. or the estate for whch he acts
If the gross ncome of such estate Is 500 or over, and for the trust for
whch he acts f the gross Income of such trust s 500 or over, or the net
ncome of such trust, as computed under secton 162, s 100 or over, or f
any benefcary of such estate or trust s a nonresdent aen.
The return n case (1) sha be on orm 1040. In case (2) a return s requred
on orm 1041.
(c) Genera requrements.
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31
29.11-1.
(D) y strkng out the ast two sentences of the paragraph be-
gnnng wth the words The return n case.
Pah. 40. Secton 29.142-2 s amended as foows:
( ) y strkng out Retubn by Guabdan ob Commttee.
ana nsertng n eu thereof the foowng: Retubn by Guardan
or Commttee. (a) Ta abe years begnnng before anuary 2,
19U or ta abe years begnnng before anuary 1,1944, a.
( ) Ta abe pears begnnng after December 31, 1943. or ta abe years be-
gnnng after December 31, 1943, a fducary actng us a guardan of a mnor, or
as the guardan or commttee of an Insane person, havng a gross ncome of 500
or more, for the ta abe year must make a return for such person on orm 1040,
and pay the ta uness n the case of a mnor the mnor hmsef makes a return
or causes It to be made. s to the use of the optona return see secton
29.51-2(6).
Pah. 41. Secton 29.142-4 s amended by strkng out orm 1040
or 1040 and nsertng n eu thereof the foowng: orm
1040 (or. for ta abe years begnnng pror to anuary 1, 1944,
orm 1040 or 1040 ).
the foowng:
C. 10. CR DITS G INST N T INCOM . (INDI IDU L IN-
COM T CT O 1944. P RT I.)

(d) Credts ganst Net Income n Case op Interest on Ta - kee
Covenant onds. Secton 143(a)(2) (reatng to credts aganst net
ncome n the case of nterest on ta -free covenant bonds) s amended
by strkng out credts provded n secton 25(b) and nsertng n eu
thereof norma ta e empton provded n secton 25(a)(3) and the
surta e emptons provded n secton 25(b) .

( ) y strkng out the frst sentence and nsertng n eu thereof
the foowng:
Wthhodng from Interest on bonds or other obgatons of corporatons ssued
pror to anuary 1, 1934, contanng a ta -free covenant, sha not be requred for
taabe years begnnng pror to anuary 1, 1944, f there s fed wth the wth-
hodng agent when presentng coupons for payment, or not ater than ebruary
1 of the foowng year, an ownershp certfcate on orm 1000 statng
(1) In the case of n ctzen or resdent of the Unted States, that hs net
Income does not e ceed hs persona e empton and credt for dependents,
(2) In the case of an estate or trust, that the net ncome does not e ceed
the credt aowed under secton 163(a) (1) and
f such ta abe rear begns after December 31, 1942, and pror to anuary 1, 1944,
that the vctory ta net ncome does not e ceed the specfc e empton of 024.
or ta abe years begnnng after December 31. 1943, such wthhodng sha
not be requred If there s fed wth the wthhodng agent when presentng Inter-
est coupons for payment, or not ater than ebruary 1 of the foowng year, an
ownershp certfcate on orm 1000 statng
(1) In the case of a ctzen or resdent of the Unted States, that hs net
Income does not e ceed hs norma-ta e empton and
(2) In the case of an estate or trust, that the net ncome does not e ceed
the credt aowed n secton 163(a) (1) for the purpose of the norma ta .
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29.11-1.)
32
( ) y strkng out the ne t to the ast paragraph and nsertng
n eu thereof the foowng:
nonresdent aen ndvdua not engaged n trade or busness wthn the
Unted States at any tme wthn the ta abe year s sub|ect to the ta mposed
by secton 211(a) on gross ncome and s not entted to any persona e empton
or credt for dependents for ta abe years begnnng before anuary 1, 1944, or
to the norma-ta e empton or the surta e emptons for ta abe years begn-
nng after December 31, 1943. nonresdent aen ndvdua who s engaged
n trade or busness wthn the Unted States at any tme durng the ta abe
year s entted to the persona e empton for ta abe years begnnng before
anuary 1, 1944, and to the norma-ta e empton and the surta e empton
aowed by secton 25(b)(1)( ) for ta abe years begnnng after December
31, 1943. If such nonresdent aen s a resdent of Canada or Me co, he Is aso
entted to the credt for dependents for ta abe years begnnng before anuary
1, 1944, and to the surta e emptons aowed by secton 25(b) (1) ( ) and (C)
for ta abe years begnnng after December 31, 1943. The beneft of such e -
emptons or credt for dependents may not be receved by fng a cam therefor
wth the wthhodng agent. owever, n the determnaton of the ta to be wth-
hed at the source under secton 143(b) wth respect to remuneraton pad on or
after uy 1, 1943, for abor or persona servces performed wthn the Unted
States by a nonresdent aen, the beneft of the persona e empton for ta abe
years begnnng before anuary 1,1944, or the norma-ta and surta e emptons
for ta abe years begnnng after December 31, 1943, sha be aowed, prorated
upon the bass of 1.40 per day for the perod of empoyment durng any porton
of whch abor or persona servces are performed wthn the Unted States by
such aen. Thus f , a nonresdent aen seaman empoyed by the Shppng
Corporaton, s pad upon the termnaton of the voyage and such voyage covers
100 days, and performed persona servces wthn the Unted States durng,
or ncdent to, such voyage, the amount of 140 w be aocated as the porton
of the persona e empton or norma-ta and surta e emptons to be aowed as
a credt aganst the remuneraton of for persona servces performed wthn
the Unted States durng such voyage and wthhodng sha be apped aganst
the baance, If any, of such remuneraton. If, for e ampe, the tota remunera-
ton pad to for such voyage s 00, of whch the sum of 120 Is aocabe to
sources wthn the Unted States, there Is no wthhodng. s to what con-
sttutes remuneraton for abor or persona servces rendered wthn the Unted
States, see secton 119(a)(3) and secton 29.119-4. The amount of the com-
pensaton aocabe to abor or persona servces performed wthn the Unted
States together wth the amount of the persona e empton or norma-ta and
surta e emptons, prorated as set forth In ths paragraph, sha be shown on the
annua wthhodng return, orm 1042.
the foowng:
S C. 6. R P L OP ICTOR T . (INDI IDU L INCOM T
CT O 1944, P RT I.)


(6) Secton 145(e) (cross reference) s amended to read as
foows:
(e) or penates for faure to fe nformaton returns wth respect
to foregn persona hodng companes and foregn corporatons, see
secton 340.

December 31, 1943.
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33
29.11-1.
Pab. 45. Secton 29.146-1 s amended by strkng out the second
sentence and nsertng n eu thereof the foowng:
In such a case the ta payer Is entted to the persona e empton and credt for
dependents, If otherwse aowabe, but the amount aowabe ns persona e emp-
ton and credt for dependents (for ta abe years begnnng before anuary 1,
1911) and the amount of the norma-ta e empton and the surta e emptons
(for ta abe years begnnng after December 31, 1943) sha be reduced pro-
portonatey to the ength of the perod for whch the return Is made.
Pah. 46. Secton 29.147-3, as amended by Treasury Decson 5313,
approved December 21, 1943 C. . 1944, 30 , s further amended
as foows:
( ) y strkng out cause (g) and nsertng n eu thereof the
foowng:
(t) Payment of saares, or other compensaton for persona servces, aggre-
gatng ess than 624 for a caendar year pror to the caendar year 1944 made
to a marred Indvdua (ctzen or resdent)
( ) y nsertng mmedatey after W-2, n cause () W-2
(Rev.), .
Pah. 47. There s nserted mmedatey precedng secton 29.162-1
the foowng:

(b) states, Trusts, and Common Trust unds.
(1) states and tbusts. Secton 162 (reatng to net ncome
of estates and trusts) s amended by nsertng at the end thereof the
foowng:
(f) e standard deducton-provded In secton 23(aa) sha not be
aowed.

December 31, 1943.
the foowng:

(e) Credts of state or Tbust ganst Net Income, Secton 163
(a)(1) (reatng to credts of estates and trusts aganst net ncome)
s amended to read as foows:
(1) or the purpose of the norma ta an estate sha be aowed
the same norma ta e empton as Is aowed to a snge person
under secton 25(a)(3). or the purpose of the surta an estate
sha be aowed the same surta e empton as s aowed to an
ndvdua under secton 25(b) (1) ( ). trust sha be aowed a
credt of 100 aganst net Income for the purpose of the norma ta
and a credt of 100 aganst net Income for the purpose of the
surta . Such credts sha be In eu of the norma ta e empton
under secton 25(a) (3) and the surta e empton under secton
25(b)(1) ( ).

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t 29.11-1.
34
IDU L INCOM T CT OP 1944, P RT I.)
December 31, 1943.
( ) y nsertng mmedatey precedng the perod n the headng
of subsecton (a) thereof the foowng: for ta abe years begnnng
before anuary 1,19
( ) y strkng out of the frst sentence of subsecton (a) the
word n and nsertng n eu thereof or ta abe years begnnng
before anuary 1, 1944, an.
(C) y redesgnatng subsectons (b) and (c) thereof subsectons
(c) and (d), respectvey.
(D) y nsertng mmedatey after subsecton (a) thereof the
foowng:
(6) Norma-ta e empton and surta e empton aowed estates and trusts.
or ta abe years begnnng nfter December 31, 1943, an estate s aowed the
same norma-ta e empton, namey, 500, as s aowed a snge person under
secton 25(a)(3) and the same surta e empton, namey, 500, as s aowed
an ndvdua under secton 25(b)(1)( ). or proraton of the norma-ta
e empton and of the surta e empton In the case of a fractona part of a
year resutng from the termnaton by the Commssoner under secton 146 of
the ta abe perod, see secton 29.47-1. trust s aowed for both norma ta
and surta purposes a credt of 100 aganst net Income. credt for dependents
s not aowabe to an estate or trust.
( ) y strkng out the thrd to the ast sentence n subsecton (d)
(prevousy desgnated (c)) and nsertng n eu thereof the foow-
ng:
or ta abe years begnnng before anuary 1, 1944, each benefcary s entted
to but one persona e empton, no matter from how many trusts he may receve
ncome. or ta abe years begnnng after December 31, 1943, no addtona
norma-ta e empton or surta e empton s aowabe to the benefcary of a
trust by reason of the recept of Income from such trust.
the foowng:
COM T CT O 1944, P RT L)

(b) states, Trusts, and Common Trust unds.

(2) Common trust funds. Secton 169(d) (reatng to ncome of
common trust funds) s amended by nsertng at the end thereof the
foowng:
(4) The standard deducton provded n secton 23(aa) sha not
be aowed.

December 31, 1943.
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35 s 20.U-1.
Par. 51. There s nserted mmedatey precedng secton 29.1 3-1
the foowng:
COM T CT O 1944, P RT .f

(e) Partnershps. Secton 1 3 (reatng to partnershp ncome) s
amended
(1) by strkng out (b) and (c) In subsecton (a) and nsertng
n en thereof (b), (c),and (d) and
(2) by nsertng at the end thereof the foowng:
(d) Standard Deducton. In computng the net ncome of the part-
nershp, the standard deducton provded n secton 23(aa) sha not
be aowed.

S C. 2. T L T RS TO W IC PPLIC L . (INDI-
December 31,1943.
Par. 52. Secton 29.211-7(c) s amended by strkng from the second
sentence of 6 per cent mposed by secton 11, the graduated surta
mposed by secton 12(b), and the vctory ta mposed by secton 450
ana nsertng n eu thereof , the surta , and, for ta abe years
begnnng n 1943, the vctory ta .
Par. 53.-Secton 29.212-1 (b) s amended by strkng from the frst
sentence of the second paragraph of 6 per cent, the surta , and the
vctory ta and nsertng n eu thereof , the surta , and, for ta abe
years begnnng n 1943, the vctory ta .
the foowng:

(d) Nonresdent ens. Secton 213 (reatng to deductons n
computng net ncome of certan nonresdent aens) Is amended by Insert-
ng at the end thereof the foowng:
(d) Standard Deducton. The standard deducton provded In sec-
ton 23(aa) sha not be aowed.
December 31, 1943.
Pab. 55. There s nserted mmedatey precedng secton 29514-1
the foowng:
COM T CT O 1944. P RT I.)

(f) Credts op Nonresdent ens ganst Net Income. Secton
214 (reatng to credts of nonresdent aens aganst net ncome) s
amended to read as foows:
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29.11-1
36
S C. 214. CR DITS G INST N T INCOM .
In the case of a nonresdent aen ndvdua who s not a resdent of
a contguous country, the norma ta e empton aowed by secton
25(a) (3) sha be ony 500 and the surta e emptons aowed by sec-
ton 25(b) (1) ( ) and (C) sha not be aowed.

December 31, 1943.
( ) y strkng out u(b) Unted States busness. In and n-
sertng n eu thereof the foowng: (6) Unted States busness.
(1) Ta abe years begnnng before anuary 1, 19 . or ta abe
years begnnng before anuary 1,1944, n.
(2) Ta abe years begnnng after December 31, 19//3. or ta abe years
begnnng after December 31, 1943, n the case of a nonresdent aen ndvdua
who at any tme wthn the ta abe year was engaged n trade or busness
wthn the Unted States, the norma-ta e empton aowed as a credt aganst
net ncome by secton 25(a)(3) sha be 500, and the surta e empton sha
kewse be 500 e cept n the case of a nonresdent aen ndvdua who s a
resdent of Canada or Me co. In the case of a resdent of Canada or Me co,
the same norma-ta e empton and the same surta e empton as n the case
of a ctzen of the Unted States sha appy.
Par. 57. There s nserted mmedatey precedng secton 29.215 1
the foowng:

(g) Credts of Nonresdent en ganst Net Income n Case of
Ta Wthhed at Source. Secton 215(b) (reatng to credts of non-
resdent aen aganst net ncome n case of ta wthhed at source) s
amended by strkng out the persona e empton and credt for de-
pendents and nsertng In en thereof the norma ta e empton
and the surta e emptons .

December 31, 1943.
the foowng:

(h) Credts of Ctzens ntted to enefts of Secton 251. Sec-
ton 251(f) (reatng to credts aganst net ncome n the case of ctzens
entted to the benefts of secton 251) s amended to read as foows:
(f) Credts ganst Net Income. ctzen of the Unted States
entted to the benefts of ths secton sha be aowed a norma ta
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37 IS 29.11-1.
e empton of ony 500 and sha not be aowed the surta e emptons
aowed by secton 25(b)(1) ( ) and (C).M

C. 2. T L Y RS TO W IC PPLIC L . (INDI-
IDU L INCOM T CT O 1944, P T I.)
ths part sha be appcabe wth respect to ta abe years begnnng nfter
December 31, 1943.
the foowng:
S C. 6. R P L O ICTO T T . (INDI IDU L INCOM T
CT O 1944, P RT I.)


(7) Secton 291(b) (cross reference) s repeaed.

December 31, 1943.
Pah. 60. There s nserted mmedatey precedng secton 29.294-1,
as added by Treasury Decson 5305, approved November 12, 1943,
the foowng:
S C. 6. R P L O ICTORY T . (INDI IDU L INCOM T
CT O 1944, P RT I.)


( ) Secton 294(d) (2) (reatng to substanta underestmate of
estmated ta ) s amended by strkng out , 35, and 466(e) and
Insertng n eu thereof and 35 .

December 31, 1943.
the foowng:
S C. ft R P L O ICTORY T (INDI IDU L INCOM T
CT O 1944, P RT I.)


(9) Secton 322(a) (2) (reatng to e cessve wthhodng) Is
amended by strkng out Part II of Subchapter D or and by
strkng out or 466(e) .
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29.11-1.)
3S
(10) Secton 322(e) (reatng to presumpton as to date of pay-
ment) s amended by strkng out under Part II of Subchapter D
or and or secton 406(e) .
December 31, 1043.
approved ebruary 2 , 1944 C. . 1944, 35 , s further amended
as foows:
( ) y nsertng n the frst paragraph mmedatey after orm
1040 the foowng: , or by the use of orm W-2 ( ev.), .
( ) v nsertng n the second paragraph mmedatey after
orm 43. the foowng:
The fng of a propery e ecuted return on orm W-2 (Rev.) sha consttute
an eecton by the ta payer to have the return treated as a cam for refund and
such return sha consttute a cam for refund wthn the meanng of secton
322 for the amount of the overpayment shown by the coector s computaton of
the ra on the bass of the return. or the purposes of secton 322 such cam
sha be consdered as fed on the date on whch such return Is consdered as
ted. In any case n whch a ta payer eects to have an overpayment refunded
to hm he may not thereafter change hs eecton to have the overpayment ap-
ped as a payment on account of hs estmated ta .
ar. 63. There s nserted mmedatey precedng secton 29.400-1
the foowng:
GROSS INCOM O L SS T N 5,000. (INDI IDU L IN-
(a) In Genera. Suppement T of Chapter 1 (reatng to the aterna-
tve ta on ndvduas wth gross ncome from certan sources of ess
than 3,000) s amended to read as foows:
Suppement T Indvduas Wth d|usted Gross Income of Less
Than 5,000
S C. 400. IMPOSITION O T .
In eu of the ta es mposed by sectons 11 and 12, there sha be
eved, coected, and pad for each ta abe year upon the net ncome of
each ndvdua whose ad|usted gross ncome for such year s ess than
5,0 f), and who has eected to pay the ta mposed by ths suppement
for such year, the ta shown In the foowng tabe:
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39 f 29.11-1.
If the ad.
u-t. truss
nc.nu- -
nd the number of sur-
ta e emptons Is
If the ad-
|usted (TOSS
Income s
nd the number of surta e emptons s
ut
1
2
3
4
m
ut
ess
than
1
2
S
5
(
7
9 or

ha
arc
t
east
Mum
The ta sha
1 be
The ta 9 h
be
to
550
0
0
to
O
0
2,300
2325
364
264
164
64
47
47
47
47
47
. SO
575
1
0
0
0
0
2 325
2350
369
209
169
69
4
4
4
4
4
575
600
7
1
1
1
1
2 350
2 375
374
274
174
74
49
49
49
49
49
600
625
12
2
2
2
2
2 375
2400
379
279
179
79
49
49
49
4
49
625
650
17
2
2
2
2
2400
2 425
3 4
2 4
1 4
4
50
50
50
50
50
0
675
22
3
S
3
3
2 425
2 450
390
290
190
90
51
61
51
51
51
675
700
27
4
4
4
4
2450
2 475
395
295
195
95
51
51
61
51
51
700
725
32
4
4
4
4
2 475
2500
400
300
200
100
52
52
52
52
62
725
750
3
g
6
5
6
2500
2 525
405
305
205
105
53
53
53
53
53
750
775
43
6
6
6
2 525
2550
410
310
210
no
54
54
54
54
64
775
600
4
6
6
6
2 550
2 575
415
315
215
115
54
54
54
54
54
00
25
S3
7
7
7
7
2 675
2600
421
321
221
121
55
55
55
55
55
35
50
5
2600
2 625
426
326
226
126
56
5
56
5
56
MO
75
64
2625
2650
431
331
231
131
56
56
56
56
5
S75
goo
09
9
9
9
9
2650
2 675
436
336
236
136
67
67
67
67
67
900
925
74
10
10
10
10
2675
2 700
441
341
241
141
5
5
5
5
5
925
950
79
10
10
10
10
2700
2 725
446
346
246
146
5
5
5
5
5
MO
975
4
11
11
11
11
2725
2 750
452
352
252
152
59
59
59
59
59
975
UN
1,000
9
12
12
12
12
2 750
2 775
457
357
257
157
60
60
60
60
60
1,025
96
12
12
12
12
2 775
2 00
402
362
262
162
62
60
60
60
60
L025
1.050
100
13
13
13
13
2 00
2 25
46
367
267
167
67
61
61
61
61
UM
1,075
105
14
14
14
14
2 25
2 50
473
372
272
172
72
62
62
62
62
1.075
1,100
110
14
14
14
14
2 50
2 75
479
37
27
17
7
62
62
62
62
1.100
1,125
115
15
15
15
15
2 75
2900
4 5
3 3
2 3
1 3
3
63
63
63
63
m
1,150
120
20
16
16
16
2900
2 926
490
3
2
1

64
64
64
64
1.150
L 175
12
26
16
16
16
2 925
2950
496
303
293
193
93
64
64
64
64
1.175
1,200
131
31
17
17
17
2 99
2 975
502
39
29
19
9
65
65
65
65
1.300
1.225
136
36
1
1
1
2 975
3,000
507
403
303
203
103
66
66
66
66
1.225
1,250
141
41
1
1
1
3,000
3,050
516
411
311
211
111
67
67
67
67
1.250
1,275
146
46
19
19
19
3,050
3,100
527
422
322
222
122
6
6
6
6
1.275
1.300
1.3O0
152
62
20
20
20
3,100
3, 150
53
432
332
232
132
69
69
69
69
1,325
157
57
20
20
20
3,150
3,200
549
442
312
242
142
71
71
71
71
1.325
1,350
162
62
21
21
21
3,200
3,250
561
453
353
253
153
72
72
72
72
.C.)
1.375
167
67
22
22
22
3,250
3,300
572
463
363
263
163
73
73
73
73
1.375
1.4O0
172
72
22
22
22
3,300
3,350
5 3
473
373
273
173
75
75
75
75
1.400
1,425
177
77
23
23
23
3,350
3,400
594
4 4
3 4
2 4
1 4
4
76
76
76
1.425
1,450
1 3
3
24
24
24
3.400
3,450
606
496
394
294
194
94
77
77
77
1.450
1,475
1

24
24
24
3,450
3,600
617
507
404
M)
204
104
79
79
79
1,475
1.5O0
193
93
25
25
25
3,500
3,550
62
51
415
315
215
115
0
0
0
1.M0
1.625
19
9
26
26
26
3,550
3,600
639
629
425
325
225
125
2
2
2
1,525
1,560
203
103
27
27
27
3,600
3,650
651
541
435
335
235
135
3
3
3
1,550
1,675
20
10
27
27
27
3,650
3,700
662
552
446
346
246
146
4
4
4
1.575
1,600
214
114
2
2
2
3,700
3,750
673
563
456
356
256
156
6
6
6
1.600
1.626
219
119
29
29
29
3,750
3. 00
6 4
574
466
366
266
166
7
7
7
1.625
1.650
224
124
29
29
29
3, 00
3. 60
696
5 6
477
377
277
177

m
1,675
229
129
30
30
30
3, 50
3,900
707
597
4 7
3. 7
2 7
1 7
90
90
90
1.675
1.700
234
134
34
31
31
3,900
3,950
71
60
49
397
297
197
97
91
91
Oh
1,725
239
139
39
31
31
3,950
4,000
729
619
509
40
30
20
10
92
92
1,725
1.750
245
145
45
32
32
4,000
4,050
741
631
521
41
31
21
11
94
94
1,750
1,775
250
150
50
33
33
4,050
4,100
752
642
532
429
329
229
129
95
95
1.775
.S O
255
155
55
33
33
4,100
1,150
763
653
543
439
339
239
139
96
96
1. 00
1, 25
260
160
60
34
34
4,150
4,200
774
664
554
449
349
249
149
9
9
1, 25
1, 50
265
165
65
35
35
4,200
4,250
7 6
676
566
460
360
260
160
99
99
m
1, 75
271
171
71
35
35
4,250
4,300
797
6 7
577
470
370
270
170
100
100
tm
1,900
276
176
76
36
36
4.300
4,350
M
69
5
4MI
3 0
2 0
ISO
102
102
1.90O
1,925
2 1
1 1
1
37
37
4,350
4,400
19
709
599
I .
391
291
191
103
103
1.925
1,950
2 6
1 6
6
37
37
4,400
4,450
31
721
611
501
401
301
201
M
104
1,950
1,975
291
191
91
3
3
4,450
4,500
42
732
022
512
411
311
211
111
1P6
1.975
2000
296
196
96
39
39
4.500
4,550
53
743
633
523
422
322
222
122
107
ono
2025
302
202
102
39
39
4,550
4.600
64
754
644
534
432
332
232
132
109
2,025
2050
307
207
107
40
40
4,600
4.650
76
766
656
546
442
342
242
1 12
110
2,050
2 075
312
212
112
41
41
4,650
4,700
7
777
667
557
453
3,53
23
1.53
111
2,075
2100
317
217
117
41
41
4,700
4, 760
9
7
67
56
463
363
263
163
113
2.100
2125
322
222
122
42
42
4,750
4, 00
909
799
6 9
579
473
373
273
173
111
2.12
2150
327
227
127
43
43
4, 00
4, 50
921
11
701
591
4 4
3 4
2S4
1S4
115
2,150
2175
333
233
133
43
43
4, 50
4.900
932
22
712
602
491
394
291
194
117
2.175
2200
33
23
13
44
44
4.900
4.950
943
33
721
613
504
404
304
204
11
2.300
2225
343
243
143
45
45
4,950
5,000
034
44
734
624
615
415
315
215
119
2.225
2250
34
24
14
4
45
2,250
2 275
353
253
153
53
46
2.375
2300
350
259
159
59
47
1 s amended by secton 2, Pubc aw 390, Seventy-eghth Congress, approved uno 30, 1944.
Norma ta e empton In case of husband and wfe: If the return ncudes gross Income of both husband
and wfe, the ta sha be that determned under the tabe, reduced by 3 per centum of the smaur ad|usted
cross ncome, bat not by more than 15.00

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1
3
-
0
1
-
2
2

0
1
:
3
9

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29.11-1.
40
U L INCOM T CT OP 1944, P RT I.)
December 31, 1943.
approved pr 19, 1944 C. . 1944, 361 , s further amended as
foows:
foowng: Scope and ppcaton of Suppement T. (a) Caendar
years 19 and 1943.
( ) y strkng out the second and thrd sentences and nsertng
or the purposes of the 3,000 mtaton n effect for the caendar years 1942 and
1943, the amount of an ndvdua s gross ncome sha be determned wthout sub-
tractng any amount on account of such ndvdua s dependents.
(C) y strkng out the second sentence of the second paragraph.
(D) y strkng out the ast two paragraphs thereof and nsertng
(b) Ta abe yeara begnnng after December SI, 19S. or ta abe years be-
gnnng after December 31, 1943, n eu of the ta es mposed by sectons 11 and
12, an ndvdua may eect to pay the ta mposed by secton 400 f hs ad|usted
gross ncome s ess than 5,000, regardess pf the sources from whch such n-
come s derved and regardess of whether such ncome s computed on the cash
bass or on the accrua bass. The appcaton of ths paragraph may be us-
trated by the foowng e ampe:
ampe. s empoyed at a saary of 4,600 for the caendar year 1945. In
addton to hs saary he receved 750 as rembursement for e penses ncurred
n the course of hs empoyment durng the caendar year. Such tems consttute
hs soe ncome for 1945. In such case the gross Income s 5,350 but the amount
of 750 s deducted from gross ncome n the determnaton of ad|usted gross
ncome and thus s ad|usted gross ncome for 1945 s 94,600. ence, the ad-
|usted gross ncome beng ess than 5,000, he may eect to pay hs ta for 1945
under Suppement T. Smary, n tte case of an ndvdua engaged n trade or
busness (e cudng from the term engaged n trade or busness the perform-
ance of persona servces as an empoyee) there may be deducted from gross
ncome n ascertanng ad|usted gross ncome those e penses drecty reatng to
the carryng on of such trade or busness.
or the purposes of determnng whether a ta payer may eect to pay the ta
under Suppement T for ta abe years begnnng after December 31, 1943, the
amount of the ad|usted gross ncome, wthout reference to the number of surta
e emptons to whch the ta payer may be entted, s controng. Thus, for
e ampe, f has, for 1945 as hs ony ncome, a saary of 5, 00 and hs spouse
has no gross ncome and derves her entre support from , then s ad|usted
gross ncome s 5, 00 (not 5, 00 mnus 1,000, or 4, 00) and he s not, for such
year, entted to pay hs ta under Suppement T. If, however, has for 1945 a
aary of 6,000 and Incdent to hs empoyment he Incurs e penses n the amount
of 1,200 for trave, meas, and odgng whe away from home, the ad|usted
gross ncome s 6,000 mnus 1,200, or 4, 00. In such case hs ad|usted gross
ncome beng ess than 5,000, may eect to pay the ta under Suppement T.
If, however, s wfe has ad|usted gross Income of 200, thus brngng the aggre-
gate ad|usted gross Income to 5,000 and hs wfe |ons n a |ont return, he
ta payer can not eect to pay the ta under Suppement T.
In the case of husband and wfe vng together, f ther aggregate ad|usted
gross ncome s ess than 5,000 and each s requred to fe a return both must,
or nether can, eect to pay the ta under Suppement T. If, however, one of
such spouses has ad|usted gross ncome of 5,000 or more and the other spouse
has ad|usted gross ncome of ess than 5,000, the atter spouse may eect to pay
the ta under Suppement T provded that the other spouse eects to take the
standard deducton provded n secton 23(aa).
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41
29.11-1.
These restrctons upon the rght of a marred person to eect to pay the ta
under Suppement T are appcabe ony f such person s marred and vng
wth hs spouse on the ast day of hs ta abe year or In the event of the death of
hs spouse durng the ta abe year, upon the date of such death. or rues
reatve to the appcaton of these restrctons, see secton 29.23(aa)-(c).
To determne the amount of hs ta for the ta abe year begnnng after De-
cember 31, 1943, the ndvdua ascertans the amount of hs ad|usted gross
acone (wthout subtractng therefrom any amount wth respect to surta
e emptons), refers to the schedue set forth n secton 400, as amended, as-
certans the ncome bracket nto whch such ncome fas and, usng the .number
of surta e emptons appcabe to hs case, fnds the ta In the vertca coumn
havng at the top thereof a number correspondng to the number of surta
e emptons to whch the ta payer s entted. Thus, f has ad|usted gross n-
come of 4,415 and has three surta e emptons, ncudng hs surta e empton
for hmsef, hs ta s 611.
In any case n whch the ta payer and hs spouse eect to pay the ta m-
posed by Suppement T upon the bass of a |ont return, and the return ncudes
gross ncome of both husband and wfe, the ta determned under the tabe
sha be reduced by 3 per cent of the smaer ad|usted gross ncome but In an
amount not n e cess of 15. Under the schedue contaned n secton 400, as
amended, no ta s mposed upon a snge person, a marred person makng a
separate return, or a marred person whose spouse has no gross Income, f the
ad|usted gross ncome n any such case n ess than 550.
or ta abe years begnnng after December 31, 1943, the fact that the ta abe
year Is a perod of ess than 12 months resutng by reason of the death of the
ta payer does not prevent the appcaton of Suppement T n the determnaton
of the ta for such perod.
the foowng: -
GROSS INCOM O L SS T N 5,000. (INDI IDU L INCOM
T CT O 1944, P RT I.)
(a) In Genera. Suppement T of Chapter 1 (reatng to the ater-
natve ta on ndvduas wth gross ncome from certan sources of ess
Suppement T Indvduas Wth d|usted Gross Income or Less
Than 5,000

S C. 401. D INITION O SURT MPTION .
s used In the tabe In secton 400, the term number of surta e emp-
tons means the number of the e emptons aowed under secton 25(b)
as credts aganst net Income for the purpose of the surta mposed by
secton 12.

Pab. 66. Secton 29.401-1, as amended by Treasury Decson 5360,
( ) y strkng out Rues for ppcaton of Schedue n Sec-
ton 400. or the caendar year 1942 and subsequent caendar years
and nsertng n eu thereof the foowng: Rues for ppcaton
of Schedue n Secton 400. (a) Caendar years 191 and 1943.
or the caendar years 1942 and 1943.
( ) y strkng out e ampes numbered (5), (6), (7), and ( ).
6 4304 16 4
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t 29.11-.|
42
(C) y addng at the end thereof the foowng:
(6) Ta abe years begnnng after December SI, /f S.-The term number of
surta e emptons means the number of the e emptons aowed under secton
25(b) as credts for surta purposes. One surta e empton Is aowed for the
ta payer one surta e empton for hs spouse f a |ont return s made, or f a
separate return s made by the ta payer and hs spouse has no gross ncome for
the caendar year n whch the ta abe year of the ta payer begns and s not
the dependent of another ta payer for such caendar year and one surta
e empton for each dependent whose gross Income s ess than 000 for such
caendrfr year. fter the number of surta e emptons s ascertaned, the ta
under Suppement T s determned by reference to the tabe contaned n secton
400 In the coumn approprate to such number and on the ne approprate to
the ta payer s ad|usted gross ncome.
The appcaton of the provsons of ths subsecton may be ustrated by the
foowng e ampes:
ampe (1). , a marred man whose dutes as an empoyee requre trave-
ng away from hs home, has as hs soe gross ncome a saary of 5,600 for the
caendar year 1045. s traveng e penses, Incudng cost of meas and odgng,
amount n such year to 750, and, hence, hs ad|usted gross Income s 4, 50. s
wfe, , has as her soe ncome dvdends of 5, and thus the aggregate ad|usted
gross Income of and s 4,935. has two dependent chdren nether of
whom has any ncome. and fe a |ont return for 1945 on orm 1040, eectng
not to use the optona return orm W-2 (Rev.). In such case four surta
e emptons are aowabe. The ad|usted gross ncome fas wthn the ta bracket
4,900- 4,950. y referrng to the bracket and to the coumn headed 4 n the
ta tabe, the ta s found to be 613. owever, snce has ad|usted gross Income
of 5, such ta must be reduced by 3 per cent of 5, or 2.55, thus producng a
net ta of 610.45.
ampe (2). C, a marred man, has as hs soe ncome n 1945 wages of 4,600,
and has two dependent chdren nether of whom has any ndbme. s wfe, D,
has ad|usted gross ncome of 400. C fes a separate return for 1945 and s
entted to cam three surta e emptons. C s ncome fas wthn the ta
bracket 4,600- 4,650, and hence, wth three surta e emptons hs ta s 656.
No surta e empton s aowed wth respect to D snce D had gross ncome and
a |ont return was not fed.
Pab. 67. There s nserted mmedatey precedng secton 29.402-1
the foowng:
GROSS INCOM O L SS T N 5,000. (INDI IDU L IN-
natve ta on ndvduas wth gross Income from certan sources of ess
than 3,000) s amended to reaa as foows:
u Suppement T Indvduas wth d|usted Gross Income op Less
Than 5,000

S C. 402. M NN R ND CT O L CTION.
The eecton referred to n secton 400 sha be e ercsed In the man-
ner provded n reguatons prescrbed by the Commssoner wth the
approva of the Secretary. or cases n whch eecton to take the
standard deducton aso consttutes an eecton to pay the ta Imposed
by ths suppement, see secton 23(aa) (3) (D). or cases n whch eec-
ton to fe a return wthout showng ta thereon consttutes an eecton
to pay the ta mposed by ths suppement, see secton 51(f).

part sha te appcabe wth respect to ta abe years begnnng after
December 31, 194
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5 29.11-1.
Par. 6 . Secton 29.402-1 s amended as foows:
( ) y strkng out Manner of ecton to Compute Ta
Under Suppement T. and nsertng n eu thereof the foow-
ng: Manner of ecton to Compute Ta Under Suppement
T. (a) Caendar years 191 and 194-3. or the caendar years 1942
and 1943, a.
( ) y addng at the end thereof the foowng new subsecton:
(6) Tamabe years begnnng after December SI, 1943. or ta abe years
begnnng after December 31, 1043, the ta payer eects to pay hs ncome ta
under Suppement T ether by (1) fng a return of hs gross ncome on orm
W-2 (Rev.), prescrbed n secton 29.51-2, or (2) by fng a return on orm
1W0 and eectng n such return, n the manner prescrbed In secton
29.23(aa)-(o), to take the standard deducton provded n secton 23(aa). In
the case of husband and wfe, f the aggregate gross ncome of the spouses s
ess than 5,000, the eecton may be made by the fng of a return on orm
W-2 (Rev.), or by the fng of a return on orm 1040 and eectng thereon to
tae the standard deducton. If one spouse has ess than 5,000 gross ncome
aDd the other spouse has gross ncome of 5,000 or more and the atter spouse,
In fng hs or her return, cams the standard deducton provded n secton
22(aa), then the former spouse may fe on orm W-2 (Rev.) and such fng
sha consttute an eecton by such spouse to pay the ta mposed under Sup-
pement T. If, however, the spouse wth gross ncome of 5,000 or more, n
fng hs or her return, does not eect to take such standard deducton, then
the other spouse may not eect to pay the ta mposed by Suppement T.
Par. 69. There s nserted mmedatey foowng secton 403 the
foowng:
T CT O 1944, P RT I.)
natve ta on Indvduas wth gross ncome from certan sources of ess
Suppement T Indvduas Wth d|usted Gboss Income of Less
Than 5,000

S C. 403. CR DITS NOT LLOW D.
or credts aganst ta and aganst net ncome not aowed, n the
case of a ta payer who eects to pay the ta mposed by ths suppement,
because of the fact that such eecton consttutes an eecton to take the
standard deducton, see secton 23(aa).

December 31,1943.
the foowng:
T CT O 1944, P RT I.)
natve ta on ndvduas wth cross ncome from certan sources of ess
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29.11-1
44
Suppement T Indvduas Wth d|usted Gross Income op Less
Than 5,000

S C. 404. C RT IN T P Y RS IN LIGI L .
Ths suppement sha not appy to a nonresdent aen ndvdua,
to a ctzen of the Unted States entted to the benefts of secton 251,
to an estate or trust, or to an ndvdua makng a return for a perod
of ess than tweve months on account of a change In the accountng
perod. or provsons makng both husband and wfe negbe to
eect to pay the ta mposed by ths suppement f ether does not eect
to take the standard deducton, see secton 23(aa) (4).

U L INCOM T CT O 1944. P RT L)
December 31, 1943.
Pah. 71. Secton 29.404-1, as amended by Treasury Decson 5360, s
further amended as foows:
( ) y strkng out the foowng: Ta payers to Whom Suppe-
ment T s. Inappcabe. The and nsertng n eu thereof the fo-
owng: Ta payers to Whom Suppement T s Inappcabe. (a)
Caendar years 191)2 and 191 . or the caendar years 1942 and 1943,
the.
( ) y strkng out the semcoon and the word or at the end of
subdvson (4) and nsertng a perod n eu thereof.
(C) y strkng out subdvson (5) thereof-
(D) y addng at the end thereof the foowng:
(6) Ta abe years begnnng after December SI, 19)3. or ta abe years be-
gnnng after December 31, 1943, the foowng ta payers are negbe to fe a
return and pay the ta unde - Suppement T:
(1) a nonresdent aen ndvdua
(2) a ctzen of the Unted States entted to the benefts of secton 251
(3) an estate or trust
(4) an ndvdua who makes a return for a perod of ess than 12 months
on account of a change n the accountng perod
(5) an ndvdua for whom a return s requred for a fractona part of a
year under secton 140(a).
See secton 23(aa) (4) for provsons makng both husband and wfe negbe
to eect to pay the ta under Suppement T f ether spouse does not eect to take
the foowng:
S C. 6. R P L O ICTORY T . (INDI IDU L INCOM T
CT O 1944, P RT I.)
(a) In Geneba. Subchapter D of Chapter 1 (reatng to the vctory
ta ) s repeaed.

December 31, 1943.
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45
5 29.11-1.
the foowng:
S C. 10. CR DITS G INST N T INCOM . (INDI IDU L INCOM
T CT OP 1944, P T I.)

(1) Defnton of usband and Wfe. Secton 3797(a) (17) (defn-
ng husband and wfe for certan purposes) s amended by strkng out
25(b) (2) ( ), and 171, and the ast sentence of secton 401(a) (2) and
nsertng In eu thereof 171, and the ast sentence of secton 25(b) (3) .
December 31, 1943.
(Ths Treasury decson s ssued under the authorty contaned n
secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. C,
62) and sectons 2, 3,4,5, 6,7, , 9,10,11, and 12 of the Indvdua In-
come Ta ct of 1944 (Pubc aw 315, Seventy-eghth Congress).)
oseph D. Nunan. r.,
Commssoner of Interna Revenue.
pproved December 29, 1944.
os r . O Conne, r.,
ctng Secretary of the Treasury.
( ed wth the Dvson of the edera Regster December 30, 1944, 4.25 p. m.)
Secton 29.11-1: Income ta on ndvduas. 1945-13-12070
T. D. 545
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 29.
INCOM T T L Y RS GINNING T R D C M R 31, 1941.
Reguatons 111 amended to correct mnor msceaneous errors.
Washngton 25, D. C.
In order to correct certan mnor msceaneous errors appearng n
Reguatons 111 Part 29, Tte 26, Code of edera Reguatons, Cum.
Sup. , as ast amended by Treasury Decson 5454, approved May 10,
1945 page 6 , ths uetn , such reguatons are amended as foows:
Paragraph 1. The ffth sentence of secton 29.11-1, as amended by
Treasury Decson 5425, approved December 29, 1944 page 10, ths
uetn , s amended by nsertng 35, mmedatey foowng 32, .
Par. 2. The second sentence of secton 29.22(a)- s amended by
strkng out paragraphs (1), (2), (3), (4), and (5) of.
Par. 3. Subsecton (a) of secton 29.22(b) (4)-4 s amended as
foows:
( ) The frst sentence of the second paragraph s amended by n-
sertng mmedatey foowng the words ncome ta return the
words for any ta abe year begnnng before anuary 1,1944, .
G
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I 29.11-1
46
( ) The fourth paragraph s amended by strkng therefrom
partnershps, .
Par. 4. The frst sentence of secton 29.23(a)-2 s amended by
strkng out odgngs and nsertng n eu thereof odgng.
Par. 5. The fourth sentence of the ast paragraph of secton
29.23(b)- s amended to read as foows:
(See, however, secton 121.)
Par. 6. The s th sentence of secton 29.23 (c)- s amended by
strkng out 29.131- and nsertng n eu thereof 29.131-9.
Par. 7. Secton 29.23(e)-3 s amended as foows:
. ( ) y strkng capta from the frst sentence.
( ) y strkng or to other than capta assets from the fourth
sentence.
Par. . The second sentence of secton 29.23(g)- s amended by
strkng out 29.17(a)- and nsertng n eu thereof 117(a) (1)/
Par. 9. Secton 29.23(k)-6 s amended by strkng out amend-
ment n the ast sentence of the second paragraph and nsertng
n eu thereof secton.
Par. 10. Secton 29.23(m)-, as amended by Treasury Decson
5413, approved October 31,1944 C. . 1944,124 , s further amended
as foows:
( ) y strkng out 29.23(m)-2 from the frst sentence of the
porton desgnated (/) and nsertng n eu thereof 29.23(m)-19.
( ) y strkng out 29.23(m)-2 from the frst sentence of the
porton desgnated (g) and nsertng n eu thereof 29.23(m)-19.
Par. 11. Secton 29.27()- s amended as foows:
( ) The frst sentence of the second paragraph s amended by
strkng out sectons 27 (h) and () and nsertng n eu thereof
secton 27 (h) and ().
( ) The ast sentence of e ampe (1) s amended by strkng out
dvdends pad on uy 15 and nsertng n eu thereof dvdend
pad on uy 15.
(C) ampe (2) s amended by strkng out dvdends pad on
uy 15 and nsertng n eu thereof dvdend pad on uy 15.
Par. 12. In order to correct a typographca error n secton
2 (d) (1), as set forth precedng secton 29.2 (d)-, the word the
s strcken from the phrase n accordance wth the reguatons pre-
scrbed.
Par. 13. The thrd sentence of the second paragraph of secton
29.44-4 s amended by strkng out f ascertaned to be worthess
and charged off wthn the ta abe year and nsertng n eu thereof
f uncoectbe.
Par. 14. The fourth sentence of secton 29.47-1, as amended by
Treasury Decson 5425, s amended by strkng out 29.56-1 (a)
and nsertng n eu thereof 29.50-1.
Par. 15. The thrd sentence of secton 29.52-1 s amended to read
as foows:
or returns of nsurance companes, see sectons 29.201-1, 29.C .-1, and 20.207-1
of foregn corporatons, see secton 235 and of affated corporatons, see secton
141 and secton 29.141-1.
Par. 16. The ast sentence of secton 29.101 ( )- s amended by
strkng out n the Code and nsertng n eu thereof n secton
101.
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47
29.11-1.
Par. 17. Secton 29.101 ()- s amended by strkng out the ast
sentence.
Par. 1 . The frst sentence of secton 29.101 (12)-1 s amended by
strkng out and sha not be requred to fe returns.
Par. 19. The frst sentence of the second paragraph of secton
29.101(1 ) 1 s amended by nsertng after the word return, frst
appearng n such sentence, the words on orm 1120.
( ) y strkng out the perod at the end of the second sentence
and nsertng n eu thereof:
Id) the credt for ncome sub|ect to the ta mposed by Subchapter of
Chapter 2 provded n secton 26(e).
( ) y strkng out n (a), (b), and (c) above n the thrd and
fourth sentences and nsertng n eu thereof n (a), (6), (c), and
(d) above.
Par. 21. The frst sentence of secton 29.107-2 s amended by strkng
out Secton 107(b) provdes that the gross ncome and nsertng
n eu thereof Secton 107(b) provdes that f, n the ta abe year,
the gross ncome.
Par. 22. In order to correct a typographca error n the frst sen-
tence of secton 112(f), as set forth precedng secton 29.112(f)-,
the phrase compusory and nvountary s changed to read
14 compusorv or nvountary.
Par. 23. The ast sentence of secton 29.113(a) (22)-, as amended
by Treasury Decson 5433, approved anuary 26,1945 page 15 , ths
uetn , s further amended by strkng out 6,500 and nsertng
n eu thereof 7,500.
Par. 24. In order to correct a typographca error n secton
124(f)(1), as set forth precedng secton 29.124-0, the phrase Sec-
tary of the Navy s changed to Secretary of the Navy.
Par. 25. Subsecton (b) of secton 29.125- s amended by strkng
out s aowabe as a deducton and nsertng n eu thereof are
aowabe as deductons.
Par. 26. Secton 29.126-1, as amended by Treasurv Decson 53 9,
approved uy 10, 1944 C. . 1944, 196 , s further amended as
foows:
( ) The ne t to the ast sentence s amended by strkng out the
ta attrbutabe and nsertng n eu thereof the surta
attrbutabe.
( ) The ast sentence s amended by strkng out The ta attrb-
utabe and nsertng n eu thereof The surta attrbutabe.
Par. 27. The thrde ampe n secton 29.131- s amended by strk-
ng out 5 per cent on dvdends receved and nsertng n eu
thereof 5 per cent of dvdends receved.
Par. 2 . In order to correct a typographca error n secton 141 (h),
as set forth precedng secton 29.141-1, the phrase for any ta abe
s changed to read for any ta abe year.
Par. 29. The frst sentence of secton 29.162-1, as amended by
Treasury Decson 53 0, approved une 22, 1944 C. . 1944, 310 , s
amended by strkng out there s deductbe and nsertng n eu
thereof there are deductbe.
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29.11-1
4
Par. 30. The ast sentence of the fourth paragraph of subsecton
(d) of secton 29.162-2, as amended by Treasury Decson 53 0, s
amended by strkng out caendar year 1943 and nsertng n eu
thereof caendar year 1942.
Par. 31. The thrd sentence of e ampe (2) of subsecton (g) of
secton 29.207 4, as amended by Treasury Decson 5369, approved
May 11, 1944 C. . 1944, 333 , s amended by strkng out s appor-
toned and nsertng n eu thereof are apportoned.
Pah. 32. The second sentence of subsecton (b) of secton 29.236-1,
as amended by Treasury Decson 5339, approved March 9, 1944
C. . 1944, 33 , s amended by strkng out secton 29.56-1 (a)
and nsertng n eu thereof secton 25.56-1.
Par. 33. The frst sentence of secton 29.311-1 s amended by strk-
ng out Revsed Statutes, as amended, n respect of any ncome ta
mposed by Chapter 1 (paragraph 1 of the ppend to these regu-
atons), and nsertng n eu thereof Revsed Statutes, as amen ded
(paragraph 1 of the ppend to these reguatons) n respect of
any ncome ta mposed by Chapter 1, .
Par. 34. The e ampe at the end of secton 29.393-1 s amended to
read as foows:
ampe. The Corporaton, a persona servce corporaton, has for the
caendar year 1942 a bet Income, as computed under Chapter 1, of 190,000. The
edera ncome ta payabe under Chapter 1 for that year amounts to 76,000.
Contrbutons or gfts payment of whch s made durng the ta abe year to or
for the use of donees descrbed n secton 23(q) for the purposes theren specfed
amount to 35,000. The Suppement net ncome of the corporaton s 94,-
000, computed as foows:
Net Income under Chapter 1 190,000
dd: Contrbutons deductbe In computng net ncome under sec-
ton 21 10,000
Net Income computed wthout the beneft of any deducton for contr-
butons 200,000
Less: edera Income ta 76,000
Contrbutons deductbe under secton 393(b) (15 per
cent of 200,000) 30,000
106,000
Suppement S net Income 94,000
Par. 35. The frst sentence of secton 29.394-2 s amended to read as
foows: ,
ach sharehoder of a persona servce corporaton who as of the ast day
of the ta abe year of the corporaton s requred to ncude In hs gross ncome
hs proportonate share of the undstrbuted Suppement S net Income of the
corporaton sha, for the purposes of the ta Imposed by secton 11 (norma
Income ta ), secton 13 (ta on corporatons In genera), secton 14 (ta on
speca casses of corporatons), secton 201 (ta on fe nsurance companes),
secton 204 (ta on nsurance companes other than fe or mutua, and mutua
marne nsurance companes), secton 207 (ta on mutua nsurance companes
other than fe or marne), or secton 362 (ta on reguated nvestment com-
panes), be aowed a credt aganst net ncome of hs proportonate share of
the Interest specfed n secton 25(a) (1), nterest on Unted States obgatons, or
secton 25(a)(2), nterest on obgatons of nstrumentates of the Unted
States, whch Is Incuded n the gross Income of the corporaton.
Par. 26. Secton 29.502-1( ) s amended by strkng out secton
502(a) and nsertng n eu thereof secton 502(e).
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49 f 19.22(a)-.
1940 ed., 62).)
oseph D. Nunan, r.,
pproved une 15, 1945.
oseph . O Conne, r.,
( ed wth the Dvsoo of the edera Regster une 10, 1945, 3.39 p. m.)
S CTION 12. SURT ON INDI IDU LS.
Secton 29.12-2: Computaton of surta .
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5425, page 10.)
P RT II. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
Secton 29.22(a)-: What ncuded n gross ncome.
INT RN L R NU COD .
Tradng n securtes on a when ssued bass. (See I. T. 3721,
page 164.)
Secton 19.22(a)-: What ncuded n gross 1945-6-11991
ncome. Ct. D. 1633
ncome ta revenue act of 193 nterna revenue code decson
of supreme court.
1. Gross Income Compensaton fob Servces ercse of Opton
to cbchase stock.
In 1934 a corporaton empoyng the ta payer gave hm, n consd-
eraton of servces rendered pror to that date, an opton to pur-
chase, at a prce not ess than the then vaue, a specfed proporton
of such shares of stock of another corporaton as t mght be entted
to receve under ts management contract wth that corporaton.
In 193 the corporaton became entted to receve the stock, nnd n
193 and 1930 the ta payer e ercsed hs opton and acqured a arge
amount thereof on payment of the opton prce. ed: The e cess
n vaue of the shares of stock over the opton prce n the years when
the opton was e ercsed and the shares were receved by the ta -
payer was compensaton for hs servces, ta abe as ncome n those
years, under sectons 22(a) of the Revenue ct of 193 and the In-
terna Revenue Code, and the appcabe reguatons. The compen-
saton for ta payer s servces whch the partes contempated was not
confned to the mere devery to hm of an opton of no present vaue,
but ncuded the compensaton obtanabe by the e ercse of the opton
gven for that purpose. It does not foow that n other crcum-
stances not here present the opton tsef, rather than the proceeds
of ts e ercse, coud not be found to be the ony ntended compen-
saton.
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S 19.22(a)- .
50
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Nnth
Crcut (142 ed. (2d), 1 ), reversng memorandum opnon of Tte
Ta Court, reversed.
a
Supreme Court op the Unted States.
Commssoner of Interna Revenue, pettoner, v. ohn . Smth.
324 U. S., 177.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
ebruary 26, 1945.
OPINION.
Mr. Chef ustce Stone devered the opnon of the Court.
Respondent s empoyer gave to hm, as compensaton for hs servces, an opton
to purchase from the empoyer certan shares of stock of another corporaton at
a prce not ess than the then vaue of the stock. In two ater ta years, when
the market vaue of the stock was greater than the opton prce, respondent
e ercsed the opton, purchasng arge amounts of the stock n each year. The
queston for decson s whether the dfference between the market vaue and the
opton prce of the stock was compensaton for persona servces of the empoyee,
ta abe as ncome In the years when he receved the stock, under secton 22(a)
of the Revenue ct of 193 (ch. 2 9, 52 Stat., 447) and secton 22(a) of the
Interna Revenue Code (26 U. S. C, secton 22(a)).
Upon a petton to revew the Commssoner s fndng of a ta defcency aganst
respondent for those years, The Ta Court sustaned the Commssoner. The
Court of ppeas for the Nnth Crcut reversed (142 ed. (2d), 1 ), hodng
that there was no fndng and no evdence to support a fndng, that the opton
was ntended to enabe respondent to make a bargau purchase or that the
stock was Issued to hm as compensaton for servces. It concuded that the
e ercse of the opton was a mere purchase of a capta nvestment whch coud
resut n ta abe ncome ony upon sae of the stock. We granted certorar
(323 U. S., ), on a petton whch asserted confct of the decson beow wth
the decson of the Court of ppeas for the S th Crcut n Connoy s state v.
Commssoner (135 ed. (2d), 64).
The Ta Court found that for many years, and at a reevant tmes, respondent
was empoyed by the Western Cooperage Co. In 1934 Western took over the
management of the awey Pup Paper Co. pursuant to a pan for ts reorganza-
ton. awey was then n fnanca dffcutes, wth an ndebtedness amountng
to 2,790,150. Under ts contract wth awey, Western was to retre annuay
a certan amount of awey s ndebtedness. In the event of success n ths
undertakng, fnd when the amount of nwey s ndebtedness had been reduced
by the sum of 1,400,000, Western was to receve specfed amounts of the awey
company s capta stock as compensaton for the servces thus rendered.
Respondent, n the course of hs empoyment by Western, was actve n the
reorganzaton of the awey company. s compensaton for hs servces, the
presdent of Western, n December, 1934, gave respondent an ora opton to pur-
chase a part of the awey stock, to be acqured by Western under ts contract.
Ths acton was confrmed by resouton of the board of drectors of Western,
pursuant to whch Western, as of December 10, 1934, and n consderaton of
servces rendered by respondent pror to that date, agreed n wrtng to se to
respondent at hs opton, at 10 cents a share, a specfed proporton of such shares
of common stock as t mght be entted to receve under ts contract wth awey.
On March 1 . 193 , Western became entted to the stpuated number of shares
of the awey stock as provded by the contract wth awey. In that and the,
foowng year respondent, by the e ercse of hs opton, acqured from Western
arge amounts of the stock on payment of the opton prce.
The Ta Court found that at the date of the opton the market prce of the
stock dd not e ceed the opton prce, but that n 193 the market vaue of the
stock then acqured by respondent e ceeded ts opton prce by 1,021. and the
vaue of that acqured n 1939 e ceeded the opton prce by 71,603. The court
found from the opton tsef, the resouton of Western s board of drectors, and
from pettoner s own testmony, that Western gave the opton to pettoner
respondent here as compensaton for servces rendered n effectng the reor-
ganzaton pan of awey. It hed that the e cess of the market vaue of the
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51
IS 19.22(a)- .
shares over the opton prce In the years when the shares were receved by
respondent, was compensaton for hs servces, ta abe as ncome n those years.
Snce The Ta Court found that the market prce of the stock on the date of
the opton dd not e ceed the opton prce, t s evdent that ts fndng that the
opton was gven as compensaton for respondent s servces, had reference to the
compensaton to be derved from e ercse of the opton after the antcpated
advance n market prce of the stock. The opton coud be e ercsed ony when
Western s contract wth awey had been successfuy performed by the reduc-
ton of a arge part of awey s ndebtedness, whch woud resut n an ncrease
n the vaue of awey s capta stock to be receved by Western sub|ect to
respondent s opton. Moreover, The Ta Court concuded as a matter of aw
that the facts whch t found, and whch we have detaed, brought the case, for
the ta year 193 , wthn the provsons of secton 22(a) of the Revenue ct of
193 . and of the nterpretatve Treasury Reguatons 101, artce 22(a)- and
for the ta year 1939, wthn the dentca provsons of secton 22(a) of the
Interna Revenue Code, and Treasury Reguatons 103, artce 19.22(a)-.
Secton 22(a) of the Revenue ct defnes gross ncome sub|ect to the ct
as ncudng gans, profts, and ncome derved from saares, wages, or com-
pensaton for persona servce, of whatever knd and n whatever form pad.
Treasury Reguatons 101, artce 22(a)- provdes: If property
U transferred by an empoyer to an empoyee, for an amount sub-
stantay ess than ts far market vaue, regardess of whether the transfer
Is n the guse of a sae or e change, such empoyee sha ncude In
pwss ncome the dfference between the amount pad for the property and the
amount of ts far market vaue to the e tent that such dfference s n the nature
of (1) compensaton for servces rendered.
Secton 22(a) of the Revenue ct Is broad enough to Incude n ta abe ncome
any economc or fnanca beneft conferred on the empoyee as compensaton,
whatever the form or mode by whch It Is effected. (See Od Coony Trust Co. v.
Commssoner, 279 U. S., 710, 729 Ct. D. 0, C. . III-2, 220 (1929) .) The
reguaton specfcay ncudes n ncome, property transferred by
an empoyer to an empoyee, for an amount substantay ess than ts far market
vaue, even though the transfer takes the form of a sae or e change, to the
e tent that the empoyee receves compensaton.
In certan aspects an opton may be spoken of as property n the hands of
the opton hoder. (Cf. everng v. San oaqun rut t Investment Co., 297
C. S., 496, 49 Ct. D. 109 , C. . -1, 196 (1936) Snster v. everng, 121
ed. (2d), 643, 645.) When the opton prce Is ess than the market prce of the
property for the purchase of whch the opton s gven, t may have present vaue
and may be found to be tsef compensaton for servces rendered. ut t s
pan that n the crcumstances of the present case, the opton when gven dd not
operate to transfer any of the shares of stock from the empoyer to the empoyee
wthn the meanng of secton 22(a) and artce 22(a)-. (Cf. Pamer v. Com-
mtoner, 302 . S., 63, 71 Ct. D. 12 4, C. . 1937-2, 251 .) nd as the opton
was not found to have any market vaue when gven, t coud not Itsef operate
to compensate respondent. It coud do so ony as t mght be the means of
securng the transfer of the shares of stock from the empoyer to the empoyee
at a prce ess than ther market vaue, or possby, whch we do not decde, as
the opton mght be sod when that dsparty In vaue e sted. ence the com-
pensaton for respondent s servces, whch the partes contempated, pany was
not confned to the mere devery to respondent of an opton of no present vaue,
bnt ncuded the compensaton obtanabe by the e ercse of the opton gven for
that purpose. It of course does not foow that In other crcumstances not here
present the opton Itsef, rather than the proceeds of ts e ercse, coud not be
found to be the ony ntended compensaton.
The Ta Court thus found that the opton was gven to respondent as com-
pensaton for servces, and mpcty that the compensaton referred to was the
e cess n vaue of the shares of stock over the opton prce whenever the opton
was e ercsed. rom these facts t concuded that the compensaton was ta abe
as such by the provsons of the appcabe Revenue cts and reguatons. We
fnd no bass for dsturbng ts fndngs, and we concude t correcty apped the
aw to the facts found. Its decson s affrmed, and the |udgment of the court of
appeas beow, reversng t, s
Reversed.
Mr. ustce Roberts Is of opnon that the |udgment shoud be affrmed for
the reasons stated by the Crcut Court of ppeas (142 ed. (2d), 1 ).
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I 19.22(a)- .
52
Secton 19.22(a)-1: What ncuded n gross
ncome.
1945- -1202
Ct. D. 1633 (modfed)
INT RN L R NU COD ND R NU CT O 193 .
Orgna opnon n Commssoner of Interna Revenue v. ohn .
mth (Ct. D. 1633, page 49, ths uetn) modfed.
No. 371. Commssoner of Interna Revenue, pettoner, v. ohn .
Smth. The opnon of the Court s modfed by addng the foowng
at the end of the frst sentence on page 3 of the opnon Ct. D. 1633,
page 49, ths uetn, frst sentence frst fu paragraph, page 51 :
Respondent testfed that f the opton coud have been sod at the
tme he receved t, t woud have been for ony a neggbe or nom-
na amount. e has never contended that the opton tsef had vaue
when gven and there was no fndng by The Ta Court that t then had
vaue. The Ta Court, n statng the prncpe whch t deemed
appcabe to thepresent case, quoted from state of dward .
Connoy (45 . T. ., 374), as foows: If the optons had never
been e ercsed the optonees woud never have receved any addtona
compensaton.
Secton 19.22(a)-: What ncuded n gross 1945-9-12036
ncome. Ct. D. 1639
ncome ta revenue act op 193 nterna revenue code decson
of supreme court.
1. Gross Income Compensaton fob Servces ercse of
Opton to Purchase Stock Recept of Stock When Com-
pensaton Ta abe.
In 1934 a corporaton empoyng the ta payer gave hm, n con-
sderaton of servces rendered pror to that date, an opton to
purchase, at a prce not ess than the then vaue, a specfed propor-
ton of such shares of stock of another corporaton as t mght be
entted to receve under ts management contract wth that corpora-
ton. In 193 the ta payer gave notce of hs e ercse of the opton
and pad the opton prce, but at that tme the corporaton had a
rght to receve but a part of the stock sub|ect to the opton ts
rght to the remander was condtoned upon further payments of
certan ndebtedness. In 1939 the ta payer receved a substanta
part of the stock. ed: The fndng of The Ta Court that the ta -
abe compensaton ntended to be secured by the opton was n fact
receved by the ta payer as and when the shares of the stock were
devered to hm and not when he gave notce of hs e ercse of the
opton and pad the opton prce fuds ampe support n the record
and Is concurred n by ths Court. Orgna opnon (Ct. D. 1633,
page 49, ths uetn) handed down ebruary 26, 1945.
2. Rehbarno Dened.
Ta payer s petton for rehearng dened pr 9, 1945.
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53
29.22(a)- .
Supreme Court or the Unted States.
Commssoner of Interna Revenue, pettoner, v. ohn . Smth.
324 U. S., G95.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut
pr 9, 1945.
OPINION.
Mr. Chef ustce Stone devered the opnon of the Court
espondent, on moton for rehearng n ths Court, for the frst tme contends
that f he s ta abe at a after the recept of the opton n 1934, he s ta abe as
of the date n March, 193 , when he e ercsed hs opton, and not when he receved
the stock n ater years. The ony ater year In queston s 1939 n whch he
receved a substanta part of the stock. efore the devery n 1939 and after
the e ercse of the opton n 193 there was a substanta ncrease n the vaue
of the stock. e argues that the ta shoud be measured by the vaue of the
stock n 193 ess the opton prce (Cf. Pamer v. Commssoner, 302 U. S., 63, 73
D. 12 4, C. . 1937-2, 251 .)
It s true that respondent gave notce of hs e ercse of the opton and pad
(he opton prce n 193 . ut at that tme Western, under ts contract wth
awey, had a rght to receve but a part of the stock sub|ect to respondent s
opton ts rght to the remander was condtoned upon ts makng further pay-
ments of awey s ndebtedness. Respondent s opton contempated devery
to hm of awey s stock ony f and when Western became entted to receve
the stock from awey. In fact deveres of the stock were made to respondent
upon each occason ony a day or two after Western receved t from nwey.
The Ta Court found that respondent receved compensaton when he
e ercsed hs opton and receved the stock. We take t that The Ta Court
regarded fufment of the condtons upon the rght of Western to receve the
stock, and therefore of the condtons upon the dervatve rght of respondent to
receve t under hs opton, as prerequste to the effectve e ercse of the opton
and that the ta abe compensaton to pettoner ntended to be secured by the
opton was n fact receved by respondent as and when the shares of stock were
devered to hm, snce pror to that tme there was no certanty that he woud
receve the stock. Ths concuson of The Ta Court fnds ampe support In the
record, and we concur n t.
We do not have before us a case where by the e ercse of an opton n one year
the ta payer acqures an uncondtona rght to receve the stock n a ater
year. We e press no opnon upon the queston whether, n such a case, com-
pensaton woud be receved and woud be ta abe n the earer or the ater
year. ,
The petton for rehearng s dened.
Mr. ustce Roberts adheres to hs dssent
Secton 29.22(a)-: What ncuded n gross ncome.
INT RN L R NU COD .
mounts dstrbuted to empoyees from a heath nsurance fund.
(See I. T. 373 , page 90.)
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29.22 (a)-2.
54
Secton 29.22(a)-2: Compensaton for persona 1945-20-12150
servces. I. T. 3760
INT RN L R NU COD .
The entre amount of the dsabty retrement pay (annuty)
receved by a former offcer or empoyee of the Lghthouse Servce
under the provsons of the ct of March 4,1925 (43 Stat., 1261), s
sub|ect to edera ncome ta .
dvce s requested reatve to the status for edera ncome ta pur-
poses of the dsabty retrement pay (annuty) receved by a former
offcer or empoyee of the Lghthouse Servce under the provsons of
the ct of March 4,1925 (43 Stat, 1261).
The ct of March 4, 1925, supra, provdes n part as foows:
any offcer or empoyee to whom secton 6 of the ct entted n ct
To authorze ads to navgaton and for other works n the Lghthouse Servce,
and for other purposes, approved une 20, 191 , as amended, appes, who has
been n the actve servce of the Government ffteen years or more and who s
found, after e amnaton by a medca offcer of the Unted States, to be dsabed
for usefu and effcent servce by reason of dsease or n|ury not due to vcous
habts, ntemperance, or wfu msconduct on hs part, sha be retred
on an annuty computed n the manner provded n such ct.
Secton 6 of the ct of une 20,191 (40 Stat., 607, 60 ), as amended
and suppemented, provdes, nter aa, for the optona retrement of
certan casses of offcers and empoyees of the Lghthouse Servce who
sha have reached the age of 65 years, after havng been 30 years n
the actve servce of the Government, and for the compusory retre-
ment of a such offcers and empoyees who sha have reached the
age of 70 years. Secton 6 of the ct of une 20, 191 , supra, aso
provdes for the manner n whch annutes under that ct are to be
computed.
There s no provson n the ct of une 20, 191 , Supra, or n any
of the cts amendng or suppementng such ct, for the deducton
from the pay of an offcer or empoyee of the Lghthouse Servce of
any amounts to be paced n a retrement fund. Nor do such cts
or other provsons of aw provde for the e empton from edera
ncome ta of any part of the retrement pay receved by a former
offcer or empoyee of the Lghthouse Servce.
In vew of the foregong, t s hed that the entre amount of the
dsabty retrement pay (annuty) receved by a former offcer or
empoyee of the Lghthouse Servce under the provsons of the ct
of March 4,1925, supra, s sub|ect to edera ncome ta .
Secton 29.22 (a) -2: Compensaton for per- 1945-24-12190
sona servces. Ct. D. 1653
INCOM T INT RN L R NU COD PU LIC S L RY T CT OP 1939
D CISION O COURT.
1. Gross Income Compensaton of udges of Unted States
Courts Consttutonaty of Statute.
The porton of secton 22(a) of the Interna Revenue Code added
by secton 3 of the Pubc Saary Ta ct of 1939, whch provdes that
compensaton receved by |udges of courts of the Unted States who
took offce on or before une C, 1932, sha be Incuded n gross Income,
s not n voaton of rtce III of secton 1 of the Consttuton of
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29.22 (a)-2.
the Unted State . ccordngy, the saary of a dstrct udge of the
Unted States who quafed for the offce on pr 3, 1 21, s ncud-
be n bs gross ncome for the ta abe years 1939, 1940, and 1941.
2. Decson oowed.
The decson n O Uaey v. Woodrough (307 U. S., 277, Ct. D.
1401, C. . 1939-1 (Part 1), 160) states the rue appcabe to ths
case.
3. Decson ffrmed.
Decson of The Ta Court of the Unted States (4 T. 0., 307)
affrmed.
4. Cesttobab Dened.
Petton for certorar dened on October , 1945.
Ustted States Cbcttt Coubt of ppeas fob the ourth utbcott.
Wam . aker and Martha D. aker, pettoners, v. Commssoner of
Interna Revenue, respondent.
149 ed. (Zd), 342.
On petton to revew the decson of The Ta Court of the Unted States.
efore Stone, Chef ustce of the Unted States, Gboner, Chef ustce of the
I nted States Court of ppeas for the Dstrct of Coumba, and Dobe, Unted
States Crcut udge.
May 10, 1945.
OPINION.
Dobte, Crcut udge: Ths appea Invoves the vadty of edera ncome
ta es The Commssoner of Interna Revenue (herenafter caed the Com-
mssoner) ncuded wthn gross ncome for each of the years 1939, 1940, and
1941, the |udca saary of 10,000 of on. Wam . aker, Unted States
dstrct |udge for the Northern Dstrct of West rgna, and the Commssoner
determned defcences resutng from ths ncuson. The Commssoner s de-
termnaton was sustaned by The Ta Court of the Unted States.
udge aker s appea to us presents a snge queston of aw. Is the pro-
vson of secton 22(a) of the Interna Revenue Code, as added by secton 3 of
the Pubc Saary Ta ct of 1939, vod, as apped to udge aker for the
three years n queston, on the ground that ths secton voates rtce III,
secton 1, of the Consttuton of the Unted States
rtce III, secton 1, of the Consttuton, reads:
The |udca Power of the Unted States, sha be vested n one supreme
Court, and n such nferor Courts as the Congress may from tme to tme ordan
and estabsh. The udges, both of the supreme and nferor Courts, sha hod
ther Offces durng good ehavor, and sha, at stated Tmes, re-eve for ther
Servces, a Compensaton, whch sha not be dmnshed durng ther Contnu-
ance n Offce
Secton 3 of the Pubc Saary Ta ng ct of 1939, reads:
Secton 22(a) of the Interna Revenue Code s amended by addng at the
end thereof a new sentence to read as foows: In the case of |udges of courts
of the Unted States who took offce on or before une 6, 1932, the compensaton
receved as such sha be ncuded n gross ncome.
The facts of ths case are not n dspute. udge aker quafed as Unted
States dstrct |udge for the Northern Dstrct of West rgna on pr 3, 1921.
e has snce cqntnned, and st contnues n that offce has rendered, and st
renders, the servces thereto ncdent.
Three cases, a decded by the Unted States Supreme Court, oom arge on
the horzon of the present controversy. In vans v. Oore (253 U. S., 245 (decded
une 1,1920) T. D. 3037, C. . 3, 93 (1920) ) t was decded (to quote a head-
note of that case):
ta upon the net Income of a Unted States dstrct |udge, assessed under
the ct of ebruary 24, 1919 (ch. 1 , 40 Stat., 1062, secton 213) (passed snce
e took offce), by ncudng hs orgna saary n the computaton, operates to
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29.22(a)-2.
56
dmnsh hs compensaton, n voaton of the Consttuton, and s Invad.
Itacs ours.
Mr. ustce omes wrote a vgorous dssentng opnon In whch Mr. ustce
randes concurred. Mes v. Graham (26 U. S., 501 (decded une 1, 1925)
T. D. 3725, C. . I -2, 133 (1925) ) went one step further and Invadated the
ta , though udge Graham was apponted ater the passage of the Revenue ct
of 191 , Imposng the ncome ta on the saares of edera |udges. Mr. ust ee
randes dssented. Then came O Maey v. Woodrough (307 U. S., 277 (decded
May 22, 1939) Ct D. 1401, C. . 1939-1 (Part 1), 160 ), whch e pressy over-
rued Mes v. Graham and decared the ncome ta vad as to a |udge apponted
after the passage of the ta ng statute. Mr. ustce uter dssented.
It w thus be seen that udge aker, ke udge Graham, assumed offce after
the passage of the statute of 191 mposng an Income ta on the saares of
edera |udges, and after the decson In vans y. Gore, supra. though vans
r. Gore, supra, decared vod the ct of 191 , adopted ebruary 24, 1919 (under
whch the ta on udge vans was Imposed), the Court dd not rest ts decson
on the ground that he had taken offce before the enactment of the ta ng ct.
ut the fact that udge vans was commssoned ong pror to the passage of
any ct ta ng |udca saares was undoubtedy consdered, and accordngy
O Maey v. Woodrough, In overrung Mes v. Graham and eavng vans v.
Gore standng, obvousy meant to et the decson n the atter case rest upon
Its own facts, and In ths respect to approve the vews of the ttorney Genera
that statutes mposng Income ta es on the saares of edera |udges, apponted
after the passage of the saary ta ng statutes were vad. (32 Op. tty. Gen.,
24 (1920).) Thus udge aker, ke udge Graham and udge Woodrough,
but unke udge vans, assumed offce at a tme when Congress had commtted
Itsef to the pocy of ta ng the saares of edera |udges.
It s true that secton 22(a) of the Revenue ct of 1932, appcabe to udge
Woodrough In O Maey v. Woodrough, supra, requrng the ncuson of the saa-
res of |udges of the Unted States n gross Income, for the purpose of Income
ta es, purported to amend accordngy a cts f ng the compensaton of such
|udges, whe the Revenue ct of 191 , appcabe to udge aker and udge
Graham, mposed the ta on the saares of |udges wthout treatng t specfcay
as a reducton or modfcaton of ther stated saares, made In advance of ther
appontment. ut the Supreme Court dd not rest ts decson n O Maey v.
Woodrough, supra, upon any such dstncton. Instead, In decdng that case the
Court found It necessary to overrue Mes v. Graham, supra, and therefore to
restrct the scope of vans v. Gore, supra, so far as Its reasonng and authorty
coud be deemed to end support to the decson n Mes v. Graham, supra. We
must take t then that the Woodrough case. Inasmuch as It overrued Mes v.
Graham, supra, states the rue appcabe to udge Graham s case, as we as
udge Woodrough s, and It must now be taken to state kewse the rue appcabe
to udge aker when he took offce and snce. The necessary effect of the Wood-
rough case seems to us to be that a |udge who takes offce under an estabshed
Congressona pocy of ta ng hs saary becomes entted ony to the saary
prescrbed by statute ess Income ta es, and that n consequence hs saary s not
dmnshed by the ta wthn the meanng of vans v. Gore, supra, and Mes y.
Graham, supra, as restrcted In ther appcaton by O Maey v. Woodrough, supra.
We agree wth The Ta Court that under O Maey v. Woodrough, supra, udge
aker s abty to the ta as estabshed by the 191 ct, remaned unaffected
by the Revenue ct of 1921. That ct, adopted November 23, 1921,. repeaed the
191 ct as of anuary 1, 1921, but at the same tme reenacted the provsons of
the 191 ct ta ng bs saary, makng the ta appcabe to the caendar year
1921 and subsequent years. There was no pont of tme when hs saary was not
made sub|ect to the ta .
Nor are we mpressed by the argument that |udge aker fe, by the odd se-
quence of Congressona enactments, nto a sort of statutory ta ng vacuum,
because by Congressona acton he was reeved possby by the 1929 ct and
certany by the 1932 ct, from ncome tn aton, unt the enactment of the 1939
ct, whch was made appcabe ony n futuro as to a udges apponted before
une 6, 1932. The consequence of the decson n O Maey v. Woodrough, supra,
as we nterpret t, s that the Revenue ct of 191 . ke that of 1932, by Imposng
an ncome ta on |udges saares, f ed the saares for the future at a stated
amount ess such Income ta es as mght be mposed. We can not say that a
udge s any the ess sub|ect to the ta , because In some years pror to the 1939
ct, Congress dd not see ft to Impose t. We Interpret O Maey v. Woodrough,
supra, as meanng that the ta on udge Woodrough s saary coud be consttu-
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29.22(a)-5.
tonay ncreased aong wth genera Increases In Income ta es, and, f once
reduced, that t coud be restored to ts orgna amount, as n the case of other
ta es.
Snce we concude that n overrung Mes v. Oraham, supra, the decson n
the Y oodrough case, and the reasonng whch supported t, requre us to hod
that |udges takng offce under the ct of 191 became sub|ect to ncome ta es
for the years and the amounts n whch Congress mght see ft to mpose them,
we concude that the |udgment of The Ta Court must be affrmed. or ths
reason we fnd t unnecessary to consder other ndependent grounds urged by
the Government for sustanng the ta .
ffrmed.
Secton 29.22(a)-5 : Gross ncome from busness. 1945-7-12010
( so Secton 23(a), Secton 29.23(a)-L) I. T. 3724
INT RN L R NU COD .
mounts pad n back market transactons n e cess of ceng
prces estabshed by the Offce of Prce dmnstraton may not be
aowed ether as a part of the cost of goods sod or as a busness
e pense deducton n computng ncome sub|ect to edera ncome
t. a ton.
dvce s requested whether a ta payer may, for edera ncome
ta purposes, ncude an amount pad n e cess of the ceng prce
estabshed by the Offce of Prce dmnstraton, as a part of the
cost of goods sod, or deduct such e cess payment as a busness e pense.
Secton 4(a) of the mergency Prce Contro ct of 1942 (Tte 50,
pp. U. S. C. ., secton 904) provdes:
(a) It sha be unawfu, regardess of any contract, agreement, ease, or other
obgaton heretofore or hereafter entered nto, for any person to se or dever
any commodty, or n the course of trade or busness to buy or receve any
commodty, or to demand or receve any rent for any defense-area housng
accommodatons, or otherwse to do or omt to do any act, n voaton of any
reguaton or order under secton 2, or of any prce schedue effectve n accord-
ance wth the provsons of secton 200, or of any reguaton, order, or requrement
naer secton 202(b) or secton 205(f), or to offer, soct, attempt, or agree to do
any of the foregong.
Secton 205(b) of the ct (Tte 50, pp. U. S. C. ., secton 925)
provdes n part:
(b) ny person who wfuy voates any provson of secton 4 of ths
ct sha, upon convcton thereof, be sub|ect to a fne of not more than
1000, or to mprsonment for not more than two years n the case of a voaton
of secton 4(c) and for not more than one year n a other cases, or to both such
fne and mprsonment.
The courts have consstenty hed that a ta payer may not obtan
ta advantages from e pendtures whch are made n contraventon
of a we-defned pubc pocy whch proscrbes partcuar types of
conduct. Thus, n Standard O Co. v. Commssoner (129 ed. (2d),
363, certorar dened, 317 U. S., 6 ), the court dened a deducton
for a pa37ment made on a |udgment for damages n favor of the Govern-
ment, arsng out of a brbery, ether as an e pense or as a oss, on the
grounds of pubc pocy. mong other cases denyng ta advantages
arsng from a payment whch was ega or contrary to pubc pocy
are: rank . Maddas v. Commssoner (40 . T. ., 572. affrmed,
114 ed. (2d), 54 ), hodng that protectve payments made to proh-
bton agents to secure mmunty from prosecuton are not deductbe
0 4354 40 5
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19.22(a)-19.
5
Ruge v. Commssoner (127 ed. (2d), 393), hodng that amounts
pad to nfuence State offcas to award the ta payer a prntng
contract are not deductbe and arden Mortgage Loan Co. v. Com-
mssoner (137 ed. (2d), 2 2, certorar dened, 320 U. S., 791), to the
same effect as the decson n the Ruge case. The Supreme Court of
the Unted States has consdered ths prncpe wth apparent ap-
prova. (See Unted States v. Suvan, 274 U. S., 259, T. D. 402 , C. .
I-2. 177 (1927).) In Commssoner v. Iennger (320 U. S., 467,
Ct. D. 1596, C. . 1944, 4 4), the Court observed the prncpe that
a deducton shoud not be aowed where to aow a ta advantage to
fow from the e pendture woud frustrate a sharpy defned pubc
pocy. so, n Te te Ms Securtes Corporaton v. Commssoner
(314 U. S., 326, Ct. D. 1532, C. . 1941-2, 200), the Court sustaned the
vadty of the earer equvaent of secton 29.23(q)- of Reguatons
111 whch denes the deducton of sums spent for obbyng purposes,
etc., reyng n part on the ground that the genera pubc pocy
s opposed to such payments.
The foregong cases support the concuson that an amount pad to
a seer of goods n e cess of the ega prce for such goods may not
propery be recognzed for ta purposes. The e cess payments are not
egtmatey to be cassfed as a part of the cost of goods sod, and pub-
c pocy decrees that no ta advantage may be derved from such
e pendtures. To aow the characterzaton of an amount n e cess
of the ceng prces as a part of the cost of goods sod s to aow a mere
form set up by the acts of the voators to dstort the true nature of the
payments so made and to encourage the consequent dsregard of the
ant-nfatonary poces estabshed by the mergency Prce Contro
ct.
ccordngy, t s hed that amounts pad n back market trans-
actons n e cess of ceng prces estabshed by the Offce of Prce
dmnstraton may not be aowed ether as a part of the cost of
goods sod or as a busness e pense deducton n computng ncome
sub|ect to edera ncome ta aton.
Secton 19.22(a)- : Sae of stock and rghts.
INT RN L R NU COD .
Sae of stock receved n nonta abe reorganzaton where shares
sod were traceabe to specfc shares turned n n e change. (See Ct.
D. 1645, page 153.)
Secton 19.22 (a)-19: Sae of capta assets 1945-7-12002
by corporaton. Ct. D. 1G3G
( so Secton 19.22(a)-21.)
INCOM T INT RN L R NU COD D CISION O SUPR M COURT.
1. Gross Income Sae of Soe sset of Corporaton Whether
Ta abe to Corporaton or to Stockhoders.
Gan from the sae of an apartment house, the soe asset of the
ta payer corporaton, whch was transferred n the form of a qu-
datng dvdend to ts two sharehoders, who In turn formay con-
veyed t to a purchaser who had orgnay negotated for the pur-
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59
U 19.22(a)-19.
chase from the corporaton, Is ta abe to the corporaton under
secton 22 of the Interna Revenue Code. The fndngs of The Ta
Court that the whoe transacton showed a sae by the corporaton
rather than by the stockhoders are supported by the evdence and
must therefore be accepted by the courts.
2. Decson Revebsed.
Decson of the Unted States Crcut Court of ppeas, fth
Crcut (143 ed. (2d), 23), reversng decson of The Ta Court
of the Unted States (2 T. C, 531), reversed.
SUP M COL T O T USIT O ST T S.
Cmmmoncr of Interna Revenue, pettoner, v. Court odng Co., a orda
Corporaton.
324 U. S.. 331.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut.
March 12, 1945.1
OPINION.
Mr. ustce ack devered the opnon of the Court.
n apartment house, whch was the soe asset of the respondent corporaton,
was transferred n the form of a qudatng dvdend to the corporaton s two
nareoers. They n turn formay conveyed t to a purchaser who had org-
nay negotated for the purchase from the corporaton. The queston s whether
tte Crcut Court of ppeas propery reversed 1 The Ta Court s concuson 2 that
the corporaton was ta abe under secton 22 of the Interna Revenue Code for
e gan whch accrued from the sae. The answer depends upon whether the
tndngs of The Ta Court that the whoe transacton showed a sae by the corpo-
raton rather than by the stockhoders were fna and bndng upon the Crcut
Conrt of ppeas.
It s unnecessary to set out n deta the evdence ntroduced before The Ta
Conrt or ts fndngs. Despte confctng evdence, the foowng fndngs of The
a Court are supported by the record:
The respondent corporaton was organzed n 1934 soey to buy and hod the
r.partuent budng whch was the ony property ever owned by t. of ts
outstandng stock was owned by Mnne Mer and her husband. etween
October 1, 1939. and ebruary, 1940, whe the corporaton st had ega tte
to the property, negotatons for ts sae took pace. These negotatons were
between the corporaton and the essees of the property, together wth a sster
and brother-n-aw. n ora agreement was reached as to the terms and cond-
tons of sae, and on ebruary 22, 1940, the partes met to reduce the agreement
to wrtng. The purchaser was then advsed by the corporaton s attorney that
the sae coud not be consummated because t woud resut n the mposton of
a arge ncome ta on the corporaton. The ne t day, the corporaton decared
a qudatng dvdend, whch nvoved compete qudaton of ts assets,
and surrender of a outstandng stock. Mrs. Mer and her husband surren-
dered ther stock, and the budng was deeded to them. sae contract was
then drawn, namng the Mers ndvduay as vendors, and the essees sster
as vendee, whch emboded substantay the same terms and condtons prev-
ousy agreed upon. One thousand doars, whch a month and a haf earer
bad been pad to the corporaton by the essees, was apped n part payment of
the purchase prce. Three days ater, the property was conveyed to the essees
sster.
The Ta Court concuded from these facts that, despte the decaraton of a
qudatng dvdend foowed by the transfers of ega tte, the corporaton
143 ed. (2d), 23.
2T. C, 531.
Proft from the pae of property are tn nhe as ncome under secton 22(a) of the
Interna Itevenue Code (26 U. S. C, 22). The Treasury reguatons have ong provded
that gans accrung from the saes of a corporaton s assets, n whoe or In part, consttute
tcome to t, but that a corporaton reazes no ta abe gan by a mere dstrbuton of ts
assets n knd, n parta or n compete qudaton, however much they may have appre-
cated In vaue snce acquston. (Secton 19.2.2(a) 19, 19.22(a)-21, Treasury Regua-
ton 103.)
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29.22(b)-
CO
had not abandoned the saes negotatons that these were mere formates
desgned to make the transacton appear to be other than what t was, and thus
avod ta abty. The Crcut Court of ppeas drawng dfferent Inferences
from the record, hed that the corporaton had caed off the sae, and treated
the stockhoders sae as unreated to the pror negotatons.
There was evdence to support the fndngs of The Ta Court, and ts fndngs
must therefore be accepted by the courts. (Dobson v. Commssoner. 320 U. S.,
4S9 Ct. D. 1597, C. . 1944, 50 Commssoner v. ennger, 320 U. S., 467
Ct. D. 1596, C. . 1944, 4 4 Commssoner v. Scottsh mercan Invest-
ment Co., 323 U. S., 119 Ct. D. 1619, C. . 1944, 340 .) On the bass of these
fndngs, The Ta Court was |ustfed n attrbutng the gan from the sae to
respondent corporaton. The Incdence of ta aton depends upon the substance
of a transacton. The ta consequences whch arse from gans from a sae
of property arc not fnay to be determned soey by the means empoyed to
transfer ega tte. Rather, the transacton must be vewed as a whoe, and
each step, from the commencement of negotatons to the consummaton of the
sae, s reevant. sae by one person can not be transformed for ta purposes
nto a sae by another by usng the atter as a condut through whch to pass
tte.4 To permt the true nature of a transacton to be dsgused by mere
formasms, whch e st soey to ater ta abtes, woud serousy mpar
the effectve admnstraton of the ta poces of Congress.
It s urged that respondent corporaton never e ecuted a wrtten agreement,
nnd that an ora agreement to se and can not be enforced n orda because
of the statute of frauds (Comp. Gen. Laws of orda, 1927, voume 3, secton
5779). ut the fact that respondent corporaton tsef never e ecuted a wrtten
contract s unmportant, snce The Ta Court found from the facts of the entre
transacton that the e ecuted sae was n substance the sae of the corporaton.
The decson of the Crcut Court of ppeas s reversed, and that of The Ta
Court affrmed.
It s so ordered.
Secton 19.22(a)-21: Gross ncome of corporaton
n qudaton.
INT RN L R NU COD .
Dstrbuton of corporate property to sharehoders before transfer
of such property to purchaser pursuant to antecedent ora agreement
to se. (SeeCt.D. 1636, page 5 .)
S CTION 22(b). GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
Secton 29.22 (b)-: emptons cusons 1945- -12016
from gross ncome. I. T. 3725
INT RN L R NU COD .
mounts receved by offcers, ensted men, and empoyees of the
Unted States pursuant to the provsons of ecutve Order 7972,
approved September 15, 193 (Tte 3, Code of edera Reguatons,
Cum. Sup., ook 1, 412), as amended, prescrbed by the Presdent by
vrtue of and pursuant to the authorty vested n hm by the ct of
March 26, 1934 (4 Stat., 460), as amended (50 Stat., 641), to com-
pensate for osses sustaned whe n servce n the Netherands West
Indes, on account of apprecaton of the currency of that country n
ts reaton to the mercan doar, are not ncudbe n the gross
ncome of such Indvduas for edera ncome ta purposes.
dvce s requested whether amounts receved by offcers, ensted
men, and empoyees of the Unted States to compensate tor osses
Gregory v. eherng (293 U. S. 463 Ct. D. 911. C. . I -1, 193 (1935) ) Mnne-
sota Tea Co. v. everng (302 U. S. 609 Ct. D. 1305, C. . 193 -1, 2 Grffths v.
Commssoner (30 U. S., 355 Ct. D. 1431, C. . 1940-1, 136 ggns v. Smth (30
U. S., 473 Ct. D. 1434, C. . 1940-1, 127 ).
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29.22(b)- .
sustaned whe n servce n the Netherands West Indes, on account
of apprecaton of the currency of that country n ts reaton to the
mercan doar, are ncudbe n the gross ncome of such ndvduas
for edera ncome ta purposes.
ecutve Order 7972, approved September 15,193S (Tte 3, Code
of edera Reguatons, Cum. Sup., ook 1,412), as amended, provdes
for payment o the net saares and net aowances or the net pay and
aowances of offcers, ensted men, and empoyees of the Unted
States servng n specfed foregn countres (ncudng the Nether-
ands West Indes) n such amounts as they woud have receved by
convertng nto such foregn currency at specfed basc rates. ecu-
tve Order 7972 was prescrbed by the Presdent pursuant to the
authorty n Pubc Law 129, Seventy-thrd Congress, second sesson
(4 Stat., 46G), approved March 2G, 1934, as amended (50 Stat., 641),
whch provdes n part that aowances and e pendtures made pur-
suant to that ct to meet osses sustaned on and after uy 1, 1933,
by offcers, ensted men, and empoyees of the Unted States whe n
servce n foregn countres due to the apprecaton of foregn curren-
ces n ther reaton to the mercan doar sha not be sub|ect to
ncome ta es.
In vew of the foregong, t s hed that amounts receved by offcers,
ensted men, and empoyees of the Unted States pursuant to the
provsons of ecutve Order 7972, as amended, supra, to compensate
for osses sustaned whe n servce n the Netherands West Indes,
on account of apprecaton of the currency of that country n ts rea-
ton to the mercan doar, are not ncudbe n the gross ncome of
such ndvduas for edera ncome ta purposes.
Secton- 29.22 (b)-: emptons cusons 1945-11-12049
from gross ncome. I. T. 3739
INT RN L R NU COD .
The penson or compensaton receved by any person under the
provsons of Pubc Law 314 (Seventy-eghth Congress, second
sesson, 5 Stat., 230), approved May 27, 1944, quafes as a beneft
payment made to, or on account of, a benefcary under any of the
aws reatng to veterans wthn the purvew of secton 3 of the
ct of ugust 12, 1935 (49 Stat., 007), and such penson or compen-
saton s not Incudbe n gross ncome for edera ncome ta
purposes.
dvce s requested whether the penson or compensaton receved
by any person under the provsons of Pubc Law 314 (Seventy-
eghth Congress, second sesson, 5 Stat., 230), approved May 27,
1941, shoud be ncuded n gross ncome fcr edera ncome ta pur-
poses.
The ct of May 27, 1944, supra, provdes n part that any per-
son who s recevng pay pursuant to any provson of aw reatng
to the retrement ot persons n the reguar mtary or nava servce,
and who woud be egbe to receve penson or compensaton under
the aws admnstered by the eterans dmnstraton f he were
not recevng such retred pay, sha bo entted to receve such pen-
son or compensaton upon the fng by such person wth the depart-
ment by whch such retred pay s pad of a waver of so much of hs
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5 29.22(b (2)-5.
G2
retred pay and aowances as s equa n amount to such penson or
compensaton.
Secton 3 of the ct of ugust 12, 1935 (49 Stat., 607), whch ct
was pubshed n part n the Interna Revenue uetn (C. . I -2,
53 (1935)), provdes n part as foows:
Payments of benefts due or to become due sha not be assgnabe, and such
payments made to, or on account of, a benefcary under any of the aws reatng
to veterans sha be e empt from ta aton. Itacs supped.
The ct of May 27, 1944. supra, s a aw reatng to veterans.
Mmeograph 4411 (C. . -1, 497 (1936)) states, among other
thngs, that benefts pad to, or on account of, any benefcary under
the aws reatng to veterans are e empt from edera ncome ta
under a the Revenue cts. (The term Revenue cts ncudes the
Interna Revenue Code Pubc Law 1, Seventy-s th Congress, frst
sesson, 53 Stat., Part 1, approved ebruary 10, 1939.)
In vew of the foregong, t s hed that the penson or compensaton
receved by any person under the provsons of the ct of May 27,
1944, supra, quafes as a beneft payment made to, or on account of,
a benefcary under any of the aws reatng to veterans wthn the
purvew of secton 3 of the ct of ugust 12, 1935, supra, and such
penson or compensaton s not ncudbe n gross ncome for edera
ncome ta purposes.
Secton 29.22(b) (2)-5: mpoyees annutes. 1945-4-11964
I. T. 3715
INT RN L R NU COD .
ppcaton of the frst sentence of subparagraph ( ) of secton
22(b) (2) of the Interna Revenue Code to empoyees of an empoyer
whch s an organzaton e empt from edera ncome ta under
secton 101 of the Code, other than under paragraph (6) thereof,
or whch s an nsurance company ta abe for edera ncome ta
purposes under secton 201 or secton 207 of the Code.
dvce s requested whether the frst sentence of subparagraph ( )
of secton 22(b) (2) of the Interna Revenue Code s appcabe n de-
termnng, for edera ncome ta purposes, the ncome of empoyees
for whom retrement annuty contracts have been purchased by an
empoyer whch s an organzaton e empt from edera ncome ta
under secton 101 of the Code, other than under paragraph (6) thereof,
or whch s an nsurance company ta abe for edera ncome ta pur-
poses under secton 201 or secton 207 of the Code.
The frst sentence of subparagraph ( ) of secton 22(b) (2) of the
Code, whch subparagraph was added by secton 162(c) of the Revenue
ct of 1942, provdes as foows:
( ) mpoyees nnutes. If an annuty contract Is purchased by an
empoyer far an empoyee under a pan wth respect to whch the empoyer s
contrbuton s deductbe under secton 23(p) (1) ( ), or f an annuty contract
s purchased for an empoyee by an empoyer e empt under secton 101(6), the
empoyee sha ncude n hs ncome the amounts receved under such contract for
the year receved e cept that f the empoyee pad any of the consderaton for
the annuty, the annuty sha be ncuded n hs ncome as provded n subpara-
graph ( ) of ths paragraph, the consderaton for such annuty beng consdered
the amount contrbuted by the empoyee.
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29.22(b)(3)- .
The report of the Ways and Means Commttee ( ouse of Represent-
atves Report No. 2333, Seventy-seventh Congress, second sesson, page
106 (C. . 1942-2, 372, at page 452)), on the revenue b of 1942, and
the report of the Commttee on nance (Senate Report No. 1631,
Seventy-seventh Congress, second sesson, page 141 (C. . 1942-2, 504,
at page 609)), aso on the revenue b of 1942, n referrng to the
ta aton of empoyees annutes purchased as a part of a pan whch
meets the requrements of secton 165(a) (3), (4), (5), and (6) of the
Code, eave no doubt that, e cept wth respect to organzatons whch
are e empt under secton 101(6) of the Code, Congress ntended to
treat amounts receved by empoyees under annuty contracts n the
same way as amounts receved under penson trusts, that s, the em-
poyee s not to be ta abe wth respect to contrbutons pad toward
the purchase of such an annuty contract unt he receves payments
thereunder, or such payments are made avaabe to hm.
Where an empoyer purchases retrement annuty contracts for em-
poyees under such condtons that the contrbutons pad toward the
purchase thereof are deductbe under the provsons of secton
- ) (1) ( ) of the Code, such contrbutons do not dffer n character
from those pad under smar crcumstances by an organzaton whch
s e empt from ta under secton 101 of the Code, other than under
paragraph (6) thereof, or by an nsurance company whch s ta abe
under secton 201 or secton 207 of the Code. Snce the contrbutons
n a such cases are of ke character, and to carry out the evdent
ntent of Congress, t s hed that the frst sentence of subparagraph
( ) of secton 22(b) (2) of the Code s appcabe n determnng, for
edera ncome ta purposes, the ncome of empoyees for whom re-
trement annuty contracts have been purchased by an empoyer whch
s an organzaton e empt from edera ncome ta under secton
101 of the Code, other than under paragraph (6) thereof, or whch s
an nsurance company ta abe for edera ncome ta purposes under
secton 201 or secton 207 of the Code, provded that such empoyer s
contrbutons, whether or not deductbe under secton 23 (n) (1) ( ) of
the Code, meet the condtons set forth n secton 2 ) (p) (1) ( ). (Wth
respect to the empoyees of organzatons whch are e empt under
secton 101(6) of the Code, see the thrd paragraph of secton
29.22(b) (2)-5 of Reguatons 111.)
Secton- 29.22(b) (3)-: Gfts and bequests. 1945-S-12017
( so Secton 1622. Secton 405.201, Reguatons 116.) I. T. 3726
INT RN L R NU COD .
mounts dstrbuted to empoyees of the M Cub, n nonproft
organzaton, out of a Chrstmas fund made up of contrbutons of
ts members for such empoyees and not based on servces performed,
consttute gfts whch are not ncudbe n the gross ncome of the
empoyees nor sub|ect to wthhodng under secton 1G22 of the
Interna ICevenue Code.
dvce s requested whether amounts dstrbuted at Chrstmas tme
to empoyees of the M Cub, a nonproft membershp organzaton, are
consdered ncome and whether such amounts are sub|ect to wthhod-
ng under secton 1622 of the Interna Revenue Code.
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29.22(b) (3)-.
64
The M Cub requests ts members each year to make vountary con-
trbutons to a Chrstmas fund for dstrbuton to ts empoyees. .The
tota amount subscrbed or pad nto the fund by ts members s ds-
trbuted to empoyees of the organzaton at Chrstmas tme. The
contrbutons are not based on any servces performed by the empoyees
sharng n the benefts of the fund and the amount pad by each mem-
ber s purey wthn the member s dscreton. The organzaton does
not treat the contrbutons as ts own but keeps the fund earmarked
for dstrbuton to empoyees. The organzaton merey acts as
agent for the members n the dsbursement of the funds to empoyees.
It s hed that amounts dstrbuted to empoyees, under the crcum-
stances stated, consttute gfts and are not ncudbe n the gross
ncome of the empoyees nor sub|ect to wthhodng under secton
1622 of the Interna Revenue Code.
Secton 29.22(b) (3)-: Gfts and bequests. 1945-17-1211
( so Secton 1622 Secton 405.201, Regua- I. T. 3756
tons 116.)
INT RN L R NU COD .
Tuton and mantenance stpends pad to defray e penses con-
nected wth the tranng of personne by the States wder the pro-
vsons of Tte of the Soca Securty ct (49 Stat., 61 9) const-
tute gfts for edera ncome ta purposes and are not wages sub-
|ect to wthhodng of ncome ta at the source under secton
of the Interna Revenue Code.
dvce s requested whether tuton and mantenance stpends pad
to defray e penses connected wth the tranng of personne by the
States under the provsons of Tte of the Soca Securty ct
(49 Stat., 629) shoud be ncuded n gross ncome for edera n-
come ta purposes, and whether such amounts are wages sub|ect to
wthhodng of ncome ta at the source under secton 1C22 of the
Interna Revenue Code.
Secton 501 of Tte of the Soca Securty ct, supra, provdes
for the makng of appropratons by the edera Government for
the purpose of enabng each State to e tend and mprove, as far as
practcabe under the condtons n such State, servces for promot-
ng the heath of mothers and chdren, especay n rura areas and
n areas sufferng from severe economc dstress. The sums made
avaabe under ths secton are used for makng payments to States
whch have submtted, and have had approved by the Chef of the
Chdren s ureau, Unted States Department of Labor, State pans
for such servces. Secton 503(a) of Tte , supra, requres that a
State pan for materna and chd-heath servce must provde for
fnanca partcpaton by the State, for the admnstraton, or super-
vson of the admnstraton, of the pan by the State heath agency,
for the e tenson and mprovement of oca materna and chd-heath
servces admnstered by oca chd-heath unts, and for the deve-
opment of servces n needy areas and among groups n speca need.
Nurses and other ndvduas engaged n pubc heath work are
granted tuton and mantenance stpends by State heath agences
n order to enabe them to take tranng or postgraduate courses n
pubc work, medca-soca work, crpped chdren s servces, etc.
Whe undergong such dranng they are not on a saary bass but
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19.22(b)(41-1
receve n addton to ther tuton a stpend for board and mante-
nance. In many cases there s no empoyment agreement or, f there
s any commtment by the ndvduas nvoved, t s mted to a pedge
merey to contnue n the genera fed of pubc heath work upon
the competon of the course.
Secton 22(b) of the Interna Revenue Code provdes n part as
foows:
() cusons from Gross Income. The foowng tems sha not be ncuded
n gross ncome an sha be e empt from ta aton under ths chapter:

(3) Gfts, bequests, devses, and nhertances. The vaue of property
acqured by gft, bequest, devse, or nhertance.
It s hed that the tuton and mantenance stpends n queston
represent gratutes n ad of the accompshment of the pubc beneft
nvoved. ccordngy, tuton and mantenance stpends pad to
defray e penses connected wth the tranng of personne by the
Sates under the provsons of Tte of the Soca Securty ct,
supra, are not ncudbe n gross ncome for edera ncome ta pur-
poses and are not wages sub|ect to wthhodng of ncome ta at the
source under secton 1022 of the Interna Revenue Code.
Secton 19.22(b) (4)-: Interest upon State 1945-22-12104
obgatons. Ct. 1). 1047
INCOM T R NU CT O 10 INT RN L R NU COD D CISION
O COURT.
1. Gross Income cusons Interest upon Obgatons of a
State or Potca Subdvson Thereof.
Interest receved n 193 and 1030 on bonds of the Trborogh
rdge uthorty owned by the ta payer was e empt from ncome
ta under the provsons of sectons 22(b)(4) of the Revenue ct
of 103 and the Interna Revenue Code and the appcabe regu-
atons.
2. Decson ffrmed.
Decson of The Ta Court of the Unted States (3 T. C, 150)
affrmed.
3. Certorar Dened.
Petton for certorar dened on anuary 2, 1045.
Unted States Crcut Court of ppeas fob the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. state of Carone Whte,
Deceased, Wadron ntzng Post, ohn Ross Deafted, and Itaehe SIc . Wht-
ock, as ecutors of the W of Carone Whte, Deceased, respondents.
144 ed. (2d), 1019.
efore uoustus N. and, Chase, and rank, Crcut udges.
ugust 24, 1944.
opnon.
Petton by the Commssoner of Interna Revenue to revew a decson of The
Ta Court of the Unted States determnng that there were overpayments n
ncome ta es of Carone Whte, deceased, of 2.30 ..r 9 for the year 193 , and of
SL995.52 for the year 1939. The queston whether there were such overpayments
depends on whether nterest receved by the decedent n those years on bonds
ssued by the Trborough rdge uthorty was e empt from ncome ta es.
ffrmed.
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I9.22(b)(4 -1.
GG
ugustus N. and, Crcut udge: Ths proceedng nvoves defcences n
ncome ta es assessed aganst Carone Whte, deceased, and pad under protest.
The Ta Court hed that she had overpad such ta es to the e tent of 2,30 .59
for 193 , and 1,995.52 for 1939.
The queston rased by ths petton to revew the determnaton of The Ta
Court s whether nterest on the bonds of the Trborough rdge uthorty
owned by the decedent were e empt from ncome ta under secton 22(b)(4)
of the Revenue ct of 193 . ma|orty of The Ta Court hed that they were
e empt and for that reason that the decedent had overpad her ta es for 193
and 1939. In our opnon n Commssoner v. state of Shamberg Ct. D. 1(54 ,
page 335, ths uetn , fed herewth, we sustaned the rung of The Ta Court
that nterest on the bonds of the Port of New York uthorty s e empt under
the above statute. Our dscusson n that opnon requres us to say tte, f
anythng, more as to secton 22(b) (4) of the Revenue ct aud Treasury Regua-
tons 101, artce 22(b) (4)- whch seem to render the nterest on the Trborough
bonds e empt from ncome ta ke the bonds of the Port of New York uthorty
n the other case.
The Trborough rdge uthorty was created by chapter 145 of the Laws of
1933, as amended by chapter 3 of the Laws of 1937, of the State of New York as
a body corporate and potc consttutng a pubc beneft corporaton. y the
New York Genera Corporaton Law, secton 3(4), a pubc beneft corporaton s:
a corporaton organzed to construct or operate a pubc mprovement whoy
or party wthn the State, the profts from whch enure to the beneft of ths
or other States, or the peope thereof.
The act creatng the uthorty provdes:
It s hereby found, determned and decared that the creaton of the uthor-
ty and the carryng out of ts corporate purposes s n a respects for the beneft
of the peope of the State of New York, for the mprovement of ther heath
and wefare, and for the ncrease of ther traffc and prosperty, and s a pubc
purpose, and that the pro|ect s an essenta part of the pubc hghway system,
and that the uthorty w be performng an essenta governmenta functon
n the e ercse of the powers conferred upon t by ths act, .
The uthorty owns and operates two pubc brdges whch form a vta part
of the New York State and cty hghway system, are whoy wthn the State
of New York and carry ntrastate traffc as part of that system. They are con-
structed pursuant to pans approved by the War Department because they are
across navgabe rvers but, snce they are fuy wthn a snge State, the Sec-
retary of War had no rght to prescrbe the tos.
Under the State aw creatng the uthorty t acqured the power to construct,
mantan and operate brdges connectng three boroughs of the cty of New York,
to acqure necessary property, wth the cty s consent, n the name of the cty
ether by purchase or condemnaton, to make use of cty agents, empoyees and
factes and to ssue bonds for constructng the brdges. The statute under
whch t was organzed aso provded that the bonds shoud be ega nvestments
for fducares, shoud be e empt from State ta aton other than transfer and
estate ta es, shoud not be debts of the cty or State and shoud be payabe ony
out of funds of the uthorty. It aso provded that the State woud not ater
the rght of the uthorty to coect the tos necessary to fuf the terms of
the bonds.
The brdges were but by the cty. It fnanced ther constructon from ts
ta note fund n the amount of 21 ,721.34 and from the proceeds of saes of ts
ong-term corporate stock n the amount of 5,G2,. 09. On pr 2 , 1933, the
mayor of New York apponted the throe members of the uthorty, who were
sub|ect to remova by hm for cause. The uthorty ssued a of ts bonds by
vrtue of the State statute under whch t was organzed and pursuant to res-
outon adopted by ts members. The bonds were never approved by the eectors
of the State at any eecton and the comptroer of the cty of New York has never
ncuded them n any of hs statements of the ndebtedness of the cty. fter
the uthorty was organzed n 1933 the engneerng force of the cty bureau of
pant and structure, whch had theretofore been engaged n the constructon
work, and a records reatng to the brdges were transferred to the uthorty.
In 1933 t apped to the edera mergency dmnstrator of Pubc Works for
a oan and grant, the appcaton was granted, and the Unted States, through
the dmnstrator, made a grant of 9,200,000 and a oan of 35,000,000 by pur-
chasng bonds of the uthorty In that amount under an agreement dated Sep-
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67
19 22b)(4)-.
tember 1, 1933, whch requred the uthorty to furnsh an opnon by bond
counse that the bonds and nterest woud be e empt from a tu es mposed by
the Unted States under the Consttuton or by the State of New York. Such
an opnon was furnshed.
The bonds nvoved In ths proceedng were ssued n 1937 to the amount of
: 3.000.0OO and were used n part to refund the 35,000,000 bonds ssued In 1933
and 1937 hed by the Reconstructon nance Corporaton. When the uthorty
ssued ts 1937 bonds t asked the Commssoner for a rung and was advsed by
hm that the nterest was e empt from ncome ta . e sad n a etter to Robert
Moses, charman of the uthorty (dated ebruary 17, 1937), the foowng:
It s beeved that the Trborough rdge uthorty s n effect an nstrumen-
taty of the cty of New York, a potca subdvson of the State of New York:
that the bonds Issued by such uthorty w be, n effect, bonds of the cty ssued
n the e ercse of ts borrowng power and that nterest on such bonds w, there-
fore, be e empt from edera ncome ta .
The uthorty s pany a subdvson of State government empowered to e er-
cse governmenta functons on behaf of the cty of New York whch acqured
through State egsaton the rght to deegate ts powers to operate and mantan
the to brdges. The uthorty s n essence a department of the cty but so organ-
zed as not to nvove the cty n drect abty to persons hodng Trborough
bouds. Its functons are as tradtona and prmary State functons as any one can
naene e cept those of enactng and enforcng genera aws. Under the decsons
rsactvtes woud unversay be regarded as State functons. Graves v. New
York e ret. O cefc, 30G U. S., 466, 477 Ct. D. 1390. C. . 1939-1 (Tart 1), 129
rmh v. Commssoner, 300 U. S., 352. 372 Ct. D. 1212, C. . 1937-1, 2171
unms Cty rdge Co. v. abama State rdge Corporaton, 5 ed. (2d), 4 . 49
(C. C. . 5) Gaynor v. Marohn, 26 N. Y., 417, 432 Robertson v. Zmmerman, 26
N. T.. 52, 65 Peope e ret. rdge uthorty v. Davs, 277 N. Y., 292, 29 .)
It s argued that whether the uthorty be vewed as a potca subdvson of
(he State, or as an agency of the cty actng on behaf of the State, the e empton
statute can not appy because the bonds are obgatons of the uthorty ony and
not of the cty. ut f the cty had contnued to construct and had thereafter
Tenttd the brdges and coected the tos and had ssued ts own bonds for the
beneft of the enterprse nstead of those of the uthorty, t s not dsputed that
the nterest on the bonds woud have been free from ncome ta . Whe we reaze
that ta e emptons are matters of egsatve grace and must be found n the
approprate statutes, yet there s a mt to the technca nterpretaton even of
an e empton statute. The reason for the e empton of course was to free the
States from the burden of ncome ta es on ther nvestments n enterprses for
the pubc wefare. It can make no dfference whether the cty or ts ater ego
s abe. In ether case the burden woud be upon a governmenta actvty and
that s the substance of the grevance both of the uthorty and of the ta payer.
The motves whch nduced the creaton of a pubc corporaton to operate the
brdges, nstead of eavng them whoy and teray to be managed by the cty,
that s, the form n whch the muncpa actvtes were to be e ercsed, seems to
a ma|orty of the court qute mmatera. The moneys of the uthorty are pad
to the comptroer of the cty pursuant to the organc aw, the tte to the ands
s n the cty and, after the obgatons of the uthorty hn -e been pad In fu,
a ts propertes and rghts pass to and become vested In the cty.. To dstn-
gush between such an agency and the cty n regard to the e empton seems to us
purey technca. onds of ths character as we as the bonds n queston have
aways been regarded as e empt and have been so hed by the Commssoner of
Interna Revenue.
ecause secton 22(b)(4) of the Revenue ct of 193 and the reguatons
appcabe thereto have n the opnon of the ma|orty of ths court rendered the
nterest on the ta payer s bonds e empt from ncome ta , wo see no reason to
dscuss the queston whether there s any consttutona prohbton aganst the
ta and rest our opnon, as we dd n the case of Commssoner v. state of
e ander . Shambcrg, deceased, soey upon the e empton.
In both of these mportant tgatons we have been afforded a possbe ad by
counse for the Commssoner and for the ta payers In brefs whch have hoe:
kept wthn a most reasonabe compass and have sad everythng whch we thnk
coud have been sad on behaf of the respectve partes.
Ord r affrmed.
Dssentng opnon by rank, Crcut udge.
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5 29.22(b) (12)- .
6
Secton 29.22(b) (12)-1: Recovery of certan 1945-10-12043
tems prevousy deducted. T. D. 5454
( so Secton 127(c), Secton 29.127(c)-
Secton 127(f), Secton 29.127(f)- Reg-
uatons 103, 101, 94, 6, 77, 74, 65, 62, 45,
and 33.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29.
INCOM T T L Y RS GINNING T R D C M R 31. 1941.
mendng sectons 29.22(b) (12)-1, 29.127(c)-, and 29.127(f)-
of Reguatons 111, recovery of certan tems prevousy deducted.
Washngton, D. C.
Reguatons 111 Part 29, Tte 26, Code of edera Reguatons,
Cum. Sup. , reatng to ncome ta , are amended as foows:
Paragraph 1. Secton 29.22(b) (12)-1, as amended by Treasury
Decson 5307, approved November 29,1943 C. . 1943,10 , s further
amended as foows:
( ) y revsng the tte to such secton and the frst two para-
graphs thereof to read as foows:
Sec. 29.22(b) (12)-1. Recovery of Certan Items Prevousy Deducted. (a)
In genera. Secton 22(b) (12) provdes that ncome attrbutabe to the recov-
ery durng any ta abe year of bad debts, pror ta es, and denquency amounts
sha be e cuded from gross ncome to the e tent of the recovery e cuson
wth respect to such tems. The rue of e cuson so prescrbed by statute appes
equay wth respect to a other osses, e pendtures, and uccruas made the
bass of deductons from gross ncome for pror ta abe years, ncudng war
osses referred to n secton 127, but not ncudng deductons wth respect to
deprecaton, depeton, amortzaton, or nmortzabe bond premums. (See
Dobson v. Commssoner, 64 S. Ct., 239.) The term recovery e cuson as
used n these reguatons means accordngy an amount equa to the porton of
the bad debts, pror ta es, and denquency amounts (the tems specfcay
referred to n secton 22(b) (12)), and of a other tems sub|ect to the rue of
e cuson whch, when deducted or credted for a pror ta abe year, dd not
resut n a reducton of any ta of the ta payer under Chapter 1 of the Interna
Revenue Code (other than a ta under secton 102) or under correspondng pro-
vsons of pror revenue aws.
(1) Secton 22(6) (12) tems. The term secton 22(b) (12) tems ns used
n these reguatons means those bad debts, pror ta es, denquency amounts,
and a other tems sub|ect to the rue of e cuson, for whch a deducton or
credt was aowed for a pror ta abe year. If a bad debt was prevousy
charged aganst a reserve by a ta payer on the reserve method of treatng bud
debts, t was not deducted, and t s therefore not consdered a secton 22(b) 112)
tem. ad debts, pror ta es, and denquency amounts are defned n secton
22(b) (12) ( ),-( ), and (C), respectvey. typca e ampe of a denquency
amount descrbed n that secton s nterest upon denquent ta es. typca
e ampe of the other tems not e pressy referred to n secton 22(b) (12) but
nevertheess sub|ect to the rue of e cuson s a oss sustaned upon the sae of
stock and ater recovered, n whoe or n part, through an acton aganst the
party from whom such stock had been purchased.
( ) y strkng from the frst sentence n paragraph (a)(2) the
words tems descrbed n secton 22(h) (12) and by nsertng n on
thereof the words secton 22(b) (12) tems.
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69
29.22(b)(12)-1.
(C) y strkng the ast sentence of paragraph (a) (4).
(D) y strkng out the word recoveres n the second sentence
of paragraph (b)(1) and nsertng n eu thereof the words e -
tendbe recoveres.
( ) y strkng from the frst paragraph n the e ampe n sub-
secton (b) the words 2,000 busness e penses and by nsertng n
eu thereof the words a deprecaton deducton of 2,000.
( ) y strkng from the second ne n the tabuaton n the e -
ampe n subsecton (b) the words usness e penses and by n-
sertng n eu thereof the word Deprecaton.
Par. 2. Secton 29.127(c)- s amended by nsertng mmedatey
after the second sentence n the frst paragraph thereof the foow-
ng:
War oss recoveres are consdered as made frst on account of war osses
aowabe but not actuay aowed ns a deducton, and second on account of war
osses aowed as a deducton but whch dd not resut In a reducton of ta
umer Chapter 1. If there were deductons aowed on account of war osses
for two or more ta abe years whch dd not resut n a reducton of any ta
under Chapter 1, a recovery on account of such osses s consdered as made
on account of such osses n the order of the ta abe years for whch they
were aowed, begnnng wth the atest.
Par. 3. Secton 29.127(f)- s amended by strkng out the second
sentence n the frst paragraph and substtutng n eu thereof the
foowng:
In the case of recoveres of war osses and other tems to whch the recovery
e cuson provsons of secton 22(b) (12) appy, such as bad debts, the de-
termnaton of the ta beneft shoud be made n accordance wt secton
29 (b)(12)-( ).
Par. 4. The amendments to secton 29.22(b) (12) 1 of Reguatons
111 (coverng ta abe Tears begnnng after December 31, 1941) are
hereby made appcabe to ta abe years begnnng pror to anuary
1.1942 (such years beng covered by Reguatons 103. 101, 94, 6, 77,
74.69. 65, 62, 45, and 33), and the amendments to sectons 29.127(c)-
and 29.127(f) 1 of Reguatons 111 are hereby made appcabe to
ta abe years begnnng pror to anuary 1, 1942, and after December
31,1940 (such years beng covered by Reguatons 103).
secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. C, 1910
ed., 62), the correspondng provsons of pror nterna revenue aws,
and sectons 116 and 156 of the Revenue ct of 1942 (56 Stat., 12, 52
26U. S. G, 1940 ed., Sup. I, 22(b), 127).)
oseph D. Nu an. r.,
pproved May 10, 1945.
( ed wth the Dvson of the edera Regster May 12, 1915, 4.07 p. m.)
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29.22(c)-6.
70
Secton 29.22(b) (13)-1: Compensaton of mtary 1945- -1201
and nava forces. I. T. 3727
INT RN L R NU COD .
ppcaton of secton 22(b) (13) of the Interna Revenue Code
to compensaton receved by temporary members of the Coast Guard
Reserve.
I. T. 3G29 (C. . 1943, 100) modfed.
The queston presented n I. T. 3029 (C. . 1943,109) was whether
temporary members of the Coast Guard Reserve, referred to theren
as members of the Coast Guard Temporary Reserve, are entted to
the e cuson from gross ncome (addtona aowance for mtary
nnd nava personne) provded for n secton 22(b) (13) of the Inter-
na Revenue Code, as amended by secton 7(a) of the Current Ta
Payment ct of 1943.
The ast paragraph of I. T. 3629, supra, reads as foows:
Where the pay of such an Indvdua Is receved from a cvan empoyer or,
n the case of a cvan empoyee of the Government, where the pay s for the
cvan poston he occupes, the e cuson from gross ncome provded for n
secton 22(b) (13) of the Interna Revenue Code, supra, s not appcabe. Where,
however, a member of the Coast Guard Temporary Reserve s caed nto actve
servce and Is pad by the Coast Guard, he s consdered to be n the mtary
forces and the e cuson from gross ncome appes.
In vew of the fact that the ast sentence of I. T. 3629, supra, s
unnecessary to a determnaton of the queston presented and may be
msnterpreted, I. T. 3629 s modfed by emnatng that sentence from
the ast paragraph of the rung and from the syabus. I. T. 3629
s further modfed to refer to temporary members of the Coast Guard
Reserve rather than to member s of the Coast Guard Temporary
Reserve, snce there s no organzaton bearng the atter desgnaton.
S CTION 22(c). GROSS INCOM : IN NTORI S.
Secton 29.22(c)-2: auaton of nventores.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5423, beow.)
Secton 29.22(c)-6: Inventores of vestock 1945-1-11917
rasers and other farmers. T. D. 5423
( so Secton 29.22(c)-2.)
INCOM T T L Y RS GINNING T R D C M R 31. 1941.
Reguatons 111 amended wth respect to nventores of vestock
rasers and other farmers.
Washngton 25, D. C.
Cum. Sup. , are amended as foows:
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71
IS 29.22(c)-6.
Paragraph 1. Secton 29.22(c)-2 s amended by strkng the frst
sentence of the fourth paragraph and nsertng n eu thereof the
foowng:
In respect of norma goods, whchever bass Is adopted must be apped wth
reasonabe consstency to the entre nventory e cept as to those goods nventored
under the eectve method authorzed by secton 22(d) or to anmas nventored
under the eectve unt-vestock-prce method authorzed by secton 29.22(c)-6.
Par. 2. Secton 29.22(c)-6 s amended by strkng the fourth para-
graph and nsertng n eu thereof the foowng:
ecause of the dffcuty of ascertanng actua cost of vestock and other fnu
products, farmers who render ther returns upon an nventory bass may vaue
ther nventores accordng to the farm-prce method, and farmers rasng
vestock may vaue ther Inventores of anmas accordng to ether the farm-
prce method or the unt-vestock-prce method.
The farm-prce method provdes for the vauaton of nventores at market
prce ess drect cost of dsposton. If ths method of vaung nventores s
used, t must be apped to the entre nventory e cept as to vestock nventored,
at the ta payer s eecton, under the unt-vestock-prce method. If the use
of the farm-prce method of vaung nventores for any ta abe year nvoves
a change n method of vaung nventores from that empoyed n pror years,
permsson for such change sha frst be secured from the Commssoner as
provded n secton 20.41-2.
The unt-vestock-prce method provdes for the vauaton of the dfferent
casses of anmas n the Inventory at a standard unt prce for each anma
wthn a cass. vestock raser eectng ths method of vaung hs anmas
must adopt a reasonabe cassfcaton of the anmas n hs nventory wth respect
to the age and knd ncuded so that the unt prces assgned to the severa
casses w reasonaby account for the norma costs ncurred n producng the
anmas wthn such casses. Thus, f a catte raser determnes that t costs
appro matey 15 to produce a caf, and 7.50 each year to rase the caf to
maturty, hs cassfcatons and unt prces woud be as foows: caves, 15
yearngs, 22.50 2-year ods, 30 mature anmas, 37.50. The cassfcaton
seected by the vestock raser, and the unt prces assgned to the severa
casses, are sub|ect to approva by the Commssoner upon e amnaton of the
ta payer s return.
ta payer who eects to use the unt-vestock-prce method must appy t
to a vestock rased, whether for sae or for breedng, draft, or dary purposes.
0r.ee estabshed, the unt prces and cassfcatons seected by the ta payer
must e consstenty apped n a subsequent years n the vauaton of ve-
stock nventores. No changes n the cassfcaton of anmas or unt prces
w be made wthout the approva of the Commssoner.
vestock raser who uses the unt-vestock-prce method must ncude
n hs nventory at cost any vestock purchased, e cept that anmas purchased
for breedng, dary, or draft purposes can, at the eecton of the vestock raser,
be ncuded n nventory or be treated as capta assets sub|ect to deprecaton
after maturty. If the anmas purchased are not mature at the tme of pur-
chase, the cost shoud be ncreased at the end of each accountng year n accord-
ance wth the estabshed unt prces, e cept that no ncrease s to be made n
the year of purchase f the anma s acqured durng the ast s months of that
year. If the records mantaned permt dentfcaton of a purchased anma, the
cost of such anma w be emnated from the cosng nventory n the event of
ts sae or oss. Otherwse, the frst-u frst-out method of vaung nventores
must be apped.
If a ta payer usng the farm-prce method desres to adopt the unt-ve-
tock-prce method n vaung hs nventores of vestock, permsson for the
change sha frst be secured from the Commssoner as provded n secton
29.41-2. owever, a ta payer who has fed returns on the bass of nventores
at cost, or cost or market whchever s ower, may adopt the unt-vestock-prce
method for vaung hs nventores of vestock for ta abe years begnnng after
December 31, 1943, wthout forma appcaton for permsson, but the cassfca-
tons and unt prces seected are sub|ect to approva by the Commssoner upon
e amnaton of the ta payer s return. vestock raser who has, for ta abe
years begnnng pror to anuary 1, 1944, adopted a constant unt prce method of
vaung vestock nventores and fed returns on that bass w be consdered
as havng eected the unt-vestock-prce method.
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29.22(c)-6.
72
(Ths Treasury decson s ssued under authorty contaned n sec-
tons 22(c) and 62 of the Interna Revenue Code (53 Stat., 11, 32
26 U.S. C., 22, 62).)
Geo. . Schoenf.man,
ctng Commssoner of Interna. Revenue.
pproved December 15,1944.
Secton 29.22(c)-6: Inventores of vestock 1945-1-1191
rasers and other farmers. Mm. 5790
ppcaton of Treasury Decson 5423, approved December 15, 1 44
page 70, ths uetn , amendng secton 29.22(c)-6, Income Ta
Reguatons 111.
Washngton 25, D. C, December 16, 191
Coectors of Interna . Revenue, Interna Revenue gents n Charge,
and Others Concerned:
1. The reguatons, as amended by Treasury Decson 5423 page 70,
ths uetn , provde that a ta payer who has, for ta abe years be-
gnnng pror to anuary 1, 1944, used a constant prce method of
vaung vestock w be consdered as havng eected the unt-ve-
stock-prce method. No appcaton need be made to the Comms-
soner by such a ta payer for permsson to use the unt-vestock-
prce method for ta abe years begnnng after December 31, 1943.
owever, f the ta payer used a constant prce method n prevous
years for ony certan casses of hs anmas, and nventored other
casses by some other method, he must nventory a casses on the
14 unt-vestock-prce method for ta abe years begnnng after De-
cember 31, 1943. The unt prces used n pror years w not be
changed, and sha be appcabe for ta abe years begnnng after
December 31, 1943, as we as for pror years wth respect to those
casses of vestock nventored n pror years on a constant unt prce
method. New unt prces shoud be seected for those casses of ve-
stock nventored n pror years by some other method. Such new unt
prces and cassfcatons w be used n 1944 and subsequent years
ony, and are sub|ect to approva by the Commssoner on e amnaton
of the ta payer s return. or e ampe, suppose a ta payer who n-
ventored hs breedng herd on a constant prce method, and who
nventored catte for sae on the farm-prce method had an openng
nventory n 1944 as foows:
reedng herd (constant-unt prce):
700 cows at 37.50 26, 250
1002 s hefers at 30 3, 000
100 yearng hefers at 22.50 2,250
Catte for sae (farm prce):
300 caves at 30 9,000
200 yearng steers at 45 9,000
100 2 s steers at 60 6,000
55,500
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73
15 29.22(c)-6.
or 1944 and subsequent years he w contnue to use the same unt
prces used n pror years for cows and hefers, uness a change s per-
mtted by the Commssoner. e w be requred to estabsh unt
prces for caves and steers prevousy nventored on the farm-prce
method and he mght seect the foowng:
2-year od steers 30. 00
eadng steers 22. 50
ves 15.00
The new unt prces shoud be apped ony to anmas born durng
the year of change and subsequent years, and new dfferentas shoud
be apped to the anmas growng durng such year and subsequent
years. Thus, the cosng nventores shoud be as foows, assumng the
numbers of anmas hed and retaned as ndcated:
Cosng Inventory (year of change) (100 cows sod, 100 3 s steers sod,
200 caves retaned):
700 cows at 37.50 26. 250
100 2 s hefers at 30 3,000
150 yearng hefers at 37.50 5,C25
200 caves at 15 3,000
150 vearng steers at 37.50 5, 625
200 2 s steers at 52.50 10, 500
54.000
Cosng Inventory (second year) (ICO cows sod, 200 3 s steers sod, 300
caves retaned):
700 cows at 37.50 26, 250
ft 2 s hefers at 45 . G, 750
100 yearng hefers at 22.50 2. 250
300 caves at 15 4, 500
100 yearng steers at 22.50 2, 250
150 2 s steers at 45 6, 750
4 . 750
Cosng nventory (thrd year) (100 cows sod, 150 3 s steers sod, 250
caves retaned):
00 cows nt 37.50 22. 500
150 cows at 52.50 7. 75
100 2 s hefers at 30 , 000
150 vearng hefers at 22.50 3, 375
250 caves at 15 3, 750
150 yearng steers at 22.50 3,375
100 2 s steers at 30 3, 000
46, 75
2. Operators on the farm-prce method may change to the unt-
vestock-prce method, wth the permsson of the Commssoner.
Operators on the cost bass may change to the unt-vestock-prce
method wthout the permsson of the Commssoner. The ad|ust-
ment from the prevous method to the unt-vestock-prce method
shoud be made n accordance wth the foowng prncpes:
arm-prce method to unt-vestock-prce method.
Openng nventory:
700 cows at 05 45, 500
100 2 s hefers at 60 6,000
100 yearng hefers at 50 5,000
100 caves at 35 3, 500
60,000
6 4354 -
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29.22(c)-6.1
74
600 caves produced 475 caves and 100 cows sod.
The unt vestock prces adopted are as foows:
Cows 52
2 s efers 40
Yearng hefers 29
Caves IS
Cosng nventory (year of change).
arm
prce
begn-
nng of
year.
arm
prce
end of
year.
Cacu-
aton.
Lmta-
ton.
Tota
65
S65
65
60
50
35
60
60
55
45
SO
60
60
55
45
36.001)
6,000
5.5O0
4,500
2,250
. 72
61
46
1
100 2 s hefers
125 caves
IS
Tota
54,250
The prncpe of the above ad|ustment s to add to the vaue of
each cass of growng anmas appearng n the openng nventory the
ncrease representng a year s growth of such cass to the ne t oder
cass, e cept that n no case w such vaue be n e cess of the farm
prce vaue for such oder cass at the begnnng of the year of change
or the end of the year of change whchever s the esser. In the above
ustraton, 100 2-year-od hefers became cows durng the year. The
ncrease for a year s growth from 2-year-ods to cows s 12. ddng
12 to the vaue n the openng nventory of |0 gves 72. Snce 72
s n e cess of the esser farm prce of a cow, the vaue s mted to such
farm prce or 60.
Ths prncpe may be further ustrated by the foowng e ampe,
usng as a bass the cosng nventory shown above:
Cosng nventory (second year).
100 COWS SOLD 100 C L S R T IN D.
arm
prce he-
gnnng
of year of
change.
arm
Cacua-
ton.
prce end
of year of
change.
Lmta-
ton.
Tou
05
05
65
65
60
50
35
60
60
60
56
45
30
60
60
60
55
29
1
30, OI
6,003
6,000
5,500
3.62
1. 00
100 cows
73
57
29
1
100 2 s hefers
Tota
62.925
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75-
29.22(c)r .
Cosng nventory (thrd year).
,00 COWS SOLD 100 C L S R T IN D.
Cacua-
ton.
prce be-
gnnng
arm
arm
prce end
of year of
change.
Lmta-
ton.
Tota.
of year of
change.
ffOCOWS-.. .
65
65
60
60
24,000
72
65
60
60
6,000
100 cows
73
65
60
60
6,000
100 cows
69
65
TO
60
G. 000
I252 5 hefers I . 1
40
60
55
40
5,000
1 f yearng hefers
2
50
45
29
2, OO
00 ares
1
35
30
1
1, 00
Tota
51,700
Cosng nventory fourth year).
|O COWS SOLD: O C L S R T IN D.
arm
prce be-
gnnng
of year of
change.
arm
prce end
of year of
change.
Catena-
ton.
Lmta-
ton.
Tota.
1 .
.
300 am
65
65
60
60
1 ,000
100 cows-
72
65
60
60
6,000
73
65
60
60
6,000
69
65
60
60
6,000
US cows
52
66
60
52
6,500
armbeers
40
29
1
00
50
36
55
45
30
40
4,000
2,900
1, 00
caves ...____..- ---.......-._....._ ..-. ..
29
1
TotaL
51,200
3. When frst seected, unt prces are sub|ect to the approva of
the Commssoner. It s recognzed that operatng condtons e stng
n the vestock ndustry are such that actua costs n most nstances
are mpossbe to secure. Therefore, prces whch refect reasonabe
estmates of norma costs of producton, or prces whch conform
generay to ndustry estmates, are acceptabe. Prces used on returns
for pror years whch have been e amned and accepted by the Com-
mssoner w be consdered as estabshed by a ta payer who has used
constant costs n pror years and has not subsequenty adopted a df-
ferent method, and such prces w be accepted. s to prces not
prevousy estabshed, moreover, the Commssoner w gve great
weght to the prces seected by the ta payer and w accept such
prces uness they are abnormay ow. The unt prces assgned to
the varous casses of vestock shoud bear a reatonshp to each other
that s reasonaby proportonate to the estmated cost of producng
each cass. arous factors enter nto a reasonabe estmate as to
each operator s cost of producng each cass, such as per cent of caf
crop, amount and knd of wnter feedng, knds of anmas wnter fed,
reatve weght of anmas n each cassfcaton, abor requred to care
for each cassfcaton, etc. Therefore, the estmate of the operator as
to the reatonshp of each cassfcaton of hs anmas to the others
w be gven great weght. Once estabshed the unt prces and
cassfcatons adopted w not be sub|ect to change e cept wth the
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29.22(k)-.
-76
permsson of the Commssoner. Cassfcatons and prces hereto-
fore adopted by ta payers usng constant costs may be changed ony
wth the permsson of the Commssoner.
4. vestock producer who nventores vestock rased on the
unt-vestock-prce method shoud nventory vestock purchased
at cost. When the anmas purchased are not mature, ther vaues
shoud be ncreased at the end of each accountng year n accordance
wth the unt prces estabshed for rased anmas, e cept that n the
case of purchases made durng the ast s months of such year, no
ncrease shoud be made durng that year.
If the records mantaned permt dentfcaton of such purchased
anmas, the dentfed cost may be taken nto account upon subsequent
dsposton otherwse the frst-n frst-out method shoud be apped.
Regstered or pure-bred anmas, whether mae or femae, purchased
for breedng purposes, may be captazed at cost and deprecated after
maturty to a reasonabe savage vaue over ther estmated usefu
fe, provded (1) they are segregated or otherwse dentfabe.
(2) separate accounts are kept for such anmas, and (3) the ages,
when acqured, are kept of record. The offsprng of such anmas,
however, whether hed for sae or added to the breedng herd, sha be
nventored under the unt-vestock-prce method. If a vestock
grower mantans a speca herd of regstered or pure-bred anmas for
whatever purpose, separate unt-vestock-prces may be estabshed for
such speca herd.
5. In order ceary to refect ncome, a vestock producer on any
nventory method must keep accurate records as to nventored ve-
stock. The records shoud show as accuratey as hs operatons w
reasonab|7 permt the numbers of anmas n each cassfcaton.
ctua counts of anmas, accordng to cassfcatons, shoud be made
at east once near the cose of each year and records kept thereof.
6. Correspondence concernng the provsons of ths mmeograph
shoud be addressed to the ureau for the attenton of IT: T .
Geo. . Schoe eman,
ctng Commssoner.
S CTION 22(k). GROSS INCOM : LIMONY,
TC., INCOM .
Secton 29.22(k)-: mony and separate man- 1915-20-12151
tenance payments Income to former wfe. I. T. 37C1
( so Secton 23(u), Secton 29.23(u)-.)
INT RN L R NU COD .
Perodc payments made pursuant to an Interocutory decree of
dvorce n the State of Caforna by a husband for the support of hs
wfe are ncudbe n her gross ncome under secton 22(k) of the
Interna Revenue Code, aDd are deductbe by the husband under
secton 23(u) of the Code.
dvce s requested whether perodc payments receved by a wfe
from her husband pursuant to an nterocutory decree of dvorce n the
State of Caforna are ncudbe n the gross ncome of the wfe under
secton 22(k) of the Interna Revenue Code and deductbe by the
husband under secton 23(u) of the Code.
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77
29.22(n)-
Secton 22 of the Interna Revenue Code provdes n part as foows:
S C. 22. GROSS INCOM .

(k) mony, tc., Income. In the case of a wfe who a dvorced or egay
separated from her husband under a decree of dvorce or of separate mantenance,
perodc payments (whether or not made at reguar ntervas) receved subsequent
to such decree n dscharge of, or attrbutabe to property transferred (n trust
or otherwse) n dscharge of, a ega obgaton whch, because of the marta or
famy reatonshp, s mposed n or ncurred by such husband under such
decree or under a wrtten nstrument ncdent to such dvorce or separaton
sha be ncudbe n the gross ncome of such wfe, and such amounts receved
as are attrbutabe to property so transferred sha not be Incudbe In the gross
ncome of such husband.
Secton 23 of the Code provdes n p:rt as foows:
S C. 23. D DUCTIONS ROM GROSS INCOM .
In computng net ncome there sha be aowed as deductons:

(a) mony, tc. Payments. In the case of a husband descrbed n secton
k). amounts ncudbe under secton 22(k) n the gross ncome of hs wfe.
yment of whch s made wthn the husband s ta abe year.
Secton 131 of Deerng s Cv Code of the State of Caforna pro-
vdes n part that f, n actons for dvorce, the court determnes that
the dvorce ought to he granted, an nterocutory |udgment must be
entered, decarng that the party n whose favor the court decdes s
entted to a dvorce. Secton 132 of the Cv Code of Caforna
provdes that when one year has e pred after the entry of such nter-
ocutory |udgment, the court on moton of ether party, or upon ts
own moton, may enter the fna |udgment grantng the dvorce.
Under secton 139 of the Cv Code of Caforna, permanent amony
may be awarded, and such award of permanent amony s made by the
nterocutory decree. (See ocgaup v. aeqaup, 72 Ca. pp.,
654, 23 Pac, 93.)
It s hed that perodc payments made pursuant to an nterocutory
ecree of dvorce n the State of Caforna by a husband for the sup-
port of hs wfe are ncudbe n her gross ncome under secton 22(k)
of the Interna Revenue Code, and are deductbe by the husband under
. eeton 23 (u) of the Code.
S CTION 22(m). GROSS INCOM : S R IC S
O C ILD.
Secton 29.22(m)-: Servces of chd.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D, 5425, page 10.)
S CTION 22(n). GROSS INCOM : D INITION O
D UST D GROSS INCOM .
Secton 29. 2(n)-: d|usted gross ncome.
INT RN L R NU COD .
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29.22(n)-
7
Secton 29.22 (n)-: d|usted gross ncome. 1945-7-12003
I. T. 3722
INT RN L R NU COD .
The Phadepha Income ta , whch Is Imposed upon saares,
wages, and net profts of unncorporated busness enterprses, s not
deductbe n computng ad|usted gross ncome as defned by secton
22(n) of the Interna Revenue Code, as added by secton (a) of
the Indvdua Income Ta ct of 1944.
dvce s requested whether the Phadepha ncome ta , whch s
mposed upon saares, wages, and net profts of unncorporated bus-
ness enterprses, s deductbe n computng ad|usted gross ncome as
defned n secton 22(n) of the Interna Revenue Code, as added by
secton (a) of the Indvdua Income Ta ct of 1944.
Secton 22 (n) of the Interna Revenue Code, as added by secton
(a) of the Indvdua Income Ta ct of 1944, provdes n part as
foows:
(n) Defnton of d|ustkd Gboss Income . 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
It s hed that the Phadepha ncome ta mposed upon saares
and wages s not deductbe n computng ad|usted gross ncome under
secton 22(n) of the Code nasmuch as such ta s attrbutabe to a
trade or busness whch conssts of the performance of servces by
the ta payer as an empoyee. It s further hed that the ta mposed
on the net profts of busnesses or professons s not deductbe n
the computaton of such ad|usted gross ncome snce t does not repre-
sent an e pense, drectv ncurred n the carryng on of a busness or
professon. (Cf. I. T. 3370, C. . 1940-1, 32.)
Secton 29.22(n)-: d|usted gross ncome. 1945- -12019
I. T. 372
INT RN L R NU COD .
Treatment of deductons aowabe n computng ad|usted gross
ncome for edera ncome ta purposes under secton 22(n) of the
Interna Revenue Code, as added by secton (a) of the Indvdua
Income Ta ct of 1944, n the case of a saesman empoyed on a
straght commsson bass who s not rembursed by hs empoyer
for any e penses (ncudng traveng e penses) ncurred by hm n
connecton wth the performance of hs servces as an empoyee.
dvce s requested as to e penses whch are deductbe n deter-
mnng the ad|usted gross ncome, for edera ncome ta purposes,
of a saesman who s empoyed on a straght commsson bass, who
traves away from home, who pays fees to pubc stenographers,
saares to sampe carrers, and commssons to other saesmen, and
who ncurs entertanment e penses, e penses n attendng busness
conventons, and automobe e penses, ncudng deprecaton. The
ndvdua n queston s not rembursed by hs empoyer for any of
such e pendtures. Inqury s aso made whether the oss sustaned
upon the sae of an automobe used for busness purposes s deductbe
n determnng ad|usted gross ncome.
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79
29.22(n)-.
Secton 22(n) of the Interna Revenue Code, as added by secton
(a) of the Indvdua Income Ta ct of 1944, provdes n part as
foows:
(n) Defnton of d|usted Gross Income . s used In ths chapter the
(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
(2) penses of trave and odgng n connecton wth empoyment.
The deductons aowed by secton 23 whch consst of e penses of trave,
meas, and odgng whe away from home, pad or ncurred by the ta -
payer n connecton wth the performance by hm of servces as an empoye
(3) Rembursed e penses n connecton wth empoyment. The de-
ductons aowed by secton 23 (other than e penses of trave, meas, and
odgng whe away from home) whch consst of e penses pad or n-
curred by the ta payer, n connecton wth the performance by hm of
servces as an empoyee, under a rembursement or other e pense aowance
arrangement wth hs empoyer

(6) Losses from saes or e change of property. The deductons (other
than those provded n paragraph (1)) aowed by secton 23 as osses from
the sae or e change of property.
In order to be deductbe under secton 22(n)(2) of the Code,
supra, e penses pad or ncurred by the ta payer must be:
(1) for trave, meas, and odgng, and
(2) whe away from home, and
(3) n connecton wth the performance by hm of servces
as an empoyee.
The foowng types of e penses pad or ncurred by an empoyee
whe traveng away from home n connecton wth hs servces as
an empoyee w ordnary be deductbe under secton 22(n), supra,
n determnng hs ad|usted gross ncome: e penses for trave, meas,
and odgng e penses for transportaton of the empoyee, a reasonabe
amount of Daggage, and necessary sampes and dspay matera e -
penses for hote rooms, sampe rooms, teephone and teegraph
servces, and pubc stenographers and e penses (ncudng depre-
caton) of mantanng and operatng an automobe for busness
purposes. Such traveng e penses ncurred n attendng a busness
conventon are deductbe by an empoyee ony f he attends n con-
necton wth the performance by hm of servces as an empoyee.
penses for entertanment and commssons pad to other saesmen
are not deductbe from gross ncome n determnng the ad|usted
gross ncome of an empoyee who traves away from home and who
s not rembursed.
The e penses of operatng and mantanng an automobe used
for busness purposes are not deductbe n determnng ad|usted
gross ncome by an empoyee who s not rembursed and who does not
trave away from home. oss sustaned on the sae of an automobe
used for busness purposes s deductbe by an empoyee under sec-
ton 22(n) (C) of the Code, supra.
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5 , 9.22fn)-.
0
Secton 29.22 (n)-: d|usted gross ncome. 1945-9-12030
( so Secton 23 (c), Secton 29.23 (c)-.) I. T. 3731
INT RN L R NU COD .
The Indana gross ncome ta Imposed upon (he gross ncome of
a partnershp s not deductbe n computng ad|usted gross ncome
under secton 22(n) of the Interna Revenue Code, as added by
secton (a) of the Indvdua Income Ta ct of 11M4, whether such
ta s pad by the partnershp or, n ther aquot shares, by the part-
ners ndvduay. It s deductbe under secton 23(e) of the Code
by each partner on hs ndvdua ncome ta return.
dvce s requested whether the Indana gross ncome ta mposed
upon the gross ncome of a partnershp shoud be treated as a part-
nershp e pense, or whether such ta shoud be aocated to the nd-
vdua partners n a manner smar to the aocaton of partnershp
chartabe contrbutons, for the purpose of computng ad|usted gross
ncome under secton 22 (n) of the Interna Revenue Code, as added
by secton (a) of the Indvdua Income Ta ct.of 1944. The ques-
ton arses n connecton wth the effect such treatment of the ta
may have on the use of the optona standard deducton n the prepara-
ton of the partners ndvdua ncome ta returns.
Secton 64-2002, chapter 20, tte 04, of urns nnotated Indana
Statutes provdes n part as foows:
Levy of Ta . Date. There s hereby mposed a ta upon the recept of gross
ncome, measured by the amount or voume of gross ncome, and n the amount
to be determned by the appcaton of rates on such gross ncome as herenafter
provded. Such ta sha be eved upon the recept of the entre gross ncome
of a persons resdent and/or domced n the State of Indana, e cept as heren
otherwse provded and upon the recept of gross ncome derved from actvtes
or busnesses or any other source wthn the State of Indana, of a persons who
are not resdents of the State of Indana, and sha be n addton to a other
ta es now or hereafter mposed wth respect to partcuar prveges, occupatons,
and/or actvtes.
Secton 04-2007 of the same chapter and tte of urns nnotated
Indana Statutes provdes n part as foows:
Pabtnershps ont entures Poos Returns. (a) Partnershps, |ont
ventures and poos sha be sub|ect to the ta provded for n ths act, and sha
make quartery and annua returns to the department and pay the ta thereon,
as provded n secton 10 of ths act. Such returns sha show the
aquot share of each partner or partcpant n such tota gross ncome of the
partnershp, |ont venture or poo, after makng the deducton provded for n
secton 5. If the ta mposed hereunder upon the recept of gross ncome by the
partnershp, |ont venture or poo has been pad by such partnershp, |ont venture
or poo, as heren provded, the amounts receved by the partners or partcpants
as ther respectve dstrbutve shares of the ncome of such partnershp, |ont
venture or poo w be e empt from gross ncome ta when receved by them.
ach partner or partcpant sha be personay responsbe for fng the returns
heren provded for, and for the payment of the ta wth respect thereto
The Indana gross ncome ta aw mposes a ta on the prvege of
recevng ncome (Department of Treasury of Indana v. ackson, 110
pp., 30 37 N. . (2d), 31), and ts purpose s to reach the ncome of
a nhabtants of the State who come wthn ts purvew (Department
of Treasury of Indana v. Dctzcrts state, 215 Ind., 52 21 N. .
(2d), 137). though, under the Indana statutes n queston, a part-
nershp s a ta payng entty, the aw provdes for a persona a-
bty on each partner for the fng of the partnershp return and
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SI
29.22(n)-.
the payment of the ta . The aw further provdes that f the part-
nershp ta s pad by the partnershp as an entty, the aquot share
of each partner s ncome s dstrbutabe to hm free of ta abty,
and there may thus be, to the e tent of such partnershp ncome, a
substtuton of the ta payng entty. Such substtuton, however,
does not operate to destroy the utmate ndvdua abty for the
ta or the character of the ta as a State ncome ta .
It s hed that the Indana gross ncome ta mposed upon the gross
ncome of a partnershp s not deductbe n computng ad|usted gross
ncome under secton 22(n) of the Interna Revenue Code, as added
b| secton (a) of the Indvdua Income Ta ct of 1914, whether
such ta s pad by the partnershp or, n ther aquot shares, by the
partners ndvduay. The ta s deductbe under secton 23(c) of
the Code by each partner on hs ndvdua ncome ta return. In
ths respect, the treatment of the deducton s comparabe to that pro-
vded by secton 1 3(c) of the Code and secton 29.1 3-1(2) of Regua-
tons 111, reatng to the aocaton of chartabe contrbutons made
by a partnershp.
Secton 29.22(n)-: d|usted gross ncome. 1945-16-12106
I. T. 3752
INT RN L R NU COD .
n offcer of the Unted States rmy, whether commssoned or non-
commssoned, s an empoyee of the Unted States and as such s not
entted to any trade or busness deductons n computng ad|usted
gross ncome under secton 22(n) (1) of the Interna Revenue Code,
as added by secton (a) of the Indvdua Income Ta ct of 1944,
wth respect to hs saary receved from the Unted States.
dvce s requested whether an offcer of the Unted States rmy,
whether commssoned or noncommssoned, s an empoyee of the
Unted States and as such s entted to any trade or busness deductons
n computng ad|usted gross ncome under secton 22 (n) of the Interna
Revenue Code wth respect to hs saary receved from the Unted
States. The precse queston s whether such offcer s prohbted from
deductng the cost of nsgna and other equpment especay requred
by hs professon as trade or busness deductons n computng ad-
|usted gross ncome.
Secton 22(n)() of the Interna Revenue Code, as added by sec-
ton (a) of the Indvdua Income Ta ct of 1944, provdes as
foows:
(n) Defnton of d|usted Gboss Income . s used n ths chapter the
(1) Trade and busness deductons. The deductons aowed hy secton
Secton 1621 (c) of the Code provdes n part as foows:
(c) mpoyee. The term empoyee ncudes an offcer, empoyee, or eected
offca of the Unted States, a State, Terrtory, or any potca subdvson thereof,
or the Dstrct of Coumba, or any agency or nstrumentaty of any one or more
of the foregong.
The term empoyee as defned n secton 1621 (c) of the Code n-
cudes an offcer, empoyee, or eected offca of the Unted States, or
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29.22(n)-.
2
any agency or nstrumentaty thereof. The Unted States rmy s an
agency or nstrumentaty of the Unted States, and the performance
of servces n the rmy by an rmy offcer, whether commssoned or
noncommssoned, consttutes the performance of servces as an
empoyee.
It s hed that an offcer of the Unted States rmy, whether com-
mssoned or noncommssoned, s an empoyee of the Unted States
and as such s not entted to any trade or busness deductons n com-
putng ad|usted gross ncome under secton 22(n)() of the Code,
supra, wth respect to hs saary receved from the Unted States. c-
cordngy, any e pendtures made by an rmy offcer for the purchase
of nsgna and other equpment especay requred by hs professon
are not deductbe under secton 22(n)() of the Code n computng
ad|usted gross ncome.
( so Secton 23(c), Secton 29.23(c)-.) I. T. 3753
INT RN L R NU COD .
The New York State temporary emergency ta on. net ncomes
of unncorporated busnesses mposed by secton 3 3-a, artce 16- ,
chapter G2, of the New York ta aw s not deductbe n computng
ad|usted gross ncome under secton 22(n) of the Interna Revenue
Code, as added by secton (a) of the Indvdua Income Ta ct
of 19-14.
dvce s requested whether the New York State temporary emer-
gency ta on net ncomes of unncorporated busnesses mposed by
secton 3 6-a, artce 1G- , chapter G2, of the New York ta aw, s
deductbe n computng ad|usted gross ncome under secton 22(n)
of the Interna Revenue Code, as added by secton (a) of the Indvd-
ua Income Ta ct of 1944.
The above-cted secton of the New York aw provdes n part as
foows:
ta s hereby Imposed upon the entre net Income of any unncorporated
busness whoy or party carred on wthn ths State whch ta sha
be equa to 4 per centum of the entre net ncome wthn ths State of such
unncorporated busness and sha be payabe by the ta payer conductng the
same. The ta mposed by ths artce sha be n addton to any other ta es
mposed by ths chapter or any other aw.
Secton 22 (n) of the Interna Revenue Code, as added by secton
(a) of the Indvdua Income Ta ct of 1944, provdes n part us
foows:
(n) Defnton of d|usted Gross Income . s used n ths chapter the
term ad|usted gross Income means the gross ncome mnus
Secton 29.22 (n)- of Reguatons 111 provdes n part as foows:
or e ampe, ta es are deductbe n arrvng at ad|usted gross
Income ony f they consttute e pendtures drecty attrbutabe to the trade
or busness or to property from whch rents or royates are derved. Thus,
property ta es pad or Incurred on rea property used n the trade or busness
are deductbe but State ncome ta es are not deductbe even though the ta -
payer s ncome s derved from the conduct of a trade or busness.
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29.22(n)-.
The Income Ta ureau of the State of New York hed n 1935
that the temporary emergency ta on net ncomes of unncorporated
busnesses s an ncome ta . That rung was sustaned n 1040 by
Peope e re. roeck v. Graves (259 pp. Dv., 30,1 N. Y. S. (2d),
41 ).
In vew of the foregong, t s hed that the New York State tem-
porary emergency ta on net ncomes of unncorporated busnesses,
supra, s not deductbe n computng ad|usted gross ncome under
secton 22 (n) of the Code, as added by secton (a) of the Indvdua
Income Ta ct of 1944.
( so Secton 23(c), Secton 29.23(c)- Sec- I. T. 37GC
ton 1 3, Secton 29.1 3-1.)
INT RN L R NU COD .
In computng the net ncome of a partnershp and the dstrbutabe
shares of the partners, for edera ncome ta purposes, the In-
dana gross ncome ta pad by a partnershp on account of the
recept by t of gross ncome s deductbe from partnershp gross
ncome under secton 23(c) of the Interna Revenue Code. The
partnershp ta s not aowabe as a deducton to the partners,
but the deducton of the ta by the partnershp does not precude
the ndvdua partners from camng the optona standard deduc-
ton under secton 23(aa) of the Code. I. T. 3731 (page 0, ths
uetn) revoked.
Where the Indana gross ncome ta s pad by an ndvdua
ta payer on account of the recept by hm of gross ncome, t s
not deductbe from gross ncome n computng ad|usted gross
ncome under secton 22(n) of the Code.
econsderaton has been gven to the queston whether, for edera
ncome ta purposes, the Indana gross ncome ta pad by a partner-
shp on account of the recept of gross ncome s deductbe by the
partnershp, or whether, as hed n I. T. 3731 (page 0, ths uetn),
such ta s deductbe by the ndvdua partners under secton 23(c)
of the Interna Revenue Code n a manner smar to the aocaton
of partnershp chartabe contrbutons. The queston whether, n
the case of an ndvdua engaged n a trade or busness, the Indana
gross ncome ta s attrbutabe to a trade or busness carred on by
the ta payer wthn the meanng of secton 22(n)() of the Code
has aso been consdered.
Secton 64-2602 of urns nnotated Indana Statutes provdes
n part as foows:
Lett of ta Date. There s hereby Imposed a ta upon the recept of gross
ncome, measured by the amount or voume of gross ncome, and n the amount
to be determned by the appcaton of rates on such gross ncome as herenafter
provded. Such ta sha be eved upon the recept of the entre gross ncome
of a persons resdent and/or domced n the State of Indana, e cept as
heren otherwse provded and upon the recept of gross Income derved from
actvtes or busnesses or any other source wthn the State of Indana, of
a persons who are not resdents of the State of Indana, and sha be n add-
ton to a other ta es now or hereafter mposed wth respect to partcuar prv-
fegeg, occupatons, and/or actvtes. cts 11)33, ch. 50, secton 2,
page 3 1937, ch. 117, secton 2, page 604.3
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29.22( )- .
4
Secton 64-2607 of urns nnotated Indana Statutes provdes n
part as foows:
Partnershps ont entures Poos Returns. (a) Partnershps, ont
ventures and poos sha be sub|ect to the ta provded for In ths act, and sha
make quartery and annua returns to the department and pay the ta thereon,
as provded n secton ten secton 64-2010 of ths act. Such returns
sha show the aquot share of each partner or partcpant n such tota gross n-
come of the partnershp, |ont venture or poo, after makng the deducton pro-
vded for n secton fve secton 64-200. . If the ta mposed hereunder upon the
recept of gross ncome by the partnershp, |ont venture or poo has been pad by
such partnershp, |ont venture or poo, as heren provded, the amounts receved
by the partners or partcpants as ther respectve dstrbutve shares of the n-
come of such partnershp, |ont venture or poo w be e empt from gross n-
come ta when receved by them. ach partner or partcpant sha be personay
responsbe for fng the returns heren provded for, and for the payment of the
ta wth respect thereto cts 1933, ch. 50, secton 7, page 3 S 1937,
ch. 117, secton 7, page 604.
The act n queston s entted n act to provde for the rasng of
pubc revenue by mposng a ta upon the recept of gross ncome, to
provde for the ascertanment, assessment and coecton of sad ta ,
and to provde penates for the voaton of the terms of ths act, and
decarng an emergency. The short tte of the act s Gross Income
Ta ct of 1933. It w be noted, from the above-quoted provsons
of secton 64-2602 of the Indana statutes, that the ta s eved upon
the recept of gross ncome of a persons resdng and/or domced
n the State, upon the recept of gross ncome derved from actvtes
or busness or any other source wthn the State, and upon the recept
of gross ncome by a persons who are not resdents of the State who
derve ncome from sources theren.
Secton 64-2601 of urns nnotated Indana Statutes contans a
engthy defnton of gross ncome whch ncudes compensaton for
ersona servces, gross recepts from busness, amounts receved as
anages, amony, or |udgments, and amounts receved from nvest-
ments of capta. The term gross ncome does not ncude gross
recepts receved from sources outsde the State of Indana derved
from a trade or busness havng a stus outsde the State. Income ta
s requred to be wthhed at the source from f ed or determnabe
annua or perodca ncome such as wages, nterest, and dvdends
(secton 64-2617, urns nnotated Indana Statutes).
The Supreme Court of Indana, n Mes et a. v. Department of
Treasury et a. (209 Ind., 172,199 N. ., 372), referred to the Indana
ta as an e cse ta , statng as foows:
We concude that the ta n queston s an e cse, eved upon those domced
wthn the State or who derved ncome from sources wthn the State, upon the
bass of the prvege of domce or the prvege of transactng busness wthn
the State, and that the burden mny reasonaby be measured by the amount of
Income. The reasonng whch |ustfes a ta upon the bass of domce as ready
supports and |ustfes a ta upon the bass of the rght to receve ncome wthn,
or transact busness under the protecton of, the State. We fee that the weght
of reason and authorty sustans ths vew.
The consttutonaty of the Indana Gross Income Ta ct of 1933
was consdered by the Unted States Supreme Court n /. D. dams
Manufacturng Co. v. Storen et a. (304 U. S., 307). In ts opnon
(pages 310 and 311), the Court stated n part as foows:
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5
29.22(n)-.
The ta Is not an e cse for the prvege of domce aone, snce t s eved upon
the gross ncome of nonresdents from sources wthn the State. Nor s t for the
transacton of busness, snce n many nstances t hts the recept of ncome by
one who conducts no busness.
The reguatons ssued by the Department of the Treasury, pursuant to author-
ty granted by the ct, treat the e acton as a gross recepts ta and the ttorney
Genera says n hs bref that It s a prvege ta upon the recept of gross Income.
We thnk ths s a correct descrpton.
In Department of Treasury of Indana v. Detzen s state et a.
(215 Int., 52 21 N. . (2d), 137), t was stated that t was the
opnon of the court that the purpose of the Indana gross ncome
ta was to reach the ncome of a the nhabtants of the State and
that t, therefore, ncuded a fducary. owever, the statute tsef,
as we as the opnon rendered by the Unted States Supreme Court
n . D. dams Manufacturng Co. v. Storen et a., supra, ndcates
that ths ta s not restrcted to those who are domced n the
State, nor s t restrcted to persons engaged n busness n the State.
On the contrary, t s mposed upon a persons who derve ncome
from sources wthn Indana, whether or not domced n the State
and whether or not engaged n trade or busness wthn the State.
The statute does not mpose an occupatona ta but mposes a ta
on the prvege of recevng ncome (Department of Treasury of
Indana v. ackson et a., 110 pp., 36, 37 N. . (2d), 31).
Under the provsons of secton 64-2607 of urns nnotated
Indana Statutes, supra, partnershps, |ont ventures, and poos are
sub|ect to the Indana gross ncome ta . If the ta mposed upon
the recept of gross ncome by the partnershp has been pad by the
partnershp, such gross ncome s e empt from the ta when re-
ceved by the ndvdua members. or edera ncome ta pur-
poses, partnershps are not treated as ta abe enttes, but the mem-
bers thereof are abe for ta n ther ndvdua capacty. (See
secton 1 1 of the Interna Revenue Code.) The net ncome of a
partnershp s computed, for edera ncome ta purposes, n the
same manner and on the same bass as n the case of an ndvdua,
wth certan e ceptons not matera here. Inasmuch as ta es pad
to a State by an ndvdua, whether e cse or ncome ta es, are
deductbe under secton 23(c) of the Code n computng net n-
come, they are deductbe n computng the net ncome of a partner-
shp. Therefore, whether or not the Indana gross ncome ta s an
ncome ta or an e cse ta , t s deductbe by a partnershp.
ccordngy, t s hed that n computng the net ncome of a
partnershp and the dstrbutabe shares of the partners, for edera
ncome ta purposes, the Indana gross ncome ta pad by a partner-
shp on account of the recept by t of gross ncome s deductbe
from partnershp gross ncome under secton 23(c) of the Interna
Revenue Code. The partnershp ta s not aowabe as a deducton
to the partners, but they are not precuded from camng the optona
standard deducton under secton 23 (aa) of the Code.
In vew of the above, I. T. 3731, supra, whch s not n accord wth
the concuson heren reached, s revoked.
The addtona queston presented s whether, n the case of an
ndvdua engaged n a trade or busness, the Indana gross ncome
ta s a deducton attrbutabe to a trade or busness carred on by
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29.22(n)-.
SG
the ta payer wthn the contempaton of secton 22(n)() of the
Interna Revenue Code, whch reads as foows:
(n) Defnton of d|usted Gross Income . s used n ths chapter the
f such trade or busness does not consst of the performance of servces
by the ta payer as an empoyee Itacs supped.
In secton 29.22(n)- of Reguatons 111, t s stated n part as
foows:
or the purpose of the deductons specfed n secton 22(n) the performance
of persona servces as an empoyee does not consttute the carryng on of a
trade or busness. The practce of a professon, not as an empoyee, s con-
sdered the conduct of a trade or busness wthn the meanng of such secton.
To be deductbe for the purposes of determnng ad|usted gross ncome, e penses
must be those drecty, and not those merey remotey, connected wth the conduct
of the trade or busness. or e ampe, ta es are deductbe n arrvng at
ad|usted gross ncome ony f they consttute e pendtures drecty attrbutabe
to the trade or busness or to property from whch rents or royates are
derved. Thus, property ta es pad or ncurred on rea property used n the
trade or busness are deductbe but State ncome ta es are not deductbe even
though the ta payer s ncome s derved from the conduct of a trade or busness.
Itacs supped.
In other words, ta es on property used n the trade or busness are
consdered drecty attrbutabe to the trade or busness, but ta es
based on ncome derved from the trade or busness are not drecty
attrbutabe to such trade or busness. The fact that the reguatons
menton State ncome ta es as not beng deductbe n computng
ad|usted gross ncome under secton 22(n) of the Code does not
mean that such ta es represent the ony type of ta whch can not be
deducted. n e cse ta . such as the Indana gross ncome ta , whch
s mposed upon the recept of ncome, s not deductbe n computng
ad|usted gross ncome for the same reason that State ncome ta es
are not deductbe, . e., because such a ta s not a drect consequence
of, nor drecty attrbutabe to, dong busness, but s mposed upon
the recept of ncome whether or not derved from a trade or busness.
s ponted out by the Unted States Supreme Court n . D. dams
Manufacturng Co. v. Storen et a., supra, the Indana gross ncome
ta s not for the transacton of busness, snce n many nstances
t hts the recept of ncome by one who conducts no busness. The
Court then added that t agreed wth the vew of the attorney genera
of the State of Indana that t s a prvege ta upon the recept of
gross ncome. The fact that the gross ncome s derved from
the conduct of a trade or busness s merey ncdenta and does not
mean that the ta s mposed upon, or drecty attrbutabe to,
such trade or busness.
In vew of the foregong, t s hed that where the Indana gross
ncome ta s pad by an ndvdua ta payer on account of the recept
by hm of gross ncome, t s not deductbe from gross ncome n com-
putng ad|usted gross ncome under secton 22(n) of the Code.
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S7
29.23(a)- .
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
Secton 29.23 (a)-: usness e penses.
( so Secton 23 (o), Secton 29.23(o)-
Secton 23(q), Secton 29.23(q)-.)
1945-2-11933
I. T.3706
INT RN L, R NU COD .
Contrbutons made to the M County Deveopment und, a post-
war pannng and deveopment fund, by ta payers engaged n trade
or busness n the cty of R or the county of M are deductbe for
edera ncome ta purposes under secton 23(a)(1)( ) of the
Interna Revenue Code as busness e penses uness t appears that
the contrbutons are not made for the purpose, and wth a reason-
abe e pectaton, of dervng a busness beneft therefrom.
dvce s requested whether contrbutons made to the M County
Deveopment und are deductbe from gross ncome for edera
ncome ta purposes.
The M County Deveopment und, a post-war pannng and
deveopment func sponsored by the chamber of commerce of the cty
of R, s an organzaton the ob|ectves of whch are to promote the
economc, ndustra, and agrcutura wefare of M County so that
opportuntes for empoyment w be provded for the returnng
men and women of the armed servces and the newy acqured ctzens
of the county to cooperate wth the proper pubc offcas n the
deveopment of the busness of the port of R, and n the furtherance
of pans pertanng to the creaton, mantenance, and betterment of
pubc mprovements, ncudng nand waterways, arways, raways,
hghways, streets, and other transportaton factes, pubc parks,
paygrounds, and other recreatona factes. The organzaton s
deveopment program s mantaned wth funds consstng of appro-
pratons by the cty of R and the county of M and by vountary
contrbutons.
Secton 23(a)(1)( ) of the Interna Revenue Code provdes for
cecessary e penses pad or ncurred durng the ta abe year n carry-
ng on any trade or busness. Whether a contrbuton to such a fund
as the M County Deveopment und s deductbe as an ordnary
and necessary busness e pense under secton 23(a)(1)( ) of the
Code depends on whether the contrbuton s made for a bona fde
busness purpose and s reasonaby cacuated to further the busness
of the contrbutor.
It s the desre of the ureau that ts pocy wth respect to the
treatment of such contrbutons be as bera as possbe, consstent
wth the statute. ccordngy, t s hed that contrbutons made to
the M County Deveopment und by ta payers engaged n trade or
busness n the cty of R or the county of M are deductbe for
edera ncome ta purposes under secton 23(a) (1) ( ) of the Code
as busness e penses uness t appears that the contrbutons are not
made for the purpose, and wth a reasonabe e pectaton, of dervng
a busness beneft therefrom. (See I. T. 2G53, C. . I-2, 94 (1932).)
The M County Deveopment und s not organzed for any of the
purposes specfed n secton 23(o)(2) or secton 23(q)(2) of the
Interna Revenue Code, as amended, and, therefore, contrbutons
the deducton,
ordnary and
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29.23(a)-.)
made to the fund by ndvdua and corporate ta payers are not
deductbe from gross ncome under those sectons of the Code, as
amended.
Secton 20.23(a)-: usness e penses.
INT RN L R NU COD .
mounts pad n e cess of ceng prces estabshed by the Offce of
Prce dmnstraton. (See I. T. 3724, page 57.)
Secton 29.23(a)-: usness e penses. 1945-9-12031
( so Secton 24, Secton 29.24-2.) I. T. 3732
INT RN L R NU COD .
In the ease of a newspapar pubsher, the cost of mcrofmng
newspaper fes whch may reasonaby be consdered current records
and the cost of perodc mcrofmng of future edtons are deductbe
as ordnary and necessary busness e penses for the year In whch
such e pendtures are pad or ncurred, but the cost of mcrofmng
od newspaper fes whch are not cassfabe as current records
shoud be captazed and recovered through deprecaton aowances.
dvce s requested whether amounts pad or ncurred by newspaper
pubshers wth respect to the mcrofmng of newspaper fes and for
perodc mcrofmng to keep such fes current are deductbe as ord-
nary and necessary busness e penses for edera ncome ta purposes.
The od fes of newspapers mantaned by newspaper pubshers
represent brares whch are used by the |ournastc staffs of such
pubshers n preparng artces for pubcaton. In many nstances
the odest fes are deteroratng rapdy and storage space s pract-
cay e hausted. Inasmuch as newspaper fes are permanent records,
t s mportant that such fes be safeguarded as far as possbe aganst
deteroraton and the hazards of fre, Mood, etc. The substtuton of
mcrofm copes for the orgna records enabes newspaper pubshers
to conserve space and nsures the permanency of ther fes. ny e -
pendtures pad or ncurred for mcrofmng the fes woud of neces-
sty be e pendtures for the mprovement or betterment of an e stng
facty of the busness.
Secton 23(a) (1) ( ) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons:
( ) In Genera. the ordnary and necessary e penses pad or ncurred
durng the ta abe year n carryng on any trade or busness .
Secton 29.23(a)- of Reguatons 111 provdes that busness e penses
whch are deductbe from gross ncome ncude the ordnary and nec-
essary e pendtures drecty connected wth or pertanng to the ta -
payer s trade or busness, e cept the casses of tems whch are deduc-
tbe under secton 23(b) to secton 23 (z) of the Code and the
reguatons thereunder. The prncpe s we estabshed that e pen-
dtures, n order to be deductbe as busness e penses, must be both
ordnary and necessary n the ta payer s trade or busness durng the
ta abe year for whch the return s made. (See Wech v. everng,
290 U. S., I, Ct. D. 755, C. . II-2,112 (1933).) Secton 24(a) (2)
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29.23(a)- .
of the Code provdes n part that no deducton sha n any case be
aowed n respect of any amount pad out for permanent mprove-
ments or betterments made to ncrease the vaue of any property.
Secton 29.41-3 of Reguatons 111 provdes n part that e pendtures
made durng the ta abe year shoud be propery cassfed as between
capta and e pense, . e., e pendtures for tems of pant, equpment,
etc., whch have a usefu fe e tendng substantay beyond the year
shoud be charged to a capta account and not to an e pense account.
In vew of the foregong, t s hed that n the case of a newspaper
pubsher the cost of mcrofmng newspaper fes whch may reason-
aby be consdered current records and the cost of perodc mcrofm-
ng of future edtons are deductbe as ordnary and necessary bus-
ness e penses for the year n whch such e pendtures are pad or
ncurred, but the cost of mcrofmng od newspaper fes whch are
not cassfabe as current records shoud be captazed and recovered
through deprecaton aowances under secton 23(1) of the Interna
Revenue Code.
Secton 29.23(a)-: usness e penses. 1945-10-12044
I. T. 3735
INT RN L R NU COD ND R NU CT OP 1921.
Contrbutons or dues pad to the State of R Ta payers ssoca-
ton by ta payers engaged n a trade or busness are deductbe from
gross ncome for edera ncome ta purposes as an ordnary and
necessary busness e pense under secton 23(a)(1)( ) of the In-
terna Revenue Code, provded t can be shown that such payments
have resuted n a reducton of ta es n connecton wth the opera-
ton of the busness or that there s a reasonabe e pectaton that
the payments w resut n ta benefts to the busness commensucate
wth the amount of the payments.
I. T. 12 1 (C. . 1-1. 11 (1922)) modfed.
dvce s requested whether contrbutons or dues pad to the State
of R Ta payers ssocaton by ta payers engaged n a trade or bus-
ness are deductbe from gross ncome for edera ncome ta purposes
as an ordnary and necessary busness e pense under secton 23(a) (1)
( ) of the Interna Revenue Code.
The man ob|ect or purpose of the State of R Ta payers ssocaton
s to brng about, through nonpartsan means, the greatest possbe
economes consstent wth effcency n the coecton and e pendture
of pubc funds n the State of R. Ths s accompshed argey
through the dssemnaton of factua nformaton contaned n varous
statstca tabes and other pubcatons. One of the functons of the
assocaton s to coect and compe the oca budget estmates, to-
gether wth comparatve fgures for the prevous year. Statstca
tabes comped for one county recenty dscosed e cessve eves whch
the county board of supervsors was wthout authorty to make.
Through the evdence furnshed by the assocaton, ts members suc-
ceeded n havng the e cessve eves emnated from the county
budget. Ths tem aone resuted n a reducton of amost 200,000 n
county ta es for the year 1945 and represents a drect savng to the
assocaton s members n that partcuar county. The amount saved to
the members s severa tmes the amount of ther dues to the assoca-
ton. Smar resuts have been obtaned n many other nstances.
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29-23(a)-.
90
though the assocaton furnshes nformaton to members of the
State egsature, such nformaton s furnshed ony upon request.
The assocaton does not attempt to nfuence egsaton, and ts rep-
resentatves never appear before the egsature or any members
thereof n behaf of, or n opposton to, proposed or pendng egs-
aton.
It s hed that contrbutons or dues pad to the State of Ta payers
ssocaton by ta payers engaged n a trade or busness are deductbe
from gross ncome for edera ncome ta purposes as an ordnary and
necessary busness e pense under secton 23(a) (1) ( ) of the Interna
Revenue Code, provded t can be shown that such payments have re-
suted n a reducton of ta es n connecton wth the operaton of the
busness or that there s a reasonabe e pectaton that the payments
w resut n ta benefts to the busness commensurate wth the
amount of the payments.
I. T. 12 1 (C. . 1-1, 11 (1922)) s hereby modfed to the e tent
that t s nconsstent wth the concuson reached heren.
Secton 20.23(a)-1: usness e penses. 1945-10-12047
( so Secton 22(a), Secton 29.22(a)- Secton I. T.373
1021(a), Secton 405.101, Reguatons 116.)
INT RN L, R NU COD .
Contrbutons consstng of a percentage of the weeky pay ro
made by members of a manufacturers assocaton to the heath
nsurance fund of an empoyees unon pursuant to the terms of a
coectve barganng agreement consttute ordnary and necessary
busness e penses whch are deductbe under secton 23(a) of the
Interna Revenue Code. Such contrbutons do not consttute wages
for the purposes of sectons 1021(a) and 1022(a) of the Code and are
not sub|ect to wthhodng of ncome ta at the source. ny amount
actuay dstrbuted to the empoyees from the fund w, however,
consttute gross ncome to them for the year n whch dstrbuted.
dvce s requested whether contrbutons consstng of a percentage
of the weeky pay ro made by members of a manufacturers assoca-
ton to the heath nsurance fund of an empoyees unon are deductbe
for edera ncome ta purposes, and whether such contrbutons are
sub|ect to wthhodng of ncome ta at the source on wages. dvce s
aso requested as to the ta abty of amounts dstrbuted to empoyees
from the fund.
Pursuant to the coectve barganng agreement entered nto by the
manufacturers assocaton on behaf of ts members and the empoyees
unon, the empoyers are requred to pay, begnnng wth the frst pay-
ro week n anuary, 1944, a sum equa to a specfed percentage of
the gross weeky pay ro of a workers covered by the agreement.
The moneys are to be deposted n a heath nsurance fund bank account
and used ony for the beneft of the workers empoyed by tre
manufacturers.
The management and contro of the heath nsurance fund are vested
n a board ot trustees composed of an equa number of representatves
of the unon and of the empoyers, wth an mparta charman servng
as pubc representatve whenever a dsagreement occurs. The by-aws
governng the fund provde that the four man ob|ectves and purposes
of the fund sha be the estabshment of a sck beneft fund, the estab-
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91
29.23(a)- .
sunent of a pan to secure medca advce, the dstrbuton of funds
as a contrbuton toward vacaton benefts, and some pan of group
nsurance. The fund may aso receve and use for ts purposes and
ob|ectves contrbutons from any other source. No empoyer, by
vrtue of hs contrbuton, has any rght, tte, or nterest n the fund.
empoyee has any ndvdua rght, tte, nterest, or cam aganst
hs empoyer, hs empoyer s contrbuton, or the fund. The fund s
to be admnstered for the beneft of a members of the unon empoyed
by contrbutng empoyers n such manner as s determned by the
board of trustees.
It s hed that contrbutons consstng of a percentage of the weeky
pay ro made by members of a manufacturers assocaton to the heath
nsurance fund of an empoyees unon pursuant to the terms of a co-
ectve barganng agreement consttute ordnary and necessary bus-
ness e penses whch are deductbe under secton 23(a) of the Interna
Revenue Code. Such contrbutons do not consttute wages for the
purposes of sectons 1621(a) and 1622(a) of the Code and are not
sub|ect to wthhodng of ncome ta at the source. ny amount
actuay dstrbuted to the empoyees from the fund w, however,
consttute gross ncome to them for the year n whch dstrbuted.
Secton 29.23(a)-: usness e penses. 1945-12-120(50
( so Secton 29.23(a)-4 Secton 23(e), Secton Mm. 5 70
29.23(e)-3 Secton 24, Secton 29.24-2.)
Treatment of reconverson costs of war contractors.
Offce of Commssoner of Intena Revenue,
Washngton 5, D. C, une 1,1045.
Coectors of Interna Revenue, Interna Revenue gents n Charge,
eads of ed Dvsons of the Technca Staff, and Others Con-
cerned:
In a case of a war contractor who reconverts to peacetme produc-
ton and ncurs reconverson costs, such costs sha be treated for
edera ncome and e cess profts ta purposes n accordance wth
the foowng:
(a) Genera rues appcabe. (1) Secton 23(a)(1) of the In-
terna Revenue Code provdes that n computng net ncome there
sha be aowed as deductons a the ordnary and necessary e penses
pad or ncurred n carryng on a trade or busness, and secton
23(e)-3. Reguatons-111, contans provsons for deductng osses
where property s abandoned or dscarded. (2) Secton 24 of the
Code provdes that n computng net ncome no deducton sha n
any case be aowed n respect of any amount pad for new budngs
or for permanent mprovements or betterments made to ncrease the
vaue of any property, or n respect of any amount e pended to restore
property.
(S) Scope of deductbe reconverson costs. In genera, such costs
ncude the e pendtures necessary to restore the pant ayout to an
operatng condton substantay equvaent to that e stng when t
was converted to war producton. The term does not ncude costs
whch resut n enargement or substanta mprovement of the f ac-
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29.23(a)- .
92
tes over ther condton pror to converson to war purposes. Or-
dnary the fu cost of convertng newy acqured war factes sha
be captazed. or e ampe, n the case of factes whch were con-
structed or acqured for war producton purposes and are owned by
the Government, f a ta payer acqured any such factes wth a
vew to rehabtatng or remodeng them and makng them sutabe
for hs peacetme producton, no oss s deductbe by reason of any
demoton cost n remodeng the factes, and the cost of remode-
ng consttutes a capta e pendture. smar rue s appcabe
wth respect to factes the entre cost of whch s beng recovered
by the ta payer through amortzaton deductons under secton 124
of the Interna evenue Code.
(c) Costs not borne by ta payer. If a ta payer s defntey entted
to compensaton or rembursement for any tem of reconverson cost
ncurred, as, for e ampe, where there s specfc provson therefor n
an agreement, the amount of the tem, to the e tent deductbe, sha be
deducted n computng net ncome for the ta abe year for whch the
compensaton for such tem s ncudbe n gross ncome and f the
compensaton or rembursement s not ncudbe n ncome, the
amount of such tem, to the e tent that t does not e ceed the amount
of the compensaton or rembursement, sha not be deductbe for any
ta abe year.
(d) Remova of war factes and materas. Sub|ect to the e cep-
tons stated n ths paragraph and n the precedng paragraph, the
costs of removng war factes and materas from the contractor s
pant sha be deducted n computng net ncome for the ta abe year
n whch such costs are ncurred. In the case of fact s sub|ect to
deprecaton at rates based on cost ess net savage vaue (. e., gross
savage vaue ess cost of remova), the costs of remova of such fac-
tes sha be deductbe ony to the e tent that they e ceed the amount
deducted therefor n computng such net savage vaue. In the case
of a facty sub|ect to amortzaton deductons under secton 124 of
the Interna evenue Code, as amended, the cost of removng such
facty s deductbe ony to the e tent that t e ceeds the savage
vaue of the facty at the tme of remova.
(e) Loss of usefu vaue of factes. If upon termnaton of war
producton or upon reconverson to peacetme producton a facty s
abandoned or permanenty dscarded wthn the meanng of secton
20.23(e)-3 of Reguatons 111, a deducton for oss of usefu vaue s
aowabe for the ta abe year n whch the facty s so abandoned
or dscarded, regardess of whether the facty s an emergency facty
wthn the meanng of secton 124 of the Interna Revenue Code, as
amended (cf. I. T. 3052, C. . 1944, 11 ). See, however, the above
paragraph (c). The ad|usted bass of the facty for the purpose of
determnng the amount of such oss sha be the ad|usted bass at the
date the facty s abandoned or dscarded.
(/) Cost of movng machnery. s used n ths paragraph, the
cost of movng ncudes e penses ncdenta to rearrangng ma-
chnery for peacetme producton and does not ncude nstaaton or
renstaaton costs whch are dscussed n paragraph (g), beow.
Where machnery was removed from the pant n convertng to -war
producton, the cost of movng such machnery to the pant n recon-
vertng s deductbe n computng net ncome for the ta abe year n
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93
29.23(a)- .
whch the e pense s ncurred. smar deducton s aowed for the
cost of movng machnery from one ocaton to another wthn the
pant. so, where machnery nstaed by the contractor for war
producton purposes s to be used by the contractor n peacetme pro-
ducton, the cost of movng such machnery n rearrangng the pant
s deductbe. The rue stated n the precedng sentence s not app-
cabe n the case of Government-owned machnery whch s acqured
and moved by the ta payer, f the Government s obgated to remove
the machnery.
(a) Renstaaton of machnery. When machnery s purchased
and set up ready for use, ordnary the cost of such nstaaton s
part of the orgna cost of such machnery and consttutes a capta
e pendture, for the machnery s not ready for use unt nstaed
and the nstang of machnery consttutes an mprovement. Mac-
dam oster, Inc., . T. ., 907.) In some crcumstances, how-
ever, as n the case of heavy machnes, the cost of foundatons and the
nstaaton costs may be charged to separate accounts, rather than
to the cost of the machne. In such cases, the costs of the orgna
foundatons and orgna nstaatons, ess deprecaton accrued
thereon and ess the savage vaue thereof, consttute a deducton at
the tme they were removed to convert to war producton, provded
that such deducton was taken by the ta payer n fng hs return for
the year of remova. Upon reconvertng to peacetme producton, the
costs of new foundatons or nstaatons n such cases sha, to the
e tent of the ad|usted bass of the od foundatons at the tme of ther
remova, be treated as capta.e pendtures. If any such foundatons
were constructed for war producton purposes or any such nstaatons
were made for such purposes, and f n reconvertng to peacetme
producton such foundatons or nstaatons are removed, the costs
thereof, ess deprecaton or amortzaton to the date of the remova
and ess any savage vaue, consttute a deducton n computng net
ncome for the ta abe year of the remova. In the case of machnery
whch was nstaed for war producton purposes and s moved and
renstaed for peacetme producton, f the entre cost of nstaaton
s beng recovered through amortzaton under secton 124 of the
Code, as amended, the cost of renstaaton s not deductbe and sha
be captazed as part of the cost of the machnery. The nstaaton
cost wth respect to new machnery repacng od machnery whch was
abandoned upon converson to war producton or whch s unusabe
upon reconverson to peacetme producton, and the nstaaton cost
of any other addtona machnery, consttute capta e pendtures.
so, the costs of renstang Government-owned machnery, whch
s acqured and moved by the ta payer, consttute capta e pendtures.
Sub|ect to the foregong, f the orgna nstaaton cost was not
deducted for the ta abe year n whch the machnery was moved n
convertng to war producton, the cost of renstang such machnery
s deductbe n computng the ta abe ncome for the year n whch
such cost s ncurred. or the purpose of the foregong provsons
of ths paragraph, machnery ncudes machnes eectrca ap-
paratus such as generators, motors, etc. eectrca accessores ovens
and furnaces conveyor equpment, provded that they are movabe.
See, aso, the above paragraph (o).
( ) Cost of reconvertng budng. s used heren, the term
budng ncudes ppng, wrng, f tures, and other budng
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29.23(a)- .
94
equpment whch consttute an ntegra part of the budng and are
necessary for the genera purpose for whch the budng woud ord-
nary be used n peacetme producton. or e ampe, such equpment
may ncude pumbng and toet factes, water, sewer, and dran
ppe, sprnker and fre protecton systems, power wrng from connec-
tons wth man ne systems to wa outets, ghtng wrng, heatng
systems (ncudng boers, furnaces, and accessores) nstaed wthn
the budng, ventatng systems, eevators, fre escapes, and stee foor
pates whch serve as a part of the foor. or edera ncome and
e cess profts ta purposes, a budng, together wth a such equp-
ment, may be ncuded n one account wth a composte rate of de-
precaton, or the budng equpment may be set up n separate ac-
counts, n whch event separate rates of deprecaton may be appca-
be to the partcuar tems. If n convertng to war producton any
part of a budng was demoshed by a ta payer, ordnary such ta -
payer s entted, n computng net ncome for the ta abe year of
such demoton, to deduct the undeprecated cost of the part of the
budng demoshed. or e ampe, f n makng ateratons for the
purpose of convertng to war producton the ta payer tore out a wa,
dscarded foors, or changed the roof and ceng, the deprecated cost
of the porton of the budng so demoshed consttutes a proper
deducton n computng net ncome for the year n whch the demo-
ton occurred. In some cases, however, t w be very dffcut to estab-
sh the undeprecated cost of the porton of the budng removed or
demoshed. (Cf. Treat ardware Corporaton, 6 . T. ., 7G .) In
such cases, where the ta payer has not camed and s not aowed any
deducton of a oss for the ta abe year of the remova or demoton,
and t s not feasbe to determne the amount of such oss, f upon
reconvertng to peacetme producton the parts of the budng so
removed or demoshed are repaced to restore the budng to ts. org-
na condton, the ta payer may, n computng net ncome for the
ta abe year of the change, deduct the cost of makng the restoraton or
repacement. If, however, the part of the budng prevousy removed
or demoshed s, upon reconverson to peacetme producton, repaced
wth a new and mproved type of matera or devce, the amount
aowabe as a deducton n computng net ncome for the ta abe
year of the reconverson sha not e ceed a reasonabe estmate of
the amount necessary to restore such part of the budng to ts orgna
condton. The provsons of the precedng sentence are not appca-
be where, for e ampe, the ta payer nstas a new heatng, sprnker,
or ventatng system, for n such case the amount of oss deductbe
for the ta abe year n whch the od system was dscarded s reason-
aby ascertanabe. owever, the ta payer s entted to deduct as
ordnary and necessary busness e penses (1) the cost of removng
and reocatng any budng equpment whch was moved and reo-
cated for war producton purposes and whch, upon converson to
peacetme producton, must agan be moved and reocated, and (2)
the costs of renstang any budng equpment whch was removed
and stored durng the perod of war producton. The provsons of
the precedng sentence arc appcabe, for e ampe, n a case of ppe,
wrng, and budng f tures. See, however, the above paragraph
(c). The foregong provsons of ths paragraph are appcabe n
the case of a essee of a budng wth respect to whch changes were
made to adapt t to war producton purposes. urthermore, f the
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95
29-23(a)-.
essee s under an obgaton to restore any part of the premses to
substantay ts former condton, the entre cost of makng such
restoraton s deductbe n computng net ncome for the ta abe
year n whch such cost s ncurred.
( ) Repars. The cost of ncdenta repars made n connecton
wth reconverson to peacetme producton s deductbe n computng
net ncome for the ta abe year n whch the repars are made. Such
repars are mted to those whch do not materay add to the vaue
of the property or apprecaby proong ts fe. (See secton
29| 3(a)-4, eguatons 111. mong the tems ncuded n ths
category are, for e ampe, the cost of pantng repacng broken,
damaged, or short-ved parts of machnery repacng defectve parts
of a wrng system and repacng broken or worn-out ras n a
transportaton system. See, however, the above paragraph (c).
Correspondence n regard to ths mmeograph shoud refer to ts
number and to the symbos IT: NDC.
oseph D. Nt|nan, r.,
Commssoner.
Secton 29.23 (a) -1: usness e penses. 1945-21-12154
L T.3762
INT RN L R NU COD .
Payments by an empoyer of (1) qudated damages and (2) rea-
sonabe attorneys fees aowed by the courts, pursuant to secton
16(b) of the ar Labor Standards ct of 103 (52 Stat., 10(50,
1069), are deductbe as ordnary and necessary busness e penses
for edera ncome ta purposes.
dvce s requested whether payments by an empoyer of (1) qu-
dated damages and (2) reasonabe attorneys fees aowed by the courts,
pursuant to secton 16(b) of the ar Labor Standards ct of 193 (52
Stat., 1060, 1069), are deductbe as ordnary and necessary busness
e penses for edera ncome ta purposes.
Secton 16(a) of the ar Labor Standards ct of 193 provdes for
penates consstng of fnes and mprsonment for wfu voatons of
the ct. Secton 16 (b) of the same ct provdes as foows:
ny empoyer who voates the provsons of secton 6 secton 6 reates to mn-
mum wages or secton 7 secton 7 reates to ma mum hours of ths ct sha
be abe to the empoyee or empoyees affected n the amount of ther unpad
mnmum wages, or ther unpad overtme compensaton, as the cnse may be,
and n an addtona equa amount as qudated damages. cton to recover
such abty may be mantaned n any court of competent |ursdcton by any
one or more empoyees for and n behaf of hmsef or themseves and other
empoyees smary stuated, or such empoyee or empoyees may desgnate an
agent or representatve to mantan such acton for and n behaf of a empoyees
smary stuated. The court In such acton sha, n addton to any |udgment
awarded to the pantff or pantffs, aow a reasonabe attorney s fee to be pad
by the defendant, and costs of the acton.
The provsons of secton 16(b) of the ar Labor Standards ct of
193 . supra, are not pena n nature. The qudated damages pro-
vded for theren consttute compensaton for deay n the payment of
sums due under the ct. (See Overnght Motor Transportaton Co.,
Inc.. v. Msse, 316 U. S., 572, and rookyn Savngs ank v. O Ne,
decded pr 9,1945,65 S. Ct., 95.)
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19.23(a)-2.
96
It s hed that payments by an empoyer of (1) qudated damages
and (2) reasonabe attorneys fees aowed by the courts, pursuant to
secton 10(b) of the ar Labor Standards ct of 193 , supra, are
deductbe as ordnary and necessary busness e penses for edera
ncome ta purposes.
Secton 29.23 (a)-1: usness e penses.
INT RN L R NU COD .
Contrbuton requred to be pad by empoyers under artce 374 of
cuadoran Decree No. 210, dated ugust 5, 193 . (See I. T. 376 ,
page 204.)
Secton 19.23(a)-2: Traveng e penses. 1945-19-1213
( so Secton 24, Secton 19.24-1.) Ct. D. 1646
INCOM T INT RN L R NU COD D CISION O COURT.
Gross Income Deductons Ordnary and Necessary penses
Traveng penses Constructon of Statute ome
Pace of usness.
To pettoners, |ustces of the Supreme Court of North Carona,
are not entted, under secton 23(a) (1) ( ) of the Interna Revenue
Code, to deductons for traveng e penses, ncudng e penses for
meas and odgng, whe away from ther homes n attendance upon
the busness of the court at the State capta n Uaegh. In the
case of one of the pettoners, hs ony pace of busness and hs
actua resdence durng the greater part of the ta years has been
at Raegh, whe hs home n the ordnary sense has been at Rocky
Mount, about 00 mes dstant. In aowng deductons for traveng
e penses to one who s away from home on busness, the statute
mpes that the home and the pace of busness must be n the
same genera ocaty. The statute must be gven ths constructon,
whch may be done wthout arbtrary construng the word
home as synonymous wth the term pace of busness.
Unted States Crcut Court of ppeas for the ourth Crcut.
Maurce ctor arnh, pettoner, v. Commssoner of Interna Revenue,
respondent.
Maurce ctor arnh and Danne C.- arnht, pettoners, v. Commssoner
of Interna Revenue, respondent.
ohn Waace Wnborne, pettoner, v. Commssoner of Interna Revenue,
respondent.
14 ed. (2d), 913.
On pettons to revew the decsons of The Ta Court of the Unted States.
efore Parker, Soper, and Dobe, Crcut udges.
pr 9, 1945.
OPINION.
Soper, Crcut udge: These cases rase the queston whether certan |ustces
of the Supreme Court of North Carona, n computng ther net ncomes under
the edera ncome ta aw, shoud be aowed deductons for traveng e -
penses, ncudng e penses for meas and odgng whe away from ther homes
n attendance upon the busness of the court at the State capta n Raegh.
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19.23(a)-2.
Maurce ctor arnh Is the ta payer In cases No. 5332 and 5333, whch
reate to the years 1939 and 1940 respectvey. Separate cases were made be-
cause he fed a |ont return wth hs wfe n 1940. e was a |udge of the
Superor Court of North Carona pror to 1937, and mantaned a home n ooky
Mount, whch s 60 mes dstant from the capta. In that year he was ap-
ponted an assocate |ustce of the supreme court of the State and n 193S was
eected to that offce for a term of eght years begnnng anuary 1, 1930. Two
terms of the court are hed each year, one begnnng on the frst Monday n
ebruary and one on the frst Monday n September. Under the statutes of the
State a the sessons of the court are hed at the capta. The presence of the
|ustces at the capta s requred durng the terms but not otherwse, e cept
for an occasona vst two or three tmes a month.
The ta payer contnued to mantan and keep open hs home n Rocky Mount
after he became a member of the supreme court and t was contnuousy occu-
ped durng the ta years by some member of the famy. There s nn unwrtten
aw n North Carona that there sha be a geographca dstrbuton of the
|ustces of the supreme court throughout the State, and each ustce has aways
mantaned a ega resdence n the secton of the State n whch he resded at
the tme of hs eevaton to the court. The ta payer contnued to vote n Rocky
Mount and mantaned hs church and cub affatons and sted hs tangbe
and ntangbe persona property for ta aton and pad hs po ta at that pace.
Durng each of the two years the ta payer, as a |ustce of the supreme court,
receved a saary of 7,500 and an addtona aowance of 1,550 under the State
statutes n eu of and n commutaton for e penses ncdent to attendance
upon the court Whe n Raegh he stayed at a hote n a room whch he
engaged by the year at the rate of 65 per month snce he found ths arrange-
ment to be the most economca. e kept no account of the cost of hs meas
n Raegh snce durng 1939 and 1940 nether the saary nor the e pense aow-
ance was deemed to be ta abe. ut he estmated hs e penses for meas at
2.50 per day and camed a deducton therefor of 557.50 n 1939 and 510 n
1940. ndcatng that he spent 223 days n 1939 and 206 days n 1940 at the State
capta. In addton the ta payer camed a deducton for traveng e penses
by automobe at the rate of 5 cents per me, amountng to 276 n 1939 and
1264 n 1940. When the court was n sesson, the ta payer woud go from hs
home n Rocky Mount to Raegh and return once a week, and when the court
was not n sesson, the ta payer made the round trp two or three tmes a
month. e made 46 round trps n 1939 and 44 round trps n 1940.
Durng the ta years the ta payer owned three farms and a house n addton
to hs resdence. Two of the farms and the house were et for a cash rent.
The other farm ocated near Rocky Mount was rented on shares and he at-
tempted to gve t frequent persona attenton. s net ncome from hs ren
estate was 405 n 1939 and 544.77 n 1940. e aso derved dvdends from the
stock of a rea estate and nsurance company n Rocky Mount of whch he was
a drector, amountng to 214.40 n 1939 and 2 3 n 1940.
Upon ths evdence The Ta Court found that the ta payer s soe busnesu
n the ta years was that of assocate |ustce of the Supreme Court of North
Carona and that hs pace of busness was at Raegh, the State capta. The
actvtes of the ta payer as one of the drectors wthout pay and a stockhoder
of the rea estate and Insurance corporaton, and as the owner of the farms and
the dweng house, were not overooked but the concuson was reached that
the ta payer was not engaged n the busness of farmng or of nvestment and
that hs actvtes n these respects were merey those of an nvestor or owner
of property. It s obvous that there was ampe evdence to support these
fndngs and concusons.
The controversy turns upon the ega concuson of The Ta Court that the
ta payer was not entted to the deductons camed for vng e penses at
Raegh and traveng e penses between Raegh and Rocky Mount. Ths
hodng was based upon the vew that the statute, reatng to deductons for
trave and vng e penses of a ta payer whe away from home on busness,
contempates that the ta payer s home sha be ocated n the same neghbor-
hood as hs pace of busness, and f he chooses to ve esewhere, he must bear
the added e penses nvoved wthout the prvege of deductng them n com-
putng hs net ta abe ncome.
The reevant provsons of the statute and Treasury reguatons are as
foows:
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19.23(a)-2.
9
INT RN L R NU COD .
S C. 23 (as amended bv secton 121 of the Revenue ct of 1942, ch. 619, 56
Stat. 70 ). D DUCTIONS ROM GROSS INCOM .
In computng net Income there sha be aowed as deductons:
(a) penses.
(1) Tbade or busness e penses.
( ) In Genera. the ordnary and necessary e penses pad or
Incurred durng the ta abe year n carryng on any trade or busness,
ncudng a reasonabe aowance for saares or other compensaton for
persona servces actuay rendered traveng e penses (ncudng the
entre amount e pended for meas and odgng) whe away from home
n the pursut of a trade or busness and rentas or other payments
requred to be made as a condton to the contnued use or possesson,
for purposes of the trade or busness, of property to whch the ta payer
has not taken or s not takng tte or n whch he has no equty.

(20 U. S. C 1940 ed., secton 23.)
S C. 24. IT MS NOT D DUCTI L ,
(a) Genera Rue. In computng net ncome no deducton sha n any case
be aowed n respect of
(1) Persona, vng, or famy e penses

(26 U. S. C, 1940 ed., secton 24.)
TR SURY R GUL TIONS 103, PROMULG T D UND R T INT RN L R NU COD .
Sec. 19.23(a)- . usness penses. usness e penses deductbe from
gross ncome ncude the ordnary and necessary e pendtures drecty connected
wth or pertanng to the ta payer s trade or busness, mong the
tems ncuded n busness e penses arc management e penses, commssons,
abor, suppes, ncdenta repars, operatng e penses of automobes used n
the trade or busness, traveng e penses whe away from home soey n the
pursut of a trade or busness (see secton 19.23(n)-2), advertsng and other
seng e penses, together wth nsurance premums aganst fre, storm, theft,
accdent, or other smar osses n the case of a busness, and renta for the
use of busness property.
Sec. 19.23(a)-2. Traveng penses.

(6) If an ndvdua receves a saary and s aso repad hs actua traveng
e penses, he sha ncude n gross ncome the amount so repad and may de-
duct such e penses.
(c) Ony such e penses as are reasonabe and necessary In the
conduct of the busness and drecty attrbutabe to t may be deducted.
Commuters fares are not consdered as busness e penses and are not
deductbe.
It s noteworthy that the aowabe deductons enumerated n the statute are
ordnary and necessary e penses ncurred n carryng on the busness, traveng
and vng e penses whe away from home n the pursut of busness, and rentas
for occupaton of property In the pursut of busness and that persona vng
and famy e pense are e pressy dsaowed. The reguatons whch nterpret
the statute emphasze the pont that the deductbe busness e penses must be
ordnary and necessary, and that ony such traveng e penses as are reason-
abe and necessary n the conduct of the busness may be deducted. urther-
more, commuters fares, that s, the e penses of those whose homes are near
enough to ther paces of busness to enabe them to trave back and forth
day are not deductbe.
The decsons of The Ta Court have been Infuenced by ths nterpretaton,
and for a ong perod of tme deductons for trave and vng e penses at the
pace of busness have been dened to a ta payer who has chosen to estabsh
hs home esewhere. or e ampe, ths rung has been apped to a manager
of pubc fars who mantaned a ho m dstant from hs pace of busness to
a traveng saesman who was unabe to show that he had estabshed a home
n any ocaton to a woman whose home was n New York State but whose
busness nterests were stuated n Chcago to a Congressman whose bus-
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19.23(a)-2.
ness was of necessty performed at the sent of government, whe hs home
was n a dstant State and to an actor who mantaned a homo for hs famy
n New York whe he was contnuousy engaged n hs professon durng the
ta year at oywood, Caf. (See cr v. Commssoner, 5 . T. ., 11 1
(1927) Duncan v. Commssoner, 17 . T. ., 10 (1929) Peters v. Comms-
soner, 19 . T. ., 901 (1930) Lndsay v. Commssoner, 34 . T. ., 40 (1936)
Tracy v. Commssoner, 39 . T. ., 57 (1939).)
On the other hand, traveng and vng e penses hnve been aowed to one
who had hs prncpa pace of busness and home n the same cty but was
obged to ve n another cty for consderabe perods of tme n the pursut of
hs prncpa occupaton or of some other mnor busness actvty. Such was
the hodng n respect to the representatve of a New York house who, durng
the emergency of the rst Word War was obged to resde for two years n
Pars to a awyer whose reguar pace of busness was n Toedo but who spent
two weeks of each month durng the ta year n Washngton as charman of
a Congressona commttee, whose other members were a Congressmen and to
a busness man who mantaned hs home and prncpa pace of busness n
oston but earned a substanta saary for servces performed whe resdng
from tme to tme n the cty of New York. (See Oresemcr v. Commssoner,
10 . T. ., 3S6 (192 ) rown v. Commssoner, 13 . T. ., 32 (192 ) Pocr
v. Commssoner, 34 . T. ., 655 (1936) ustffson v. Commssoner, 3 T. C,
99 (1944).)
In the decson n the nstant case and n other decsons, The Ta Court
has sad that for the purposes of the statute, a ta payer s home means hs
pace of busness. Ths statement has been crtczed or repudated by the
courts n some cases on the ground that the word home has a we recog-
nzed meanng and that to gve t the sgnfcance of pace of busness amounts
to a dstorton of the anguage of the statute and an nvason of the doman
of Congress. (See Coburn v. Commssoner, 2 Cr., 13 ed. (2d), 763 Waace
v. Commssoner, 9 Cr., 144 ed. (2d), 407.) In both of these cases an actor
was aowed deductons for vng e penses at oywood because the court found
from the evdence that the empoyment and resdence at that pace were tem-
porary whe the estabshed home of the ta payer was ocated esewhere. If
ths vew of the evdence n these cases s taken, the actua decson was not
Inconsstent wth the rungs whch The Ta Court has made n the cases
heretofore cted and the resut coud have been reached, as ndeed t was n the
Coburn case, upon the assumpton that The Ta Court s nterpretaton of the
statute s correct. In . M. owers v. Commssoner (5 Cr., ed. (2d),
(decded March 23, 1945)), however, the court took a poston faty at varance
wth that of The Ta Court by hodng that an attorney who mantans a home
n ackson, Mss., and devotes hmsef e cusvey to the aw busness of a
raroad company at Mobe, a., has the rght under the statute to deduct hs
vng e penses at Mobe and hs traveng e penses between the two ponts In
computng hs ta abe Income.
The ssue must aso be squarey met n the pendng case for the ta payer s
ony pace of busness and hs actua resdence durng the greater part of the
ta years has been at Raegh, whe hs home n the ordnary sense has been
at Rocky Mount and the decson of The Ta Court can not be affrmed wth-
out hodng that In aowng deductons for traveng e penses to one who s
away from home on busness, the statute mpes that the home and the pace
of busness must be n the same genera ocaty. We thnk that the statute
must be gven ths constructon and that t may be done wthout arbtrary
construng the word home as synonymous wth the term pace of busness.
It s cear n the frst pace that Congress, n prescrbng the rues for the
computaton of net Income, ntended to confne the deductons for busness e -
penses to those whch are ordnary and necessary, and to prohbt the deduc-
ton of persona vng or famy e penses. It was recognzed that the ta payer
must mantan a home for hs famy at hs own e pense even when he s absent
on busness, and that hs persona e penses durng hs absence on busness may
fary be regarded as e penses of the busness. ut t s not reasonabe to
suppose that Congress ntended to aow as a busness e pense those outays
whch are not caused by the e gences of the busness but by the acton of
the ta payer n havng hs home, for hs own convenence, at a dstance from
hs busness. Such e pendtures are not essenta to the prosecuton of the
busness and were not wthn the contempaton of Congress whch proceeded
on the assumpton that a busness man woud ve wthn reasonabe pro mty
to hs busness. Ths Is not the same as sayng that the word home means
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29.23(a)-4.
100
pace of busness athough In most cases where deductons for traveng
e penses are camed, the resut w be the same.
Doubtess these consderatons gve rse to the reguatons set out above
whch confne the deductons for traveng e penses to those whch are reason-
abe and necessary and e pressy forbd the deducton of commuters fares.
Ths prohbton Indeed woud be unauthorzed f the word home were gven
ts ordnary meanng, for there can be no doubt that In a tera sense one who
ves n the suburbs and does busness n the cty must pay trave e penses
whe absent from hs home n the pursut of busness. It s sgnfcant that
these provsons of the reguatons have been mantaned and enforced through-
out successve reenactments of the statute and that they have been foowed
not ony n the decsons of The Ta Court but n the setted admnstratve
practce. (See O. D. 905, C. . 4, 212 (1921) O. D. 1021, C. . 5, 174 (1921)
I. T. 1264, C. . 1-1, 122 (1922) I. T. 1355, C. . 1-1, 194 (1922) I. T. 13 0,
C. . 1-2, S (1922) I. T. 3314, C. . 1939-2, 152 G. C. M. 23672, C. . 1 43,
66.) Under these crcumstances, the reguatons and the admnstratve nter-
pretaton must be deemed to have receved mped egsatve approva. ( e-
verng v. Wnm, 305 U. S., 79, 3 Ct. D. 13G5, C. . 193 -2, 212 .) Moreover,
the decsons of The Ta Court are entted to great weght. (Dobson v. Com-
mssoner, 320 U. S., 4 9, 501-502 Ct. D. 1597, C. . 1944, 56 .)
We do not thnk that a dfferent concuson must be reached n the pendng
case because the pace of resdence of each |ustce of the Supreme Court of
North Carona s taken nto consderaton at the tme of hs seecton so that
the |ustces may be fary dstrbuted throughout the State, or because they
mantan ther ega resdence n the sectons of the State where they ved at
the tme of ther eevaton and are gven an aowance by the State n com-
mutaton of the e penses ncdent to attendance upon the court. It s of course
recognzed that the bona fdes of the contenton advanced by the appeant
North Carona |udges s competey estabshed. Not ony have they man-
taned ther homes at the od ocatons but they have ncurred addtona vng
e penses at the State capta whch the State authortes have fonnd to be a
proper charge upon the State treasury. It s therefore approprate that they
shoud seek the approva of the edera ta ng authortes for the deductons
they cam. ut we must bear In mnd that the system of edera ta aton s
estabshed by cts of Congress and Is not affected by State aw or custom
uness t s made appcabe by the edera enactment. (See Unted States v.
Pczcr, 312 U. S., 399, 402 Ct. D. 1495, O. . 1941-1, 441 .) 1 We must appy the
underyng prncpes of edera ta aton to State and edera offcas ake,
and we can see no dstncton between the cases of the appeants heren and
of the Members of Congress, who, for ta purposes, are deemed to resde n
the Natona Capta athough they mantan ther homes n the Congressona
dstrcts whch they represent.
The decsons of The Ta Court n cases Nos. 5332 and 5333 are therefore
affrmed. The decson of The Ta Court n case No. 5334, whch Invoves the
ta abty of ohn Waace Wnborne, another assocate |ustce of the Supreme
Court of North Carona, for the same ta years and rases no queston not
consdered In the other cases, s aso affrmed.
ffrmed.
Secton 29.23(a)-4: Repars.
INT RN L R NU COD
Cost of ncdenta repars made by war contractors n connecton
wth reconverson to peacetme producton. (See Mm. 5 70, page 91).
1 . R. 1027, now pendng In Congress, provdes that for the purpose of secton 23 of
the Interna Revenue Code, the home of a Member of Congress sha be consdered to be
hs pace of resdence n the State from whch he s a Member.
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101
29.23(a)-(.
Secton 29.23(a)-6: Compensaton for persona 1945-22-12166
servces. I. T. 3767
INT RN L R NU COD .
Reasonabe wages pad by a father to hs unenancpated mnor
chd for persona servces actuay rendered as a bona fe empoyee
n the conduct of a trade or busness, or n the producton of ncome,
are deductbe as ordnary and necessary e penses, for edera
ncome ta purposes, for ta abe years begnnng after December
31. 1943.
dvce s requested whether wages pad by a father to hs un-
emancpated mnor chd are deductbe as ordnary and necessary
e penses for edera ncome ta purposes.
Secton 23(a)(1)( ) of the Interna Revenue Code provdes n
part that n computng net ncome there sha be aowed as deduc-
tons a the ordnary and necessary e penses pad or ncurred durng
the ta abe year n carryng on any trade or busness ncudng a rea-
sonabe aowance for saares or other compensaton for persona
servces actuay rendered. Secton 23(a)(2) of the.Code provdes
that n computng net ncome n the case of an ndvdua, there sha
be aowed as deductons 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.
Under secton 22(m)() of the Code, as added by secton 7 of the
Indvdua Income Ta ct of 1944, appcabe to ta abe years be-
gnnng after December 31, 1943 amounts receved n respect of the
servces of a chd are ncudbe n the gross ncome of the chd and
not n the gross ncome of the parent, whereas, under pror revenue
aws, such amounts, where the father was entted to the servces of
the mnor chd, were requred to be ncuded n the gross ncome of
the parent. It shoud be noted that secton 22(m)(3) of the Code
provdes that for the purposes of secton 22(m), the term parent
ncudes an ndvdua who s entted to the servces of a chd by
reason of havng parenta rghts and dutes n respect or the chd.
It s hed that reasonabe wages pad by a father to hs unenanc-
pated mnor chd for persona servces actuay rendered as a bona
fde empoyee n the conduct of a trade or busness, or n the produc-
ton of ncome, are deductbe as ordnary and necessary e penses, for
edera ncome ta purposes, for ta abe years begnnng after De-
cember 31, 1943.
In reachng ths concuson, consderaton was gven to secton
29.24-1 of Reguatons 111, whch provdes that f a father s entted
to the servces of hs mnor chdren, aowances whch he gves
them, whether sad to be n consderaton of servces or otherwse,
are not aowabe deductons. That provson of the reguatons, pro-
mugated pror to the enactment of the Indvdua Income Ta ct
of 1944, s not beeved to be controng here. Consderaton was aso
gven to Nes Schudtz v. Commssoner (44 . T. ., 14C), reatng
to smar deductons under the Revenue cts of 1934 and 1936.
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I 29.23(a)-15.
102
Secton 29.23 (a)-15: Nontrade or nonbusness
e penses.
INT RN L R NU COD .
1945-10-12045
I.T. 3736
n e ecutor s or admnstrator s commssons whch under New
York aw are aocabe to Income requred to be ncuded In the gross
ncome of the estate for edera ncome ta purposes consttute an
aowabe deducton under secton 23(a) (2) of the Interna Revenue
Code. Such commssons are deductbe for the year n whch pad
or accrued, dependng npon the bass of accountng of the estate, and
may not be prorated over the perod durng whch the servces of the
e ecutor or admnstrator are rendered.
dvce s requested whether an e ecutor s or admnstrator s com-
mssons whch under New York aw are aocabe to ncome requred
to be ncuded n the gross ncome of the estate for edera ncome ta
purposes consttute an aowabe deducton under secton 23(a)(2)
of the Interna Revenue Code and, f so, whether the deducton may be
prorated over the perod durng whch the servces of the e ecutor or
admnstrator are rendered.
Secton 23(a)(2) of the Interna Revenue Code provdes that n
computng net ncome there sha be aowed as deductons, n the case
of an ndvdua, a the ordnary and necessary e penses pad or n-
curred durng the ta abe year for the producton or coecton of
ncome, or for the management, conservaton, or mantenance of prop-
erty hed for the producton of ncome. Secton 162 of the Code pro-
vdes that the net ncome of an estate or trust sha be computed n the
same manner and on the same bass as n the case of an ndvdua,
wth certan e ceptons not here matera.
In Carence t. Lews et a. v. owers (19 ed. Supp., 745), whch
hed that commssons pad to a New York e ecutor for recevng and
payng out ncome of the property durng admnstraton were not
deductbe from the gross estate n the estate ta return, the court
sad (page 747):
What has been sad has no bearng on the commssons taken for recevng and
payng out ncome on the property durng admnstraton. y New York aw
commssons on ncome are cacuated separatey and are not part of the admn-
straton e penses chargeabe on the corpus of the estate. They are chargeabe
ony aganst ncome. Such commssons are a proper deducton from gross ncome
receved by the e ecutors n payng the ncome ta , but they have no pace as a
deducton for purposes of the estate ta .
In vew of the foregong, t s hed that an e ecutor s or admns-
trator s commssons whch under New York aw are aocabe to n-
come requred to be ncuded n the gross ncome of the estate for
edera ncome ta purposes consttute an aowabe deducton under
secton 23(a)(2) of the Interna Revenue Code. Such commssons
are deductbe for the year n whch pad or accrued, dependng upon
the bass of accountng of the estate, and may not be prorated over the
perod durng whch the servces of the e ecutor or admnstrator are
rendered. (See secton 29.23 (a)-15( ) of Reguatons 111.)
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103
19.23(a) 15.
Secton 19.23(a)-15: Nontrade or nonbusness 1945-13-12071
e penses. Ct. D. 1643
( so Secton 162, Secton 19.162-1.)
INCOM T INT RN L R NU COD R NU CT O 1942 D CISION
of supreme court.
1. Trust state Gross Income Deductons Non-Trade or
Non- usness penses.
Counse fees and e penses pad n 1940 by trustees of a testamen-
tary trust n unsuccessfuy contestng the assessment of a defcency
n ncome ta upon the apprecaton n vaue of securtes whe In
ther bands, and amounts pad by them n that year for ega advce
In connecton wth the payment of one of the cash egaces, and n
connecton wth ta and other probems arsng upon the e praton
of the trust and reatng to the fna dstrbuton of the trust fund
among the resduary egatees, are deductbe from gross ncome of
the trust as non-trade or non-busness e penses wthn the
meanng of secton 23(a)(2), Interna Revenue Code, as added by
secton 121 of the Revenue ct of 1942 and made appcabe to ta
years begnnng after December 31, 193 .
2. naty of Ta Court Decson.
The questons whether, on the facts found by The Ta Court, the
e penses n queston are nondeductbe ether because they were not
to produce ncome or because they were reated to the management
of property whch was not hed for the producton of ncome, turn
on the meanng of the words property hed for the producton of
ncome and are therefore cear-cut questons of aw, decson of
whch by The Ta Court does not forecose ther decson by appeate
courts, athough ther decson by The Ta Court s entted to great
weght.
3. adty of Reguaton.
So far as secton 19.23(a)-15 of Reguatons 103 purports to deny
deducton of tgaton e pense uness It s to produce Income, It s
not In conformty wth the statute, and s nvad.
4. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Second
Crcut (145 ed. (2d), 56 ), reversng decson of The Ta Court
(2 T. C, 53), reversed.
Supreme Court of the Unted States.
Trust u/tc of Mary Ly ager) ngham, Messrs. Wam R. enan, r., and
Lawrence O. anes, Trustees, pettoners, v. Commssoner of Interna Rev-
enue.
325 U. S., 365.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut
une 4, 1945.
OPINION.
Mr. Chef ustce Stone devered the opnon of the Court
Pettoners are the trustees of a testamentary trust created for a term of 21
years under the w of Mary Ly ( ager) ngham. The testatr bequeathed
to the trustees the resdue of her estate, ncudng a arge number of securtes.
The trustees were empowered n ther dscreton to se any of the property
hed In trust (e cept certan securtes of two companes desgnated as the prn-
cpa propertes ), to n est and renvest the proceeds and the ncome from the
trust fund, and to use the proceeds and the ncome for the beneft of the prncpa
propertes and for the mantenance, admnstraton or deveopment of the sad
prncpa or subsdary propertes. The trustees were to pay specfed amounts
annuay to certan egatees. When the nece of the testatr reached a certan
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19.23(a)-15.
104
age, she was to receve from the trust a specfed amount n cash or securtes.
t the end of 21 years, the trustees were drected to pay other egaces, and to
dstrbute the remander of the fund n equa parts to a brother and two ssters
of the testatr .
In 1035 pettoners pad the bequest to the nece party n securtes. The Com-
mssoner assessed a defcency of over 365,000 for Income ta upon the appre-
caton n vaue of the securtes whe they were n pettoners hands. In contest-
ng unsuccessfuy ths defcency, pettoners pad out n the year 1940 appro -
matey 10,000 n counse fees and e penses. In that year, aso, pettoners pad
out nbout 0,000 for ega advce In connecton wth the payment of one of the cash
egaces, and n connecton wth ta and other probems arsng upon the e pra-
ton of the trust and reatng to the fna dstrbuton of the trust fund among the
three resduary egatees.
The queston s whether these ega e penses, pad n 1940, are deductbe from
gross ncome n the computaton of the trust s ncome ta , as non-trade or
non-busness e penses wthn the meanng of secton 23(a) (2) of the Interna
Revenue Code. That secton, added by secton 121 of the Revenue ct of 1942,
and made appcabe to ta years begnnng after Decemer 31,103 , authorzes
the deducton of 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 manage-
ment, conservaton, or mantenance of property hed for the producton of n-
come. Secton 102 of the Code, so far as now reevant, makes secton 23(a) (2)
appcabe to the ncome ta aton of trusts.
Pettoners, n ther ncome ta return for 1040, took deductons for the ega
e penses. The Commssoner dsaowed the deductons and assessed a ta de-
fcency, and pettoners fed the present sut n The Ta Court to set asde the
assessment. That court, after fndng the facts as we have stated them, found
that the trust property was hed for the producton of ncome that a the tems
n queston were ordnary and necessary e penses of the management of the
trust property and that the fees and e penses for contestng the Income ta
defcency assessment were aso for the conservaton of the trust property. It
therefore concuded that a were rghty deducted n cacuatng the ta abe
net ncome of the trust. (2 T. C, 53.)
On the Government s petton for revew, the Court of ppeas for the Second
Crcut reversed. (145 ed. (2d), 50 .) We granted certorar ( U. S., ),
on a petton whch asserted as grounds for the wrt that the decson of the
court of appeas departed from the prncpes ad down n Doson v. Comms-
soner (320 D. S., 4 0 Ct. D. 1507, C. . 1044, 56 ), governng revew of
decsons of The Ta Court, and that the decson confcted n prncpe wth
Commssoner v. ennger (320 U. S., 467 Ct. D. 1590, C. . 1044, 4 4 )
and ornhauser v. Unted States (270 . 145 T. D. 4222, C. . II-2, 267
(102S) ).
The court of appeas eft undsturbed The Ta Court s fndngs that the ques-
toned tems were ordnary and necessary e penses for the management or con-
servaton of the trust property, but t hed that the fees for contestng the ta
defcency were nevertheess not deductbe under secton 23(a) (2). It thought
that the e penses of contestng the ncome ta had nothng to do wth the pro-
ducton of ncome and hence were not deductbe as e penses for the producton
of ncome wthn the meanng of the statute. The court aso thought that
these e penses were not deductbe, because they were pad n connecton wth
property hed by the trustees ready for dstrbuton, and hence not for the
producton of ncome. Smary t hed that the fees for professona servces
rendered n connecton wth the payment of egaces and the dstrbuton of the
trust fund, were not e penses reatng to the management of property hed for
the producton of ncome, snce they were rendered after the trust term had
e pred and when the property was ready for dstrbuton.
The Government makes ke arguments here. In addton t urges that the
e penses n connecton wth the dstrbuton of the trust fund were not e penses
of management of the trust property hed for the producton of ncome but ony
e penses reatng to ts devouton and that the e penses are not deductbe
under secton 23(a)(2) because there was no pro mate reatonshp between
the e penses when pad and the property then hed n trust.
We thnk that these ob|ectons to the deductons fa to take proper account
of the pan anguage of secton 23(a)(2), and the purpose of the secton as
dscosed by ts statutory settng and egsatve hstory and that notwth-
standng the weght of The Ta Court s decson aganst them, they rase ques-
tons of aw revewabe by the Crcut Court of ppeas and by ths Court.
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105
19.23(a)-15.
The requrement of secton 23(a)(2) that deductbe e penses be ordnary
and necessary mpes that they must be reasonabe n amount and must bear
a reasonabe and pro mate reaton to the management of pro| erty hed for the
producton of ncome. (See . ept. No. 2333, Seventy-seventh Congress, second
sesson, page 75 C. . 1942-2, 372 S. Rept. No. 1631, Seventy-seventh Con-
gress, second sesson, page C. . 1942-2, 504 .) Ordnary questons of
reasonabeness and pro mty are for the trer of fact, here The Ta Court.
Commssoner v. ennger, supra, 475 McDonad v. CommU oner, 323 U. S.,
07, 64-65 Ct. D. 1617, C. . 1944, 94 see Commssoner v. Scottsh mercan
m. Co.. 323 U. S., 119 Ct. D. 1619, C. . 1944, 340 .) nd even when
they are hybrd questons of m ed aw and fact, ther resouton, because
of the fact eement nvoved, w usuay afford tte concrete gudance
for future cases, and revewng courts w set asde the decsons of The
Ta Court ony when they announce a rue of genera appcabty, that the
facts found fa short of meetng statutory requrements. Dob on v. Comm -
toner, supra, 502 Commssoner v. state of edford, No. 710, decded May 21,
1 5 Ct. D. 1641, page 357, ths uetn cf. Pau, Dobson v. Commssoner, 57
arv. Law Rev., 753, at 2 - 32, 36- 37.) ut whether the appcabe statutes
and reguatons are such as to precude the decson whch The Ta Court has
rendered, Is, as was recognzed n Dobson v. Commssoner, supra, 492-493, a
queston of aw revewabe on appea. (See aso Commssoner v. ennger,
Rrpra, 475.)
ere the decson of the court of appeas was that the e penses were not
deductbe because they were not for the purpose of producng ncome or capta
gan, and because the trust property, beng ready for dstrbuton, was no onger
hed for the producton of ncome. The terms of the trust, the nature of the
property, and the dutes of the trustees wth respect to t, were a found by
The Ta Court and are not chaenged. The questons whether, on the facts found,
the e penses n queston are nondeductbe, ether because they were not to pro-
duce ncome or because they were reated to the management of property whch
was not hed for the producton of ncome, turn u ths case on the meanng of
the words of secton 23(a)(2), property hed for the producton of ncome.
They are therefore questons of Inw, decson of whch Is unembarrassed by any
dsputed queston of fact or any necessty to draw an nference of fact from
the basc fndngs. (See Commssoner v. Scottsh mercan Inv. Co., supra.)
They are cear cut questons of aw, decson of whch by The Ta Court does
not forecose ther decson by appeate courts, as n other cases Dobson v.
Commssoner, supra, 492-493), athough ther decson by The Ta Court s en-
tted to great weght. (Do6 o v. Commssoner, supra, 501-502, and cases
cted cf. edo Photo Suppy Corporaton v. Labor oard, 321 U. S., 67 , 6 1-6 2,
n. 1, and cases cted.)
Snce our decson n the Dobson case we have frequenty re-e amned, as
matters of aw, determnatons by The Ta Court of the meanng of the words
of a statute as apped to facts found by that court.1 queston of aw s not any
the ess such because The Ta Court s decson of t s rght rather than wrong.
Whether or not ts decson s n accordance wth aw s a queston whch the
statute (Interna Revenue Code, secton 1141(c)(1)) e pressy makes sub|ect
to appeate revew. Congress, when It thus authorzed revew of questons of
aw ony, was not unaware of the dffcutes of such a revew of the decsons of
a trbuna, whch decdes questons both of aw and of fact. ut Congress dd
not dspense wth such revew.
See. e. g.. Securty Ms Co. v. Commssoner (321 U. S., 2 1, 2 6 Ct. D. 1603, C. .
1944, 52 T Dougas v. Commssoner (322 U. S., 275 Ct. D. 100 , C. . 1944. 512 )
Commssoner v. armon (323 U. S.. 44 Ct. D. 161C. C. . 1944, 100 ): McDonad v.
Commssoner (323 U. ., 57) Cardge partments Co. . Commssoner (323 U. S.. 141,
145 Ct. D. 1620, C. . 1944, 490 ) ondrcn v. Commssoner (No. , decded anuary
29, 1 45 Ct. D. 1627, pnge 421, ths uetn)) Choate v. Commssoner (No. 93. decded
asurr 29. 1945 Ct. D. 1020, page 343. ths uetn ) : Commssoner v. ed (No. 57 ,
decded ebruary 5, 1945 Ct. D. 1631, pnge 40 , ths uetn ) : Wrbrc Steb Co. v. Com-
wner (No. 14 , decded ebruarv 12. 1945 Ct. I). 1032. page 400. ths uetn ) : Com-
ntoner v. Smth (No. 371. decded ebruary 26, 1945 Ct. n. 1033, pnge 49, ths ue-
tn ) Commssoner v. fcmyss (No. 029, decded March 5. 1945 Ct. I). 1034, page 410,
ths uetn ) : Commssoner v. Wheeer (No. 354, decded March 20, 1945 Ct. D. 1037,
pace 349. ths uetn ) : state of Putnam . Commssoner (No. 534, decded March 20,
11 3 Ct. D. 163 , page 345, ths uetn ) ngeas Mng Co. v. Commssoner (No. 610,
. dw May 21, 1045 Ct. D. 1040, page 403, ths uetn ) : Commssoner v. edford
N o. 710, decded Mav 21, 1945 Ct. D. 1041, pnge 357, ths uetn ) Commssoner v.
W (on (No. 5 9, decded ths day Ct. D. 1042, page 426, ths uetn)).
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19.23(a)-15.
106
ence the statute does not eave The Ta Court as the fna arbter of the
ssue whether ts own decsons of questons of aw are rght or wrong. That
can ony be ascertaned upon resort to the prescrbed appeate process by a
consderaton of the merts of the pont of aw nvoved, and by ts decson at
the concuson of the process, not before t begns. The fact that the court of
appeas beow, whe acceptng The Ta Court s fndngs of fact, has nevertheess
reversed ts decson, woud seem not to eave the queston of aw decded so
free from doubt that the mandate of the statute coud rghty be dsregarded
on any theory. If revew were to be dened n ths case, t woud be dffcut
to say that any constructon of a ta ng statute by The Ta Court woud be sub-
|ect to appeate revew.
We turn to the frst ground for reversa reed on by the court of appeas,
that the property was hed for dstrbuton, and no onger for the producton
of ncome. The fact that the trustees, n the admnstraton of the trust, were
requred to nvest ts corpus for the producton of ncome and to devote the
ncome to the purposes of the trust, estabshes, as The Ta Court hed, that
the trust property was hed for the producton of ncome durng the stated term
of the trust. The decsve queston s whether the property ceased to be hed
for the producton of ncome because, as the trust term reached ts e pry date,
the trustees were under a duty to dstrbute the property among the
remandermen.
It s true that e praton of the trust operated to change the benefcares en-
tted to receve the ncome of the trust property, from those entted to the
ncome durng the term of the trust to the remandermen. ut the duty of the
trustees to hod and conserve the trust property, and unt dstrbuton, to receve
ncome from t, contnued. The property dd not cease to be hed for the pro-
ducton of ncome because, upon the e praton of the trust and unt dstrbuton,
the trustees were under an addtona duty to dstrbute the trust fund, or because
the trustees, upon dstrbuton, were then accountabe to new and dfferent bene-
fcares, the resduary egatees, both for the prncpa of the fund and any ncome
accumuatng after the e pry date. To e cude from the deducton prvege,
e penses whch The Ta Court has hed to be e penses of management of the
trust, on the ground that the trust fund, upon the e praton of the trust, ceased
to be hed for the producton of the ncome woud be to dsregard The Ta
Court s fndngs of fact and the words of the statute, and woud defeat ts obvous
purpose.
Nor s there mert n the court s concuson that the e penses were not deductbe
because they were not for the producton of ncome. Secton 23(a) (2) provdes
for two casses of deductons, e penses for the producton of ncome
and e penses of management, conservaton, or mantenance of property hed for
the producton of ncome. To read ths secton as requrng that e penses be
pad for the producton of ncome n order to be deductbe, s to make unnecessary
and to read out of the secton the provson for the deducton of e penses of
management of property hed for the producton of ncome.
There s no warrant for such a constructon. Secton 23(a) (2) s comparabe
and n par matera wth secton 23(a) (1), authorzng the deducton of busness
or trade e penses. Such e penses need not reate drecty to the producton of
ncome for the busness. It s enough that the e pense, f ordnary and neces-
sary, s drecty connected wth or pro matey resuts from the conduct of the
busness. ( ornhauscr v. Unted States, supra, 152-153 Commssoner v. en-
nger, supra, 470-471.) The effect of secton 23(a)(2) was to provde for a
cass of nonbusness deductons coe tensve wth the busness deductons aowed
by secton 23(a)(1), e cept for the fact that, snce they were not ncurred n
connecton wth a busness, the secton made t necessary that they be ncurred
for the producton of ncome or n the management or conservaton of property
hed for the producton of ncome. (McDonad v. Commssoner, supra, C1-C2,
6(5 and see . Rept. No. 2333, Seventy-seventh Congress, second sesson, pages
46, 74-76 S. Rept. No. 1631, Seventy-seventh Congress, second sesson, pages
7- .)
Snce there s no requrement that busness e penses be for the producton of
Income, there s no reason for that requrement n the case of ke e penses of
managng a trust, so ong as they are n connecton wth the management of
property whch Is hed for the producton of ncome. Secton 23(a)(2) thus
treats the trust as an entty for producng ncome comparabe to a busness
enterprse, and ke secton 23(a) (1) permts deductons of management e penses
of the trust, even though the partcuar e pense wns not an e pense drecty pro-
ducng ncome. It foows that a of the tems of e pense here n. queston are
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107
19.23(a)-15,
deductbe If, as The Ta Court has hed, they are e penses of management or
conservaton of the trust fund, whether ther e pendture dd or dd not resut
n the producton of ncome.
The Government contends that the e penses Incurred In connecton wth the
dstrbuton of the corpus of the trust to egatees, nre not deductbe, because
they are not e pc-nses of managng ncome producng property, but e penses n
connecton wth the devouton of the property. If the suggeston Is correct, t
woud foow that e penses ncurred n dstrbutng the ncome of the trust to
te ncome benefcares are kewse not deductbe, snce the dstrbuton of
ncome s aso a devouton of trust property. ut the dutes of the trustees were
not ony to hod the property for the producton of ncome and to coect the
ncome, but aso, n admnsterng the trust, to dstrbute the ncome and the
prncpa so hed from tme to tme, and the remander of the prncpa at the
e praton of the trnst. Performance of each of these dutes s an ntegra part
of carryng out the trust enterprse. ccordngy, as The Ta Court hed, the
costs of dstrbuton here were qute as much e penses of a functon of manage-
ment of the trust property as were e penses ncurred In producng the trust
ncome and f ordnary and necessary, they were deductbe.
In support of Its contenton, the Government rees upon a part of the ouse
commttee report, accompanyng the b whch became the Revenue ct of 1042
see . RepC No. 2333, Seventy-seventh Congress, second sesson, page 75), and
spon Treasury Reguatons 103, secton 19.23(a)-15, nether of whch was men-
toned by the court of appeas. They state that an admnstrator or e ecutor may
cot deduct e penses ncurred n the admnstraton of the estato of a decedent, n-
cudng those of dstrbutng assets to the benefcares. It s argued that by
anaogy ke e penses of trustees shoud not be deductbe. ut t s to be noted
that there s no such statement In the report or reguatons as to the dstrbuton
e penses of trustees. On the contrary, the reguatons, secton 19.23(a)-15, In
deang specfcay wth e penses of trustees, provdes ony that ther e penses
of management and conservaton of the trust property hed for the producton of
ncome are deductbe. nd the references n the report to the nondeducthty
of e penses of admnstrators and e ecutors were n e panaton of the Congres-
sona purpose to prevent the specfed admnstraton e penses from beng de-
ductbe both for Income and estate ta aton. To accompsh that purpose the
report recommended an amendment, whch became secton 101(a) of the Revenue
ct of 1942, addng secton 102(e) to the Interna Revenue Code. Secton 162(e)
provdes, wth an mmatera e cepton, that amounts aowabe under secton
S12(b) as a deducton n computng the net estate of a decedent sha not be
aowed as a deducton under secton 23. ere, as The Ta Court found, there
s no possbty of such a doube deducton, snce the e penses were not deductbe
tender the decedent s estate ta return.
What we have sad appes wth equa force to the e penses of contestng the
ta defcency. Secton 23(a)(2) does not restrct deductons to those tgaton
e penses whch aone produce ncome. On the contrary, by ts terms and n
anaogy wth the rue under secton 23(a)(1), the busness e pense secton, the
trust, a ta abe entty ke a busness, may deduct tgaton e pense s when they
are drecty connected wth or pro matey resut from the enterprse the man-
agement of property hed for producton of ncome. ornhauscr v. Unted States,
Mpra, 152-153 Commssoner v. ennger, supra, 470-471.) The Ta Court
coud fnd as a matter of fact, as t dd, that the e penses of contestng the ncome
taes were a pro mate resut of the hodng of the property for ncome. nd
we can not say, as a matter of aw, that such e penses are any ess deductbe
than e penses of suts to recover ncome. (Cf. Commssoner v. ennger, supra.)
The Government rees on Treasury Reguatons , secton ).23(a)-15, whch
provde that e pendtures Incurred for the purpose of recoverng
ta es (other than recoveres requred to be ncuded n ncome), or for the pur-
pose of resstng a proposed addtona assessment of ta es (other than ta es on
property hed for the producton of ncome) are not deductbe e penses tnder
ths secton secton 23(a) (2) of the Code , e cept that part thereof whch the
ta payer ceary shows to be propery aocabe to the recovery of nterest requred
t be ncuded n ncome. So far as ths reguaton purports to deny deducton of
tgaton e pense uness t s to produce ncome, t s not n conformty to the
statute, for the reasons aready stated, or wth the reguaton aready mentoned,
whch provdes that n addton to e penses for the producton or coecton of
trust ncome, e penses of management or conservaton of trust property hed
for the producton of Income are aso deductbe. To that e tent and to the e tent
that t departs from the rue of ornhauser v. Unted States, supra, t confcts
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29.23(a)-16.
10
wth the meanng and purpose of secton 23(a)(2), and so Is unauthorzed.
( everng v. Reynods Tobacco Co., 306 U. S., 110 Ct. D. 13 3, C. . 1939-1 (Part
1), 225 .)
We fnd no error of aw In the |udgment of The Ta Court. Its udgment w
be affrmed and that of the Court of ppeas reversed.
Reversed.
Concurrng opnon by Mr. ustce rankfurter n whch Mr. ustce Roberts
and Mr. ustce ackson |on.
Secton 29.23(a)-16: Wage and saary payments 1945-7-12004
n contraventon of wage and saary mta- T. D. 5446
tons not deductbe.
INCOM T T L Y RS GINNING T R D C M R 31, 1CU.
mendng secton 29.23(a)-16 of Reguatons 111, reatng to wage
and saary payments n contraventon of the wage and saary
mtatons.
Washngton, D. C.
Secton 29.23(a)-16 of Reguatons 111 Part 29, Tte 26, Code of
edera Reguatons, Cum. Sup. s amended to read as foows:
Sec. 29.23(a)-10. Wage and Saary Payments n Contraventon of Wage
and Saary Lmtatons Not Deductbe. In any case n whch t s certfed
to the Commssoner, by an admnsterng agency authorzed to act n accord-
ance wth secton 4001.15 of the reguatons of the conomc Stabzaton
Drector (Tte 32, Chapter III, Subchapter , Part 4001, of the Code of
edera Reguatons) as amended, that a wage or saary payment for whch
a deducton woud otherwse be aowabe has been made n contraventon of
the ct of October 2, 1942, entted n ct to amend the mergency Prce
Contro ct of 1942, to ad n preventng nfaton, and for other purposes (56
Stat., 705-76 50 U. S. C, pp., Sup., sees. 901-971), as amended, or of the
reguatons, orders or rungs promugated thereunder, the entre amount of
such payment sha be dsaowed as a deducton and not merey an amount
representng the ncrease or decrease made n such wage or saary In contra-
venton of such ct or reguatons, orders, or rungs promugated thereunder,
e cept that f the admnsterng agency n the ght of e tenuatng crcumstances
determnes and certfes to the Commssoner that a esser amount of such pay-
ment be dsaowed as a deducton, then ony such esser amount sha be dsa-
owed as a deducton. Such a payment w not be aowed for ths purpose
notwthstandng that the same payment s aso dsaowed (1) for the purpose
of determnng costs or e penses of an empoyer for the purpose of some other
aw or reguaton, ether heretofore or hereafter promugated, ncudng the
mergency Prce Contro ct of 1942, or any ma mum prce reguaton thereof
or (2) for the purpose of determnng costs or e penses under any contract
made by or on behaf of the Unted States.
secton 3791(a) of the Interna Revenue Code secton 2, 56 Stat., 765
26 U. S. C., 1940 ed., 3791(a) 50 U. S. C, pp. Sup., 962 and h
secton 4001.5 of the amended reguatons reatng to wages and saares
prescrbed by the conomc Stabzaton Drector ( .R. 11960).)
oseph D. Nunan. r..
pproved March 17,1945.
oskp . O Co nk. r.,
( ed wth the Dvson of the edera Regster March 19, 1945, 3.51 p. m.)
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109
29.23(b)- .
S CTION 23(aa). D DUCTIONS ROM GROSS INCOM :
OPTION L ST ND RD D DUCTION
OR INDI IDU LS.
Secton 29.23(aa)-: Standard deducton.
INT RN L R NU COD .
S CTION 23(b). D DUCTIONS ROM GROSS
INCOM : INT R ST.
Secton 29.23(b)-: Interest. 1945-11-12050
( so Secton 43, Secton 29.43-2.) L T. 3740
INT RN L revenue code.
Where a ta payer keeps books of account and fes edera n-
come ta returns on the cash recepts and dsbursements bass,
nterest pad n advance for a perod of fve years consttutes an
aowabe deducton for edera ncome ta purposes for the year
n whch pad, but where the accrua bass of accountng s used n
reportng ncome, Interest s dednctbe for the year n whch the
abty to pay accrues regardess of when payment s actuay
made.
dvce s requested whether nterest pad n advance for a perod
of fve years s deductbe for edera ncome ta purposes for the
year n whch pad or whether such nterest must be prorated and de-
ducted over the 5-year perod.
Secton 23(b) of the Interna Revenue Code provdes that n com-
putng net ncome there sha be aowed as a deducton:
(b) Interest. nterest pad or accrued wthn the ta abe year on n-
debtedness
Secton 43 of the Code provdes n part as foows:
S C. 43. P RIOD OR W IC D DUCTIONS ND CR DITS T N.
The deductons provded for n ths chapter sha be taken for the
ta abe year n whch pad or accrued or pad or ncurred , dependent upon
the method of accountng upon the bass of whch the net Income s computed,
uness n order to ceary refect the ncome the deductons shoud
be taken as of -. dfferent perod.
Secton 29.43-2 of Reguatons 111 provdes n part as foows:
Src. 20.43-2. When Cahoks Deductbk. ach year s return, so far as prac-
tcabe, both as to gross ncome and deductons therefrom, shoud be compete In
tsef, and ta payers are e pected to make every reasonabe effort to ascertan
the facts necessary to make a correct return. The e penses, abtes, or defct
of one year can not be used to reduce the ncome of a subsequent year. ta -
payer has the rght to deduct a authorsed aowances, and t foows that f he
does not wthn any year deduct certan of hs e penses, osses, nterest, ta es, or
other charges, he can not deduct them from the ncome of the ne t or any suc-
ceedng year.
It s hed that where a ta payer keeps books of account and fes
edera ncome ta returns on the cash recepts and dsbursements
bass, nterest pad n advance for a perod of ve years consttutes an
aowabe deducton for edera ncome ta purposes for the year n
whch pad, but where the accrua bass of accountng s used n report-
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29.23(c)- .
110
ng ncome, nterest s deductbe for the year n whch the abty to
pay accrues regardess of when payment s actuay made. (See ohn
D. acker v. Commssoner, 39 . T. ., 395, acquescence, C. .
1939-1 (Part 1), 11, and Court Iodng Co. v. Commssoner, 2 T. C,
531, acquescence, C. . 1943, 5 cf. G. C. M. 235 7, C. 1943,213.)
S CTION 23(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
Secton 29.23 (c) -1: Ta es. 1945-9-12032
G. C. M. 24599
INT RN L R ND COD .
s a resut of the amendment of secton 70.01 of the Wsconsn
statutes by chapter 277, Laws of Wsconsn, 1943, effectve anuary 1,
1944, the controng date for accrua, for edera ncome ta pur-
poses, of rea property ta es Imposed by the State of Wsconsn s the
date on whch the ta ro s devered to the oca treasurer wth ha
warrant for coecton.
G. C. M. 21373 (C. . 1939-2, 2) modfed.
n opnon s requested whether the amendment of secton 70.01 of
the Wsconsn statutes by chapter 277, Laws of Wsconsn, 1943, effec-
tve anuary 1,1944, makes any change n the accrua date, for edera
ncome ta purposes, of Wsconsn rea property ta es, and whether t
affects G. C. M. 21373 (C. . 1939-2, 2) wheren t was hed, nter aa,
that the ureau woud foow the decson n Commssoner v. Pat-
rck Cudahy amy Co. (102 ed. (2d), 930, Ct. D. 1411, C. . 1939-2,
202) n cases nvovng the accrua date of rea and persona property
ta es n the State of Wsconsn.
Pror to ts amendment, secton 70.01 of the Wsconsn statutes pro-
vded as foows:
Sec. 70.01. Genera property ta es upon chom eved. Ta es sha be eved,
under the provsons of ths chapter, upon a genera property n ths State
e cept such as s e empted therefrom.
Secton 70.01, as amended by chapter 277, Laws of Wsconsn, 1943,
effectve anuary 1,1944, reads n part as foows:
Sec. 70.01. Genera property ta es upon whom eved. Ta es sha be eved,
under the provsons of ths chapter, upon a genera property n ths State e cept
such as s e empted therefrom. Rea estate ta es sha be deemed to be eved
when the ta ro on whch they are e tended has been devered to the oca
treasurer wth hs warrant for coecton. When so eved such ta es sha be a
en upon the property aganst whch they are assessed, superor to a other
ens, effectve as of May 1 n the year when eved
Under the amendment of secton 70.01 of the Wsconsn statutes,
supra, the factors ndcatng the accrua date, for edera ncome ta
purposes, of Wsconsn rea property ta es have been sghty modfed.
In G. C. M. 21373, supra, t was hed, n effect, that Wsconsn rea
property ta es accrue when a en upon the rea estate attaches and that
ths does not occur unt the ta ro s competed and the ta es are e -
tended on such ro. The amended statute provdes generay that the
en for the ta es attaches when the ta es are eved and that the ta es
sha be deemed to be eved when the ta ro on whch they are e -
tended has been devered to the oca treasurer wth hs warrant for
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29.23(c)-2.
coecton. Thus, the controng date, the date upon whch the en
attaches, s somewhat dfferent under the present aw.
In vew of the foregong, t s the opnon of ths offce that as a resut
of the amendment of secton 70.01 of the Wsconsn statutes by chapter
277, Laws of Wsconsn, 1943, effectve anuary 1,1944, the controng
date for accrua, for edera ncome ta purposes, of rea property
ta es mposed by the State of Wsconsn s the date on whch the ta
ro s devered to the oca treasurer wth hs warrant for coecton.
G. C. M. 21373, supra, s modfed to the e tent that t s contrary to
ths concuson.
. P. Wenche,
Chef Counse, ureau of Interna Revenue.
Secton 29.23(c)-. Ta es.
INT RN L R NU COD .
Indana gross ncome ta mposed on a partnershp. (See I. T. 3731,
page SO.)
Secton 29.23(c)-: Ta es.
INT RN L R NU COD .
New York State temporary emergency ta mposed on net ncomes
of unncorporated busnesses. (See I. T. 3753, page 2.)
Secton 29.23(c)- : Ta es.
INT RN L R NU COD .
Indana gross ncome ta . I. T. 3731 (page 0, ths uetn) re-
voked. (See I. T. 3706, page 3.)
Secton 29.23(c)-2: edera dutes and e cse 1945-15-12096
ta es. G. C. M. 24461
In takng a deducton for the edera capta stock ta , a corpora-
ton on the accrua bass of accountng may foow the method of
accrung the ta adopted by It In keepng ts accounts and fng ts
returns, nstead of accrung the entre ta on the frst day ( uy 1)
of the capta stock ta year, provded such method of accrua ceary
refpcts the ta payer s ncome and s consstenty foowed for
edera ncome ta purposes.
G. C. M. 23251 (C. . 1042-2, 103) modfed.
In vew of the decson n tantc Coast Lne Raroad Co. v. Com-
mssoner (4 T. C, 140, acquescence, C. . 1914, 2), G. C. M. 23251
(C. . 1942-2, 103), reatng to the accrua for edera ncome ta
purposes of edera capta stock ta es, has been reconsdered.
One of the questons n tantc Coast Lne Raroad Co. v. Com-
mm ner, supra, was the deductbty n certan years of the edera
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29.23(c)- .
112
capta stock ta n the case of a ta payer keepng accounts and fng
edera ncome ta returns on the accrua and caendar year bass.
The ta payer n that case had consstenty foowed an accountng
practce of aocatng a porton of ts capta stock ta abty for
each capta stock ta year between the two caendar years whch
were overapped by the capta stock ta year. Thus, on uy 1 of
each year, t set up an accrua on ts books of one-haf of ts estmated
capta stock ta abty for the ensung capta stock ta year.
Durng the frst s months of the ne t caendar year, t charged
monthy accruas for the capta stock ta . These perodc accruas
were ad|usted to refect changed condtons and ts decaraton for
capta stock ta purposes at the cose of the capta stock ta year.
or the ncome-ta ta abe years 1939 and 1940, t camed deductons
for the capta stock ta n accordance wth ts method of accountng.
The court sustaned the ta payer s contenton that t coud deduct
the capta stock ta n accordance wth ts consstent accountng
practce snce ts reguary empoyed system of keepng ts records
was suc as to refect ts ncome propery. In so hodng, the court
dd not mpar the force of ts decson n udd Internatona Cor-
oraton v. Commssoner (45 . T. ., 737), wheren t hed that the
abty for the edera capta stock ta accrued at the begnnng
of the capta stock ta year, and that ts accrua was not postponed
by vrtue of the fact that the amount of the ta depends upon a future
decaraton of vaue and a possbe change n rate. It dstngushed
the udd Internatona Corporaton case by statng:
The domnant characterstc of ths stuaton Is that pettoner has consst-
enty foowed the method of accountng t now seeks to have approved. Unke
such cases as udd Internatona Corporaton, supra, where the ta payer s
nconsstent treatment was emphaszed, our soe present concern Is whether
ths pettoner s reguary empoyed system of keepng ts records was such as
to refect ts ncome propery. If so, no compeng reason for condemnng t has
been advanced. (Secton 43, I. It. C.)
In vew of the foregong, t s the opnon of ths offce that a ta -
payer shoud be permtted to foow ts method of keepng ts books
of account n takng the deducton for edera capta stock ta , pro-
vded that such method ceary refects the ta payer s ncome and s
consstenty foowed for edera ncome ta purposes.
G. C. M. 23251, supra, s n confct wth The Ta Court s decson
n the tantc Coast Lne Raroad case n that t prescrbes a f ed
method for determnng the deducton for the edera capta stock
ta regardess of the accountng system reguary empoyed by the
ta payer, and t s hereby modfed to the e tent of such confct.
. P. Wenche,
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
Secton 29.23 (e)-: Losses by ndvduas.
INT RN L R NU COD .
Tradng n securtes on a when ssued bass. (See I. T. 3721,
page 1G4.)
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113
29.23(m)-16.
Secton 29.23(e)-3: Loss of usefu vaue.
INT RN L R NU COD .
actes abandoned or dscarded by war contractors n connecton
wth reconverson to peacetme producton. (See Mn. 5 70, page 91.)
S CTION 2.3 (m). D DUCTIONS ROM GROSS
INCOM D PL TION.
Secton 29.23(m)-16: Charges to capta and 1945-21-12155
Treatment for edera Income ta purposes of ntangbe deve-
opment costs ncurred by affated groups fng consodated returns,
ncudng cases n whch operatng propertes are transferred or
acqured by members of such groups.
O. D. 1002 (C. . 5,161 (1921)) revoked.
dvce s requested whether a parent company whch eected n a
pror ta abe year to captaze ntangbe deveopment costs under
secton 29.23(m)-16 of Reguatons 111 and a subsdary company
whch eected n such pror year to charge such costs to e pense may,
n fng a consodated return, foow the method whch each had
eected n the pror ta abe year. Inqury s aso made whether, n the
case of an affated group fng a consodated return, a subsdary
company acqurng from a parent company, or a parent company
acqurng from a subsdary company, operatng propertes wth
respect to whch an eecton under secton 29.23(n)-16 of Reguatons
111 has been made, s bound by an eecton prevousy made by the
whether a subsdary company whch has not prevousy made an eec-
ton because t had no operatng propertes s entted to e ercse the
opton provded by the reguatons upon the acquston of such prop-
ertes.
It s hed that where a parent company eected n a pror ta abe
year to captaze ntangbe deveopment costs under secton
29.23(m) 16 of Reguatons 111 and a subsdary company eected
n such pror year to charge such costs to e pense, the corporatons
are requred, n fng a consodated return, to foow the method
vhch each eected n the pror ta abe year. It s aso hed that where
operatng propertes wth respect to whch an eecton under secton
29.23(m)-6 of Reguatons 111 has been made are transferred from
a parent company to a subsdary company, or from a subsdary com-
pany to a parent company, and such companes fe a consodated
return, the acqurng company s bound by an eecton prevousy made
by t (the transferee) reatve to ntangbe deveopment costs. It s
further hed that where operatng propertes are acqured by a sub-
sdary company of an affated group fng a consodated return and
such company has not prevousy made an eecton because t had no
operatng propertes, the subsdary s entted to e ercse the opton
provded by secton 29.23(m)-G of Reguatons 111, regardess of
I. T. 3763
INT RN L R NU COD .
acqurng company reatve
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29.23(o)-.
114
whether the propertes were acqured from a member of the affated
group.
In vew of the above-stated concusons, O. D. 1002 (C. . 5, 161
(1921)), whch hods that a subsdary company acqurng operatng
propertes from ts parent company s bound by the pror eecton
of the parent company to charge deveopment and e poraton
e penses to operatng e penses, s revoked.
S CTION 23(o). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS.
Secton 29.23 (o)-: Contrbutons or gfts by ndvduas.
Contrbutons to a post-war pannng and deveopment fund. (See
I. T. 3706, page 7.)
Where a ta payer creates an rrevocabe trust, reservng the n-
come to hmsef for fe wth remander over at hs death to a bene-
fcary whch meets the requrements of secton 23(o) (2) of the
Interna Revenue Code, as amended, the present vaue of the re-
mander nterest s deductbe by the ta payer In hs ncome ta
return for the ta abe year n whch the property s transferred n
trust, sub|ect to the mtatons prescrbed n secton 23(o) of the
Code, as amended.
dvce s requested wth respect to the deductbty, for edera
ncome ta purposes, of the vaue of the remander nterest n an
rrevocabe trust, the ncome of whch s reserved to the grantor for
hs fe, wth remander over at hs death to a benefcary whch meets
the requrements of secton 23(o)(2) of the Interna Revenue Code,
as amended.
Secton 23(o) (2) of the Interna Revenue Code, as amended, pro-
vdes as foows:
S C. 23. D DUCTIONS ROM GROSS INCOM .

(o) Chabtabe and Other Contrbutons. In the case of an Indvdua,
contrbutons or gfts payment of whch s made wthn the ta abe year to
or for the use of:

(2) corporaton, trust, or communty chest, fund, or foundaton, created
or organzed n the Unted States or n any possesson thereof or under the
aw of the Unted States or of any State or Terrtory or of any possesson of
the Unted States, organzed and operated e cusvey for regous, char-
tabe, scentfc, terary, or educatona purposes, or for the preventon of
cruety to chdren or anmas, no part of the net earnngs of whch nures
to the beneft of any prvate sharehoder or ndvdua, and no substanta
INT RN L R NU COD .
Secton 29.23(o)-1 : Contrbutons or gfts by
ndvduas.
1945-2-11934
I. T. 3707
INT RN L R NU COD .
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115
29.23(p)-9.
part of the actvtes of whch s carryng on propaganaa, or otherwse
attemptng, to nfuence egsaton

to an amount whch n a the nbnve cases combned does not e ceed 13 per
centum of the ta payer s ad|usted gross ncome. Itacs supped.
The ureau has hed that the phrase for the use of s ntended
to convey a meanng smar to that of n trust for. (See I. T.
1 67,C. . II-2,155 (1923).) In I. T. 1776 (C. . II-2,151 (1923)),
t was hed, under the Revenue ct of 1921, that where a donor by
wrtten nstrument gave a fe estate n bonds to an ndvdua and
the remander nterest to a church, the cash vaue of the gft to the
church was deductbe. (See aso I. T. 2397, C. . II-1, 90 (192 )
and G. C. M. 3016, C. . II-1,90 (192 ).)
In vew of the foregong, t s hed that where a ta payer creates
an rrevocabe trust, reservng the ncome to hmsef for fe wth
remander over at hs death to a benefcary whch meets the requre-
ments of secton 23(o) (2) of the Interna Revenue Code, as amended,
supra, the present vaue of the remander nterest s deductbe by the
ta payer n hs ncome ta return for the ta abe year n whch the
property s transferred n trust, sub|ect to the mtatons prescrbed
n secton 23 (o) of the Code, as amended.
S CTION 23(p). D DUCTIONS ROM GROSS INCOM :
CONTRI UTIONS O N MPLOY R TO N MPLOY-
S TRUST OR NNUITY PL N ND COMP NS TION
UND R D RR D-P YM NT PL N.
Secton 29.23(p)-9: Contrbutons of an em- 1945-4-11965
poyer toward the purchase of retrement T. D. 5436
annutes (secton 23(p) (1) ( )).
( so Secton 165, Secton 29.165-5 Secton
322, Secton 19.322-7, Reguatons 103.)
TITL 2 INT RN L R NU . C PT R I, SU C PT R , P RT 29 ND
P RT 10.
Reguatons 111 and 103 amended to conform to sectons 2 and 3
of Pubc Law 511, Seventy-eghth Congress.
Washngton, D. C.
edera Reguatons, Cum. Sup. and Reguatons 103 Part 19, Tte
26, Code of edera Reguatons, 1940 Sup. to sectons 2 and 3 of
Pubc Law 511 (Seventy-eghth Congress), approved December 20,
1944. reatng to e tenson of tme for satsfyng requrements of sec-
ton 105(a) (3), (4), (5), and (6) of the Interna Revenue Code, wth
respect to trusts formng part of a stock bonus, penson, or proft-
sharng pan of an empoyera and for fng cams for credt or refund
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5 29.23(p)-9.
116
wth respect to war osses under secton 127 of such Code for a ta abe
year begnnng n 1941, such reguatons are amended as foows:
R GUL TIONS 111.
29.23(p)- the foowng:
PU LIC L W 511 (S NTY- IG T CONGR SS, S COND
S SSION), PPRO D D C M R 20, 1944.
e t enacted by the Senate and ouse of Representatves of the
Unted States of merca n Congress assembed,

Sec. 2. (a) Secton 162(d)(1)( ) of the Revenue ct of 1942 (re-
atng to empoyees trusts) Is amended to read as foows:
( ) such a pan sha be consdered as satsfyng the re-
qurements of secton 165(a) (3), (4), (5), and (6) for the
perod begnnng wth the begnnng of the frst ta abe year
foowng December 31, 1942, and endng une 30. 1945, f the
provsons thereof satsfy such requrements by une 30, 1945,
and f by that tme a provsons of such pan whch are neces-
sary to satsfy such requrements are n effect and have been
made effectve for a purposes wth respect to the porton of
such perod after December 31, 1943.
(b) Secton 162(d)(2) of the Revenue ct of 1942 (reatng to em-
poyees trusts) Is amended to read as foows:
(2) stock bonus, penson, proft-sharng, or annuty pan
( ) put Into effect after September 1, 1942, and pror to
anuary 1, 1945, sha be consdered as satsfyng the requre-
ments of secton 165(a) (3), (4), (5), and (6) for the perod
begnnng wth the date on whch t was put Into effect and
endng wth une 30,1945, f a provsons of the pan whch are
necessary to satsfy such requrements are In effect by the end of
such perod and have been made effectve for a purposes wth
respect to the porton of such perod after December 31, 1943
( ) put Into effect after December 31, 1S44, sha be con-
sdered as satsfyng the requrements of secton 163(a) (3),
(4), (5), and (6) for the perod begnnng wth the date on
whch t was put nto effect and endng wth the 15th day of
the thrd month foowng the cose of the ta abe year of the
empoyer n whch the pan was put n effect, f a provsons of
the pan whch are necessary to satsfy such requrements are
In effect by the end of such perod and have been made effectve
for a purposes wth respect to the whoe of such perod.
Par. 2. Secton 29.23 (p)-9, as amended by Treasury Decson 5342,
approved March 14, 1944 C. . 1944, 137 , s further amended by
changng the parenthetca matter mmedatey after the ffth sentence
to read as foows:
(Sec secton 162(d) of the Revenue ct of 1942, as amended by Pubc Law 511
(Seventy-eghth Congress) approved December 20, 1944.)
the foowng:
PU LIC L W 511 (S NTY- IG T CONGR SS. S COND S S-
SION), PPRO D D C M R 20, 1944.
e t enacted by the Senate and ouse of Representatves of the Unted
States of merca n Congress assembed,

Sec. 2. (a) Secton 162(d) (1) ( ) of the Revenue ct of 1942 (reat-
ng to empoyees trusts) Is amended to read as foows:
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117
29.23(p)-9.
( ) such a pan sha be consdered as satsfyng the requre-
begnnng wth the begnnng of the frst ta abe year foowng
December 31, 1942, and endng une 30, 1945, f the provsons
thereof satsfy such requrements by une 30, 1945, and f by
that tme a provsons of such pan whch are necessary to
satsfy such requrements are n effect and have been made effec-
tve for a purposes wth respect to the porton of such perod
(b) Secton 162(d) (2) of the Revenue ct of 1942 (reatng to
empoyees trusts) s amended to read as foows:
( ) put Into effect after September 1, 1942, and pror to
anuary 1, 1945, sha be consdered as satsfyng the requre-
begnnng wth the date on whch t was put nto effect and
endng wth une 30,1945, f a provsons of the pan whch are
necessary to satsfy such requrements are n effect by the end
of such perod and have been made effectve for a purposes
wth respect to the porton of such perod after December 31,
1943
( ) put Into effect after December 31, 1944, sha be consd-
ered as satsfyng the requrements of secton 165(a) (3), (4),
(5), and (6) for the perod begnnng wth the date on whch t
was put nto effect and endng wth the 15th day of the thrd
month foowng the cose of the ta abe year of the empoyer
n whch the pan was put n effect, f a provsons of the pan
whch are necessary to satsfy such requrements are n effect
by the end of such perod and have been made effectve for a
purposes wth respect to the whoe of such perod.
approved March 14,1944, s further amended by strkng out the second
and thrd paragraphs and substtutng the foowng:
In the case of a pan n effect on or before September 1, 1942, the pan w be
consdered as satsfyng the requrements of secton 105(a) (3), (4), (5), and
(6 for the perod begnnng wth the begnnng of the frst ta abe year foowng
December 31, 1942, and endng une 30, 1945, f the provsons of the pan
satsfy such requrements by une 30, 1945, and f by that tme a provsons
of such pan whch are necessary to satsfy such requrements are n effect and
nave been made effectve for a purposes wth respect to the porton of such
perod after December 31,1943. Thus, f an empoyer havng such a pan n effect
makes a return on the bass of the caendar year, he w have unt une 30,
1940, to amend hs pan so as to make t satsfy the requrements of secton 105(a)
(3), (4), (5), and (6) for the caendar years 1943 and 1944 provded that by
ane 30, 1945, a provsons of such pan necessary to satsfy such requrements
are n effect and have been made retroactve for a purposes to anuary 1, 1944.
If the empoyer s on a fsca year bass, for e ampe, ebruary 1 to anuary 31,
te w have unt une 30, 1945, to amend hs pan so as to make t satsfy the
requrements of secton 165(a) (3), (4), (5), and (0) for the fsca years begn-
nng ebruary 1, 1943, and endng anuary 31, 1944, and begnnng ebruary 1,
1944, and endng anuary 31, 1945, provded that by une 30, 1945, a provsons
of such pan necessary to satsfy such requrements are n effect and have been
made retroactve for a purposes to anuary 1, 1944.
In the case of a pan put nto effect after September 1, 1942, and pror to
anuary 1, 1945, the pan w be consdered as satsfyng the requrements of
secton 165(a) (3), (4), (5), and (6) for the perod begnnng wth the date on
whch t was put nto effect and endng wth une 30, 1945, f a provsons of the
pan whch are necessary to satsfy such requrements are n effect by the end of
such perod and have been made effectve for a purposes wth respect to the
porton of such perod after December 31, 1943. Thus, f an empoyer n 1943
adopts such a pan effectve as of anuary 1, 1943, and makes a return on the
oass of the caendar year he w have unt une 30, 1945, to amend hs pan so
as to make t satsfy the requrements of secton 165(a) (3), (4), (5), and (6)
for the caendar years 1943 and 1944, provded that by une 30,1945, a provsons
of such pan necessary to satsfy such requrements are n effect and have been
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29.23(p)-9.)
113
made retroactve for a purposes to anuary 1, 1944. If the empoyer Is on a
fsca year bass, for e ampe, uy 1 to une 30, and n 1943 adopts such a pan
effectve as of uy 1, 1943, he w have unt une 30, 1945, to amend hs pan
so as to make t satsfy the requrements of secton 16r (a) (3), (4), (5), and (6)
for the fsca years begnnng uy 1, 1943. and endng une 30. 1944, and be-
gnnng uy 1, 1944, and endng une 30, 1945, provded that by une 30, 1945,
a provsons of such pan necessary to satsfy such requrements are n effect and
have been made retroactve for a purposes to anuary 1, 1944.
In the case of a pan put nto effect after December 31, 1944, the pan w be
consdered as satsfyng the requrements of secton 160(a) (3), (4), (5), and
(6) for the perod begnnng wth the date on whch t was put nto effect and
endng wth the 15th day of the thrd month foowng the cose of the ta abe
year of the empoyer In whch the pan was put n effect, f a provsons of the
pan whch are necessary to satsfy such requrements are In effect by the end of
such perod and have been made effectve for a purposes wth respect to the
whoe of such perod. Thus f an empoyer n 1945 adopts such a pan effectve
as of anuary 1,1945, and makes a return on the bass of the caendar year, he w
have unt March 15, 1946, to amend hs pan so as to make t satsfy the requre-
ments of secton 165 (a) (3), (4), (5), and (6) for the caendar year 1945 provded
that by March 15, 1946, a provsons of such pan necessary to satsfy such re-
qurements are n effect and have been made retroactve for a purposes to
anuary 1, 1945, the effectve date of the pan. If an empoyer s on a fsca year
bass, for e ampe, pr 1 to March 31, and n 1945 adopts such a pan effectve
as of pr 1,1945, he w have unt une 15,19-16, to amend hs pan so as to make
t satsfy the requrements of secton 165(a) (3), (4), (5), and (6) for the fsca
year begnnng pr 1, 1945, and endng March 31, 1946, provded that by une
15, 1946, a provsons of such pan necessary to satsfy such requrements are n
effect and have been made retroactve for a purposes to pr 1,1945, the effectve
date of the pan.
R GUL TIONS 103.
Par. 5. There s nserted mmedatey precedng secton 19.322 1
the foowng:
PU LIC L W 511 (S NTY- IG T CONGR SS, S COND S S-
SION), PPRO D D C M R 20. 1944.
e t enacted by the Senate and ouse of Representatves of the Unted

Seo. 3. If a cam for credt or refund under the nterna revenue aws
reates to an overpayment on account of the deductbty by the ta payer
of a oss n respect of property consdered destroyed or sezed under
secton 127(a) of the Interna Revenue Code (reatng to war osses)
for a ta abe year begnnng n 1941, the three-year perod of mtaton
prescrbed n secton 322(b) (1) of the Interna Revenue Code sha n no
event e pre pror to December 31, 1945. In the case of such a cam
fed on or before December 31. 1945, the nmount of the credt or refund
may e ceed the porton of the ta pad wthn the perod provded n
secton 322(b) (2) or (3) of such code, whchever s appcabe, to the
e tent of the amount of the overpayment attrbutabe to the deductbty
of the oss descrbed n ths secton.
Par. 6. Secton 19.322-7 as amended by Treasury Decson 5395,
approved ugust 11, 1944 C. . 1944, 300 , s further amended by
changng the ast sentence of subsecton (a) to read as foows:
The provsons of ths subsecton are sub|ect to the e ceptons provded n sub-
sectons ( ) (c), and (d) of ths secton and n secton 3 of Pubc Law 511
(Seventy-eghth Congress), approved December 20, 1944. e tendng to Decem-
ber 31, 1945, the tme for fng a cam for credt or refund based upon an over-
payment of the ta as a resut of the faure to take a war-oss deducton n
respect of property consdered destroyed or sezed under secton 127(a) of ther
Code for a ta abe year begnnng n 1941.
secton 62 of the Interna Revenue Code (53 Stat., 32 .26 U. S. C,
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119 29.23(q)-.
1W0 ed., 62) and sectons 2 and 3 of Pubc Law 511 (Seventy-eghth
Congress), approved December 20,1944.)
Geo. . Schoeneman,
ctng Commssoner of Interna Revenue.
pproved ebruary 3, 1945.
( ed wth the Dvson of the edera egster ebruary 5, 1945, 11.37 a. m.)
S CTION 23(q). D DUCTIONS ROM GROSS INCOM :
C RIT L ND OT R CONTRI UTIONS
Y CORPOR TIONS.
Secton 29.23 (q)-: Contrbutons or gfts by corporatons.
INT RN L R NU COD .
Contrbutons to a post-war pannng and deveopment fund. (See
I T. 3706, page 7.)
Secton 29.23 (q)-: Contrbutons or gfts 1945-9-12033
by corporatons. I. T. 3733
INT RN L R NU COD .
Where a corporaton s net Income has been redetermned due to re-
negotaton of Government contracts or subcontracts, the chartabe
deducton aowabe under secton 23(q) of the Interna Revenue
Code s mted to 5 per cent of the net ncome nfter renegotaton.
dvce s requested as to the deducton for contrbutons aowabe
for edera ncome and e cess profts ta purposes where the net n-
come of a corporaton, subsequent to the fng of ts edera ncome
and e cess profts ta returns, has been redetermned due to re-
negotaton of Government contracts or subcontracts.
Under Tte I of the S th Suppementa Natona Defense ppro-
praton ct, 1942 (Pubc Law 52 , Seventy-seventh Congress, second
sesson, 56 Stat., 226, 244), as amended, certan Government depart-
ments or agences are authorzed and drected to requre contractors
or subcontractors to renegotate the contract prce wth respect to
desgnated contracts and subcontracts n case any amounts of e cessve
profts have been, or are key to be, reazed therefrom and recover
such e cessve profts pad or wthhod payment f the profts have not
been pad. Secton 3 06(a) of the Interna Revenue Code, as added
by secton 50 of the Revenue ct of 1942, requres that a payment or
repayment wthn a ta abe year endng after December 31, 1941, of
wcessve profts pursuant to renegotaton sha be treated as a re-
ducton of the prce of the contracts or subcontracts for the ta abe
year for whch such prce was receved or accrued.
Secton 23(q) of the Code provdes that n computng net ncome,
n the case of a corporaton, there sha be aowed as deductons con-
trbutons or gfts payment of whch s made wthn the ta abe year
to or for the use of the types of organzatons descrbed theren, mted
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5 29.23(y)-.
120
to an amount whch does not e ceed 5 per cent of the ta payer s net n-
come as computed wthout the beneft of the deducton for contrbu-
tons.
In determnng the amount of the repayment of e cessve profts,
on the bass of renegotated contracts or subcontracts, the net ncome
for the year for whch the contracts or subcontracts were renegotated
woud have to be redetermned and the deducton for contrbutons re-
vsed n vew of the 5 per cent mtaton contaned n secton 23(q) of
the Code, supra, n order to arrve at the correct ta abty for the
|ear and to form a bass for the repayment. (See I. T. 3611, C. .
1943, 97 .) ccordngy, the deducton for contrbutons n such
cases s mted to 5 per cent of the corporaton s net ncome determned
after the contracts or subcontracts have been renegotated.
S CTION 23(u). D DUCTIONS ROM GROSS INCOM :
LIMONY, TC., P YM NTS.
Secton 29.23 (u)-: Perodc amony payments.
Perodc payments made pursuant to an nterocutory decree of d-
vorce n Caforna (See I. T. 3761, page 76.)
S CTION 23( ). D DUCTIONS ROM GROSS INCOM :
M DIC L, D NT L, TC., P NS S.
Secton 29.23( )-: Medca, denta, etc., e penses.
Deductbty of medca e penses pad n behaf of a dependent
whose gross ncome for the ta abe year 1944 e ceeds 500. (See I. T.
3703, page 127.)
S CTION 23(y). D DUCTIONS ROM GROSS INCOM :
SP CI L D DUCTION OR LIND INDI IDU LS.
TITL 2G INT RN L R NU . C PT R I, SU C PT R . P RT 29.
Reguatons 111 amended Certfcate to be attached to the return
In the case of certan bnd ndvduas.
Washngton, D. C.
Secton 29.23 (y)- of Reguatons 111 Part 29, Tte 26, Code of
edera Reguatons, Cum. Sup. , as amended by Treasury Decson
nterna revenue code.
Secton 29.23(y)-: Speca deducton for bnd
ndvduas.
1945- -12027
T. D. 5451
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121 29.25-1
15425, approved December 29, 1944 page 10, ths uetn , s further
amended by strkng from the sentence begnnng wth the words
u n ndvdua the foowng:
showng n deta the condton of hs eyes as of the status determnaton date,
statng that as of the status determnaton date, n the opnon of such .physcan
or optometrst, (1) such ndvdua s centra vsua acuty dd not e ceed 20/200
n the better eye wth correctng enses or (2) such ndvdua s vsua acuty
was accompaned by a mtaton n the feds of vson such that the wdest
dameter of the vsua fed subtends an ange no greater than 20 degrees.
secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. C, 02).)
Geo. . Schoeneman,
pproved pr 17,1945.
erbert . Gaston,
( ed wth the Dvson of the edera Regster pr 17, 1945, 3.54 p. m.)
S CTION 24. IT MS NOT D DUCTI L .
Secton 19.24 1: Persona and famy e penses.
INT RN L R NU COD .
Traveng e penses ncurred by State court |udges n attendance
upon court busness at the State capta. (S e Ct. D. 1646, page 96.)
Secton 29.24-2: Capta e pendtures.
INT RN L R NU COD .
Cost of mcrofmng od newspaper fes n case of newspaper pub-
sher. (See I. T. 3732, page .)
Secton 29.24-2: Capta e pendtures.
INT RN L R NU COD .
Certan e pendtures of war contractors n connecton wth recon
verson to peacetme producton. (See Mn. 5 70, page 91.)
S CTION 25. CR DITS O INDI IDU L
G INST N T INCOM .
Secton 29.25-1: Credts of ndvdua aganst
net ncome.
INT RN L R NU COD .
Reguatons I amended. (See T. D. 5425, page 10.)
6 4354 16 9
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29.25-3.
122
Secton 29.25-3: Persona e empton and surta 1945-7-12005
e emptons. I. T. 3723
( so Secton 1622, Secton 405.205, Reguatons 116.)
INT RN L R NU COD .
Treatment for edera Income ta purposes of (1) the surta
e emptons under secton 25(b)(1) of the Interna Revenue Code,
as amended by secton 10(b) of the Indvdua Income Ta ct of
1944, aowabe to a ta payer where a servceman s monthy famy
aowance s receved by the ndvdua camed as a dependent by the
tu payer, and (2) the wthhodng e emptons under secton
f22(h)() of the Code, as amended by secton 22(d) of the Ind-
vdua Income Ta ct of 1044, whch the wfe of a servceman s
entted to cam on her empoyee s wthhodng e empton certf-
cate. orm W-4 (Rev. 1944), where she receves a monthy famy
aowance for hersef and two chdren.
dvce s requested whether, under the crcumstances herenafter
stated, (1) a ta payer s entted to a surta e empton of 500 under
secton 25(b) (1) of the Interna Revenue Code, as amended by secton
10(b) of the Indvdua Income Ta ct of 1944, for an ndvdua
(daughter) recevng a servceman s monthy famy aowance from
the Government, and whether (2) the wfe of a servceman s entted
to cam wthhodng e emptons under secton 1622(h)(1) of the
Code, as amended by secton 22(d) of the Indvdua Income Ta ct
of 1944, for hersef, her husband, and two chdren, where she receves
a monthy famy aowance from the Government for hersef and
the two chdren.
In the frst case, reatng to aowance of a surta e empton, a
father furnshed more than 50 per cent of the support of a daughter
durng the caendar year n whch the father s ta abe year began.
The daughter s marred to an ensted man servng n the armed
forces, and she receves a monthy famy aowance for hersef from
the Government, whch aowance s not used for her support but s
deposted n a bank. She s not empoyed and receves no other
ncome.
In the second case, reatng to wthhodng e emptons, the ta payer,
who s empoyed, s the wfe of a servceman, and she receves a monthy
famy aowance from the Government for hersef and two chdren.
The specfc queston presented s the number of wthhodng e emp-
tons whch she s entted to cam on her empoyee s wthhodng
e empton certfcate, orm W-4 (Rev. 1944), requred to be fed
wth her empoyer.
Secton 25(b) of the Code, as amended, provdes n part as foows:
(b) Credts fob Sottas Ony.
(1) Credts. There sha be aowed for the purpose of the surta , but
not for the norma ta , the foowng credts aganst not ncome:
( ) surta e empton of . 500 for the ta payer
( ) surta e empton of 50 ) for the spouse of the ta payer f
() a |ont return s made by the ta payer and hs spouse under
secton 51, n whch case the surta e empton of the spouses under
subparagraph ( ) and ths subparagraph sha be ony 1,000 n
the aggregate, or
() a separate return s made by the ta payer, and hs spouse
has no gross ncome for the caendar year n whch the ta abe year
of the ta payer begns and s not the dependent of another ta payer
(C) surta e empton of 500 for each dependent whose gross
ncome for the caendar year n whch the ta abe year of the ta payer
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123
20.25-3.
begns Is ess than 500, e cept that f such dependent s marred the
e empton n respect of such dependent sha not be aowed f such
dependent has made a |ont return wth the other spouse under secton 51
for a 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 n whch the ta abe year of the ta payer begns, was
receved from the ta payer:
( ) a son or daughter of the ta payer, .
Secton 1622(h)(1) of the Code, as amended, provdes n part as
foows:
(1) In genera. n empoyee recevng wages sha on any day be
entted to the foowng wthhodng e emptons:
( ) n e empton for hmsef.
( ) If the empoyee s marred, an e empton wth respect to hs
spouse, uness hs spouse has n effect a wthhodng e empton cer-
tfcate camng a wthhodng e empton under subparagraph ( ).
(C) n e empton for each ndvdua wth respect to whom, on the
bass of facts e stng at the begnnng of such day, there may reasonaby
be e pected to be aowabe a surta e empton under secton 25(b) (3)
for the ta abe year under Chapter 1 In respect of whch amounts deducted
and wthhed under ths subchapter n the caendar year n whch such
day fas are aowed as a credt.
Secton 29.25-3 of Reguatons 111 provdes n part:
Whether or not over haf of a person s support, for the caendar year In whch
the ta abe year of the ta payer begns, was receved from the ta payer, sha
be determned by reference to the amount of e pense ncurred by the ta payer
(or snch support.
It s provded under the terms of the Servcemen s Dependents
owance ct of 1942 (56 Stat., 3 1), as amended by the ct of
October 26,1943 (57 Stat., 577), that a monthy famy aowance sha
be granted and pad by the Unted States to certan dependents of an
ensted man. The amount of such monthy famy aowance n the
case of a wfe but no chd sha be 50, a wfe and one chd 0, and
an addtona 20 for each addtona chd. It s further provded
that for any month for whch such monthy famy aowance s pad
the monthy pay of such ensted man sha be reduced by, or charged
wth, the amount of 22. The baance conssts of the Government s
contrbuton to such aowance. The ureau has taken the poston
that the Government s contrbuton to the monthy famy aowance
s not ta abe ncome, but that the amount charged to the pay of an
ensted man s ncudbe n hs gross ncome to the same e tent as f
pad drecty to hm. (See I. T. 3574, C. . 1942-2, 52.)
Where a ta payer furnshes more than haf of the amount actuay
used for the support of an ndvdua who meets the reatonshp
requrements prescrbed by secton 25(b) (3) of the Code and whose
gross ncome s ess than 500, the ta payer s entted to a credt
aganst net ncome (surta e empton) for a dependent even though
the person camed as a dependent has ncome n e cess of the amount
furnshed by the ta payer, provded such ncome s not used for the
support of such person. In other words, the test to be apped n
determnng whether a ta payer has furnshed more than haf of the
support of a person camed as a dependent s one of actua support,
and s, therefore, a queston of fact n each case.
In vew of the foregong, snce the famy aowance receved by
tne daughter n the frst case mentoned above does not consttute
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29.25-3.
124
gross ncome, and snce the father furnshed more than one-haf of
the actua support of hs daughter, he s entted to a surta e emp-
ton of 500 under secton 25(b) (1) of the Interna Revenue Code, as
amended, wth respect to the daughter, provded she does not fe a
|ont return wth her husband.
In the second stuaton, the ta payer may, on her empoyee s wth-
hodng e empton certfcate, orm W-4 (Rev. 1944), cam a wth-
hodng e empton under secton 1022(h) (1) of the Code, as amended,
for hersef and one for her husband, f he has no wthhodng e emp-
ton certfcate n effect. If the ta payer n that case provdes more
of the support receved by the chdren than s receved by them
through the monthy famy aowance or otherwse, she s aso entted
to a wthhodng e empton for each of the chdren. Ths concu-
son s based on the premse that the Government furnshes the
amount of the famy aowance (e cept the amount of 22 ncuded
n such aowance whch s furnshed by the husband).
e emptons. L T. 3741
INT RN L R NU COD .
n Indvdua whose spouse s ony ncome conssts of compensaton
receved for actve servce n the mtary or nava forces of the
Unted States, whch compensaton does not e ceed 1,500 durng the
caendar year n whch the ta abe year of the ta payer begns, s
entted, on hs or her separate return, to a surta e empton of 500
for such spouse under secton 25(b) (1) ( ) () of the Interna Iteve-
nue Code, as amended by secton 10(b) of the Indvdua Income Ta
ct of 1944.
dvce s requested whether an ndvdua whose spouse s ony
ncome conssts of compensaton receved for actve servce n the
mtary or nava forces of the Unted States, whch compensaton does
not e ceed 1,500 for the caendar year n whch the ta abe year of the
ta payer begns, s entted to a surta e empton of 500 for such
spouse under secton 25(b) (1) ( ) () of the Interna Revenue Code,
as amended by secton 10(b) of the Indvdua Income Ta ct of
1944.
Secton 25(b) (1) ( ) () of the Code provdes as foows:
(b) Credts fob Surta Ony.
not for the norma ta , the foowng credts aganst net ncome:

( ) surta 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 n whch the ta abe year
of the ta payer begns and s not the dependent of another ta payer
Itacs supped.
Secton 22(b) (13) of the Code, as amended by secton 7(a) of the
Current Ta Payment ct of 1943, provdes n part as foows:
(b) cusons rom Gross Income. The foowng tems sha not be In-
cuded n gross ncome and sha be e empt from ta aton under ths chapter:

(13) ddtona aowance for mtary and nava personne. In the
case of compensaton receved durng any ta abe year and before the tern-
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125
29.25-3
naton of the present war as procamed by the Presdent, by a member of the
mtary or nava forces of the Unted States for actve servce n such forces
durng such war, so much of such compensaton as does not e ceed
11,500.
Inasmuch as the ta payer s spouse n the nstant case has no ncome
whch s ncudbe n gross ncome for edera ncome ta purposes,
such spouse has no gross ncome, as that term s used n the quoted
provsons of the Code, and such spouse, beng n actve servce n the
mtary or nava forces of the Unted States, s not the dependent of
another ta payer.
ccordngy, t s hed that an ndvdua whose spouse s ony ncome
conssts of compensaton receved for actve servce n the mtary or
nava forces of the Unted States whch compensaton does not e ceed
1,500 durng the caendar year n whch the ta abe year of the ta -
payer begns, s entted, on hs or her separate return, to a surta
e empton of 500 for such spouse under secton 25(b) (1) ( ) () of
the Code, as amended.
Secto 29.25-3: Persona e empton and surta 1945-13-12072
e emptons, I. T. 3745
INT RN L R NU COD .
ta payer who supports the wdow of hs deceased wfe s brother
s not entted, for edera Income ta purposes, to cam her as hs
dependent, even though her entre support s furnshed by hm.
dvce s requested whether a ta payer who supports the wdow of
Ins deceased wfe s brother s entted, for edera n|come ta purposes,
to cam her as hs dependent f her entre support s furnshed by hm.
The precse queston s whether the ndvdua supported by the ta -
payer s a dependent (sster-n-aw) wthn the meanng of secton
25(b) (3) of the Interna Revenue Code.
Secton 25(b) of the Interna Revenue Code, as amended by secton
10(b) of the Indvdua Income Ta ct of 1944 and appcabe to
ta abe years begnnng after December 31, 1943, provdes n part
as foows:
(b) Credts fob Scta Ony.
(1) Ckedts. There sha be aowed for the purpose of the surta , but
not for the norma ta , the foowng credts aganst net ncome:

(C) surta e empton of 000 for each dependent whose gross
Income for the caendar year n whch the tn abe year of the ta payer
begns s ess than 500, e cept that f such dependent s marred the
e empton n respect of such dependent sha not be aowed f such
dependent has made a |ont return wth the other spouse under secton
51 for a 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 n whch the ta abe year of the ta payer begns, was receved
from the ta payer:

( ) a son-n-aw, daughter-n-aw, father-n-aw, mother-n-aw,
brother-n-aw, or sster-n-aw of the ta payer.
s the term sster-n-aw s not defned by the Interna Revenue
Code nor by the reguatons promugated thereunder, the rues of
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29.25-3.)
12G
affnty are controng here. ffnty, at common aw, means rea-
tonshp by marrage between the husband and the bood reatons of
the wfe, and between the wfe and the bood reatons of the husband.
( ack s Law Dctonary, Second dton.) The reatons of the
wfe her brothers, her ssters, her unces, are aed to the husband by
affnty and hs brothers, ssters, etc., are aed n the same way to
the wfe. (Cycopedc Law Dctonary, Thrd dton ouver s
Law Dctonary, Rawe s Thrd Revson Words and Phrases, o. 2.)
Though a man s reated to hs wfe s brother by affnty, he s not so
reated to hs wfe s brother s wfe. (Chnn v. State, 2G N. ., 9 G.)
(See aso 32 Op. . G., 254.)
Secton 29.25-3 of Reguatons 111 provdes n part that the rea-
tonshp of affnty once e stng w not termnate by dvorce or the
death of a spouse. In the nstant case, however, the reatonshp of
sster-n-aw, a reatonshp of affnty, never e sted between the ta -
payer and the wdow of hs deceased wfe s brother. It s, therefore,
hed that a ta payer who supports the wdow of hs deceased wfe s
brother s not entted, for edera ncome ta purposes, to cam her
as hs dependent, even though her entre support s furnshed by hm.
e emptons. I. T. 3750
INT RN L R NU COD .
The presumptve date of death of an ndvdua reported mssng
n acton n 1942 whe a member of the armed forces, as determned
by the head of the department concerned n accordance wth secton
5 of Pubc Law 490, Seventy-seventh Congress, second sesson 56
Stat., 143), as amended by Pubc Law 4 , Seventy-seventh Con-
gress, second sesson (56 Stat., 1092), consttutes the date of
death for edera ncome tape purposes. The status of a survvng
spouse from and after such presumptve date s that o a snge
person, and a persona e empton s aowabe on that bass for 1943.
dvce s requested, for edera ncome ta purposes, as to (1) the
date to be used as the date of death n the case of a member of the
armed forces who was reported mssng n acton n 1942, and (2) the
persona e empton aowabe to the survvng spouse for 1943.
In the case presented, pursuant to authorty contaned n secton 5
of Pubc Law 490, Seventy-seventh Congress, second sesson (56
Stat., 143), approved March 7, 1942 (known as the Mssng Persons
ct), as amended by Pubc Law 4 , Seventy-seventh Congress,
second sesson (56 Stat., 1092), approved December 24, 1942, the
Secretary of the Navy has ssued a certfcate of presumptve death
whch states that t s presumed that death occurred on the day fo-
owng the day of e praton of an absence of 12 months.
Secton 5 of Pubc Law 490, as amended, provdes as foows:
When the 12 months perod from date of commencement of absence s about
to e pre n any case of a person mssng or mssng n acton and no ofca
report of death or of beng a prsoner or of beng nterned has been receved, the
head of the department concerned sha cause n fu revew of the case to be
made. oowng such revew and when the 12 months absence sha have e -
pred, or foowng any subsequent revew of the case whch sha be made
whenever warranted by nformaton receved or other crcumstances, the head
of the department concerned Is authorzed to drect the contnuance of the
person s mssng status, f the person may reasonaby be presumed to be vng,
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127
29.25-6.
or Is authorzed to make a fndng of death. When a fndng of death s made It

sha ncude the date upon whch death sha be presumed to have occurred for
the purposes of termnaton of credtng pay and aowances, settements of
accounts, and payments of death gratutes and such date sha be the day foow-
ng the day of e praton of an absence of 12 months, or n cases In whch the
mssng status sha have been contnued as herenbefore authorzed, a day to
be determned by the head of the department.
Pubc Law 490 was enacted to provde authorzaton for the con-
tnued payment or credt n the accounts of pay and aowances of
mssng persons for one year foowng the date of commencement of
absence from ther posts of duty or unt such persons have been off-
cay decared dead. Generay, a fndng of presumptve death by
the head of the department concerned, pursuant to secton 5 of Pubc
Law 490, as amended, supra, s for the purposes of termnaton of
credtng pay and aowances, settements of accounts, and payments
of death gratutes. owever, a fndng of death pursuant to secton
5 of Pubc Law 490, as amended, was aso desgned to ad other de-
partments or agences of the edera Government n those cases n
Tftochthe queston of death s pertnent. (See ouse Commttee Re-
port No. 2723, whch accompaned Pubc Law 4 , supra, wheren
t k stated u The amendments to the Mssng Persons ct were aso
(fesgned to ad varous edera agences n determnng
a reasonabe date on whch rghts sha accrue, based on the fndng
of the mssng man s death. )
In vew of the foregong, t s hed that the presumptve date of
death of an ndvdua reported mssng n acton n 1942 whe a
member of the armed forces, as determned by the head of the depart-
ment concerned n accordance wth secton 5 of Pubc Law 490, as
amended, supra, consttutes the date of death for edera ncome ta
purposes. The status of a survvng spouse from and after such pre-
sumptve date s that of a snge person, and a persona e empton
s aowabe on that bass for 1943.
Secton 29.25-6: Credt for dependents. 1945-1-11919
( so Secton 23( ), Secton 29.23( )-.) L T. 3703
INT RN L R NU COD .
Where a ta payer pays medca e penses of hs mother, who s a
dependent as defned n secton 25(b) (3) of the Interna Revenue
Code (effectve for ta abe years begnnng after December 31,1943),
and whose gross Income for the ta abe year 1944 e ceeds . 00, he
s not entted to the surta credt aganst net Income provded n
secton 25(b) (1) (C) of the Code, ns added by secton 10(b) of the
Indvdua Income Ta ct of 1944, but he may deduct medca
e penses pad durng the ta abe year 1944 n behaf of such depend-
ent to the e tent that the tota medca e penses of the ta payer,
ncudng those of hs dependent, e ceed 5 per cent of hs ad|usted
gross ncome and fa wthn the mtatons of secton 25( ) of the
Code, as amended by secton (c) of the Indvdua Income Ta ct
of 1944.
dvce Is requested whether, for the ta abe vear 1944, a ta payer
s entted to (1) a surta e empton for a dependent, and (2) a deduc-
ton for medca e penses pad on behaf of the dependent where the
dependent s gross ncome e ceeds 500.
The ta payer s mother, an nvad, normay receves nvestment
ncome of 2,000 to 2,900 per year, and n 1944 she receved 2,300,
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29.25-6.
12
but such ncome s nsuffcent to meet e penses ncurred for her medca
care. The ta payer annuay contrbutes appro matey 4,000
toward the amount needed to pay two nurses and other medca e -
penses of hs mother. or ta abe years pror to 1944, such e pend-
tures entted the ta payer to cam credt for a dependent on hs
edera ncome ta returns. The queston presented s whether cer-
tan changes n the Interna Revenue Code, effected by the Indvdua
Income Ta ct of 1944, w deprve the ta payer of a dependency
e empton for hs mother and a deducton for medca e penses pad
on her behaf.
Secton 25(b) (1) (C) of the Code, as added by secton 10(b) of the
Indvdua Income Ta ct of 1944, provdes n part as foows:
not for the norma ta , the foUowng credts aganst net ncome:

(C) surta 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, . Itacs supped.
Inasmuch as the gross ncome of the ta payer s mother e ceeds 500,
the ta payer s not entted to the surta credt aganst net ncome pro-
vded n secton 25(b)(1)(C) of the Code, supra, even though he
furnshed more than one-haf of her support.
Secton 25(b) (3) of the Code, as amended by secton 10(b) of the
Indvdua Income Ta ct of 1944 (effectve for ta abe years be-
gnnng after December 31,1943), provdes n part as foows:
(3) Defnton of dependent. s used n ths chapter the term de-
pendent means any of the foowng persons over haf of whose support, for
the caendar year n whch the ta abe year of the ta payer begns, was
receved from the ta payer:

(D) the father or mother of the ta payer .
Secton 23( ) of the Code, as amended by secton (c) of the
Indvdua Income Ta ct of 1944, provdes as foows:

( ) Medca, Denta, ra, penses. penses pad durng the ta abe year,
not compensated for by nsurance or otherwse, for medca care of the ta payer,
hs spouse, or a dependent specfed n secton 25(b)(3), to the e tent that such
e penses e ceed 5 per centum of the ad|usted gross ncome. If ony one surta
e empton s aowed under secton 2.5(6) for the ta abe year the ma mum
deducton for the ta abe year sha be not n e cess of 1 50. If more than one
surta e empton s so aoced, the ma mum deducton sha be not n e cess of
2,500. The term medca care , as used n ths subsecton, sha ncude
amounts pad for the dagnoss, cure, mtgaton, treatment, or preventon of
dsease, or for the purpose of affectng any structure or functon of the body
(ncudng amounts pad for accdent or heath nsurance). Itacs supped.
ccordngy, the medca e penses whch the ta payer pad durng
the ta abe year 1944 n behaf of hs mother, who s a dependent, are
deductbe n hs edera ncome ta return for that year to the e tent
that hs tota medca e penses, ncudng those of such dependent,
e ceed 5 per cent of hs ad|usted gross ncome and fa wthn the
mtatons prescrbed n secton 23( ) of the Code, as amended, supra.
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129 29.42-1.
S CTION 27(a). CORPOR TION DI ID NDS P ID
CR DIT: D INITION IN G N R L.
Secton 29.27(a)-: Dvdends pad credt.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5460, page 2(50.)
Secton 29.27(a)-2: Defct credt.
INT RN L R NU COD .
Secton 29.27(a)-3: mounts used or rrevocaby set
asde to pay or to retre ndebtedness.
( so Secton 19.27(a)-3, Reguatons 103.)
INT RN L R NU COD .
Reatons 103 and 111 amended. (See T. D. 5460, page 260.)
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
S CTION 42. P RIOD IN W IC IT MS O
GROSS INCOM INCLUD D.
Secton 29.42-1: When ncuded n gross 1945-2-11035
ncome. I. T. 370
n amount specfed n the terms of a contract of empoyment,
whch amount, n the event of the death of the empoyee pror to the
e praton of the contract, was payabe by the empoyer to the ega
representatves of the empoyee or to beneeares desgnated by hm,
accrued as of the date of the empoyee s death In 1942, and, under
secton 42(a) of the Interna evenue Code, as appcabe to the tu -
abe year 1042, s propery ncudbe n the return of the decedent
notwthstandng payment of such amount to benefcares desgnated
by hm.
I. T. 3315 (C. . f 30-2, 164) revoked.
dvce s requested reatve to the ta abe status for edera ncome
ta purposes for the ta abe year 1942 of an amount specfed n the
terms of a contract of empoyment, whch amount, n the event of the
death of the empoyee pror to the e praton of the contract, was
payabe bv the empoyer to the ega representatves of the empoyee
or to benefcares desgnated by hm.
The above-mentoned contract of empoyment provded that n the
event of the death of the empoyee pror to the e praton of the
contract, an amount equa to the amount of the empoyee s annua
saary was fo be pad, durng the 12-month perod foowng the
empoyee s death, at a proportonate rate each month to the ega
representatves of the empoyee or to certan benefcares desgnated
n wrtng by hrn. The empoyee ded n 1942 and payment of the
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29.42-.
130
amount specfed n the contract was made over the 12-month perod
to certan reatves who had been desgnated by the empoyee.
The queston presented nvoves the appcaton of I. T. 3315 (C. .
1939-2,164) n whch there was under consderaton the ta abe status
of an amount desgnated as a mortuary beneft, payabe pursuant to
a resouton of the board of drectors of the M Lfe Insurance Co. n
the case of an empoyee of the company who ded n 193 . It was
hed that the amount payabe at the death of the empoyee to hs
desgnated benefcary dd not represent ncome whch was accruabe
n the return of the decedent as of the date of hs death, under the
provsons of secton 42 of the Revenue ct of 193 .
The ast sentence of secton 42(a) of the Interna Revenue Code,
appcabe to ta abe years begnnng on or before December 31, 1942,
and the ast sentence of secton 42 of the Revenue ct of 193 provde
as foows:
In the case of the death of a ta payer there sha be Incuded n computng net
Income for the ta abe perod n whch fas the date of hs death, amounts
accrued up to the date of hs death If not otherwse propery ncudbe In respect
of such perod or a pror perod.
That provson frst appeared as the ast sentence of secton 42 of the
Revenue ct of 1934.
In consderng the meanng of the term accrued, as used n the
ast sentence of secton 42 of the Revenue ct of 1934, the Supreme
Court of the Unted States, n everng v. state of ohn M. nrght
et a. (312 U. S., G36, Ct. D. 1500, C. . 1941-1, 353), stated:
The competon of the work n progress was necessary to f the
amount due but the rght to payment for work ordnary arses on parta
performance. ccrued ncome under secton 42 for uncompeted operatons
ncudes the vaue of the servces rendered by the decedent, capabe of appro -
mate vauaton whether based on the agreed compensaton or on quantum
merut. The requrement of vauaton comprehends the eements of coect-
bty. The tems here meet these tests and are sub|ect to accrua.
In the nstant case, the amount of the payments made to desgnated
benefcares was payabe pursuant to an empoyment contract, and,
therefore, the rght to the payment represents consderaton for the
servces rendered by the empoyee. y vrtue of that contract, sut
coud have been nsttuted to obtan redress n case of a breach of that
provson of the empoyment contract pertanng to the payment of
the amount under consderaton. The work under the empo| ment
contract had been performed by the empoyee up to the date of hs
death, and the rght to the addtona compensaton then mmedatey
accrued to hs credt for the beneft of hs benefcares. That rght
was an enforceabe rght, and the vaue of the rght was ascertanabe.
ccordngy, upon the prncpe stated by the Supreme Court of the
Unted States n the nrght case, supra, t s hed that the amount
pad under the terms of the empoyment contract accrued as of the
date of the empoyee s death n 1942, and that amount s propery
ncudbe n the return of the decedent under the provsons of secton
42(a) of the Interna Revenue Code, as appcabe to the ta abe
year 1942, notwthstandng payment of such amount to benefcares
desgnated by hm.
In vew of the above, I. T. 3315, supra, whch s not n accord wth
the concuson here reached, s revoked.
In connecton wth the present nqury, t shoud be noted that
secton 134(a) of the Revenue ct of 1942 affords reef from the
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29.42-1.
hardshp resutng from ncudng n the ncome for the decedent s
ast ta abe year amounts whch ordnary woud be recevabe over
a perod of severa years. That secton amended the ast sentence
of secton 42(a) of the Interna Revenue Code, supra, to read as
foows:
In the case of the death of a ta payer whose net Income s computed upon
the bass of the accrua method of accountng, amounts accrued ony
by reason of the death of the ta payer sha not be Incuded n computng net
Income for the perod n whch fas the date of the ta payer s death.
That amendment s appcabe wth respect to ta abe years begnnng
after December 31, 1942. Secton 134(e) of the Revenue ct of 1942
added secton 126 to the Code, whch secton provdes n substance
that the amount of a tems of gross ncome n respect of a decedent
whch s not propery ncudbe n the decedent s return shoud be
ncuded n the gross ncome of the estate of the decedent or of the
persons who, by reason of the death of the decedent, or by bequest,
devse, or nhertance, acqure from the decedent the rght to receve
the amount. Secton 126 of the Code s appcabe to ta abe years
endng after December 31, 1942. owever, secton 134(g) of the
eraue ct of 1942 provdes for the retroactve appcaton of the
aforementoned amendments f certan consents are fed by a partes
affected, permttng the ad|ustment of ther respectve ncome ta
abtes as f the amendments were a part of the appcabe aw for
any ta abe perod whch began after December 31,1933, n whch fe
the date of death of the decedent. (See secton 29.126-4 of Regua-
tons 111.)
Secton 69.42-1: When ncuded n gross ncome. 1945-16-1210
Mm. 5 97
Treatment of compensaton for termnaton of war contracts, de-
ductons upon termnaton, and no-cost settements Mmeograph
57C6 C. . 1944, 156 restated and suppemented.
Washngton 25, D. C, uy , 191,5.
eads of ed Dvsons of the Technca Staff, and Others
Concerned:
Mmeograph 5766 fC. . 1944, 156 , dated November 1. 1944, con-
tans rues governng the treatment of compensaton for the termna-
ton of f ed-prce contracts whch consttute war contracts wthn
the meanng of secton 3 of the Contract Settement ct of 1944 5
Stat., 649, 650 , n cases where the contractor renders hs returns
other than on a bass of cash recepts and dsbursements and the com-
pensaton s receved pursuant to a negotated settement, together
wth rues wth respect to the effect of a no-cost settement n respect
of a termnaton of a f ed-prce contract. The method of treatment
theren prescrbed w contnue to be foowed. Pursuant to the
provsons of secton 29.42-1 of Reguatons 111, as amended by
Treasury Decson 5405 C. . 1944, 154 , approved September 22,
1944, the provsons of Mmeograph 5766 are, however, restated n
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29.42-1.
132
ths mmeograph and are suppemented to prescrbe rues for the
treatment of compensaton for the termnaton of a war contracts n
a cases where the contractor renders hs returns other than on a
bass of cash recepts and dsbursements.
(a) When Compensaton Incuded n Gross Income. In the
case of a termnaton of a contract whch consttutes a war contract
wthn the meanng of secton 3 of the Contract Settement ct of
1944, compensaton for the termnaton sha be ncuded n com-
putng gross ncome for the ta abe year or years determned n
accordance wth the foowng rues:
(1) Ta abe tears endng tror to |t|t 21, 1044. In case a war
contract s termnated wthn a ta abe year endng pror to uy 21,
1944, the effectve date of the Contract Settement ct of 1944, com-
pensaton for the termnaton sha be ncuded n computng gross
ncome for the ta abe year n whch the cam s aowed (or the
settement proposa s accepted), or for the ta abe year n whch ts
vaue s otherwse defntey determned, or for the frst ta abe year
endng after uy 20, 1944, whchever year s the earest provded,
however, that the contractor sha not be requred or permtted to n-
cude n ncome for such year any part of the ncome from the con-
tract termnaton whch was ncuded n ncome for the ta abe year
of the contract termnaton.
The provsons of the precedng sentence are appcabe n the case
of negotated settements of f ed-prce war contracts and n a other
cases of termnatons of war contracts. Under such provsons, f,
pursuant to contractua provsons reatng to the contract termna-
ton, a contractor s entted, upon termnaton, to compensaton for
any partcuar tem of cost, e pense, or oss ncurred wtha the ta -
abe year of the contract termnaton or wthn any pror ta abe
year, the compensaton for such tem sha be ncuded n computng
gross ncome for the ta abe year of the contract termnaton. Where
there s an agreement to pay to the contractor upon termnaton of
the contract, as compensaton for the termnaton, amounts whch are
specfed n the agreement or whch are defntey ascertanabe by
the contractor by a cacuaton or computaton based on ascertaned
factors, such amounts sha be ncuded n computng gross ncome
for the ta abe year of the contract termnaton. In any other case
of an agreement to pay to the contractor, upon termnaton, com-
pensaton for the termnaton (as, for e ampe, where at the tme
of the contract termnaton there s a bndng agreement to -pay the
contractor compensr.ton for the termnaton and the amounts due
under such agreement can be estmated but can be defntey ascer-
taned ony by agreement of the partes, by determnaton of a gov-
ernmenta agency, or by tgaton), the contractor sha not be
permtted or requred merey by reason of such agreement to ncude
n ncome for such year any part of such amounts whch s n e cess
of that so ncuded by hm n fng hs return for such year. In the
case of a negotated ump-sum settement of a f ed-prce contract
(see paragraph (5), beow), the amounts whch, under the precedng
provsons of ths subparagraph, are propery ncudbe n comput-
ng gross ncome for the ta abe year of the contract termnaton,
sha be apped aganst the amount of the ump-sum settement for
the purpose of determnng the part of such settement whch s n-
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133
29.42-1.
cudbe n computng gross ncome for any ta abe year subsequent
to te year of the contract termnaton.
If at the cose of the ta abe year of the contract termnaton there
s no agreement to pay to the contractor any compensaton for the
termnaton, or f the agreement to pay s condtoned upon events
whch have not occurred, no compensaton for the contract termnaton
sha be ncudbe n computng gross ncome for such year. If by
contractua provsons reatng to the contract termnaton a con-
tractor s entted to compensaton for any partcuar tem of cost,
e pense, or oss ncurred wthn a ta abe year subsequent to the year
of the contract termnaton, the compensaton for such tem sha be
ncuded n computng gross ncome for such subsequent year, e cept
that ths rue sha not appy n the case of a negotated ump-sum
settement of a f ed-prce contract (see paragraph (b), beow) where
the amount of such settement s ncudbe n computng gross ncome
for any pror ta abe year or years.
(2) Ta abe years endng on ok after |uy 21, 1044. In case a
war contract s termnated wthn a ta abe year endng on or after
uy 21, 1944, the ncome from the contract termnaton sha be n-
cuded n computng gross ncome for the ta abe year of the contract
termnaton. The foregong method sha appy n a such cases un- .
ess a dfferent method s prescrbed or approved by the Commssoner.
Notwthstandng the foregong provsons of ths subparagraph, f any
part of the compensaton s for any partcuar tem of cost, e pense, or
oss ncurred wthn a ta abe year subsequent to the year of the con-
tract termnaton, such part sha be ncuded n computng gross n-
come for such subsequent year. The rue stated n the precedng
sentence s appcabe where, for e ampe, any such tem s ncurred
under contractua provsons enttng the contractor to remburse-
ment, or where the contractor s entted to compensaton for a par-
tcuar tem under contractua provsons reatng to the termnaton,
or pursuant to procedures and practces under the Contract Sette-
ment ct of 1944 other than those referred to n the Drector s state- .
ment n paragraph (b), beow.
(3) d|ustment of return. If the ncome from the contract
termnaton whch, under the above subparagraph (1), s to be taken
nto account n computng gross ncome for the ta abe year n whch
the Contract Settement ct of 1944 became effectve, or whch, under
the above subparagraph (2), s to be taken nto account for the year
of the contract termnaton, s not defntey ascertaned at the tme
of fng the return, the contractor sha ncude n hs return a rea-
sonabe estmate of such ncome, and shoud attach to hs return a
statement dentfyng the contract termnaton to whch such estmate
reates. When the correct amount of such ncome from the contract
termnaton s ascertaned, an ad|ustment sha be made for the year
for whch such ncome was ncuded. (Cf. Contnenta Te Lumber
Co. v. Unted States, 2 6 U. S., 290 Ct. D. 494, C. . I-1, 260
(1932) .)
(4) Compensaton for nventory tems. Despte the provsons
of the above subparagraphs (1) and (2), f any part of the compen-
saton s for, or n rembursement of, any artces of nventory, or the
costs thereof, whch, upon termnaton or as a condton to the aow-
ance of the compensaton, are requred to be transferred to the Govern-
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29.42-1.
134
ment or any customer, such part of the compensaton sha, to the
e tent not n e cess of the cost of such artces, be ncuded n com-
putng gross ncome for the ta abe year wthn whch such transfer
occurs. (See, however, paragraph ( ), beow.)
(5) Speca provsons as to cost-pus-a-f ed-fee contracts. In
the case of a termnaton of a cost-pus-a-f ed-fee contract, the part
of the rembursements, f ed-fee, or other ncome accrung to the con-
tractor under the contract pror to the date of the contract termna-
ton sha be ncuded n computng gross ncome for the ta abe year
for whch t accrues. (See I. T. 3459, C. . 1941-1, 236.) s used
heren, the term cost-pus-a-f ed-fee contract ncudes the pro-
vsons of a contract denomnated a f ed-prce contract, n case such
provsons ca for the manufacture, constructon, or acquston, on
a rembursabe cost bass, of factes, materas, or servces.
(6) Correaton of deductons and ncome. s a genera rue,
tems whch are deductbe n computng net ncome and whch, for
contract termnaton purposes, are aocabe to the uncompeted por-
ton of a termnated contract sha be deductbe n computng net
ncome for the ta abe year for whch the ncome from the con-
tract termnaton s ncudbe n gross ncome (Cf. oe c6 Co.,
Inc., v. Commssoner, 30 ed. (2d), 630.) In the case of a f ed-
prce war contract termnated wthn a ta abe year endng
pror to uy 21, 1914, the rue stated n the precedng sentence
sha not appy to any tem aocabe to the uncompeted por-
ton of the termnated contract n case there s no agreement upon
termnaton to pay to the contractor compensaton for the termnaton
or for such tem. In the case of a f ed-prce contract, regardess of
when t s termnated, a contractor sha not be permtted to deduct
for the ta abe year of the contract termnaton e penses ncurred,
or osses, deprecaton, or amortzaton sustaned, n a ta abe year
pror to the year of the contract termnaton (see, however, paragraph
(b) of secton 29.42-4 of Reguatons 111, n case the ncome from the
contract may be reported upon the competed contract bass) but
f any such tem s propery ncudbe as a part of the cost of artces
of nventory, t sha be so ncuded. Wth respect to costs of artces
of a knd whch woud propery be ncuded n the nventory of the
contractor f on hand at the cose of a ta abe year, f upon termna-
ton of a war contract a contractor becomes defntey bound or ob-
gated by aw or contractua provsons to transfer any such artces
to the Government or to any other customer, and the contractor s
entted to compensaton for, m rembursement of, or aocabe to, such
artces or the costs thereof (but see paragraph (b), beow), such
artces, f on hand at the cose of any ta abe year, sha be nven-
tored at cost, uness pror to the cose of such year the contractor has
been reeved of hs obgaton to make the transfer and hs rght
to compensaton for such artces has been canceed. The cost of any
such artces whch are transferred to the Government or other cus-
tomer sha be ncuded as a part of the cost of goods sod wthn the
ta abe year of the transfer. Where, by contractua provsons reat-
ng to the termnaton, or by procedures and practces under the Con-
tract Settement ct of 1944 other than those referred to n the
Drector s statement n paragraph ( ), beow, a contractor becomes
entted, upon termnaton of a war contract, to compensaton or
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135
29.42-1.
rembursement for any partcuar artces of nventory prevousy
acqured or for the costs thereof whch were prevousy ncurred,
though the contractor s not under an obgaton to transfer such
artces to the Government or any other customer, such artces,
f on hand at the cose of a ta abe year, sha be nventored
at cost, uness such compensaton or rembursement s ncudbe n
gross ncome for such year or uness, pror to the cose of such year,
a settement of the contractor s rght to such compensaton or rem-
bursement has been made. In the case of nventory costs or other
tems ncurred pursuant to contractua provsons enttng the con-
tractor to rembursement therefor, such costs or other tems, f de-
ductbe, sha be deducted ony for the ta abe year for whch the
rembursement s ncudbe n computng gross ncome, or for the
ta abe year wthn whch a settement s made, whchever ta abe
year s the earer. The rue stated n the precedng sentence s aso
appcabe wth respect to tems ncurred wthn the ta abe year of
the contract termnaton, n case compensaton for such tems s pro-
vded for by aw or contractua provsons, or by procedures and
practces under the Contract Settement ct of 1944, other than those
referred to n the Drector s statement n paragraph ( ), beow.
(b) Scope of Negotated Settt|ements. y etter to the ureau,
dated October 25, 1944, the Drector of Contract Settement states:
Under the procedures and practces prescrbed by ths offce under the Contract
Settement ct of 1944 In respect of negotated settements of cams arsng
out of termnatons of f ed-prce contracts, no part of the compensaton for
the contract termnaton as determned for the purposes of the ct and as agreed
to by the contractor and the contractng agency s made n payment of any
partcuar tem, e cept that a part of the compensaton may be authorzed and
agreed to as payment for a part of the cost of an emergency facty as defned
n secton 124 of the Interna Revenue Code, as amended.
Tns statement s referred to heren as the Drector s statement.
In vew of ths statement, n the case of a negotated ump-sum sette-
ment of a cam for compensaton for termnaton of a f ed-prce
contract, the contractor s precuded from showng, and the Comms-
soner from determnng, for edera ncome and e cess profts ta
purposes, that any part of the compensaton s for, n rembursement
of, or attrbutabe to, any partcuar tem of property, cost, e pense,
or oss, e cept that ths does not appy n cases where specfc prov-
sons n the settement agreement requre otherwse. In such e -
cepted cases, there sha be e cuded from ncome that porton of the
compensaton whch (1) under such provsons s for, or n remburse-
ment of, any such tem, and (2) s to be apped n reducton of the
cost or bass of such tem or, n the event such tem s deductbe, s
ncudbe n ncome for the ta abe year n whch such tem s n-
curred. Such reducton n bass sha be made as of the effectve date
of the contract termnaton. (See Gendnnng, McLesh cfc Co.. Inc., v.
Commssoner, 24 . T. ., 51 , affrmed. 61 ed. (2d), 950 Ct. D. C 1,
C. . II-1 279 (1933) . . Tower Co. v. Commssoner, 3 ed.
(2d), 61 New York. Chcago St. Lous R. R. Co. v. Commssoner,
26 . T. ., 1229, 12 9 dth enry arbour v. Commssoner, 44
.T. ., 1117 and, aso, secton 124(h) of the Interna evenue Code.)
The compensaton whch s to be treated as havng been receved pur-
suant to a negotated settement does not ncude any amounts de-
termned as far compensaton (1) by the contractng agency pursu-
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29.42-1.
136
ant to secton 13(a) of the Contract Settement ct of 1944, (2) by
the appea board provded, for n secton 13 of such ct, (3) by
arbtraton as provded for n such ct, or (4) by any court. Wth
respect to such amounts, the contractor s not precuded from show-
ng, and the Commssoner s not precuded from determnng, the
porton whch s for, n rembursement of, or attrbutabe to,, any
partcuar tem of propery, cost, e pense, or oss.
(e) No-Cost Settements of Termnatons of ed-Prce Con-
tracts. No-cost settement as used heren refers to a settement
n respect of a contract termnaton pursuant to whch the contractor
waves or reeases a cam to compensaton for the contract term-
naton. In the case.of a settement whch s a no-cost settement e -
cept for the fact that the contractor reserves or retans a cam for
compensaton n respect of one or more partcuar tems, the rues
herenafter stated wth respect to no-cost settements are appcabe
ony to the no-cost provsons of such settement. In case a no-cost
settement s made n respect of a termnaton of a f ed-prce con-
tract, regardess of whether t s made pursuant to the provsons of
secton 0(c) of the Contract Settement ct of 1944 or otherwse, n
vew of the Drector s statement (see paragraph (b), above), the
treatment of such settement for edera ncome and e cess profts ta
purposes sha be consstent wth the foowng:
(1) ffect on ncome. No amount sha be treated as ncome from
the contract termnaton for the purposes of the above paragraph (a),
and, f any such amount s ncuded n the return for any year, the
return sha be ad|usted to accord wth the provsons of ths subpara-
graph. Ths ad|ustment may be made at any tme wthn the perod
prescrbed by the statute of mtatons, regardess of when the no-cost
settement s made.
(2) ffect on deductons. The e ecuton of a no-cost settement
does not precude the contractor from beng entted, n computng net
ncome for a gven ta abe year, to deduct any tem whch s aowabe
as a deducton under the provsons of the Interna Revenue Code.
Conversey, the e ecuton of such settement does not aone estabsh
for the contractor a rght to deduct for any partcuar year any tem
not otherwse aowabe n computng net ncome for such year. (Cf.
. D. Lee Mercante Go. v. Commssoner, 79 ed. (2d), 391 Ct. D.
110 , C. . -1, 302 (1936) .) The deductbty of any tem s to
be determned upon the bass of a the pertnent facts and crcum-
stances and rrespectve of whether a no-cost settement s or s not
made Consequenty, n termnatons of f ed-prce contracts, the
provsons of the Contract Settement ct of 1944, as construed and
apped by the Drector of Contract Settement n negotated sette-
ments, ncudng no-cost settements do not precude the deducton of
e penses ncurred, or osses, deprecaton, or amortzaton sustaned,
n connecton wth the termnated contract, though such tems are
aocabe to the uncompeted porton of such contract and the deduct-
bty of such tems s to be determned wthout regard to any rght
of the contractor to compensaton n such cases.
(3) ffect on nventores. Regardess of when the no-cost sette-
ment s made, the determnaton of what artces are propery ncud-
be n the cosng nventory of the year of the contract termnaton,
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137 | 29.42-1.
or the cosng nventory of any subsequent year, and the vauaton of
such artces for nventory purposes, are to be made wthout regard
to any rght of the contractor to compensaton for termnaton of a
contract termnated pror to the nventory date. (See U. S. Cartrdge
Co. v. Unted States, 2 4 U. S., 511 Ct. D. 460, C. . I-1,2 2 (1932)
mercan Propeer Mfg. Co. v. Unted States, 14 ed. Supp., 1G .)
If upon termnaton of a war contract a contractor becomes entted to
compensaton for, or n rembursement of, any partcuar artces or
the costs thereof, such crcumstances, f prevang on the nventory
date, sha be taken nto consderaton n vaung the artces for
nventory purposes. (Cf. paragraph (a)(6), above.)
(4) Treatment of speca agreements or procedures. Despte the
provsons of the precedng subparagraphs (1), (2), and (3), n the
case of any no-cost settement, consderaton sha be gven to any
pertnent speca agreement or procedure, as, for e ampe, () where
there s an agreement to pay the contractor upon termnaton of the
contract, as compensaton for the termnaton, amounts whch are
specfed n the agreement or whch are defntey ascertanabe by
the contract or by a cacuaton or computaton based on ascertaned
factors, () where compensator for partcuar tems s defntey
provded for by aw or contractua provsons or by procedures and
practces under the Contract Settement ct of 1944, other than those
referred to n the Drector s statement, or () where, pror to the
settement, far compensaton for the contract termnaton has been
determned by the contractng agency pursuant to secton 13(a) of the
Contract Settement ct of 1944, or has been determned by a court or
by the appea board referred to n secton 13(b) of such ct. The
e tent to whch the provsons of the precedng subparagraphs (1),
(2),and (3) are appcabe n such cases sha be determned by refer-
ence to a the pertnent facts n the partcuar case. In ths con-
necton, see paragraph (a), above.
(d) Compensaton for property. cept n the case of property
of a knd whch woud propery be ncuded n the nventory of the
contractor f on hand at the cose of a ta abe year, f any part of the
compensaton for the contract termnaton s for property, or a oss
wth respect to property, whch s requred to be transferred to the
Government upon termnaton or as a condton to the aowance of
the compensaton, such part of the compensaton sha, to the e tent
not n e cess of the ad|usted bass of the property at the date of the
contract termnaton, be e cuded n determnng the amount of com-
pensaton to be ncuded n computng gross ncome pursuant to the
provsons of the above paragraph (a), and the amount of such e -
cuson sha be treated as consderaton for the property. In such
case, f the property wth respect to whch the aowance s receved
s an emergency facty as defned by secton 124 of the Interna
Revenue Code, as amended, a rghts to amortzaton deductons under
such secton cease at the tme of the contract termnaton and no such
deductons are aowabe wth respect to the facty for the month of
the contract termnaton or for any subsequent month and no recom-
putaton of the amortzaton deductons under the provsons of sec-
ton 124(d) of the Code sha be made, uness the date of the Pres-
dent s procamaton (or the date specfed n a non-necessty certf-
C 4354 46 10
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29.42-1.
13
cate ssued wth respect to the facty) fas wthn a month whch s
earer than the month of the contract termnaton.
Correspondence n regard to ths mmeograph shoud refer to ts
number and the symbos IT: NDC.
oseph D. Nunan, r.,
Commssoner.
Secton 29.42-1: When ncuded n gross ncome. 1945-23-12177
L T. 3770
INT RN L R NU COD .
The amount of the credt to whch an empoyer s entted under
secton 577 of the New York unempoyment nsurance aw, as added
by secton 1, chapter 646, Laws of 1945, shoud be reported as
Income n the edera ncome ta return of an empoyer who keeps
accounts and fes edera ncome ta returns on the accrua bass
to the e tent that, and n the year when, he frst becomes abe for
contrbutons to the unempoyment nsurance fund aganst whch the
amount of such credt may be apped. The amount of such a
credt shoud be reported as ncome by an empoyer who keeps
accounts and fes edera ncome ta returns on the cash recepts
and dsbursements bass to the e tent that, and n the year when,
t becomes avaabe to hm n satsfacton of hs abty for such
contrbutons.
dvce s requested wth respect to the treatment for edera
ncome ta purposes of the credt to whch quafed empoyers are
entted under secton 577 of the New York unempoyment nsurance
aw, as added by secton 1, chapter 64G, Laws of 1945.
Secton 577.3 of the New York unempoyment nsurance aw
provdes for the assgnment to quafed empoyers of a porton of
the unempoyment nsurance fund surpus. The term surpus
s defned n secton 577.1(e) of the statute n queston. Secton
577.4 of the New York unempoyment nsurance aw provdes n part
as foows:
4. Ckedt Notces. ach quafed empoyer sha be furnshed a
notce showng the amount of credt to whch he s entted. The amount shown
on the notce may be apped aganst contrbutons whch are payabe on wages
pad n the four consecutve caendar quarters begnnng on the effectve date
uy 1 of any year , and reported not ater than thrty days after the date
prescrbed by the commssoner ndustra commssoner of the State of New
York for payment of contrbutons on wages pad In the ast of such quar-
ters. Itacs supped.
Secton 570.2 of the New York unempoyment nsurance aw provdes
that a contrbutons from empoyers sha be pad at such tmes
and n such manner as the commssoner (ndustra commssoner of
the State of New York) may prescrbe. The commssoner has pre-
scrbed n the appcabe reguatons that payments of contrbutons
sha become due on or before the ast day of the month foowng
the cose of the quarter durng whch the wages are pad.
Secton 42 of the Interna Revenue Code provdes, as a genera rue,
that the amount of a tems of gross ncome sha be ncuded n the
gross ncome for the ta abe year n whch receved by the ta payer,
uness, under methods of accountng permtted under secton 41 o
the Code, any such amounts are to be propery accounted for as of
a dfferent perod. Secton 41 of the Code provdes n part for the
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139
5 29.42-1.
computaton of net ncome n accordance wth the method of account-
ng reguary empoyed n keepng the books of the ta payer. In vew
of those provsons of aw, a ta payer keepng accounts and fng
edera ncome ta returns on the accrua bass, unke a ta payer
keepng accounts and fng edera ncome ta returns on the cash
recepts and dsbursements bass, ncudes n hs return a tems of
ncome accrued durng the ta abe year regardess of when actuay
receved. Smar treatment wth respect to deductons and credts
s provded for n secton 43 of the Code. ccordngy, n the case
of a quafed empoyer n the State of New York keepng accounts
and fng edera ncome ta returns on the accrua bass, the New
York unempoyment nsurance ta whch accrues durng any ta abe
year s deductbe n the return for that year regardess of the fact
that a part of such ta s not pad unt after the cose of the ta abe
year. Snce the credt to whch quafed empoyers are entted under
secton 577 of the New York unempoyment nsurance aw may be
apped aganst contrbutons whch are payabe on wages pad n
the four consecutve caendar quarters begnnng on the effectve
te. such part of the credt whch s appcabe aganst unempoy-
ment nsurance ta accrued durng a partcuar ta abe year s ncud-
Wen gross ncome of that year.
In vew of the foregong, t s hed that the amount of the credt to
whch an empoyer s entted under secton 577 of the New York
unempoyment nsurance aw, supra, shoud be reported as ncome
n the edera ncome ta return of an empoyer who keeps accounts
and fes edera ncome ta returns on the accrua bass to the e tent
that, and n the year when, he frst becomes abe for contrbutons to
the unempoyment nsurance fund aganst whch the amount of such
credt may be apped. The amount of such a credt shoud be
reported as ncome by an empoyer who keeps accounts and fes ed-
era ncome ta returns on the cash recepts and dsbursements bass
to the e tent that, and n the year when, t becomes avaabe to hm
n satsfacton of hs abty for such contrbutons.
ppcaton of the above-stated concusons may be ustrated by
the foowng e ampe: ta payer (empoyer) who fes hs edera
ncome ta returns on the caendar year bass receves a notce on
uy 1, 1945, that he s entted to an unempoyment nsurance ta
credt of 1,500. If the ta payer keeps accounts and fes edera
ncome ta returns on the accrua bass and he becomes abe for con-
trbutons to the unempoyment nsurance fund n the amount of 675
for each of the quarters ended September 30, 1945, and December 31,
1945, the amount of 1,350 shoud be ncuded n hs gross ncome
for the caendar year 1945 and a deducton may be taken for the fu
amount of hs abty ( 1,350) to the fund. The baance of the credt
( 150) shoud be ncuded n the ta payer s ross ncome for the
caendar year 1946, provded t may be used to offset hs abty to the
fund for that year. If, however, the ta payer keeps accounts and
fes edera ncome ta returns on the cash recepts and dsburse-
ments bass and hs abty for contrbutons to the unempoyment
nsurance fund for each of the quarters ended September 30,1945, and
December 31, 1945, s 00, the amount of 00 shoud be ncuded
n hs gross ncome for the caendar year 1945 and a deducton from
gross ncome may be taken for that year n the amount of hs cash
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29.43-2.)
140
payments to the fund pus the 00 credt. The baance of the credt
( 700) shoud be ncuded n the ta payer s gross ncome for the
caendar year 1946, provded t may be used to offset hs abty
to the fund for that year.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
Secton 29.43-2: When charges deductbe. 1945-4-11966
I. T. 3716
INT RN L R NU COD .
Treatment of deductons for edera Income and e cess profts
ta purposes of (1) retroactve wage ncreases awarded by the Na-
tona War Labor oard and (2) wage and saary ad|ustments under
Pubc Law 729, Seventy-seventh Congress, second sesson (50 Stat.,
765), approved October 2, 1942, as amended by the Pubc Debt ct
of 1943 ( 57 Stat., 63).
dvce s requested reatve to the treatment of deductons for ede-
ra ncome ana e cess profts ta purposes of (1) retroactve wage
ncreases awarded by the Natona War Labor oard, and (2) wage
and saary ad|ustments under Pubc Law 729, Seventy-seventh Con-
gress, second sesson (56 Stat., 765). approved October 2, 1942, as
amended by the Pubc Debt ct of 1943 (57 Stat.. 63).
Sec. 43. Pkbod fou Whch Deductons and Credts Taken. The deduc-
tons provded for n ths chapter sha be taken for the ta abe year
n whch pad or accrued or pad or Incurred, dependent upon the method of
accountng upon the bass of whch the net ncome s computed, uness n order
to ceary refect the ncome the deductons shoud be taken as of a
dfferent perod. Itacs supped.
Pursuant to the above-quoted provsons of secton 43 of the Code,
t s the poston of the ureau that n a case n whch an empoyer
was ready and wng to pay retroactve wage ncreases requrng the
aprova of the Natona War Labor oard, the payments of such
ncreased wages are deductbe for the year n whch the empoyer
fed an appcaton for such approva wth the Natona War Labor
oard, to the e tent that such payments reate.to servces rendered
n the year of the appcaton or years pror thereto. In a case n whch
the empoyer contests the wage ncreases or aowances and retro-
actve pay ncreases are ordered by the Natona War Labor oard,
the deducton therefor s aowabe ony for the year n whch the con-
troversy s setted. Ths prncpe s equay appcabe to wage and
saary ad|ustments under Pubc Law 729, as amended, supra, whch
ad|ustments are sub|ect to the approva of the Natona War Labor
oard, the Commssoner of Interna Revenue, or the War ood
dmnstrator.
Secton 29.43-2: When charges deductbe.
INT RN L R NU COD .
Prepad nterest. (See I. T. 3740, page 109.)
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141
29.43-2
Secton 29.43-2: When charges deductbe. 1915-13-12073
I. T. 3746
Where an empoyer, who keeps accounts and makes edera ncome
ta returns on the accrua bass, denes abty for defcences n
wages for pror years under the ar Labor Standards ct of 103
(52 Stat., 1060), and thereafter pays amounts n satsfacton of the
defcences, such amounts shoud be accrued and deducted for the
ta abe vear n whch abty s fnay determned.
I. T. 35(33 (C. . 1042-2, 115) modfed.
Reconsderaton has been gven to I. T. 3563 (C. . 1942-2, 115)
n the ght of the decson of the Supreme Court of the Unted States
n D e Pne Products Co. v. Commssoner (320 U. S., 516, Ct. D.
159 . C. . 1944, 509) and the decson of The Ta Court of the Unted
States n tantc Coast Lne Raroad Co. v. Commssoner (4 T. C,
110,acquescence, C. . 1914-1, 2).
I. T. 3563, supra, hods n part that amounts pad under the ar
Labor Standards ct of 193 (52 Stat., 1060) as resttuton for de-
fcences n wages for pror years shoud be accrued and deducted
by empoyers who report ncome upon the accrua bass for the years
n whch the servces were rendered.
In D e Pne Products Co. v. Commssoner, supra, t was hed that
a ta payer may not take a deducton for a ta whe denyng abty
for the ta and contestng t n court but must awat the outcome of the
tgaton and cam a deducton ony for the ta abe year n whch
fucn abty s fnay ad|udcated. In tantc Coast Lne Raroad
Co. v. Commssoner, supra, t was hed that where a ta payer con-
tends t s not abe for the payment of addtona wages under the
ar Labor Standards ct of 193 because the wages aready pad
are suffcent to qudate ts abty under that ct, abty for such
addtona wages pad pursuant to a stpuaton n settement of the
controversy dd not accrue durng the years n whch the servces were
rendered but n the year of settement, and the addtona wages were
deductbe for that year. In reachng that concuson, The Ta Court
reed prmary upon D e Pne Products Co. v. Commssoner, supra,
Securty our Mh Co. v. Commssoner (321 U. S., 2 1, Ct. D. 1603,
C. . 1944, 526), and amaca Water Sup fy Co. v. Commssoner (125
ed. (2d), 512, certorar dened, 316 U. S., 69 ).
In vew of the foregong, t s hed that where an empoyer, who
keeps accounts and makes edera ncome ta returns on the accrua
bass, denes abty for defcences n wages for pror years under
the ar Labor Standards ct of 193 (52 Stat., 1060), and thereafter
ays amounts n satsfacton of the defcences, such amounts shoud
e accrued and deducted for the ta abe year n whch abty s
fnay determned.
L T. 3563, supra, s modfed to accord wth ths concuson.
Secton 29.43-2: When charges deductbe.
Deducton for edera capta stock ta . G. C. M. 23251 (C. .
1942-2,103) modfed. (See G. C. M. 24461, page 111.)
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29.51-1. 142
S CTION 45. LLOC TION O INCOM
ND D DUCTIONS.
Secton 29.45-1: Determnaton of the ta abe net
ncome of a controed ta payer.
INT RN L R NU COD .
P RT . R TURNS ND P YM NT O T .
S CTION 51. INDI IDU L R TURNS.
Secton 29.51-1: Indvdua returns.
INT RN L R NU COD .
Secton 29.51-1: Indvdua returns. 1945-12-12061
I. T. 3743
INT RN L R NU COD .
usband and wfe hodng property a tenants by the entrety In
the State of Oregon may each report one-haf of the ncome from
such property n ther separate edera ncome ta returns.
dvce s requested as to the proper treatment for edera ncome
ta purposes of ncome from property hed by husband and wfe as
tenants by the entrety n the State of Oregon.
Secton 33-203 of the Oregon Code (1930) reads as foows:
Conveyances etween usband and Wfe ad states by the ntrety.
conveyance, transfer or en e ecuted by ether husband or wfe to or n favor
of the other sha be vad to the same e tent as between other persons pro-
vded, that when a husband or wfe sha convey to the other an undvded one-
haf of any rea property and sha retan a ke undvded haf, and n snch
conveyance there be used words ndcatng an ntenton to create an estate n
entrety, sad husband and wfe sha be deemed to hod the rea property
descrbed n sad conveyance by entretes.
In the decson of the Supreme Court of Oregon rendered March 22,
1927, n Ganoe v. Ohrnart (121 Oreg., 116, 254 Pac, 203), t was stated
by the court that the Marred Women s ct does not repea estates by
the entrety, but such act aboshed the rght of the husband to the
e cusve en|oyment of the usufruct of an estate hed by the entrety,
and that returns and profts of and owned by the entrety are common
property of husband and wfe, each ownng one-haf thereof.
In G. C. M. 19143 (C. . 1937-2, 223), t was hed that a husband
and wfe hodng property as tenants by the entrety n the State of
Mchgan may each report one-haf of the ncome from such property
n ther separate returns. In I. T. 3235 (C. . 193 -2, 16Cr), t was
hed that a husband and wfe, who owned an orange grove n orda
as tenants by the entrety, were each entted to report one-haf of the
ncome derved from the operaton of the orange grove.
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143
29.51-1.
In vew of the prncpes of aw governng estates by the entrety
n the State of Oregon, t s hed that husband and wfe who hod
property as tenants by the entrety n that State may each report
one-haf of the ncome from such property n ther separate edera
ncome ta returns.
( so Secton 113(a), Secton 29.113(a)-2.) I. T. 3754
INT RN L R NU COD .
usband and wfe hodng rea estate as ont tenants n the
State of Wsconsn may, for edera ncome ta purposes, each report
one-haf of the net renta ncome of such property. Upon sae of the
property, the sae prce shoud be aocated n equa amounts to the
husband and wfe, provded the |ont tenancy was not created under
crcumstances whch woud brng the sae wthn the rue ad down
n .7. L. fencrney v. Commssoner ( 2 ed. (2d), 065. Ct D. 1156,
C. . -2, 21 (1936)), n whch a arrangements had been com-
peted for the sae of the property pror to the transfer of a one-
baf nterest to the wfe.
Where property stuated n the State of Wsconsn s hed by hus-
band ard wfe as |ont tenants and ether husband or wfe des, the
gan or oss bass of the property upon the sae by the survvor s,
under secton 113(a) of the Interna Revenue Code, the cost of the
property rather than one-haf of the cost pus one-haf the far market
vaue at the date of death of the deceased spouse.
dvce s requested as to the proper treatment, for edera ncome
ta purposes, of (1) renta ncome from rea estate hed h |ont tenancy
n the State of Wsconsn, and (2) proceeds receved by the |ont
tenants from the sae of such property, and the gan or oss bass of
such propert| upon sae by the survvng spouse.
Sectons 246.01, 246.03, and 234.21 of Wsconsn Statutes, 1941
(reatng to the rghts of the wfe n property), provde as foows:
246.01 Reaty of. The rea estate of every descrpton, ncudng a hed
n |out tenancy wth her husband, and the rents, ssues and profts thereof of
any femae now marred sha not be sub|ect to the dsposa of her husband, but
sha be her soe and separate property as f she were unmarred.
246.03 May Receve, od and Convey Property. ny marred femae may
receve by nhertance or by gft, grant, devse or bequest from any person, hod
to her soe and separate use, convey and devse rea and persona property and
any nterest or estate theren of any descrpton, ncudng a hed n |ont
tenancy wth her husband, and the rents, ssues and profts thereof n the same
manner and wth ke effect as f she were unmarred, and the same sha not be
sub|ect to the dsposa of her husband nor be abe for hs debts. ny convey-
ance, transfer or en e ecuted by ether husband or wfe to or n favor of the
ether sha be vad to the same e tent as between other persons.
234.21 ctons etween Cotenants. One |ont tenant or tenant In common
and hs e ecutors or admnstrators may mantan an acton for money had and
receved aganst hs cotenant for recevng more than hs |ust proporton of the
rents or profts of the estate owned by them as |out tenants or tenants n
common.
It appears that the above-quoted sectons are an adopton of the
generay accepted prncpe that each |ont tenant s entted to hs
or her share of the rents and profts derved from property hed n
|ont tenancy. (See 14 m. ur.. Cotenancy, secton 31 Washburn On
Rea Property, voume 1, page 421: Case e a. v. Owen et a., 139 Ind.,
22,3 N. .,395.)
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29.51-1.
144
It s hed that for edera ncome ta purposes a husband and wfe
ownng rea estate as |ont tenants n the btate of Wsconsn may each
report one-haf of the net renta ncome of such property. Upon
the sae of such property, the sae prce shoud be aocated n equa
amounts to the husband and wfe, provded, however, the |ont ten-
ancy was not created under crcumstances whch woud brng the sae
wthn the rue ad down n Mcnerney v. Commssoner ( 2 ed.
(2d), 665, Ct. D. 1156/C. . -2,21 (193G)), n whch a arrange-
ments had been competed for the sae of the property pror to the
transfer of a one-haf nterest to the wfe.
Wth respect to the gan or oss bass where ether the husband
or wfe des whe hodng property as |ont tenants and the survvng
spouse ses the property, under the common aw each |ont tenant
s consdered as beng sezed of the entre estate, so that when one
|ont tenant des hs or her nterest does not pass from the decedent
to the survvor, but merey ceases and the entre estate contnues n
the survvng |ont tenant by rght of survvorshp. (See Tffany,
Rea Property (thrd edton), voume 2, sectons 41 , 419, at pages
196 and 19 Washburn On Rea Property, voume 1, pages 421, 425,
426 ernandez v. ecker, 54 ed. (2d), 542 arr et at. v. Trustees
of Grand Lodge, . 0. . W.. 3 Ws., 446. 53 N. W., 73 .) It was hed
n G. C. M. 6677, C. . III-2, 172 (1929), and by the oard of
Ta ppeas (now The Ta Court of the Unted States) n een G.
Carpenter v. Commssoner (27 . T. ., 2 2) that the bass for the
determnaton of gan or oss upon the sae by the survvng spouse of
property stuated n Inos, whch was hed by the husband and wfe
as |ont tenants, was the cost of such property. The reasonng con-
taned n G. C. M. 6677, supra, and n the oard s decson s appcabe
to Wsconsn renta property hed by the husband and wfe as |ont
tenants.
ccordngy, t s hed that where property stuated n the State
of Wsconsn s hed by husband and wfe as |ont tenants and ether
the husband or wfe des, the gan or oss bass of the property upon
the sae by the survvor, s, under the provsons of secton 113(a)
of the Code, the cost of the property, rather than one-haf the cost
pus one-haf the far market vaue at the date of death of the deceased
spouse.
I. T. 3759
INT RN L R NU COD .
wdow fed n edera Income ta return n her name and
that of her deceased husband who ded after the cose of the ta -
abe year but before the due date of the return. The wdow was
entted to the entre estate and no admnstraton was requred.
The ncome ncuded n the return conssted of the decedent s saary
and ncome derved from property hed as |ont tenants. ed,
a vad eecton to fe a |ont return was made and the wdow s
abe for the ta shown thereon to be due.
dvce s requested whether a wdow who fed a edera ncome
ta return n her name and that of her deceased husband who ded
after the cose of the ta abe year but before the due date of the re-
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145
5 29.52-1.
turn made a vad eecton to fe a |ont return and w hether she s
abe for the ta shown thereon to be due.
The husband, who was domced n the State of R, ded ntestate
n anuary foowng the cose of a ta abe caendar year, eavng
no estate whch was requred to be admnstered under the aws of
the State of R, and, therefore, no admnstrator was apponted. The
wdow was entted to the entre estate. Subsequent to the date of
death, but before the due date for fng a edera ncome ta return
for the caendar year precedng the husband s death had e pred,
the wdow fed a return. orm 1040, n her name and that of her
drceased husband. The ncome reported n the return conssted of
the decedent s saary and a sma amount of ncome derved from
renta property whch had been hed by the decedent and hs wfe as
|ont tenants wth the rght of survvorshp.
Secton 51(b) of the Interna Revenue Code, as amended, provdes
n part as foows:
(b) usband and Wfe. husband fnd wfe may make a snge return
oD y. Such n return may be made even though one of the spouses has nether
poss ncome nor deductons. If a |ont return s made the tu ahu he eotn-
f tt on the aggregate ncome and the abty wth respect to the ta sha
k |ont and severa. The status of ndvduas as husband and wfe
sa be determned as of the ast day of the ta abe year. Itacs supped.
It s hed that where a wdow fed a edera ncome ta return n
her name and that of her deceased husband who ded after the cose
of the ta abe year but before the due date of the return eavng no
estate whch was requred to be admnstered, the ncome ncuded n
the return consstng of the decedent s saary and a sma amount of
renta ncome, a vad eecton to fe a |ont return was made and
the wdow s abe for the ta shown thereon to be due.
Secton 29.51-2: orm of return.
INT RN L R NU COD .
Coa mners whose occupatona e penses do not consttute wages
sub|ect to wthhodng of ncome ta at the source. (See I. T. 3755,
page 321.)
S CTION 52. CORPOR TION R TURNS.
Secton 29.52-1: Corporaton returns. 1945-1-11920
G. CM. 24423
INT RN L R NU COD .
new ta abe entty s not created upon the converson of a State
bank Into a natona bank, pursuant to secton 35, tte 12, Unted
States Code, and n such cases ony one edera ncome ta return
s requred for the entre ta abe year.
n opnon s requested whether a new ta abe entty s created
upon the converson of a State bank nto a natona bank, pursuant to
secton 35, tte 12, Unted States Code, and whether separate edera
ncome ta returns are requred to be fed, one for the State bank and
one for the natona bank.
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29.52-1.
146
Secton 35, tte 12, Unted States Code, provdes n part as foows:
Skc. 35. Organzaton of State banks as natona bankng assocatons
ny bank ncorporated by speca aw of any State or organzed
under the genera aws of any State and havng an unmpared capta
suffcent to entte t to become a natona bankng assocaton under the prov-
sons of the e stng aws may, by the vote of the sharehoders ownng not ess
than 51 per centum of the capta stock of such bank wth the approva
of the Comptroer of the Currency be converted nto a natona bankng assoca-
ton, wth any name approved by the Comptroer of the Currency.
The ureau took the poston n O. D. 476 (C. . 2, 222 (1920)) that
snce, n the converson of a State bank nto a natona bank, there s
not a dssouton of the corporaton but merey a change of tte and
the e tenson of edera supervson thereover, a bank so changng
durng the ta abe year shoud fe one return for the entre year.
That rung was revoked by I. T. 2299 (C. . -2,121 (1926)) on the
bass of S. M. 4947 (C. . -2, 120 (1926)) wheren t was hed n
effect that where a trust company s created for the purpose of acqur-
ng the assets and takng over the busness of a natona bank, a new
corporate entty resuts and each corporaton s requred to fe a return
for the perod durng whch t was n e stence. That rung (S. M.
4947 ) dstngushed S. M. 4947 (C. . -, 9 (1926)) wheren t was
hed that where a new corporaton was created under the aws of one
State to take over the busness of a corporaton e stng under the aws
of another State a new entty s created, and ponted out that no new
entty s created where both the od and new corporatons are organzed
under the aws of the same State.
The revocaton of O. D. 476, supra, was not compeed by the rung
n S. M. 4947 , supra. Where a natona bank converts nto a State
bank created for the purpose of takng over the busness and assets of
the natona bank, the natona bank s wound up and dssoved and a
new corporate entty comes nto e stence. The State corporaton
contnues the busness as a dstnct entty.
I. T. 2299, supra, s n effect contrary to the poston taken n G. C. M.
113 7 (C. . II-1,427 (1933)) wheren t was hed that where a State
bank becomes a natona bank by converson, nether the ssue nor
surrender of stock ncdent to that converson s sub|ect to the stamp
ta on the orgna ssue of shares or certfcates of stock, snce the
dentty of the corporaton contnues. In Metropotan Natona ank
v. Caggett (141 U. S., 520), the Unted States Supreme Court stated:
the change or converson of the Metropotan ank nto the Metro-
potan Natona ank dd not cose ts busness of bankng nor destroy ts
dentty or ts corporate e stence, but smpy resuted n a contnuaton of the
same body wt the same offcers and stockhoders, the same property, assets,
and bankng busness under a changed |ursdcton that t remaned one and
the same bank, and went on dong busness unnterruptedy
number of ower courts have apped ths concept n a varety of
crcumstances, and, athough the decson was not made n a ta case,
t s persuasve where the ssue s whether, for ta purposes, a new
entty s created. The Comptroer of the Currency, the offcer charged
wth the admnstraton of the natona bankng aws, aso takes the
poston that no new entty comes nto e stence upon converson of a
State bank nto a natona bank pursuant to secton 35, tte 12. Unted
States Code, supra. s nterpretaton of that secton s entted to
consderabe weght n connecton wth ts nterpretaton for ta
purposes.
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( 29.54-1.
The decsons reed upon by ths offce as authorty for the opnon
e pressed n S. M. 4947 , supra, . e., Marr v. Unted States (26 U. S.,
536, T. D. 3755, C. . I -2, 116 (1925)) and Unted States v. Phes
(257 U. S., 156, T. D. 3270, C. . 5, 37 (1921)) do not compe the con-
cuson that the contnung natona bank s a new entty. In each
of those cases t was assumed that there was a new entty, and the ssue
was whether there was a substantay dfferent entty. The funda-
menta queston here s whether, n fact, a new ega entty s created
upon converson. Ths queston s dependent upon an nterpretaton
of the secton of aw pursuant to whch the converson s accompshed.
The decson of the Supreme Court n the Metropotan Natona ank
ease, nterpretng the equvaent of secton 35, tte 12, Unted States
( ode, supra, hods that there s no new entty for the purposes there n
queston, and t s beeved that such hodng shoud be foowed n
a edera ncome ta case.
In vew of the foregong, t s the opnon of ths offce that a new
ta abe entty s not created upon the converson of a State bank
nto a natona bank pursuant to secton 35, tte 12, Unted States
Code, and n such cases ony one edera ncome ta return s re-
qured for the entre ta abe year. owever, ths memorandum s
ntended to appy,ony to cases nvovng a mere converson under
secton 35, tte 12, Unted States Code, supra, and t does not affect
S. M. 4947 , supra, n any way, nor does t overrue S. M. 3451 (C. .
I -2, 3 (1925)). It s recommended that I. T. 2299, supra, be
modfed to renstate the poston taken n O. D. 476, supra.
. P. Wenche,
S CTION 54. R CORDS ND SP CI L R TURNS.
Secton 29.54 1: Records and ncome ta forms. 1945-3-1194
( so Secton 101, Secton 29.101-2.) . I. T. 3710
INT RN L R NU COD .
mounts receved by a hospta, whch has been hed to be e empt
from edera ncome ta under secton 101(6) of the Interna .Reve-
nue Code as a chartabe organzaton, from the Unted States or a
State for the care of patents under Government programs, do not
consttute funds contrbuted by the Unted States or any State
wthn the meanng of secton 54(f) of the Code, as added by secton
117(a) of the Revenue ct of 1943, and the hospta s requred to
fe the annua returns of nformaton ( orm 9 0) prescrbed by
that secton.
dvce s requested whether a hospta, whch s e empt from ed-
era ncome ta under secton 101 (6) of the Interna Revenue Code as
a chartabe organzaton and whch receves amounts from the Unted
State or a State for the care of patents under Government programs,
s requred to fe the annua returns of nformaton ( orm 990) pre-
scrbed by secton 54(f) of the Code.
Informaton has been receved ndcatng that a consderabe num-
ber of hosptas whch are e empt from edera ncome ta under sec-
ton 101(6) of the Code as chartabe organzatons receve ncome
from the edera and State Governments n the form of fees pad for
the care of patents pursuant to pubc assstance, workmen s compen-
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55.
14S
saton, emergency maternty and nfant care, or any other of the Gov-
ernment programs under whch the hosptas care for patents and
receve payment therefor. Such nformaton shows that some of such
hosptas do not receve any vountary contrbutons from the Unted
States, or any of the States, but ony fees for the care of patents.
Under secton 54(f) of the Interna Revenue Code, as added by
secton 117(a) of the Revenue ct of 1943, appcabe wth respect
to ta abe years begnnng after December 31, 1942, every organza-
ton, e cept as theren provded, e empt from ta aton under secton
101 of the Code, s requred to fe an annua return statng specfcay
the tems of ts gross ncome, recepts, and dsbursements. Secton
54(f) (3) of the Code provdes that no such annua return need be fed
by a chartabe organzaton whch s e empt under secton 101(0), f
such organzaton s supported, n whoe or n part, by funds con-
trbuted by the Unted States or any State or potca subdvson
thereof.
It s hed that amounts receved by a hospta, whch has been hed
to be e empt from edera ncome ta under secton 101(6) of the In-
terna Revenue Code as a chartabe organzaton, from the Unted
States or a State for the care of patents under Government programs,
do not consttute funds contrbuted by the Unted States or any
State wthn the meanng of secton 54(f) of the Code, as added by
secton 117(a) of the Revenue ct of 1943, and the hospta s requred
to fe the annua returns of nformaton prescrbed by that secton.
Such amounts are n the nature of fees pad for servces rendered
by the hospta. In order that the amounts receved may be regarded
as contrbutons, t s necessary that there be no servces rendered or
other consderaton for whch the fees are pad.
S CTION 55. PU LICITY O R TURNS.
1945-9-12041
T.D. 5453
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 45 , SU -
P RT . INSP CTION O C RT IN R TURNS UND R T INT RN L R -
NU COD .
Inspecton of ndvdua statstca transcrpt punch cards by the
edera Securty gency.
Washngton 25, D. C.
Inspecton of statstca transcrpt punch cards by the edera
Securty gency. Statstca transcrpt punch cards prepared by the
ureau of Interna Revenue from ndvdua ncome ta returns made
under the Interna Revenue Code, as amended, for ta abe years be-
gnnng n 1944 and endng on or before une 30, 1945, may be open
to nspecton by the edera Securty gency. The nspecton of
such transcrpt cards heren authorzed may be made by any offcer
or empoyee of the gency duy authorzed by the dmnstrator of
the gency to make such nspecton. Upon wrtten notce by such
dmnstrator to the Secretary of the Treasury gvng the casses of
seected transcrpt cards t s desred to nspect, the Secretary and any
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149
offcer or empoyee of the Treasury Department, wth the approva
of the Secretary, may furnsh such gency wth any data on such
cards or may make the cards, or any of them, avaabe n the offce
of the Commssoner of Interna Revenue for nspecton and copyng
by the gency or by such e amners or agents as the dmnstrator
thereof may desgnate. The nformaton so obtaned may be pub-
shed or dscosed n statstca form provded such pubcaton does
not dscose, drecty or ndrecty, the name or address of any ta -
payer. ( . O. 9540, May 1, 1945, and sec. 55(a) of the Interna
Revenue Code 53 Stat., 29 26 U. S. C, 1940 ed., 55(a).)
erbert . Gaston,
pproved May 1,1945.
arry S. Truman,
The Whte ouse.
( ed wth the Dvson of the edera Regster May 1, 1945, 11.16 a. m.)
W TI ORD R INSP CTION Y T D R L S CURITY G NCY O
ST TISTIC L TR NSCRIPT PUNC C RDS PR P R D ROM INDI IDU L IN-
COM T R TURNS.
y vrtue of the authorty vested n me by secton 55(a) of the
Interna Revenue Code (53 Stat., 29), t s hereby ordered that stats-
tca transcrpt punch cards prepared by the ureau of Interna
evenue from ndvdua ncome ta returns made under the Interna
Revenue Code, as amended, for ta abe years begnnng n 1944 and
endng on or before une 30, 1945, may be open to nspecton by the
edera Securty gency such nspecton to be n accordance and
upon compance wth the rues and reguatons prescrbed by the
Secretary of the Treasury n the Treasury decson reatng to the
nspecton of such cards by the edera Securty gency, approved
by me ths date.
Ths order sha be pubshed n the edera Regster.
arry S. Truman.
The Whte ouse,
May 1, 191,5.
(9546)
( ed wth the Dvson of the edera Regster May 1, 1SM5, 11.16 a. m.)
1945-12-1200
T. D.5457
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 45 ,
SU P RT INSP CTION O C RT IN R TURNS UND R T INT RN L
R NU COD .
Reguatons governng the Inspecton of corporaton statstca
transcrpt cards by the Offce of I rce dmnstraton.
Washngton 2-5, D. G.
Treasury Decson 5173, approved October 20, 1942 C. . 1942-2,
119 Sec. 45 .36 , Tte 26, Code of edera Reguatons, Cum. Sup. ,
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29.101-2.
150
as amended by Treasury Decson 5336, approved March 7,1944 C. .
1944, 171 , s hereby further amended by strkng out for any
ta abe year endng after une 30, 1941, and before uy 1, 1943, n
the frst sentence, and nsertng n eu thereof for any ta abe year
endng after une 30, 1941, and before uy 1, 1944. ( . O. 9569
beow , une 14, 1945, and sectons 55(a) and 603, 53 Stat., 29, 111
26 U. S. C, 1940 ed., 55 (a), 603.)
. MoRG NT U, r.,
Secretary of the Treasury.
pproved une 14,1945.
arry S. Truman,
The Whte ouse.
( ed wth the Dvson of the edera Regster une 15, 1945, 11.50 a. m.)
CUTI ORD R INSP CTION Y T O IC O PRIC DMINISTR TION
O CORPOR TION ST TISTIC L TR NSCRIPT C RDS PR P R D ROM
INCOM ND D CL R D LU C SS PRO ITS T R TURNS.
y vrtue of the authorty vested n me by sectons 55(a) and 603
of the Interna Revenue Code (53 Stat., 29, 111), t s hereby ordered
that corporaton statstca transcrpt cards prepared by the ureau
of Interna Revenue from corporaton ncome and decared vaue
e cess profts ta returns made under the Interna Revenue Code, as
amended, for any ta abe year endng after une 30, 1943, and before
uy 1,1944, sha be open to nspecton by the Offce of Prce dmn-
straton such nspecton to be n accordance and upon compance
wth the rues and reguatons prescrbed by the Secretary of the
Treasury n Treasury Decson 5173, approved October 26,1942, reat-
ng to the nspecton of smar cards by the Offce of Prce dmns-
traton, and the amendments approved March 7, 1944, and ths date.
Ths order sha be pubshed n the edera Regster.
arry S. Truman.
The Whte ouse,
une 14,1045.
(9569)
SU C PT R C SUPPL M NT L PRO ISIONS.
SUPPL M NT . R T S O T .
S CTION 101. MPTIONS ROM T
ON CORPOR TIONS.
Secton 29.101-2: Proof of e empton on or after
anuary 1, 19-13 nnua returns for accountng
perods begnnng on or after anuary 1, 1943.
INT RN L R NU COD .
ospta recevng amounts from the Unted States or a State for
the care of patents under Government programs annua returns.
(See I. T. 3710, page 147.)
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151
29.107-2.
S CTION 107. COMP NS TION OR S R IC S R N-
D R D OR P RIOD O T IRTY-SI MONT S OR
MOR ND C P Y.
Secton 29.107-2: rtstc work or nventon. 1945-24-12192
I. T. 3773
INT RN L R NU COD .
In computng the edera Income ta of an Indvdua, under sec-
ton 107(b) of the Interna Revenue Code, whch s attrbutabe to
royates from a terary composton as f such royates had been
receved rataby over a perod of not more than 3(5 caendar months
precedng the cose of the ta abe year, commssons and other e -
penses pad n connecton therewth whch are dependent upon the
amount of such royates shoud be treated as f pad rataby over
the same perod.
penses ncurred n defense of be suts resutng from pubca-
ton of the terary composton are deductbe for the ta abe year
n whch pad or accrued and may not be prorated over the ta abe
year and precedng ta abe years.
dvce s requested whether, n computng the ncome ta of an
ndvdua under secton 107(b) of the Interna Revenue Code as f
royates from a terary composton had been receved rataby over
s perod of not more than 36 caendar months precedng the cose of
the ta abe year, commssons and other e penses pad n connecton
wth such royates shoud be treated as f pad rataby over the same
perod.
In accordance wth a common practce n the terary and pubsh-
ng fed, the ta payer, an author, paced a terary composton, the
work on whch covered a perod of more than 36 months, wth a pub-
sher through an agent whose compensaton (commsson) by agree-
ment wth the author s determned by a percentage of the royates
receved. The contract entered nto by the author wth the pubsher
provdes that the author sha keep the pubsher ndemnfed aganst
a cams, proceedngs, and e penses whch may be taken or ncurred
on the ground that the terary composton contans anythng beous
or ega. The contract aso provdes that the author sha, at hs
own e pense, obtan the servces of a certan ndvdua to ad the
author n rewrtng and preparng the matera for pubcaton. s
n the case of the ta payer s agent, the compensaton of such ndvdua
s determned by a percentage of the royates receved by the author.
Pursuant to authorty contaned n the contract between the pub-
sher and the author, the pubsher pad the royates due the author
to hs agent who deducted hs commsson, pad certan amounts to the
rewrte assstant, and remtted the baance to the author. The amount
of the royates receved by the author durng the ta abe year s not
ess than 0 per cent of the tota gross ncome receved and to be re-
ceved by the author from the terary composton. Durng the ta -
abe year, e penses were ncurred by the author n connecton wth
the defense of awsuts brought aganst hm and the pubsher for
aeged be.
Secton 107(b) of the Interna Revenue Code provdes as foows:
u (b) Patent, Copyboht, tc. or the purposes of ths subsecton, the term
artstc work or nventon , In the case of an ndvdua, means a terary,
musca, or artstc composton of such ndvdua or a patent or copyrght cover-
og an nventon of or a terary, musca, or artstc composton of such nd-
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29.109-1. 152
vdua, the work on whch by such ndvdua covered a perod of thrty-s
caendar months or more from the begnnng to the competon of such compos-
ton or Inventon. If, n the ta abe year, the gross ncome of auy ndvdua
from a partcuar artstc work or nventon by hm Is not ess than SO per centum
of the gross ncome n respect of such artstc work or Inventon n the ta abe
year pus the gross ncome therefrom n prevous ta abe years and the tweve
months mmedatey succeedng the cose of the ta abe year, the ta attrbutabe
to the part of such gross Income of the ta abe year whch s not ta abe as n
gan from the sae or e change of a capta asset hed for more than 6 months
sha not be greater than the aggregate of the ta es attrbutabe to such part had
It been receved rataby over that part of the perod precedng the cose of the
ta abe year but not more than thrty-s caendar months.
The terms of the author s agreements wth the pubsher, the agent,
and the rewrte assstant show ceary that had the royates receved
durng the ta abe year been receved durng prevous ta abe years,
the commsson due the agent and the compensaton due the rewrte
assstant n connecton wth such royates woud have been pad dur-
ng such prevous years. ccordngy, the ta attrbutabe to the
royates had they been reported for edera ncome ta purposes for
such prevous years woud have been the ta computed on such roya-
tes ess the commsson and compensaton pad.
In vew of the foregong, t s hed that n computng the edera
ncome ta of the author, under secton 107(b) of the Interna Revenue
Code, whch s attrbutabe to royates from a terary composton
as f such royates had been receved rataby over a perod of not
more than 36 caendar months precedng the cose of the ta abe year,
commssons and other e penses pad n connecton therewth whch
are dependent upon the amount of such royates shoud be treated as
f pad rataby over the same perod. owever, the e penses n-
curred n defense of be suts resutng from the pubcaton of the
terary composton are deductbe for the ta abe year n whch pad
or accrued and may not be prorated over the ta abe year and preced-
ng ta abe years.
S CTION 109. W ST RN MISP R TR D
CORPOR TIONS.
Secton 29.109-1: Western emsphere trade 1945-14-120 3
corporatons. I. T. 374
INT RN L R NU COD .
Puerto Rco s a country wthn the meanng of secton 109 of
the Interna Revenue Code, reatng to Western emsphere trade
corporatons.
dvce s requested whether Puerto Rco s a country wthn the
meanng of sect on 109 of the Interna Revenue Code, reatng to West-
ern emsphere trade corporatons.
Under the provsons of secton 15 of the Interna Revenue Code, a
domestc corporaton quafyng as a Western emsphere trade cor-
poraton s e empt from the surta mposed by that secton upon cor-
poratons generay. Secton 109 of the Code provdes that for the
purposes of Chapter 1 of the Code, the term western hemsphere trade
corporaton means a domestc corporaton a of whose busness s
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153
19.11300 (G)-.
done n any country or countres n North, Centra, or South mer-
ca, or n the West Indes, or n Newfoundand, and whch satsfes
certan specfed condtons The frst of these condtons s that 95
per cent or more of the gross ncome of such domestc corporaton for
the 3-year perod mmedatey precedng the cose of the ta abe year
(or for such part of such perod durng whch the corporaton was n
e stence) was derved from sources other than sources wthn the
Unted States. Secton 29.109-1 of Reguatons 111 provdes n part
that gross ncome from sources wthout the Unted States and wthn
the Lnted States sha be determned (for the purposes of secton 109
of the Code) as provded n secton 119 of the Code and the regua-
tons prescrbed thereunder. Secton 29.119- of Reguatons 111 pro-
vdes n part that a possesson of the Unted States whch ncudes
Puerto Rco consttutes a country, wthn the meanng of that
secton, separate and dstnct from the Unted States.
In vew of the foregong, t s hed that Puerto Rco s a country
vthn the meanng of secton 109 of the Interna Revenue Code, supra.
SUPPL M NT . COMPUT TION O N T INCOM .
S CTION 113(a). D UST D SIS OR D T RMINING
G IN OR LOSS: SIS (UN D UST D) O PROP RTY.
Secton 29.113(a)-2: Genera rue.
INT RN L R NU COD .
ass n case of a sae by the survvng spouse of Wsconsn rea
estate hed n |ont tenancy. (See I. T. 3754, page 143.)
Secton 19.113(a) (6)-: Property acqured 1945-14-120 4
upon a ta -free e change. Ct. D. 1045
( so Secton 22(a), Secton 19.22(a)- .)
INCOM T INT RN L R NU COD D CISION O COURT.
Gan ob Loss d|usted ass Sae of Stock Receved n Ta -
ree change Identfcaton of Shakes.
The ta payer|n 1940 sod shares of stock whch she had receved
n 1939 n a nonta abe reorganzaton as the resut of a statutory
merger of two corporatons. The evdence shows that the shares
sod were traceabe through stock certfcate numbers to specfc
shares of stock turned In In e change. ed: In arrvng at the gan
or oss upon the sae, the ta payer s entted to use the known cost
of the shares so turned In as the cost of the new shares receved nnd
sod. If one group of shares wth Its cost known s traceabe nto
another group of shares and the atter group s sod, the cost of the
former group w be taken as the cost of the atter group. No coser
Identty Is requred, and the resut s e acty and not merey appro -
matey correct
6 4 3 4 11
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19.113(a)(6)- .
154
Unted States Crcut Coukt or ppeas fob the Nnth Crcut.
mea Davs ock, pettoner, v. Commssoner of Interna Revenue, respondent.
14 ed. (2d), 452.
Upon petton to revew a decson of The Ta Court of the Unted States.
efore Mathews, Stephens, and one, Crcut udges.
March 14, 1945.
OPINION.
Stephens, Crcut udge: We are consderng a petton of an ncome ta ta -
payer for the revew of The Ta Court s decson uphodng the method of the
Commssoner of Interna e venue n arrvng at gan or oss upon a sae of
corporate stock.
The |udge of The Ta Court presdng at the hearng states the case so ad-
mraby n a memorandum opnon that we repeat t here. We do not, however,
agree wth hs reasonng or wth The Ta Court s decson. The statement n-
cudes facts reevant to a revew pendng as to Lous oeh, husband of pet-
toner, and It Is stpuated that the determnaton of the revew of mea Davs
och sha contro the decson as to the revew of Lous och. uotaton
marks are not used for the reason that we have deeted parts of the statement
whch nre not reevant to the ssues rased n mea Davs och s case.
udge Smth: These proceedngs are for the redetermnaton of ncome
ta defcences for the caendar year 1040. The ssue presented s whether
the respondent erred n determnng the bass of certan shares of stock of
the Dow Chemca Co. sod by the pettoner durng the ta abe year by
averagng the cost of shares of Great Western ectro-Chemca Co. whch
were e changed by pettoners therefor n a nonta abe reorganzaton
merger of one corporaton nto another e stng corporaton .
of the facts have been stpuated.
In 1940 the pettoner mea Davs och sod 212 shares of Dow Chem-
ca Co. for a tota seng prce of 3,26424. The certfcates evdencng
the shares sod were receved by the pettoner In 1939 under a statutory
merger of Great Western, a Caforna corporaton, and Dow, a Mchgan
corporaton. The shares of Dow sod by the pettoner n 1040 are trace-
abe through stock certfcate numbers to specfc shares of Great Western
whch were turned n n e change. The cost to pettoner of the 212 shares
of such stock sod by pettoner mea Davs och was 13,900.17. She
used such cost bass n determnng the capta gans attrbutabe to the
saes made by her.
In hs determnaton of the defcency the respondent, Commssoner, has
hed that the pettoner may not use such cost bass but must n eu thereof
use the cost of each Dow share determned by dvdng the tota cost of the
Great Western shares acqured at dfferent tmes and dfferent prces by the
tota number of Dow shares receved and then mutpyng that amount by
the number of Dow shares sod.
The ony queston presented for decson reates to the bass. No conten-
ton s made that the pettoners bases used are not correct provded they
may trace the Dow shares sod by specfc certfcate numbers to the Great
Western shares purchased.
There s no queston but that the Dow shares were receved by the pet-
toners n 1939 upon a reorganzaton under secton 112(g)(1), I. R C.
Nether Is there any queston but that the foowng porton of secton 113
L R C. s appcabe n the determnaton of the bass of t e shares:
S C. 113. D UST D SIS OR D T RMINING G IN OR LOSS.
u (a) ass (Unad|usted) of Property. The bass of property sha be
the cost of such property e cept that
(0) Ta -free e changes generay. If the property was acqured,
after ebruary 2 , 191 , upon an e change descrbed n secton 112 (b)
to (e), ncusve, the bass (e cept as provded n paragraphs (15),
(17), or (1 ) of ths secton) sha be the same as n the case of the
property e changed, decreased n the amount of any money receved by
the ta payer and Increased n the amount of gan or decreased n the
amount of oss to the ta payer that was recognzed upon such e change
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155
19.113(a)(6)- .
under the aw appcabe to the year In whch the e change was
made.
The respondent contends that no dentfcaton of the shares of Dow stock
receved n e change for Great Western shares Is permssbe1 and that the
bass of the Dow shares shoud be computed by dvdng the tota cost of the
Great Western shares by the tota number of Dow shares receved. In sup-
port of such proposton the respondent ctes Commssoner v. oender ( 2
ed. (2d), 591 (C. C. . 7, 193 )) Commssoner v. Over (7 ed. (2d).
561 (C. C. . 3, 1935)) everng v. Stfe, (75 ed. (2d), 5 3 (O. G. . 4,
1935)), and Commssoner v. on Guntcn (7G ed. (2d), G70 (O. C. . 6,
1935)). Respondent submts that In those cases:
the courts re|ected the frst n frst out rue whch the
Commssoner had contended was appcabe In the absence of dentfca-
ton. ut under the ratonae of those cases t s cear that attempts to
estabsh the cost bass of the shares receved by Identfcaton woud
be equay fute. Identfcaton Is permssbe ony when there s
dentty between the shares of stock sought to be dentfed.
udge Smth goes on to say In hs memorandum that under the rue dent-
fcaton of the shares of a reorganzed corporaton wth those of another corpora-
ton s Immatera, and ctes and quotes from rrott v. Commssoner (130 ed.
(M),449 (C. C. . 3, 1943)), and Raou . eschmann (40 . T. ., 672, 6
U p scence, C. . 1940-1, 2 ).
s has been seen, t s stated n the memorandum opnon that: The shares
of I r sod by the pettoners n 1940 are traceabe through stock certfcate
numbers to specfc shares of Great Western whch were turned In n e change.
ffspondent dsputes the accuracy of ths stntement upon two counts. e frsty
contends that the compete matchng of certfcates s mpossbe and secondy
that even f they can be matched ths fact does not, of tsef, estabsh Identty
of a share n the absorbng corporaton wth a share n the absorbed corporaton.
The foowng shows that the certfcates can be matched.
Cpon the converson of the certfcates evdencng Great Western stock Into
certfcates evdencng Dow stock, seven Great Western certfcates were sur-
rendered each evdencng varous numbers of shares for s Dow certfcates each
evdencng varous numbers of shares. The tota number of Dow shares receved
was 412 e.
The foowng Is the eeventh paragraph of the stpuaton of facts:
In March, 1940, ta payer sod 212 common shares of Dow for a tota seng
prce of 33,264.24. 100 of whch sad 212 shares were represented by sad Dow
.wtfeate C5 22 and 62 of whch sad 212 shares were represented by Dow cer-
tfcate C01 244 and 50 of whch sad 212 shares were represented by Dow cer-
tfcate C01 245.
The foowng s from paragraph of the stpuaton of facts:
The Ceveand Trust Co. agent for handng the stock e change under the
statutory merger canceed sad certfcates so forwarded by ta payer and ssued
to ta payer the foowng num ered certfcates of Dow, respectvey n eu of
the foowng numbered certfcates of Great Western so forwarded by ta payer
tacs added :
Dow certfcates ssued.
Dow common shares repre-
sented thereby.
Great Western
certfcates
canceed.
P392 39 .
PL145.
PL414.
273.
274.
C1 244
CL 171
100 shares
100 shares
50 shares.
It woud appear from ths statement that respondent conceded upon the hearng hefore
Ta Court that the shares sod can be dentfed wth shares purchased. In ths revew
respondent contends that no dentfcaton s possbe under the evdence.
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19.113(a)(6)- .
156
The date of the acquston of each one of the Great Western certfcates and
the cost of the shares n each separate certfcate s but a matter of smpe
arthmetc from the stpuated facts. Thus, there appears to be a perfect agn-
ment or matchng of certfcates, and the e act cost of each certfcate (bunde)
of shares and the date of.ther purchase s agan but an arthmetca probem.
Ths concuson s In accord wth The Tn Court s memorandum opnon.
Contrarwse, t Is the vew of the Commssoner and The Ta Court, though
t has not aways been the vew of ether, that the studed matchng of certfcates
(the ssung of one n eu of the other as stated In the stpuaton), does not
produce dentty of share e change or successon. They woud hod that n a
merger of corporatons wheren 100 shares of the absorbng corporaton evdenced
by one certfcate are receved by a stockhoder of the absorbed corporaton upon
hs surrender of one certfcate for 100 shares of the absorbed corporaton, there
s no matchng or tradng of share for share. They woud cam that a certan
snge share of the one corporaton must be Identfed wth some other certan
snge share of the other before there s dentty. Thus they argue no dentty has
been shown, and therefore some theory of convenence must be nvented and
apped whch confessedy ony produces an appro matey correct answer.
The Commssoner of Interna Revenue has propounded a rue that In Instances
of reorganzaton of a snge corporaton where Identty of stock e changed s not
shown, the rue of frst In frst out sha be foowed. It s qute apparent that
ths s a rue of convenence, and ts use can ony be |ustfed through necessty,
. e. the purchase prce of the shares sod can not be ascertaned. t ths pont t
w be we to reaze that the facts sought s not the dentty of stock sod but
the cost of the stock sod. The Commssoner and the courts generay n the
matter of corporate reorganzaton ook to the reates and do not nsst upon a
showng that any snge Identfed share has been e changed for any other snge
dentfed share. ( raus v. Commssoner, ed. (2d), 616 (C. C. . 2, 1 7)
(Ct. D. 1273, C. . 1937-2, 249 uer v. Commssoner of Interna Revenue,
1 ed. (2d), 176 (C. C. . 1, 1936).) or contra see Cresp v. Commssoner
(126 ed. (2d), 699 (C. C. . 5, 1942)). It Is the ratonae of these cases that f
one group of shares wth Its cost known, s traceabe nto another group of shares,
and the atter group s sod, the cost of the former group w be taken as the cost
of the atter group. No coser dentty s requred, and, of course, the resut s
e acty and not merey appro matey correct.
The Ta Court, however (and some Unted States Dstrct Courts and Crcut
Courts of ppeas as we) has refused to appy ths defnte method of arrvng
at cost of stock sod. The Ta Court has recenty hed n Raou . eschmann
(40 . T. ., 672, 6 ) : It s now weU estabshed that where stock of
one corporaton Is e changed for stock of another, n pursuance of a pan of re-
organzaton, the bass of the shares surrendered (after ad|ustment for any
recognzed gan or oss) must be aocated equay to the shares acqured, and the
cost of some partcuar ot of the od shares may not be aocated to some par-
tcuar ot of the new shares. , pany appyng the anguage found n
rrott v. Commssoner (130 ed. (2d), 449, 452 (C. C. . 3, 1943)), as foows:
We thnk t Is the ony sound rue. The od shares a have the same e change
vaue for the new ones no matter what they cost the ta payer. e gets as much
new stock for the share for whch he pad 0 as he does for the share for whch
he pad 120. The od shares ose ther dentty when traded for the new, ust
as the money wth whch one buys a war bond oses Its Identty In the certfcate,
though to the purchaser some of t may have been a gft, some won on a horse race
and the remander earned by the sweat of hs brow. The od shares are gone the
new shares n what s at east nomnay a new company take ther pace. ach
new share costs the ta payer the quotent of the sum of the cost of the od shares
dvded by the number of new shares he receves. Ths ast statement mports
nto the transacton of reorganzaton or merger an mportant eement whch does
not beong there. The owner of stock n surrenderng hs stock for new stock
through a reorganzaton or merger s not a purchaser. e may be and often s
1 If shares of stock n a corporaton are sod from ots purchased at dfferent dates or at
dfferent prces and the Identty of the ots can not be determned, the toek sod sha be
charged sanst the earest purchases of such stock. ( rtce 4, paragraph 60, of Treasury
Reguatons 33 (Revsed).)
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157
19.113(a)(6)- .
opposed to the transformaton but must make the best of It by gong aong or
acceptng a present vauaton of hs stock.
The Commssoner, scentng the pont, argues that snce the owner has the
choce of two courses, whchever course he chooses becomes hs own vountary
act.
We woud not concede that ths concuson woud hep hs case even f t were
a correct one, but the concuson does not foow. The owner of a spnn of horses
s tod that he may swap them for certan others, but f he s not n a tradng
mnd, he nevertheess must part wth hs horses. e may, f he kes, have ther
market vaue In cash. We thnk the owner does not part wth hs horses voun-
tary no matter whch aternatve he chooses.
The rrott case, ast above quoted from, s not an ordnary case of refnancng
rf a snge corporaton but a merger of two corporatons wheren one s absorbed
by the other. It woud appear that The Ta Court coud see no more reason
n appyng the strct matchng of share for share n a corporate reorganzaton
than In a merger of corporatons, and n the escbmunn case t went the
rtoe way. We are In entre agreement wth The Ta Court that the app-
caton of the average cost rue s as sound In the one case as t s n the other
case, but we thnk t s not sound at a. The Commssoner n hs bref ctes
a number of authortes as to whch we make bref comment.
Commssoner v. on unten (76 ed. (2d), 670 (C. C. . 6, 1935)). Ths
a s crtca of the frst n frst out rue and adopts the average cost rue.
Co ke the nstant case It was necessary to adopt a rue of convenence because
fentfcaton as to the stock sod wth the stock orgnay purchased coud not
be traced. Commssoner v. Over (7 ed. (2d), 501) everng v. Stfe
( S ed. (2d), 5 3 (C. C. . 4, 1935)). gan, n these cases no dentfcaton
of stock sod can be traced to stock surrendered together wth the cost of the
orgna stock. In the crcumstances the court preferred the average cost rue.
Commssoner v. oender, 2 ed. (2d), 591 (C. C. . 7, 1930).) It s stated
by the court n ths case that No part of the new shares can be dentfed as
oarng been ssued for any partcuar ot of the od shares. The court goes on
to say that the doctrne of ascertanng gan or oss n a stock sae dentty of
shares appes ony to reorganzatons of one corporaton. It s apparent that
the court havng found dentty mpossbe need not have gone on to e press ts
opnon as to a mtaton of the dentty method of ascertanng cost.
It seems to us that the reasonng n rrott v. Commssoner, supra, s erro-
neous and derves from a tangent of reasonng whch the author of that
opnon mstakes for the man stem. So far as the affars of the absorbng
corporaton are concerned, t may be qute rght to hod, f any such Issue were
before us, that a of the stock put together whch s possessed by a stock-
boder of the absorbed corporaton s surrendered for the proper amount of
stock n the absorbng corporaton. No doubt the hooks of the survvng
corporaton woud show the e change as a stock Issued for a stock sur-
rendered. ut the ncdent of the absorbng reorganzaton n ts effect upon
the corporaton has nothng drecty to do wth the probem here. It Is the
e act gan or oss where t Is ascertanabe on an nvestment n stock that the
aw says must be the bass for hs ta . If the stock owner keeps hs account
through any number of stock movements so that when he ses certan shares
be can trace ther transmgratons ether sngy or n certfcates evdencng a
pura number of shares to the nvestment n them, we can see no reason why
ths shoud not be done.
busness man keeps hs books of nvestments wth ta probems In mnd.
reorganzaton of the corporaton n whch he has stock or a consodaton of
such corporaton wth another corporaton are possbtes he s bound to know
nay happen. e sees t every day n the corporate word In whch he ves.
e has made unts of Investment, and he preserves ther dentty through any
and a of these changes. It woud be a strange parado n the aw f t shoud
say to hm, yes, you pay upon your gan when you se stock but your actua
an on the stock sod has no materaty.
The respondent s vew appears In hs bref as foows: ut In any event, ta payer
wroneoosy asserts that the e change was Invountary In her case. The rght was pre-
ferred to her by the agreement of merger and by aw (secton 3(19, Cv Code of Caforna
(1941)) to demand and receve the far market vaue of her Great Western stock f she
dd not approve of the merger. Thus she had an opton to partcpate In the reorganzaton
or to receve the vaue of her stock, and her eecton to h como a sharehoder n the new
fompany precudes the e change from beng an Invountary one.
See statement In Ta Court memorandum: Under the rue Identfcaton of the shares
of a reorganzed corporaton wth those of another corporaton Is mmatera.
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29.113(a) (22)- .
15
The decson of The Ta Court s reversed, and the cnsc s remanded wth n-
structons to proceed to ts decson by arrvng at the gan or oss of the stock
sod as heren udcuted.
Reversed and remanded.
Secton 29.113(a) (22)-: ass of property ac- 1945-3-11949
qured by corporaton as resut of certan bank- T. D. 5433
ruptcy or receversp proceedngs.
( so Reguatons 103 and Reguatons 6, 94, and
101.)
INCOM T T L Y RS INNING T R D C M R 31, 1941.
Reguatons 111 amended. Secton 29.113(a) (22)-, reatng to
bass of property acqured by corporaton as resut of certan bank-
ruptcy or recevershp proceedngs, amended.
Washngton, D. C.
Paragraph 1. Secton 29.113(a) (22)- of Reguatons 111 Part
29, Tte 26, Code of edera Reguatons, Cum. Sup. , added by
Treasury Decson 5402, approved September 5,1944 C. . 1944, 229 ,
s amended as foows:
( ) y addng at the end of the second paragraph the foowng:
or e ampe, the provsons of secton 113(b) reatng to ad|usted bass sha
be apped as If secton 113(a) (22) were a part of the Interna Revenue Code
and pror revenue aws appcabe to a ta abe years begnnng after December
31, 1933. ence, n determnng the amount of the ad|ustments for depreca-
ton, depeton, etc., under the provsons of secton 113(b) (1) ( ). the amount
aowabe s the amount computed wth reference to the bass provded n
secton 113(a) (22).
( ) y amendng e ampe (1) to read as foows:
ampe (1). On anuary 1, 1035, the Y Corporaton, a ta payer makng
ts returns on the caendar year bass, acqured deprecabe property from the
Corporaton as the resut of a transacton descrbed n secton 113(a) (22). On
anuary 1, 1935, the property had, n the hands of the Corporaton, a bass of
200,000, an ad|usted bass of 150,000, a far market vaue as of anuary 1,
1935, of 0,000, and an estmated remanng fe of 20 years. The 1935 trans-
acton was treated as a ta abe e change and, accordngy, the Y Corporaton
camed and was aowed deprecaton n the amount of 4,000 for each of the
nne ta abe years 1935 through 1943, ncusve. On une 30, 1944, the property
was sod for 40,000, cash. The amount of the oss sustaned upon the sae s
computed as foows:
ass to Y Corporaton (secton 113(a) (22)) 200,000
d|ustment for deprecaton n the hands of Corporaton (secton
113(b)) 50.000
d|usted bass for deprecaton In the ands of Y Corporaton 150,000
Deduct:
Deprecaton aowabe n amount of 7,500 per year
(1/20 of 150,000) for years, from anuary 1, 1035,
through December 31, 1942 00, 000
Deprecaton aowabe anuary 1, 1943, to une 30, 1944
(1 years at 7,500) 11,250
71,250
d|usted bass for computng gan or oss 7 ,750
Sae prce 40,000
Loss sustaned 3 ,750
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159
29.115-3.
or the ta abe years 1943 and 1944, the Y Corporaton Is entted to deductons
for deprecaton n respect of such property n the amounts of 7,500 and 3,750,
respectvey, n the determnaton of ts ta abtes for such years. ut no
change In the ta abty s authorzed for precedng ta abe years by reason of
the dfference between the 7,500 deprecaton aowabe and the 4,000 deducton
prevousy aowed.
(C) y amendng e ampe (2) to read as foows:
rampe (2). ssume the same facts as n e ampe (1), e cept that the prop-
fTty acqured by the Y Corporaton had a far market vaue as of anuary 1,
1935, of 1 0,000, Instead of 0,000, and that the Y Corporaton camed and
was aowed deprecaton In the amount of 9,000 for each of the eght ta abe
fears 1935 to 1942, ncusve, and n the amount of 6,500 for the ta abe year
1943. In such case, the amount of the oss sustaned upon the sae of the prop-
erty woud be computed as foows:
d|usted bass for deprecaton n the hands of Y Corporaton as com-
puted n e ampe (1) , 150,000
Deduct:
(1) Deprecaton aowed In the amount of 9,000 per
|ear for years, anuary 1,1935, to December 31,1942 72,000
(2) Deprecaton aowabe for ta abe years 1943 and
1944 (one and one-haf tmes 0,500) 9, 750
1,750
Mteted bass for computng gan or oss :6 , 250
Sae prce 40,000
Loss sustaned 2 , 250
So change n the ta abty Is authorzed for ta abe years precedng 1943 hy
reason of the dfference between the 6,500 deprecaton aowabe and the 9,000
deducton prevousy aowed.
Pab. 2. To the e tent necessary to accord wth secton 121 of the
eTenue ct of 1943 as appcabe to ta abe years begnnng pror to
anuary 1, 1942. secton 29.113(a) (22)- of Reguatons 111 as
amended by ths Treasury decson s hereby made appcabe to ta -
abe years Degnnng pror to anuary 1, 1942, and after December
31,1933 (such years beng covered by Reguatons 103,101,94, and 6).
secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. C, 62),
respondng provsons of pror revenue aws, and secton 121 of the
Revenue ct of 1943 (Pubc Law 235, Seventy-eghth Congress).)
pproved anuary 26, 1945.
ed wth the Dvson of the edera Regster anuary 27, 1915, 11.59 a. m.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
Secto 29.115-3: arnngs or profts. 1945-1 -12132
( so Secton 71 , Secton 35.71 -2, Rcgu- I. T. 375
atons 112.)
INT RN L R NU COD .
The ad|ustment to the bass for determnng gan or oss for
edera ncome ta purposes, requred by artce 34(c) (2) of Itcgu-
atons 7 (consodated return reguatons under the evenue ct
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29.115-3.
160
of 1032) where a corporaton ses stock n an affated corporaton
after operatng osses of such affate were avaed of n conso-
dated returns, s not an ad|ustment proper n computng earnngs
and profts for the purpose of determnng the ta abty of dv-
dend ncome and for the purpose of determnng the amount to be
ncuded n the computaton of equty nvested capta.
dvce s requested whether the ad|ustment to the bass for de-
termnng gan or oss for edera ncome ta purposes, requred
by artce 34(c)(2) of Reguatons 7 (consodated return regua-
tons under the Revenue ct of 1932) where a corporaton ses stock
n an affated corporaton after operatng osses of such affate
were avaed of n consodated returns, s an ad|ustment proper for
the purpose of determnng the ta abty of dvdend ncome or for
the purpose of determnng the amount to be ncuded n the com-
putaton of equty nvested capta.
Under artce 34(c)(2) of Reguatons 7 , where a corporaton
whch s a member of an affated group ses shares of stock ssued
by another member of such group, whch stock was hed by the se-
ng corporaton durng any part of the ta abe year 1929 or any sub-
sequent ta abe year for whch a consodated return was made or
requred, and such sae breaks the affaton of the ssung corpora-
ton wth the remanng members of the group, the bass of the stock
sod s requred to be reduced by the sum of the osses of the ssung
corporaton sustaned durng each of the consodated return perods,
to the e tent that such osses coud not have been avaed of by such
corporaton as a net oss n computng ts ta for such perods f t
had made a separate return for each of such perods.
Secton 115(1) of the Interna Revenue Code provdes n genera
that n determnng an ncrease or decrease n earnngs and profts
of a corporaton, gan or oss from the sae of property sha be com-
puted by usng the ad|usted bass for determnng gan under the
aw appcabe to the ta abe year n whch the sae was made. Such
secton aso provdes as foows:
Where n determnng the ad|usted bass used n computng such reazed gan
or oss the ad|ustment to the bass dffers from the ad|ustment proper for the
purpose of determnng earnngs or profts, then the atter ad|ustment sha be
used n determnng the ncrease or decrease above provded.
In genera, t may be sad that the computaton of earnngs and
profts of a corporaton for dvdend purposes s based upon reason-
abe accountng concepts. Thus, n determnng earnngs and profts
where percentage depeton of mneras has been taken as a deduc-
ton for ncome ta purposes, ony a proper porton based on cost
depeton s aowed as a deducton from earnngs and profts other-
wse computed. Ths s because, athough a arger deducton s aow-
abe n computng net ncome, ony the porton of cost of the assets
whch has actuaty been ost has dsappeared from the property ac-
counts of the corporaton, and there accordngy remans for con-
sderaton an amount of earnngs and profts equa to the dfference
between cost depeton and percentage depeton. so, upon the
same prncpe, osses and e penses whch are dsaowed as deduc-
tons from ncome for ncome ta purposes, contrbutons n e cess
of the mtaton provded therefor, and other tems whch have
actuay depeted the assets of the corporaton, even though not re-
fected n the ncome computaton, are aowed as deductons n com-
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161
29.115-3.
putng earnngs and profts. (See secton 29.115-3 of Reguatons
111.) Under the requrements of sectons 72 and 729(a) of the
Interna Revenue Code, the concept of earnngs and profts s the
same for e cess profts ta purposes as for ncome ta purposes e -
cept where nconsstent treatment s prescrbed n the e cess profts
ta provsons of the Code. No such treatment s prescrbed wth
respect to the computaton of equty nvested capta e cept as to
subsectons (a)(3)( ) and (b)(2) of secton 71 of the Code, and
the treatment prescrbed n such subsectons s mmatera n connec-
ton wth the present nqury. (See aso secton 35.71 -2 of Regu-
atons 112.)
In computng the earnngs and profts of a parent corporaton after
a consodated return perod durng whch osses of a subsdary were
avaed of as an offset to the ncome of such parent, the amount of the
ncome of the parent corporaton shoud be added to ts earnngs and
profts account even though such amount was offset for ta purposes
by osses of the subsdary. The ad|ustment of the bass of the stock of
te subsdary and the ta abty of the proft resutng therefrom on
sae refect the prncpe that doube deductons or ther equvaent
nsvnot be aowed. (See Chares IIfed Co. v. ernandez, 292 U. S.,
( ,Ct D. 19, C. . III-1,139 (1934).) y provdng for an ad|ust-
ment to the bass of the stock of the subsdary n the amount of osses
avaed of, the equvaent of a doube deducton on dsposton of the
subsdary s stock s avoded. owever, n the computaton of earn-
ngs and profts where the ncome whch was offset by the subsdary s
oss s ncuded n the earnngs and profts of the corporaton, the
addton of the proft upon the sae of the subsdary s stock n the
amount of the ad|ustment of the bass provded wth regard to such
osses s n effect addng the amount of such proft twce. Thus, n a
case where Corporaton hodng a of the stock of Corporaton
for three consodated return years avaed tsef of the subsdary s
osses n the amount of 100,000 each year, t woud have 300,000
n ts earnngs and profts account at the end of such 3-year perod.
ssumng the stock of the subsdary was hed at a cost bass of 1,000,-
000 and sae thereof was made at the same amount, the parent woud
have assets over and above ts capta of 300,000. If the proft for
the three years be added to the proft based upon the ad|ustment pro-
vded by artce 34(c) (2) of Reguatons 7 , the parent woud have
earnngs and profts of 600,000 (e cusve of other ad|ustments not
here matera). ssumng further that the corporaton s assets other
than the stock of the subsdary are qudated wthout gan or oss
for 1,300,000, the corporaton woud have on hand cash n the amount
of 2 00,000. If the amount of the proft of 300,000 reazed upon
the sae of the stock be added to the earnngs and profts account, the
stockhoders w be ta ed upon a dstrbuton n the amount of G00,-
000. fter dstrbuton of earnngs and profts, ony 1,700,000 w
reman to satsfy an outstandng capta (assume d) of 2,000,000.
Ths represents a dstorton rather than a true representaton of the
status of the corporaton s earnngs and capta. The dstorton w
be present n a cases n whch such an ad|ustment s made. Under
the crcumstances, t appears that the ad|ustment to bass, prescrbed
by artce 4(c) (2) of Reguatons 7 , dffers from that proper for
computng earnngs and profts.
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29.117-1.
1G2
In vew of the foregong, t s hed that the ad|ustment to the bass
for determnng gan or oss for edera ncome ta purposes, re-
qured by artce 34(c) (2) of Reguatons 7 where a corporaton
ses stock n an affated corporaton after operatng osses of such
affate were avaed of n consodated returns, s not an ad|ustment
proper n computng earnngs and profts for the purpose of determn-
ng the ta abty of dvdend ncome and for the purpose of determn-
ng the amount to be ncuded n the computaton of equty nvested
capta.
Secton 29.115-3: arnngs or profts.
INT RN L R NU COD .
mortzabe bond premum on whoy ta -e empt bonds. (See I. T.
37G4, page 1 .)
S CTION 117. C PIT L G INS ND LOSS S.
Secton 29.117-1: Meanng of terms. 1945-3-11950
( so Secton 29.117-7 and Secton 122, Secton I. T. 3711
29.122-3.)
Numerous parces of rea estate owned by and reguary and
contnuousy managed and operated by her through agents as a
source of ncome are not capta assets, as defned n secton
117(a)(1) of the Interna Revenue Code, as amended by secton
151(a) of the Revenue ct of 1942. net oss sustaned by her
upon sae n 1944 of evera of the parces then so used whch had
been hed by her for more than s months, and durng whch ta -
abe year she had no net gans fang wthn the ambt of secton
117( ) of the Code, as added by secton 151(b) of the Revenue ct
of 1942, s not sub|ect to the mtatons of secton 117 (b) and (d)
of the Code. y vrtue of the partcuar provsons of secton 117 (|)
of the Code, whch are appcabe to the net oss, t s deductbe n
fu as an ordnary oss In computng her net ncome.
Inasmuch as s not a reguar trader or deaer n rea estate,
the oss s deductbe n computng her net operatng oss, as defned
n secton 122(a) of the Code, as added by secton 211(b) of the
Revenue ct of 1930 and amended by secton 105(e)(3)( ) of
the Revenue ct of 1942, ony to the e tent provded n secton
122(d) (5) of the Code, as added-by secton 211(b) of the Revenue
ct of 1939 and amended by secton 105(e)(3)(C) of the Revenue
ct of 1942.
dvce s requested as to the treatment for edera ncome ta
purposes of a oss sustaned by n 1944 from the sae of severa
parces of rea estate hed for more than s months, whch, together
wth numerous other parces, were owned and operated by as a source
of ncome, wth partcuar reference to whether such oss represents
an tem of deducton n determnng net operatng oss, as defned
n secton 122(a) of the Interna Revenue Code, as added by sec-
ton 211(b) of the Revenue ct of 1939 and amended by secton
105(e) (3) ( ) of the Revenue ct of 1942.
s father was engaged n the buyng, seng, and rentng of rea
estate for many years. e and another ndvdua organzed a rea
estate frm of whch he was a partner unt the tme of hs death n
1925. e devsed 1 parces of rea estate to hs daughter, . Upon
the acquston of these propertes, the ta payer ( ) took over the
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1G3
29.117 -1.
management and contro thereof and, wth the assstance of her hus-
band and the rea estate frm n whch her father had been a partner,
has contnued to manage and operate them as a source of ncome, mak-
ng saes of certan propertes as changed condtons and reduced
rentas made such acton seem advsabe. rom the date of her
fathers death n 1925 unt 193 , the detas of the management of s
rea estate were handed by her agent, the above-mentoned rea estate
frm, workng under the genera drecton of hersef and her husband.
e retred from hs own busness n 193 and took over the manage-
ment of s rea estate hodngs. The rea estate frm acts as renta
agent for a the propertes, obtans tenants when the propert es become
vacant, supervses the makng of repars, coects the rents, pays the
ta es, and keeps the budngs nsured, for whch servces ts receves
the usua commssons on the gross amount of rents coected. The
actvtes of the rea estate frm wth respect to s propertes are
under the drect supervson of her husband and he s consuted as
to a matters havng to do wth these propertes. The net ncome
receved from the renta of the propertes averaged 7a doars a year
for the years 1941, 1942, and 1943. Severa of the propertes were
sod n ebruary, 1944, for 62a doars. The ad|usted bass thereof
ras21(te doars and the net oss sustaned was 14 a doars.
s net ncome for the year 1944 from a sources and before the
deducton for any oss on the sae of the rea estate s estmated at
5fto doars, and the net oss w be appro matey 9 a doars. It s
contended that the rea estate actvtes referred to above consttute
the carryng on of a trade or busness for the producton of ncome,
that the oss of 14 a- doars was ncurred n the carryng on of a bus-
ness, and that s entted to the beneft of the carry-over and carry-
hack provsons of secton 122 of the Interna Revenue Code wth
respect to the net operatng oss sustaned.
Secton 117(a)(1) of the Interna Revenue Code, as amended by
secton 151(a) of the Revenue ct of 1942, e cudes from the defnton
of capta assets property, used n the trade or busness, of a charac-
ter whch s sub|ect to the aowance for deprecaton provded n sec-
ton 23(1) of the Code, and rea property used n the trade or busness
of the ta payer. Under the provsons of secton 117 (|) of the Code,
as added by secton 151(b) of the Revenue ct of 1942, gans and osses
upon the sae or e change of property used n the ta payer s trade
or busness, hed for more than s months, are treated as gans and
osses from the sae or e change of capta assets hed for more than
f months f the aggregate of such gans e ceeds the aggregate of
such osses, but may not be so treated f the aggregate of such gans
does not e ceed the aggregate of such osses.
It s hed that s rea estate, beng reguary and contnuousy
managed and operated by her as a source of ncome, even though
through her agents, consttutes property used n her busness of man-
agng and operatng ncome-producng rea estate and, therefore, not
capta assets as defned n secton 117(a)(1) of the Code, supra.
(Cf. mos R. . Pnckot, ecutor, v. Commssoner, 113 ed. (2d),
71 ohn acker v. Commssoner, 133 ed. (2d), 509.) Snce the
propertes were hed for more than s months, the provsons of
secton 7(|) of the Code are appcabe wth respect to gans and
osses from the sae thereof at the tme so used. (See sectons 29.117-1
and 29.117-7 of Reguatons 111.) Snce t appears that the aggregate
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29.117-1.
164
gans from a of the transactons do not e ceed the osses thereon,
none of such gans and osses shoud be treated as gans and osses
from the sae or e change of capta assets. Under such crcumstances,
the oss from the sae of the above-mentoned propertes s not sub|ect
to the mtatons provded n secton 117 (b) or (d) of the Code, wth
respect to capta gans and osses. ccordngy, such oss s deduct-
be oy n fu as an ordnary oss n computng her net ncome for the
ta abe year 1944.
It s further hed, however, that such oss s deductbe by n
computng her operatng net oss, as defned n secton 122(a) of
the Code, as added by secton 211(b) of the Revenue ct of 1939 and
amended by secton ()5(e) (3) ( ) of the Revenue ct of 1942, ony
to the e tent provded n secton 122(d) (5) of the Code, as added by
secton 211(b) of the Revenue ct of 1939, supra, and amended by
secton 103(e)(3)(C) of the Revenue ct of 1942, whch reads as
foows:
Deductons otherwse aowed by aw not attrbutabe to the operaton of
trade or busness reguary carred on by the ta payer sha (n the case of a
ta payer other than a corporaton) be aowed ony to the e tent of the amount
of the g oss ncome not derved from such trade or busness. or the purposes o
ths paragraph deductons and gross Income sha be computed wth the e eep
tons, addtons, and mtatons specfed n paragraphs (1) to (4) of ths
subsecton.
The bass for ths concuson s that, athough t s determned that
the property upon the sae of whch the oss was sustaned was used
n s busness of managng and operatng ncome-producng rea
estate, the oss from the sae thereof s not attrbutabe to the opera-
ton of a trade or busness reguary carred on by the ta payer
wthn the purvew of secton 122(d) (5) of the Code, supra, snce she
was not a reguar trader or deaer n rea estate. In other words, as
supported by the facts here presented, the ony busness reguary
carred on by was managng and operatng her ncome-producng
rea estate and not tradng or deang n rea estate the property was
hed prmary for use, rather than for sae, n her busness and the
oss dd not arse or resut from the operaton of such busness but
upon the dsposton of assets used theren. (See Louse C. Sack et a.,
ecutors, v. Commssoner, 35 . T. ., 271 urrows McNer v.
Commssoner, 30 . T. ., 41 state of etty . R. Green v..
Commssoner, 27 . T. ., 1195 G. D. nderson v. Unted States,
4 ed. (2d), 201 rdon Pabst v. Lucas, 30 ed. (2d), 614, cer-
torar dened, 2 1 U. S., 741 cf. S. Rose Loyd v. Commksoncr, 32
. T. ., 7, acquescence, C. . I -2,13 (1935).)
( so Secton 22(a), Secton 29.22(a)- I. T. 3721
Secton 23(e), Secton 29.23(e)-.)
INT RN L R NU COD .
Treatment for edera ncome ta purposes of transactons n
connecton wth the purchase and sae, on a when ssued bass, of
securtes of corporatons.
dvce s requested reatve to the treatment for edera ncome ta
purposes of transactons n connecton wth the purchase and sae,
on a when ssued bass, of securtes of corporatons.
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165
29.117-1.
The usua stuaton n whch tradng n securtes on a when
ssued bass takes pace s one n whch there s submtted a pan of
reorganzaton of a corporaton provdng for the ssuance, n e change
for ts outstandng securtes of securtes of a new corporaton or of
new securtes of the reorganzed od corporaton. efore such a pan
of reorganzaton actuay becomes effectve, the approva of the nter-
ested securty hoders must be obtaned or the pan must be approved
by reguatory bodes or the courts. There s often tgaton as a resut
of whch the pan of reorganzaton may be abandoned or approved n
a modfed form. The tme eapsng between the submsson of the
pan and the actua e change of od securtes for new securtes under
the pan, or the pan as modfed, may be as much as severa |Tears.
fter the submsson of the pan of reorganzaton, tradng may be
commenced n the new securtes whch are to be ssued under the pan
of reorganzaton. Inasmuch as these new securtes are not n e st-
ence, and w never come nto e stence f the pan of reorganzaton
s not carred out, the tradng s on the bass of when, as, and f
ssued, commony caed when ssued. The tradng s carred on
by the e ecuton of contracts for the purchase and sae of the new
securtes when ssued at specfed prces.
h Lews . Waker v. Commsatmer (35 . T. ., 640, acquescence,
C . 193 -1, 32), the Unted States oard of Ta ppeas (now The,
Ta Court of the Unted States) consdered the ncome ta aspects of
deangs n securtes when ssued, hodng that devery of od stock
of a corporaton dd not consttute performance of a contract to se
when smsd stock of the reorganzed corporaton. It was ponted
out that where there s a sae of stock on a when ssued bass, no
actua sae can take pace unt the new stock s ssued. The oard
stated n part (page C45) as foows:
Deangs In stock on a when Issued bass are not saes of stock,
bnt merey saes of contracts to se stock whch are made on the e press cond-
ton that no devery and payment are requred uness and unt the stock Is
ssued. Uness and unt the stock s ssued, no performance s requred
and f the stock s never ssued the contract fas by ts own terms, the ony money
changng hands beng the broker s commssons.
The ncome ta aspects of severa basc types of transactons n the
when ssued securtes of the Y Company w herenafter be ds-
cussed at some ength n the ght of the decson n the Waker case,
supra, for the purpose of deveopng the underyng prncpes app-
cabe to transactons of ths character, after whch those prncpes
w be apped brefy to a number of specfc questons presented n
connecton wth deangs n the when ssued securtes of the Y
Company. It s beeved that the foowng questons and answers are
ustratve of some of the transactons n when ssued securtes,
partcuary stocks, whch are most frequenty consummated:
ueston 1: , who owns stock n the Y Company whch s n reor-
ganzaton, ses stock of the reorganzed corporaton when ssued
at a certan prce, hods the stock n the od corporaton unt he re-
ceves the new stock after the reorganzaton has taken pace, and then
devers the new stock n competon of hs sae of the when ssued
stock. ow shoud ths transacton be treated for edera ncome ta
purposes
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29.117-1.
166
nswer: (a) ssume that the reorganzaton of the Y Company,
when consummated, s a ta abe reorganzaton for edera ncome
ta purposes.
When the od stock of the Y Company, whch owns, s e changed
for the new stock, gan or oss s reazed from such a dsposton
of the od stock, measured by the dfference between the bass of the
od stock and the vaue of the new stock receved, such gan or oss con-
sttutng a ong-term or a short-term capta gan or oss dependng
on the ength of tme the od stock was hed. (See secton 117(a) of
the Interna Revenue Code.) The new stock takes as ts bass the
vaue at whch t was ncuded n the cacuaton of gan or oss upon
the e change. The dfference between such bass of the new stock of
the Y Company and the prce for whch t was sod under the terms
of s sae of ths stock when ssued determnes the capta gan or
oss from the dsposton of the stock. Such gan or oss presumaby
woud n a cases be a short-term capta gan or oss wthn the mean-
ng of secton 117 (a) of the Code, snce t s understood that such trans-
actons are competed wthn a comparatvey short tme after the
ssuance of the new stock.
Under the crcumstances here descrbed, that s, where the reorgan-
zaton s a ta abe reorganzaton, there s no tackng of the tme
the od stock was hed to the tme the new stock was hed n deter-
mnng whether the sae of the new stock gves rse to a ong-term
or a short-term capta gan or oss.
(b) ssume that the reorganzaton of the Y Company, when con-
summated, s a nonta abe reorganzaton for edera ncome ta pur-
poses.
The bass of the new stock, under secton 113(a) (6) of the Code, de-
pends on the bass of the od stock, and the perod of tme the new
stock s hed, under secton 117(h) of the Code, ncudes the tme the
od stock was hed. Under these crcumstances, the amount of gan
or oss derved from the sae by of the new stock of the Y Company
woud depend on the cost or other bass of the od stock, anu the
perod of tme the new stock was hed for the purpose of determnng
whether the gan or oss was a ong-term or a short-term capta gan
or oss woud depend upon the perod of tme the od stock was hed.
In other words, under these condtons, the perod of tme the od
stock was hed woud be tacked on to the perod of tme the new
stock was hed n determnng whether the sae of the new stock gave
rse to a ong-term or to a short-term capta gan or oss.
ueston 2(a) : , who does not own od stock of the Y Company,
beeves that the prce of the Y Company when ssued stock, whch
s seng at 20, w ncrease, and he enters nto a contract to buy 25
shares of the stock when ssued at that prce the prce of the when
ssued stock ncreases to 25. , n order to get the beneft of ths
potenta proft, proceeds as foows:
(1) he assgns or transfers hs contract to purchase 25 shares
of Y Company stock when ssued at 20 to for a stated con-
sderaton or
(2) he enters nto a contract to se 25 shares of stock of the Y
Company when ssued to C at 25 or
(3) after he has entered nto the contract to se to C, he assgns
hs rghts n both hs buy contract and hs se contract to D for
a gven consderaton.
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167
5 29.117-1.
ueston 2(ft): , who does not own od stock of the Y Company,
beeves that the prce of the Y Company when ssued stock, whch
s seng at 20, w decrease, and enters nto a contract to se 25
shares or the stock when ssued at that prce the prce of the when
ssued stock ater drops to 15. , n order to get the beneft f ths
potenta proft, proceeds as foows:
(1) he assgns or transfers hs se contract to for a stated
consderaton or
(2) he enters nto a contract to bu 25 shares of the stock of the
Y Company when ssued at 15 or
(3) after he has entered nto the contract to buy 25 shares of the
stock when ssued at 15, he assgns hs rghts n both hs- se
contract and hs buy contract to D for a gven consderaton.
ueston 2(c): If , who does not own stock of the Y Company,
Surchases u when ssued stock of that corporaton and the prce goes
own, or f he ses when ssued stock and the prce goes up, he
can mt hs oss
(1) by payng to take over hs buy contract or hs se con-
tract or
(2) by enterng nto a baancng when ssued se contract
or when ssued buy contract or
(3) after he has entered nto such a baancng when ssued
se or buy contract, by assgnng hs rghts n both hs buy con-
tract and hs se contract to for a gven consderaton.
ow shoud these transactons be treated for edera ncome ta
purposes
|swer 2(a) and 2 ( ): In the cases descrbed n questons 2(a) (1)
and 2(b) (1), when an ndvdua enters nto a contract to buy (or
to se) when ssued stock, he acqures the rght to purchase (or
to se) that stock when t s ssued. It s beeved that the rght so
acqured consttutes a capta asset, as that term s defned n sec-
ton 117(a) (1) of the Code. ccordngy, where an ndvdua, who
has contracted, to buy (or to se) stock when ssued, ses hs rght
to buy (or to se) such stock, he ses a capta asset. It foows that
f, n the cases descrbed n questons 2(a) (1) and 2(6) (1), supra,
ses hs buy contract or hs se contract to , the gan arsng from the
sae of the contract, under sectoa 117(a) of the Code, woud be a
ong-term capta gan f he .hed the contract for more than s
months before seng t, or a short-term capta gan f he hed the con-
tract for not more than s months before seng t. The gan, under
these condtons, s of course reazed at the tme when the contract
of purchase or sae s dsposed of.
In the cases descrbed n questons 2(a) (2) and 2(6) (2), supra, f
. buys stock when ssued and then ses stock when ssued, or
f he ses stock when ssued and then buys stock when ssued,
he does not thereby effect a dsposton of the when ssued stock
whch resuts n reazed gan or oss, athough for practca purposes
he f es the amount of the gan or oss that w be reazed f and when
the reorganzaton s consummated. s prevousy ndcated, when
an ndvdua buys or ses securtes on a when ssued bass, he
merey enters nto a contract to purchase or to se those securtes f
and when they are ssued. If the reorganzaton s not consummated,
the contracts ra. It foows, therefore, that no gan or oss s reazed
when an Indvdua, after buyng or seng securtes on a when
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29.117-1.
16
ssued bass, ses or buys the same securtes on a when ssued
bass unt and uness the reorganzaton s consummated. When
that takes pace and the ndvdua acqures the new stock pursuant
to hs buy contract, and then dsposes of that stock pursuant to hs
se contract, gan or oss s reazed.
In questons 2(a)(3) and 2(6)(3), supra, enters nto a when
ssued buy or se contract and some tme thereafter enters nto a
when ssued se or buy contract at a dfferent prce wth the resut
that, provded the reorganzaton s consummated, he s assured of
a proft from the combnaton of the two contracts. e then ses a
hs rght and nterest n the two contracts to another ndvdua. The
queston arses as to the ncome ta consequences of such dsposton.
In the cases descrbed n questons 2(a) (3) and 2(6) (3), supra, the
contract to buy and the contract to se are to be treated as entrey
separate capta assets. ccordngy, where two contracts are sod for
a net consderaton, there are n reaty two dspostons snce there are
two propertes. It s, therefore, necessary to determne the consdera-
ton pad for the transfer of each contract. Ths s a queston of fact to
be determned n each case. If n any case where the partes themseves,
as a part of the transacton, have stated the consderaton pad for each
contract (and t s beeved that such cases woud be rare), the consd-
eratons so stated w be accepted as correct uness t appears that such
consderatons are arbtrary or unreasonabe. Where, as s generay,
f not aways, the case, the partes have not stated the consderatons
n ther agreement, the amount pad for each contract shoud be deter-
mned on the bass of the vaue of the two contracts at the date of sae
thereof. When ssued stock ordnary has an estabshed market
vaue and, n ths respect, s smar to ordnary ssued stock. Its vaue
fuctuates and, consequenty, contracts to buy or to se t vary n vahe
from tme to tme. Thus, a contract to buy or to se when ssued
stock may ncrease n vaue or decrease n vaue and may even become a
abty dependent upon the then vaue of the when asued stock.
ccordngy, n a stuaton such as that under consderaton, where buy
and se contracts are sod together, the vaue may be represented en-
trey by the buy contract or by the se contract, or the vaue may be
represented by each of the two contracts n the same or dfferent pro-
portons. Generay, where the entre vaue s represented by one o the
contracts, the other contract s n fact a abty. In such nstances, the
net consderaton pad to the seer represents n substance the payment
to the seer of the vaue of the vauabe contract ess an amount attrb-
utabe to the assumpton of the abty of the other contract.
Snce the saes of such contracts are customary carred on through
brokers who keep records of such transactons, t s beeved that any
partcuar contract on a gven date coud be vaued by reference to saes
of smar contracts at or about the date of sae of the partcuar con-
tract n queston. If n any case ths s not possbe, the vaue of the
contract shoud be consdered as the dfference between the market
vaue of the when ssued securty at the date the contract s sod
and the amount at whch the securty s requred to be bought or sod
under the contract n queston. The foregong may be ustrated by
the foowng e ampes:
ampe (a) : entered nto a when ssued buy contract for 200
shares of Y Company preferred stock at 20. Wthn s months after
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169
29.117-1.
such purchase, he entered nto a when ssued se contract for 200
shares at 25. More than s months after the date of the buy contract
but wthn s months from the date of the se contract and at a tme
when the market prce of the Y Company preferred stock when
ssued s 40, ses hs nterest n both contracts (under whch he has
a contngent proft of 1,000) to D for 00. Does have a ong-term
capta gan
nswer: Snce the when ssued stock at the date of sae of the
two contracts has a market vaue of 40, the contract to buy s vauabe
whereas the contract to se s a abty. Ths s so because the
owner of the contract to buy at 20 coud go nto the open market and
enter nto a contract to se at 40, the prevang market prce of the
when ssued stock. In such a stuaton, t w be consdered that
receved for the vauabe contract the amount of ts far market
vaue and that that fgure, ess the net amount actuay receved, rep-
resents the amount whch constructvey pad to D for takng over
s obgaton under the other contract. Ths atter amount w be
treated y as a capta oss. (See queston 2(c) (1) as set forth n
answer 2(c), nfra, for detaed dscusson of ths specfc probem.)
e queston whether the capta gan or oss w be ong-term or short-
term w depend upon whether the partcuar contract was hed for
more or ess than s months.
ampe (b): has entered nto a when ssued buy contract for
200 shares of Y Company preferred stock at 20. Wthn s months
after such purchase, he has entered nto a when ssued se contract
at 25. More than s months after the date of the buy contract but
wthn s months from the date of the se contract and at a tme
when the market prce of the Y Company preferred stock when s-
sued s 15, ses hs nterest n both contracts (under whch he has
a contngent proft of 1,000) to D for 00. Does have a ong-term
capta gan
nswer: Snce owns a contract to buy at 20 and a contract to
se at 25 and the when ssued stock at the date of sae of the two
contracts has a market vaue of 15, the contract to se s vauabe
whereas the contract to buy s a abty. Ths s so because a pur-
chaser coud go nto the open market and enter nto a contract to buy
at 15. . however, hods the obgaton of another party to purchase
at 25. In such a stuaton, t w be consdered that receved for
the vauabe contract the amount of ts far market vaue and that
fgure, ess the net amount actuay receved, represents the amount
whch constructvey pad D for takng over s obgaton under
the other contract. Ths atter amount w be treated by as a capta
oss. The queston whether the capta gan or oss w be ong-term
or short-term w depend upon whether the partcuar contract was
hed for more or ess than s months.
ampe (c): The facts are the same as n e ampes (a) and (6)
e cept that the market prce s 22 at the tme ses hs nterest n
the two when ssued contracts. Does have a ong-term capta
gan
nswer: Snce the prevang market prce of the when ssued
stock s 22, both the buy and se contracts have vaues. Ths s so
because a purchaser woud have to pay 22 at the market whereas
owns a contract to buy at 20 and he owns the obgaton of some one
6 43 54 46 12
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29.117-1.
170
to purchase from hm at 25 whch he coud fuf by buyng the stock
at 22 on the market. In such a case, the net consderaton of 00
receved by shoud be aocated to each of the contracts on the bass
of two-ffths to the buy contract and three-ffths to the se contract
Snce hed the buy contract for more than s months, he w reaze
a ong-term capta gan of 320. Snce he hed the se contract for
ess than s months,he w reaze a short-term capta gan of 4 0.
nswer 2(c): uestons 2(c) (2) and 2(c) (3) are governed by what
has been sad above wth respect to questons 2(a)(2) and 2(a)(3).
ueston 2(c) (1) s now consdered n connecton wth a transacton
presented as foows:
More than s months ago, purchased stock n the Company at
19. ganst ths purchaee, he mmedatey sod at 20 on a when
ssued bass the new stock n the Y Company whch, under a-pan
of reorganzaton, was to be ssued n e change for the od stock n the
Company. t the present tme, the od stock s seng at 39, and
the new stock, on a when ssued bass, s seng at 40. owever,
the reorganzaton has not been fnay approved and may never be
approved. wants to reaze hs proft ths year as a ong-term capta
gan. e proposes, therefore, to se hs Company stock n the open
market at ts present vaue of 39. Ths sae woud gve hm a proft of
20 ponts, whch woud be a ong-term capta gan. aso proposes
to dspose of hs when ssued se contract by payng 0 per cent
of the dfference between the prce at whch the when ssued stock
was sod (20) and ts present market vaue (40), or 16 ponts, for whch
agrees to assume a of s abtes under the contract.
Thereafter fnds that C s the owner of a contract enttng hm
to buy the when ssued stock at 19. C s poston s that he has a po-
tenta proft of 21 ponts whch may dsappear entrey f the reor-
ganzaton does not go through or may decrease f, at the tme the
reorganzaton s effected, the market vaue of the new stock s ess
than 39. e s, therefore, wng to dspose of hs potenta proft of
21 ponts by seng hs contract to for 0 per cent of such potenta
proft, or 10. ponts. If proceeds as above outned, hs stuaton
w be as foows: e has receved 16 ponts from for assumng
the atter s abty under the when ssued se contract, and he
has pad C 16. ponts for an assgnment of the atter s purchase con-
tract. If the reorganzaton s not consummated, he w ose eght-
tenths of a pont. If the reorganzaton s consummated, he w make
a gross proft of 1 pont (the dfference between the prces n hs buy
and se contracts) whch, after deductng hs net cash outay of eght-
tenths of a pont, w gve hm a net proft of two-tenths of a pont.
Snce fees strongy that the reorganzaton w go through, he s
wng to rsk the oss of eght-tenths of a pont aganst the possbty
of a net proft of two-tenths of a pont.
The questons presented upon the foregong assumed facts are:
rst, s the amount whch pays to n consderaton of s as-
sumng s abtes under the when ssued se contract deductbe
by as an ordnary oss or as a busness e pense
Second, s the amount whch receves from for assumng the
atter s abtes under the when ssued se contract ta abe to
as ordnary ncome at the tme of recept, or may t be offset aganst
the amount whch pays to C
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171
29.117-1.
Thrd, f the amount whch receves from s ncome to at the
rme of recept, may deduct at the tme of payment the amount whch
he pays to C for an assgnment of C s when ssued buy contract f
It s hed that the transacton s an e change by of hs contract,
capta asset, and that the resutng oss s a capta oss wthn the
meanng of secton 117 of the Code.
Secton 111(a) of the Code provdes that the oss upon the sae or
other dsposton of property sha be the e cess of the ad|usted bass
over the amount reazed. Secton 111(b) of the Code provdes that
the amount reazed sha be the sum of any money receved pus the
far market vaue of the property (other than money) receved.
Presumaby, s contract to se when ssued stock of the Y Com-
pany at 20 cost hm nothng n cash at the tme t was entered nto.
owever, obgated hmsef to carry out the contract accordng to
ts terms. Such obgaton shoud be treated as a part of the bass of
the contract n s hands. ccordng to the form of the transacton,
receved n the e change s agreement to assume s obgaton and
ths woud equa n vaue s bass. owever, n vew of the fact that
was requred to pay a cash amount, the substance of the matter s
that the net vaue receved by was reduced by that amount. Thus,
fte e cess of s bass over the amount receved by hm n the e change
s equa to the amount whch he pad to .
somewhat smar stuaton was presented n . T. Robnson v.
Commssoner (97 ed. (2d), 552). There the ta payer, soe owner
of a water company, contracted wth certan and subdvders to sup-
py the subdvsons wth water. The subdvders agreed to pay the
cost of nstang water mans, etc., and to transfer tte to the ta -
payer. The ta payer, n consderaton of such agreement, agreed to
keep such property n repar and to furnsh an adequate suppy of
water. The cost of the water mans, etc., to the subdvders was ap-
pro matey 170,000. The court hed that t must be assumed that
the obgaton of the ta payer was equa to the vaue of the property
recevedand that t consttuted a part of the cost bass of the property
n the hands of the ta payer. In addton, the ta payer had e pended
about 36,000, whch made the tota cost bass of the assets to hm
about 206,000. Thereafter the ta payer organzed a corporaton to
whch he transferred the entre assets n e change for bonds and stock.
The corporaton assumed the e ecutory obgaton of the ta payer
under the contract wth the subdvders and reeved the ta payer of
any further performance thereunder. The court sustaned the oard
of Ta ppeas (now The Ta Court of the Unted States), whch
hed that the ta payer receved n e change for the assets of the
water system not ony the stock and bonds of the corporaton, but aso
the corporaton s assumpton of performance under the contract wth
the subdvders, and that such assumpton of performance consttuted
a h recovery of the consderaton gven by hm for the donatons n
ad of constructon. The court hed, n effect, that the assumpton of
the obgaton by the corporaton offset the ta payer s obgaton,
whch was vaued at 170,000, and that the remanng 36,000 shoud
be consdered as the amount of the cost of the bonds and stock re-
ceved by the ta payer.
ttenton s nvted to secton 29.22(a)-1 of Reguatons 111, whch
provdes that f a purchaser takes over a the assets and assumes the
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29.117-1. 172
abtes of a corporaton, the amount so assumed s part of the
seng prce. In Consodated Coke Co. et a. v. Commssoner (70
ed. (2d), 446), t was hed that n such a stuaton the assumpton
of abtes consttutes cost of the assets to the purchaser. . ttenton
s aso nvted to secton 29.44-2 of Reguatons 111, whch provdes
that n the sae of mortgaged property the amount of the mortgage
assumed by the purchaser sha be ncuded as part of the seng prce
of the propertv. (Cf. Unted States v. L. Manue ender, 303 U. S.,
564, Ct. D. 132 , C. . 193 -1, 2 5.)
In answer to the frst queston, n accordance wth the vews e -
ftressed above, t s hed that the oss shoud be consdered as a capta
oss under secton 117 of the Code. Snce, under the assumed facts, the
contract was hed by for more than s months, the oss woud be a
ong-term capta oss. It may be added that the same concuson
woud be reached f a purchaser of securtes when ssued pad
another a sum of money n order to be reeved of hs obgatons under
the contract.
In answer to the second queston, t s hed that the amount whch
receved from s not ta abe as ordnary ncome at the tme of
recept, but s a factor to be taken nto consderaton n determnng
the utmate gan or oss derved by when he compes wth the
obgatons or the contract or t s defntey ascertaned that the re-
organzaton w not be consummated. In the event the reorganza-
ton s consummated and carres out the contract, the gan or oss
whch sustans w be a capta gan or oss. Whether t s a short-
term or ong-term capta gam or Toss w depend upon the ength of
tme hods the stock before deverng t under the contract to se.
If the reorganzaton s not consummated, w have derved ord-
nary gan as of the tme t s estabshed that the reorganzaton w
not Ibe consummated, n the amount he receved from .
In vew of the poston taken above, t s unnecessary to consder the
thrd queston.
The prncpes heretofore deveoped w now be brefy apped to
certan addtona questons whch have been presented and whch
are not entrey covered by the foregong.
ueston a) : buys 200 shares of Y Company preferred stock
at 20 when ssued. Ths s accompshed by enterng nto a contract
wth C under whch agrees to purchase from C 200 shares of such
stock at 20 a share. More than s months after enterng nto ths
contract, and at a tme when the market for the stock when ssued
s 25, ses a of hs rght and nterest n the contract wth C to D
for 950, but he agrees wth D that f the pan of reorganzaton under
whch the Y Company preferred stock s to be ssued s not consum-
mated, he ( ) w refund the 950 to D. as a ong-term capta
gan
nswer: In such a stuaton t shoud not be consdered that there
has been a fna sae of the contract unt t becomes certan that the
reorganzaton w be consummated. ccordngy, not unt that
tme s gan or oss reazed by . If the reorganzaton s consum-
mated, w reaze a ong-term capta gan of 950.
ueston (6) : , a member of the New York Stock change, enters
nto a when ssued buy contract wth C under whch agrees to
purchase from C 200 shares of Y Company preferred stock at 20. t
a tme when the market prce of the Y Company preferred stock when
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173
29.117-1.
ssued s 25, the Stock Cearng Corporaton cas for an ntermedate
cearance and a markng of contracts to 25. receves a contngent
credt on the books of the Stock Cearng Corporaton n the amount
of 1,000. as any ta abe gan as a resut of ths credt
nswer: reazes no ta abe gan as a resut of ths credt. No
pn or oss w be reazed by on the contract to buy stock of the
Y Company when ssued unt and uness the reorganzaton of the
Y Company s consummated.
ueston (c): enters nto a when ssued se contract wth C
under whch agrees to se to C 200 shares of Y Company preferred
stock at 20. t a tme when the market s 40, purchases from D
a when ssued buy contract under whch D has agreed to purchase
from 200 shares of Y Company preferred stock at 20, and pavs
D 3,200 ( 0 per cent of D s potenta proft) for the contract. o
then nduces C to accept an assgnment of D s contract wth as sats-
facton of hs ( s) contract wth C. Does have a short-term capta
oss
nswer: capta oss of 3,200 s sustaned by at the tme he
assgns to C the buy contract he purchased from D. Whether such
oss s a short-term or a ong-term capta oss depends upon the ength
of tme hed the buy contract.
ueston (d) : enters nto a contract wth C under vhch agrees
to buy from C 200 shares of Y Company preferred stock when ssued
at 20. t a tme when the market s 25, he ses a hs rght and n-
terest n ths contract to D for 00 ( 0 per cent of hs potenta gan)
wthout recourse. ow shoud the amount pad by D to be treated
by D for edera ncome ta purposes
nswer: No gan or oss w be reazed by D when, after the reor-
ganzaton s consummated, he purchases the new stock pursuant to the
buy contract. The amount pad by D to for the buy contract shoud
be added to the cost of the stock so bought for the purpose of determn-
ng the gan or oss to D upon a subsequent sae of the stock.
ueston (e) : enters nto a contract to purchase 200 shares of
Y Company preferred stock when ssued at 20. More than s
months after enterng nto the contract to purchase such stock, the
reorganzaton of the company s consummated and receves the
200 shares of stock upon payment of 4,000. Wthn s months of the
recept of these shares, ses them at 25 for 5,000. Is s gan a
ong-term or a short-term capta gan
nswer: When sod for 5,000 the new stock of the Y Company
whch he had purchased for 4,000 on a when ssued bass, he
reazed a short-term capta gan of 1,000, snce he had hed the new
stock for not more than s months. dd not compete hs purchase
of the new stock unt the reorganzaton of the od company was
consummated and he acqured the new stock pursuant to hs buy con-
tract, at whch tme the hodng perod began for the purpose of de-
termnng whether the gan was a ong-term or short-term capta
gan.
ueston (/) : enters nto a contract wth under whch agrees
to purchase from 200 shares of Y Company preferred stock when
ssued at 20. More than s months ater, enters nto a contract
wth C under whch agrees to se to C 200 shares of Y Company
preferred stock when ssued at 25. Subsequenty, the pan of
reorganzaton s consummated and shares of the Y Company preferred
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29.117-4.
174
stock are ssued. mmedatey receves 200 shares of Y Company
preferred stock from upon payment of 4,000, and on the ne t cay,
devers 200 shares to C upon recept of 5,000. Is s proft a
ong-term or a short-term capta gan
nswer: reazed a short-term capta gan of 1,000 from ths
transacton, snce he had hed the new stock of the Y Company for
not more than s months. When entered nto the contracts wth
respect to purchase and sae of the stock of the Y Company on a when
ssued bass, he merey entered nto contracts to purchase and to
se the stock f and when t was ssued. When the reorganzaton
was consummated, he acqured the Y Company stock pursuant to hs
buy contract and mmedatey dsposed of the stock pursuant to hs se
contract.
ueston (g) : enters nto a contract wth under whch agrees
to purchase from 200 shares of Y Company preferred stock when
ssued at 20. More than s months ater, enters nto a contract
wth C under whch agrees to se to C 200 shares of Y Company
preferred stock when ssued at 25. The pan of reorganzaton s
consummated, and preferred stock of the Y Company s ssued. The
New York Stock change cas for a cearance and , , and C report
ther contracts to the e change. nether receves nor devers any
stock but does receve 1,000 from the Stock Cearng Corporaton, s
s gan a ong-term or a short-term capta gan
nswer: reazed a short-term capta gan of 1,000. The trans-
actons, n effect, have been competed through the New York Stock
change, and no further acquston or dsposton of the new stock
w be made under the contracts n so far as s concerned.
The concusons set forth heren are appcabe to transactons
entered nto by nvestors and traders n securtes but are not app-
cabe to transactons entered nto by deaers n securtes where such
transactons consttute a part of the busness of deaers n securtes.
Secton 29.117-4: Determnaton of perod for 1945-1-11922
whch capta assets are hed. I. T. 3705
or the purpose of determnng capta gans and osses under
secton 117 of the Revenue ct of 103 and secton 117 of the Interna
Revenue Code, the perod durng whch a securty s hed by a ta -
payer commences on the day after he purchases the securty and ends
on the day he ses t. Ths rue s not affected by the nterventon
of hodays or ess than fu busness days between the date of pur-
chase or sae of a securty and the date of devery and payment
I. T. 32 7 (C. . 1939-1 (Part 1), 13 ) amp ed.
dvce s requested whether the rue set forth n I. T. 32S7 (C. .
1939-1 (Part 1), 13 ), reatng to the hodng perod of assets for
the purpose of determnng capta gans and osses under secton 117
of the Revenue ct of 193 , s affected where hodays and ess than
fu busness days ntervene between the date of purchase or sae of a
securty and the date of devery and payment. I. T. 32 7, whch s
equay appcabe to capta gans and osses under secton 117 of the
Interna Revenue Code, hods that the perod durng whch an asset
was hed s to be computed by e cudng the day on whch the asset
was acqured by the ta payer and ncudng the day on whch sod by
hm.
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175
29.117-7.
Under the rues of most of the regstered securty e changes, de-
very and payment, upon ether a purchase or a sae of a securty,
are not requred to be made unt the second fu busness day after
the date on whch the purchase or sae s e ecuted. It appears to
be generay understood, n appyng the rue of I. T. 32 7 to a securty
whch s so purchased and sod by a ta payer, that the perod t s hed
by hm commences on the day after he purchases t even though pay-
ment by and devery to hm are not made unt the second day after
he purchases t, and that such hodng perod ends on the day he ses
the securty even though devery by and payment to hm are not
made unt two days after the sae. Such computaton of the perod
durng whch a securty, thus acqured and dsposed of by the ta -
payer, s hed by hm s n accord wth the poston of the ureau
and s consstent wth numerous rungs and decsons reatng to
when a purchase or other acquston and a sae or other dsposton
of securtes are consummated for edera ncome ta purposes. (See
G. C. M. 21503, C. . 1939-2, 205, and decsons theren cted I. T.
3323, C. . 1939-2, 90 and Robert . Puf r v. Conwwroner, 43 .
T. ., 677, affrmed, 12 ed. (2d), 742.)
In some nstances, partcuary where a hoday ntervenes, more
tm two days after a purchase or sae of a securty s e ecuted may
eapse before devery and payment are made. case s presented n
whch a securty was purchased by a ta payer on Wednesday, Octo-
ber 11, 1944, payment by and devery to hm not beng made unt
Monday, October 16, 1944, whch was the second fu busness day
after the purchase date, because of the nterventon of Thursday,
October 12, 1944, whch was a ega hoday, Saturday, October 14,
1944, whch was not a fu busness day, and Sunday, October 15,1944,
whch was not a busness day. The questons presented are (1)
whether the hodng perod n such case commenced on October 12,
1944, as ndcated by I. T. 32 7, supra, or on October 17,1944, the day
foowng payment and devery, and (2) f a securty had been sod
by the ta payer on October 11,1944, devery by and payment to hm
not beng made unt October 16,1944, when woud the hodng perod
have ended
The nterventon of hodays or ess than fu busness days between
the date of a purchase or a sae of a securty and the date of devery
and payment therefor does not vary the appcaton of the rue ad
down n I. T. 32 7, supra. ccordngy, n the above-mentoned case
of the purchase, the hodng perod commenced on October 12, 1944,
n the above-mentoned case of the sae, the hodng perod ended on
October 11, 1944, the day on whch the ta payer sod (dsposed of)
the securty.
Secton 29.117-7: Gans and osses from nvountary
conversons and from the sae or e change of cer-
tan property used n the trade or busness.
Loss on sae of rea estate owned and operated as a source of ncome.
(acqured) the securty, and.
INT RN L R NU COD .
(See L T. 3711, pag 162.)
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29.117-7. 176
Secton 29.117-7: Gans and osses from nvo- 1945-3-11951
untary conversons and from the sae or e - I. T. 3712
change of certan property used n the trade or
busness.
INT RN L R NU COD .
Method to be used by vestock rasers u determnng the e tent
to whch gans and osses from saes of breedng catte hed for more
than s months consttute capta gans and osses wthn the mean-
ng of secton 117( ) of the Interna Revenue Code, as construed by
I. T. 3G66 (G. . 1944, 270).
dvce s requested as to the method to be empoyed by vestock
rasers n determnng the e tent to whch gans and osses from saes
of breedng catte hed for more than s months consttute capta
gans and osses wthn the meanng of secton 117(|) of the Interna
Revenue Code, as construed by I. T. 3666 (C. . 1944, 270).
breedng herd owned by a vestock raser s recognzed by I. T.
3G66, supra, as property used n the trade or busness, of a character
whch s sub|ect to the aowance for deprecaton, wthn the meanng
of secton 117(|) of the Code, provded t s hed for more than s
months. The offsprng of the breedng herd, however, are prop-
erty hed by the ta payer prmary for sae to customers n the ord-
nary course of hs trade or busness and, therefore, are not sub|ect
to the provsons of secton 117(|) of the Code f such offsprng, n
the case of catte, consst of a steers, a hefers not hed for repace-
ment n the breedng herd, and a cows and bus not hed for breedng
purposes but hed for sae n the norma course of busness. It s
recognzed that customary a vestock raser ses from the breedng
herd not ony od anmas, unft for breedng purposes, but aso a
certan number of anmas whch may be used by another vestock
raser for breedng purposes or whch may go to a feeder or drect to
saughter. I. T. 3666, supra, recognzes that the ordnary saes of
vestock by a vestock raser are productve of ordnary ncome,
and abnorma saes whch effect a reducton n the breedng herd are
sub|ect to the provsons of secton 117(|) of the Code.
I. T. 3666, supra, provdes that the sae of anmas cued from the
breedng herd as feeder or saughter anmas n the reguar course
of busness s not to be treated as the sae of a capta asset. The
phrase cued from the breedng herd refers to the norma seecton
for sae of those anmas whch, due to n|ury, age, dsease, or for any
other reason (other than that of changng the breed or the quaty
of the offsprng) are no onger desred by the vestock raser for
breedng purposes, and aso the norma seecton for sae of anmas
for the purpose of mantanng the herd at a reguar sze. The pr-
mary factor s norma practce n the case of the partcuar ta payer
nvoved.
Snce n many cases t w be found mpractca to determne ac-
curatey the number of anmas sod from the breedng herd, the
foowng prma face test s provded for the gudance of vestock
rasers. If the number of anmas sod from the breedng herd dur-
ng a ta abe year e ceeds the number of rased anmas added to the
breedng herd durng the same year, t w be presumed that the
e cess number sod conssted of anmas hed for breedng purposes,
the gan or oss from whch (f hed for more than s months) s sub-
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177
29.117-7.
|ect to the provsons of secton 7() of the Code. Such saes effect
a reducton n the vestock raser s breedng herd. or the purpose
of the foregong test, vestock purchased for the herd to mprove
ts quaty or change ts breedng sha not be consdered as repac-
ng anmas sod. owever, the vestock raser who normay ses
a of hs catte s offsprng and mantans hs breedng herd through
purchases sha be consdered for purposes of the foregong test, as
mantanng hs herd wth anmas rased by hm. If anmas whch
were hed for breedng purposes and were sod can not be dentfed,
t w be presumed that the resutng number of the hghest-prced
anmas sod were breedng anmas and the baance cus. If the
number of rased anmas added to the herd s greater than the number
of such anmas found unft for breedng purposes and sod durng
the year, none of the anmas sod w be consdered capta assets
sub|ect to the provsons of secton 117(|) of the Code.
The determnaton of whether an anma sod was hed for breed-
ng purposes or was a cu sha be made from the pont of vew
of the seer, and t sha n no case be affected by the purpose to whch
the anma s put by the purchaser. Thus, f a vestock raser reduces
sherd by abnorma saes of breedng anmas, t makes no dfference
whether they are purchased by another vestock raser for breedng
purposes or by a packer for saughter. Smary, f a vestock
raser of regstered anmas ses hs norma producton of anmas to
another vestock raser who uses them for breedng purposes, they
are consdered hs ordnary product and the gans resutng there-
from are ordnary ncome not sub|ect to secton 7(|) of the Code.
owever, gans and osses from abnorma saes from such a vestock
raser s own breedng herd hed for more than s months are sub-
|ect to secton 117 (|) of the Code. The reasons of the vestock raser
for makng abnorma saes of breedng anmas hed for more than
s months are mmatera, and the provsons of secton 117 (|) of the
Code appy whether the anmas are sod because of drought, economc
crcumstances, or for any other cause.
Immature anmas whch have been retaned by a vestock raser
for breedng purposes sha be consdered a part of the breedng herd.
Gans and osses from norma saes of such mmature anmas, how-
ever, n accordance wth the foregong prncpes, are not sub|ect to
the provsons of secton 117(|) of the Code. we ambs and hefer
yearngs hed through the wnter sha be presumed to be hed for
breedng purposes. efer caves sha be consdered to be hed for
breedng purposes f and to the e tent that the vestock raser normay
keeps such hefer caves for breedng purposes. The same prncpes
sha appy to young femaes of other speces and to young unatered
maes.
I. T. 3666, supra, further provdes that, for the purposes of secton
(|) of the Code, n determnng the gan derved from the sae of
vestock n the case of a vestock raser operatng upon an accrua
bass, n whch nventores are used, the bass shoud refect any amount
of deprecaton whch has been sustaned and whch has, n effect,
been aowed n the nventory computatons. That provson has no
appcaton wth respect to vestock nventored by use of the farm-
prce method, snce such method refects n the nventory computa-
tons the deprecaton sustaned and t does not contempate the use of
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29.117- .
17
a bass whch represents cost. Nether w such provson be apped
n the case of anmas rased by a vestock raser and nventored by
hm by the use of the unt-vestock-prce method, because the
proper savage vaue generay appro mates the unt vestock prce
used by the vestock raser. (See secton 29.22(c)-6 of Reguatons
111, as amended by T. D. 5423, page 70, ths uetn, and Mm. 5790,
page 72, ths uetn.) The bass of vestock whch has been carred
m a capta account s sub|ect to ad|ustment on account of depreca-
ton. so, when vestock purchased for dary or breedng purposes
s ncuded n the nventory and ater sod under condtons whereby
the sae s treated as the sae of a capta asset, the bass of such ve-
stock on the date of sae shoud be ad|usted to refect deprecaton
sustaned from the date of acquston to the date of sae. Such de-
precaton on purchased anmas shoud be computed by takng nto
account the savage vaue estmated as of the date of acquston.
The bass of such purchased anmas shoud be reduced, however, ony
to the e tent that the vestock raser has, n effect, receved the
equvaent of a deducton for deprecaton through hs nventory
computatons.
vestock raser who cams that saes of hs vestock durng any
ta abe year shoud be treated as saes of capta assets under the
provsons of secton 117 (|) of the Code shoud attach to hs edera
ncome ta return for such year a statement settng forth the necessary
facts reatng to the anmas sod and ndcatng n deta the amounts
entered n hs return and the tems and schedues n whch they are
reported.
Secton 29.117- : Gan or oss upon the cuttng 1945-3-11952
and dsposa of tmber. I. T. 3713
INT RN L R NU COD .
Wth respect to partnershp Items, the rght to the eecton, under
secton 117(k) (1) of the Interna Revenue Code, as added hy secton
127(a) of the Revenue ct of 1943, to have the cuttng of tmber
(for sae or for use n the ta payer s trade or busness) consdered
as a sae or e change of such tmber cut durng a ta abe year
e tends to and must be e ercsed by the partnershp. n eecton
thus made w appy ony to assets of the partcuar partnershp,
and w not consttute an eecton by any of the partners as to hs
own ndvdua assets or as to the assets of any other partnershp
of whch one or more of such ndvduas may be members.
dvce s requested whether, under secton 7(k)() of the In-
terna Revenue Code, a partnershp may e ercse the eecton to have
the cuttng of tmber (for sae or for use n the ta pa| er s trade or
busness) consdered as a sae or e change of such tmber cut durng
a ta abe year.
Secton 7(k) (1) of the Interna Revenue Code, as added by sec-
ton 127(a) of the Revenue ct of 1943, appcabe wth respect to
ta abe years begnnng after December 31, 1943, provdes as foows:
(k) Gan ob Loss Upon the Ct|ttno of Tmbkb.
(1) If the ta payer so eects upon hs return for a ta abe year, the cut-
tng of tmber (for sae or for use n the ta payer s trade or busness)
durng such year by the ta payer who owns, or has a contract rght to
cut, such tmber (provdng he has owned such tmber or has hed such
contract rght for a perod of more than s months pror to the begnnng
of such year) sha be consdered as a sae or e change of such tmber cut
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179
5 29.117- .
(hrng snch year. In case such eecton has been made, gan or oss to the
ta payer sha be recognzed n an amount equa to the dfference between
the ad|usted bass for depeton of such tmber n the hands of the ta -
payer and the far market vaue of such tmber. Such far market vaue
sha be the far market vaue as of the frst day of the ta abe year n
whch such tmber s cut, and sha thereafter be consdered as the cost of
such cut tmber to the ta payer for a purposes for whch such cost s
a necessary factor. If a ta payer makes an eecton under ths paragraph
such eecton sha appy wth respect to a tmber whch s owned by the
ta payer or whch the ta payer has a contract rght to cut and sha be
bndng upon the ta payer for the ta abe year for whch the eecton s
made and for a subsequent years, uness the Commssoner, on showng
of undue hardshp, permts the ta payer to revoke hs eecton such revo-
caton, however, sha precude any further eectons under ths paragraph
e cept wth the consent of the Commssoner.
Pursuant to the provsons of secton 117(k) (1) of the Code, supra,
the eecton to secure the benefts theren provded must be made by
the ta payer.
Secton 3797(a) (14) of the Code defnes ta payer as foows:
(14) Ta payer. The term ta payer means any person sub|ect to a
ta mposed by ths tte.
Secton 1 1 of the Code provdes as foows:
S C. 1 1. P RTN RS IP NOT T L .
Indvduas carryng on busness n partnershp sha be abe for Income ta
ony In ther Indvdua capacty.
In vew of the provsons of secton 1 1 of the Code, supra, a part-
nershp s not ta abe as such and may not be cassfed as a ta -
payer, as that term s defned n secton 3797(a) (14) of the Code,
supra. Nevertheess, a partnershp s treated as a unt n secton 1 3
of the Code, under whch secton the partnershp net ncome must be
computed, and n secton 1 7 of the Code, whch requres that every
partnershp sha make a return for each ta abe year of ts gross
ncome and deductons, together wth other nformaton for the pur-
pose of carryng out the provsons of Chapter 1 of the Code, reatng
to ncome ta . so, under secton 29.1 7-1 of Reguatons 111, a part-
nershp s requred to adopt ts own annua accountng perod. In
order to accompsh a proper refecton of partnershp gross ncome
and deductons n the ascertanment of partnershp net ncome, part-
nershp tems must be recognzed as unt tems returnabe as such n
the partnershp return. It foows, therefore, that n so far as part-
nershp tems are concerned, the rght to the eecton provded for n
secton 7(k)() of the Code, supra, upon whch there depends a
beneft granted to ta payers generay, must be consdered as ava-
abe to a partnershp, and the rght to the eecton must be e ercsed
by t
ccordngy, t s hed that, wth respect to partnershp tems, the
rght to the eecton, under secton 117(k)() of the Interna Rev-
enue Code, as added by secton 127(a) of the Revenue ct of 1943, to
have the cuttng of tmber (for sae or for use n the ta payer s trade
or busness) consdered as a sae or e change of such tmber cut dur-
ng a ta abe year e tends to and must be e ercsed by the partner-
shp. It s not necessary that the eecton be sgned by a of the
partners snce the decson of a ma|orty n nterest s controng n
partnershp affars. It w be suffcent f the eecton s made n
the partnershp return as ordnary prepared and fed. n eecton
thus made w appy ony to assets of the partcuar partnershp, and
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29.124-0.
1 0
w not consttute an eecton by any of the partners as to hs own n-
dvdua assets or as to the assets of any other partnershp of whch
one or more of such ndvduas may be members.
S CTION 122. N T OP R TING LOSS D DUCTION.
Secton 29.122-3: Computaton of net operatng oss n
case of a ta pa er other than a corporaton.
INT RN L R NU COD .
Loss on sae of rea estate owned and operated as a source of
ncome. (See I. T. 3711, page 162.)
S CTION 124. MORTIZ TION D DUCTION.
Secton 29.124-0: Defntons. 1945-3-11953
( so Sectons 29.124-1,29.124-2,29.124-5, T. D. 5432
29.124-6, and 29.124-7.)
Reguatons 111 amended to conform to ecutve Order No.
0400, ecutve Order No. 94 0, and ecutve Order No. 9490 under
Tte 1 of the rst War Powers ct of 1941, transferrng functons
wth respect to certfcates of necessty and of nonnecessty from the
Secretary of War and the Secretary of the Navy to the Charman of
the War Producton oard.
Treasuhy Department,
Washngton 25, D. C.
edera Reguatons, Cum. Sup. to ecutve Order No. 940 , dated
December 17, 1943, ecutve Order No. 94 6, dated September 30,
1944, and ecutve Order No. 9490, dated October 20,1944, such regu-
atons are amended as foows:
Paragraph 1. Secton 29.124-0 s amended as foows:
( ) y changng subsecton (a) to read:
(a) Certfyng offcer means the Secretary of War or the Secretary of
the Navy, as the case may be, or the duy authorzed representatve of ether.
The term certfyng offcer Incudes the Charman of the War Producton
oard, or hs duy authorzed representatve, n case any certfcaton provded
for n secton 124 s made by the Charman of the War Producton oard or hs
duy authorzed representatve pursuant to ecutve order.
( ) y addng n subsecton (b) after Secretary of the Navy,
the words or the Charman of the War Producton oard, or hs
duy authorzed representatve, and by strkng out n such subsec-
ton (b) Secretary of the department concerned, wherever t
occurs, and nsertng n eu thereof certf Tng offcer.
Par. 2. Sectons 29.124-1, 29.124-2, 29.124-5, 29.124-6, and
29.124-7 are amended by strkng out Secretary of the department
concerned wherever t occurs, and substtutng n beu thereof
certfyng offcer.
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1 1 29.124-5.
Pah. 3. Secton 29.124-5 s further amended:
( ) y strkng out, n the seventh ne of the e ampe n sub-
secton (6), Secretary of War and substtutng n eu thereof
certfyng offcer.
( ) y strkng out, n the ffth ne of the e ampe n subsecton
(d), Secretary of the Navy and substtutng n eu thereof cer-
tfyng offcer.
secton 62 of the Interna evenue Code (53 Stat., 32 26 U. S. C,
1940 ed., 62).)
oseph D. Nunan, r.,
( ed wth the Dvson of the edera Regster anuary 24, 1945, 11.44 a. m.)
Skton 29.124-1: Certfcate of necessty.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 5432, page 1 0.)
Secton 29.124-2: mortzaton deducton Genera rue.
INT RN L R NU COD .
Secton 29.124-5: Termnaton of amortza- 1945-24-12200
ton perod. Mm. 5957
Probems reatng to the endng of the amortzaton perod as pro-
vded In secton 124(d) (1) of the Interna Revenue Code.
Washngton 25, D. C, December 12,1945.
eads of ed Dvsons of the Technca Staff, and Others Con-
cerned:
Numerous questons have arsen as a resut of the Presdent s proca-
maton endng the emergency perod, as defned n secton 124(e) (2)
of the Interna Revenue Code. It s the purpose of ths mmeograph
to answer the most prevaent quest ons. The Presdent s procamaton
was sgned on September 29, 1945, and was fed wth the edera
Regster on October 3,1945.
Secton 124(d) (1) of the Interna Revenue Code, reatve to term-
naton of the amortzaton perod, provdes as foows:
(1) If the Presdent has procamed the endng of the emergency perod (as
dfefned In subsecton (e)), or f the Secretary of War or the Secretary of the
Nary has, In accordance wth reguatons prescrbed by the Presdent, certfed
to the Commssoner that an emergency facty ceased, on the date specfed n
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29.124-5.
1 2
the certfcate, to be necessary In the Interest of natona defense durng the
emergency perod, and f the date of such procamaton or the date specfed n
such certfcate occurs wthn s ty months from the begnnng of the amortzaton
perod wth respect to such emergency facty, then the ta payer may eect (n
accordance wth paragraph (4) of ths subsecton) to termnate the amortzaton
perod wth respect to such emergency facty as of the end of the month n whch
such procamaton was ssued or n whch occurred the date specfed n such cer-
tfcate, whchever s the earer. In such case the amortzaton perod wth
respect to such facty sha end wth the end of such month n eu of the end
of the s ty-month perod.
In order for a ta payer to receve any amortzaton deductons wth
respect to factes, t s necessary that a certfcate sha have been
ssued certfyng that such factes are necessary n the nterest of
natona defense durng the emergency perod. ta payer who has
receved such a necessty certfcate but has not eected to take amortza-
ton deductons may, nevertheess, by reason of the Presdent s proca-
maton or the ssuance of a non-necessty certfcate, eect to take amor-
tzaton deductons usng an amortzaton perod begnnng wth the
month foowng the month n whch the emergency facty was com-
peted or acqured and endng September 0, 1945, or as of the end of
the month wthn whch occurred the date specfed n the non-necessty
certfcate, whchever s the earer. In any event, the queston of
makng an eecton to termnate the amortzaton perod s a matter
wthn the dscreton of the ta payer.
The word factes where used herenafter means emergency
factes as defned n secton 124(e)(1) of the Code. pproprate
answer to each numbered queston foows each queston.
1. What Is the form of eecton and what s the e praton date of the 90-day
perod for makng nn eecton to termnate the amortzaton perod In accordance
wth secton 124(d) (4) of the Code
No speca form has been prescrbed for makng ths eecton. It
may be made by addressnga etter to the Commssoner of Interna
Revenue, Washngton 25, I). C, attenton IT: P: C , statng the
eecton and gvng a bref descrpton dentfyng the factes. -
though the Presdent s procamaton ended the emergency perod on
September 29, 1945, an eecton to termnate the amortzaton perod
w be consdered tmey f fed on or before anuary 1,1946, 90 days
from the date the Presdent s procamaton was fed wth the edera
Regster. If, however, a non-necessty certfcate s ssued, the tme
for fng an eecton to termnate the am ortzaton perod w e pre
90 days from the date of ssuance of the non-necessty certfcate.
2. In makng the eecton to termnate the amortzaton perod under secton
124(d) of the Code, s t necessary under secton 29.124-5(e) of Reguatons I
to gve a detaed descrpton of the factes such as Is contaned In the certf-
cate of necessty
The ureau has not prescrbed any partcuar form for the descrp-
ton of emergency factes under secton 29.124 5(e) of Reguatons
111. detaed temzaton s not requred. Such factes shoud
be ceary dentfed by a bref descrpton and reference to the certf-
cate of necessty numbers. Where the eecton does not cover a of
the factes sted n a certfcate of necessty, t w be necessary to
furnsh suffcent nformaton to dentfy the partcuar factes
whch are covered by the eecton.
3. May the ta payer dsregard the non-necessty certfcate and eect to term-
nate the amortzaton perod as of September 30, 1945, on the bass of the Pres-
dent s procamaton
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1 3
29.124-5.
If the ta payer has receved a uon-necessty certfcate and the date
specfed n such certfcate s before the date of the Presdent s proca-
maton, the date specfed n such non-necessty certfcate s deter-
mnatve of the end of the amortzaton perod.
4. avng eected to termnate the amortzaton perod, may the ta payer
nevertheess contnue amortzaton on the GO-mouth bass
If the ta payer has eected to termnate the amortzaton perod,
there s no authorty under the aw to take amortzaton on the bass
of a 60-month perod. Such eecton s not revocabe uness the revo-
caton s made wthn a 90-day perod referred to n queston 1.
5. May the ta payer eect to termnate the amortsaton perod wth respect
to one or more factes and contnue amortzng ts other factes on the
60-month bass
Secton 124(d) (1) of the Code, refers to an emergency facty.
Snce reference s not theren made to a of the emergency factes
of the ta payer, the ta payer may eect to termnate the amortzaton
perod wth respect to one or more of ts factes wthout termnatng
snch perod wth respect to a of ts factes. s to what consttutes
separate factes, see the answer to queston 6.
6. Where n necessty certfcate covers more than one facty, how can the
separate factes be dstngushed
It s dffcut to ay down a rue for dstngushng the ne of
demarcaton between separate factes. necessty certfcate may
cover severa factes. Generay, each separate functona unt
houd be consdered a separate facty. In some nstances, certan
tems of equpment consttute separate factes whe n other cases
e acty smar tems mght consttute ony parts of a functona fa-
cty. or nstance, n some cases certan motors mght be consdered
separate factes, whereas n other cases they w consttute ony
parts of one facty, and ths s true even though they mght be usabe
as repacement parts for other factes. The purpose for whch each
tem was acqured shoud be consdered. If an tem s ony part of
a functona unt, t s not a separate facty, though n other cases
a smar tem mght consttute a separate facty.
7. May the cost of factes whch are n process of constructon on Septem-
ber 29, 1945, be amortzed over a 60-month perod after competon
actes whch were n process of constructon on September 29,
1045, may be amortzed over a 60-month perod begnnng wth the
month foowng competon, or wth the succeedng ta abe year
f proper eecton s made n accordance wth secton 124(b) of the
. re factes acqured after September 29, 1945, sub|ect to amortzaton
Generay, factes acqured after September 29, 1945, are sub|ect
to amortzaton over the 60-month perod provded n secton 124(a)
of the Code f the ta payer proceeded wth due dgence to acqure
such factes.
9. re factes acqured after September 29,1945, sub|ect to amortzaton over
the shortened perod n accordance wth secton 124(d) of the Code
Snce the emergency perod had been termnated pror to the begn-
nng of. tba amortzaton perod wth respect to such factes, there
s no shortened perod over whch such factes may be amortzed.
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29.124-5.
1 4
10. re factes whch were sod or abandoned pror to September 29, 1945,
or pror to the date specfed n a non-necessty certfcate, as the case may be,
sub|ect to amortzaton over the shortened perod provded n secton 124(d) of
the Code
actes whch were sod or abandoned pror to September 29,1945,
the date of termnaton of the emergency perod, or pror to the date
specfed n a non-necessty certfcate, as the case may be, are not sub-
|ect to amortzaton over the shortened perod provded n secton
124(d) of the Code because ther use as emergency factes was ter-
mnated by reason of such sae or abandonment. Under such crcum-
stances, the ad|usted bass for gan or oss at the date of sae or aban-
donment must be determned wthout reference to the shortened
emergency perod provded n secton 124(d). If the factes were
not sod before September 29, 1945, they are sub|ect to amortzaton
over the shortened perod even though subsequenty sod ether before
or after the date of the notce of eecton.
11. re factes acqured n September, 1945, sub|ect to amortzaton over the
shortened perod provded n secton 124(d) of the Code
Secton 124(a) of the Code provdes that the 60-month perod sha
begn, at the eecton of the ta payer, wth the month foowng the
month n whch the facty was competed or acqured or wth the
succeedng ta abe year. Secton 124(d), wth respect to termnaton
of the amortzaton perod, provdes that n the event the ta payer
eects to termnate the amortzaton perod as of the end of the month
n whch the Presdent s procamaton was ssued, the amortzaton
perod sha end wth the end of the month n whch such procamaton
was ssued n eu of the end of the 60-month perod. Inasmuch as the
amortzaton perod, wth respect to factes acqured n September,
1915, coud not begn unt October 1, 1945, and snce the date of the
Presdent s procamaton endng the emergency perod on Septem-
ber 29, 1945, occurred not wthn but pror to the begnnng of the
amortzaton perod, such factes are not sub|ect to amortzaton over
a shortened amortzaton perod.
12. May factes whch are under constructon on September 29, 1945, be com-
peted and the entre cost be amortzed over the shortened perod provded n
secton 124(d) of the Code
Wth respect to factes whch were ncompete on September 29,
1945, any costs ncurred subsequent to that date may not be amortzed
over the perod ended September 30, 1945.. Secton 124(d) (6) of the
Code provdes that the ta payer may make an eecton to take an
amortzaton deducton usng an amortzaton perod begnnng wth
the month n whch the constructon, reconstructon, erecton, or n-
staaton was begun and endng as of the end of the month wthn
whch the Presdent s procamaton was ssued. The costs thus sub|ect
to amortzaton ncude ony those ncurred on or before September
29, 1945, the end of the emergency perod. The costs ncurred subse-
quent to September 29,1945, for deprecabe assets, n event of eecton
under secton 124(d)(6), are sub|ect ony to the deprecaton aow-
ance. If, however, the ta payer does not eect to termnate the amort-
zaton perod under secton 124(d), he may amortze the entre cost,
ncudng costs ncurred both before and after September 29,1945, over
a 60-month perod after competon. s to what consttutes costs
ncurred before the end of that perod, see the answer to queston 14.
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1 5
29.124-5.
13. Where ess than 100 per cent of the cost has been certfed as emergency
factes and such factes were not competed on September 29, 1945, can the
entre cost to that date be consdered as representng cost of emergency factes
If the percentage of competon does not e ceed the percentage certfed as
emergency factes
s an ustraton of the probem presented by ths queston, assume
that the War Producton oard has certfed that a certan facty
w be consdered an emergency facty to the e tent of 50 per cent
of the cost thereof. ssume further that on September 29, 1945, the
facty was 50 per cent competed. The queston arses as to whether
the 50 per cent of the tota cost whch has been ncurred durng the
emergency perod represents the fu 50 per cent porton of the com-
peted facty whch s to be recognzed as necessary n the nterests
of natona defense durng the emergency perod. It s hed that the
emergency porton of such facty arses rataby over the entre cost.
In other words, when the facty s 50 per cent competed ony 25
per cent of the tota cost of the competed facty consttutes cost of
an emergency facty.
W. In case of factes under constructon by the ta payer at the tme the
emergency perod ended, what s the status of costs under contracts for materus,
tte to whch has not passed to the ta payer or for abor whch has not been
performed
Wth respect to factes under constructon by the ta payer whch
are ncompete on September 29, 1945, materas and abor contracted
for but wth respect to whch tte to the materas had not passed
to the ta payer, or abor had not been performed on or before Septem-
ber 29, 1945, there s no.cost sub|ect to amortzaton begnnng wth
the month n whch the constructon was begun and endng as of the
end of the month n whch the Presdent s procamaton was ssued,
as provded n secton 124(d) (6) of the Code. The tota cost of such
factes when competed may, however, be amortzed over the 60-
month perod as e paned n the answer to queston 12, provded eec-
ton s not made under secton 124(d) (6) of the Code to take amortza-
ton of costs ncurred to September 29,1945.
15. What method shoud be used under secton 124(d) (6) of the Code for com-
potaton of amortzaton of factes whch were ncompete at the end of the
emergency perod
Stated more specfcay, ths queston s (1) whether the cost of
soch factes to September 29,1945, shoud be amortzed rataby over
the number of months begnnng wth the month n whch the construc-
ton, reconstructon, erecton, or nstaaton was begun and endng
as of the end of the month wthn whch the Presdent s procamaton
fas ssued or wthn whch occurred the date specfed n the non-
necessty certfcate, or (2) whether the cost durng each month of such
shortened perod shoud be charged off rataby over such month and
the succeedng months of the emergency perod. ssume, for n-
stance, that the cost of an ncompete facty to September 29, 1945,
amounted to 120,000, and assume further, for convenence, that such
cost had been ncurred rataby over a perod of 12 months begnnng
wth October, 1944. Under (1) the 120,000 woud be amortzed at
the rate of 10,000 per month from October, 1944, to September, 1945,
ncusve. Ths method woud, n some cases, resut n deductons for
the earer months of constructon e ceedng the tota e pendtures for
those months. Under (2) the costs of 10,000 ncurred n October,
6 4 54 4G 13
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29.124-5.
1 6
1944, woud be amortzed over the 12-month perod, the November
costs woud be amortzed over an 11-month perod, the December costs
woud be amortzed over a 10-month perod, etc. The atter method
foows n prnc|)e secton 29.124-2 of Reguatons 111 and woud be
appcabe.
16. In makng appcaton for a tentatve ad|ustment wth respect to amort-
zaton deductons ( orms 1140 and 1046), shoud effect be gven to the carry-back
of a net oss or an unused e cess profts credt or to ad|ustment of such carry-
backs whch resut from the ncreased amortzaton deducton
Secton 7(|) of the Ta d|ustment ct of 1945 provdes for fng
an appcaton for tentatve ad|ustment wth respect to the ta es for
ta abe years pror to the ta abe year n whch such appcaton s
fed whch are to be computed as requred by secton 124 (a) (4) of the
Interna Revenue Code as the resut of such eecton. Secton
124(d) (4) of the Code provdes that when such eecton has been
made, the ta es for a ta abe years begnnng wth the ta abe year
n whch the amortzaton perod began sha be computed by usng
(n eu of the 60-month perod) the shortened amortzaton perod.
ccordngy, there s no authorty to make a tentatve ad|ustment
wth respect to any ta abe year pror to the ta abe year n whch
the amortzaton perod began. ny net oss carry-back or unused
e cess profts credt carry-back, or ad|ustment thereof, to the e tent
attrbutabe to the ncreased amortzaton deducton, shoud be gven
effect n so far as ta abe years durng the amortzaton perod are
concerned.
17. In the event the ta payer has not prevousy eected to take amortzaton
deductons, s It necessary to make the reguar eecton under secton 124(b)
of the Code In addton to the eecton under secton 124(d)
No. Secton 124(d) (3) permts an orgna eecton.
1 . In makng an appcaton for tentatve ad|ustment, Is t necessary to
ad|ust nvested capta for the addtona amortzaton and for the decrease In
State ncome ta es, etc.
- Yes. owever, nasmuch as the ad|ustment s ony tentatve, the
ureau w not be unreasonaby strct n requrng ncdenta ad|ust-
ments of sma amounts nvovng compcated computatons.
19. In case of consodated returns, shoud the parent company make the
eecton
Yes, n con|uncton wth the eecton of each subsdary corporaton
to whch a certfcate of necessty has been ssued.
20. Is a cam on orm 43 necessary n addton to the appcaton for tenta-
tve ad|ustment
If the refund made on the bass of an appcaton on orm 1046 or
orm 1140, whchever s appcabe, s the correct amount as fnay
determned, a cam on orm 43 s unnecessary. If, however, the
Commssoner dsaows the appcaton for a tentatve ad|ustment, or
f for any reason the refund s not made wthn the statutory perod
provded n secton 322 or 124(d)(5) of the Interna Revenue Code,
the ta payer s remedy s the usua cam for credt or refund ( orm
43) on whch sut may be mantaned as provded n the Code. so,
f t shoud ater be determned that an addtona refund s due on
the bass of the revsed amortzaton deducton, such refund woud
be barred f not made wthn the statutory perod provded n secton
322 or 124(d) (5) of the Code uness a cam on orm 43 s fed
wthn such statutory perod.
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29.124-7.
21. To what e tent w certfcates of necessty be recognzed If the factes
are transferred to another ta payer
Compete nformaton regardng such transfers must be consdered
n determnng to what e tent certfcates of necessty may be recog-
nzed for the purpose of aowance of amortzaton deductons to the
successor ta payer. Such nformaton shoud ncude:
(0) The reason why the transfer was necessary or desrabe.
(1) Nature of busness conducted by the former and present hoder of the
certfcates, the organzaton under whch each busness was operated, and
the ownershp thereof.
(o) nontechnca descrpton of the factes, the nature of ther use In
the nterest of natona defense durng the emergency perod, and the nature
of ther use snce that tme.
Generay, the certfcate ssued to a transferor w be recognzed n
the hands of the transferee f the transfer was made n a nonta abe
transacton under secton 112(b) of the Code.
22. What Is the procedure for securng an e tenson of tme for payment of
nstaments of ta fang due durng the perod an appcaton for tentatve
ad|ustment of amortzaton s under consderaton by the Commssoner
No form has been prescrbed for ths purpose. Upon request of the
tupayer, addressed to the coector of nterna revenue, at or after the
date of fng an appcaton for tentatve ad|ustment, an e tenson of
tme w be granted for payment of ta determned by the ta payer for
the precedng ta abe year or any nstament thereof fang due dur-
ng the perod of consderaton of the appcaton. The amount de-
ferred sna not e ceed the net decrease n ta es shown on orm 1140
or orm 1046 reduced by the unpad ta es other than amounts not yet
due. The e tenson w termnate when the Commssoner approves
the aowance of the tentatve ad|ustment or dsaows the appcaton.
Correspondence n regard to the contents of ths mmeograph shoud
refer to ts number and the symbos IT: P: C - SM.
oseph D. Nun an, r.,
C omtnssoner.
Secton 29.124-5: Termnaton of amortzaton perod.
INT RN L R NU COD .
Secton 29.124-6: d|usted bass of emergency facty.
INT RN L R NU COD .
Secton 29.124-7: Deprecaton of porton of emergency
facty not sub|ect to amortzaton.
INT RN L R NU COD .
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29.125-1.
1
S CTION 125. MORTIZ L OND PR MIUM.
Secton 29.125-1: In genera. 1945-21-12156
( so Secton 115, Secton 29.115-3 Secton 71 , I. T. 3764
Secton 35.71 -2, Reguatons 112.)
INT RN L R NU COD .
The amortzabe bond premum (determned under secton 125 of
the Interna Revenue Code, as added and made appcabe by secton
126 of the Revenue ct of 1912 to ta abe years begnnng after De-
cember 31, 1941) on choy ta -e empt bonds owned by a corpora-
ton otherwse than as a deaer n securtes, athough e pressy not
aowabe as a deducton for the purpose of computng net ncome,
must be taken nto account, together wth the nterest on the bonds,
for each ta abe year n computng earnngs and profts for that year
for the purposes of determnng (1) earnngs and profts avaabe
for the payment of dvdends, and (2) accumuated earnngs and
profts ncudbe n nvested capta.
dvce s requested whether the amortzabe bond premum, deter-
mned under secton 125 of the Interna Revenue Code, as added and
made appcabe by secton 126 of the Revenue ct of 1942 to ta abe
years begnnng after December 31,1941, on whoy ta -e empt bonds
owned by a corporaton and not hed by t as a deaer n securtes,
must be taken nto account, together wth nterest on the bonds, n
computng earnngs and profts for each ta abe year for the purposes
of determnng (1) earnngs and profts avaahe for the payment
of dvdends under secton 115 of the Code, and (2) accumuated
earnngs and profts ncudbe n nvested capta under secton 71
of the Code.
(a) Genera Rue. In the case of any bond, as denned n subsecton (d),
the foowng rues sha appy to the amortzabe bond premum (determned
under subsecton (b)) on the bond for any ta abe year begnnng after December
31, 1941:
(1) Interest whoy or partay ta abe. In the case of a bond (other
than a bond the nterest on whch s e cudbe from gross ncome), the
amount of the amortzabe bond premum for the ta abe year sha be
aowed as a deducton.
(2) Interest whoy ta -e empt. In the case of any bond the nterest
on whch s e cudbe from gross ncome, no deducton sha be aowed for
the amortzabe bond premum for the ta abe year.
(3) d|ustment or credt n case of nterest partay ta -e empt.
In the case of any bond the nterest on whch Is aowabe as a credt aganst
net ncome, the credt provded n secton 25(a) (1) or (2), or secton
26(a), as the case may be, sha be reduced by the amount of the amortzabe
bond premum for the ta abe year.
( or ad|ustment to bass on account of amortzabe bond premum, see secton
113(b) (1) ( )).
(b) mortzabe ond Premum.

(2) mount amortzabe. The amortzabe bond premum of the ta abe
year sha be the amount of the bond premum attrbutabe to such year.

(d) Defnton of ond. s used n ths secton, the term bond means any
bond, debenture, note, or certfcate or other evdence of Indebtedness, ssued by
any corporaton and bearng Interest (ncudng any ke obgaton ssued by a
government or potca subdvson thereof), wth nterest coupons or In reg-
stered form, but does not ncude any such obgaton whch consttutes stock
In trade of the ta payer or any such obgaton of a knd whch woud propery be
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29.125-1.
Incuded n the Inventory of the ta payer f on hand at the cose of the ta abe
year, or any such obgaton hed by the ta payer prmary for sae to customers
a te ordnary course of hs trade or busness. Itacs supped.
Secton 113(b) (1) ( ) of the Code, as added by secton 120 of the
evenue ct of 1942, provdes for ad|ustment of gan or oss bass or
ad|usted bass as foows:
( ) n the case of any bond (as defned n secton 125) the nterest on
whch Is whoy e empt from the ta mposed by ths chapter, to the
e tent of the amortzabe bond premum dsaowabe as a deducton
pursuant to secton 125(a)(2)
Is Genera. (o) ppcaton. Secton 125 makes provson for the amortza-
ton of bond premum by the owners of the bonds. It s mandatory wth respect
to-
(1) fuy ta -e empt bonds (the Interest on whch s e cudbe from gross
ncome), whether the owner Is a corporaton, ndvdua, or other ta payer
and

(b) Operaton. In the case of a fuy ta -e empt bond, the amortzabe bond
pwmnm for the ta abe year s smpy an ad|ustment to the bass or ad|usted
bass of the bonds. Thus, f such premum Is 1, the bass or ad|usted bass of the
tood s reduced by 1. No deducton s aowabe on account of such amortzabe
bm premum. In the case of a fuy ta abe bond to whch secton 125 s
appcabe, the amortzabe bond premum s both an ad|ustment to the bass or
ad|usted bass of the bond and a deducton.
In the case of a partay ta -e empt bond to whch such secton Is appcabe,
the amortzabe bond premum for the ta abe year s used for three purposes:
(1) as an ad|ustment to the bass r ad|usted bass of the bond (2) as a deduc-
ton and (3) as a reducton of th e credt for the nterest on the bond, provded
n secton 20(a) (1) or (2), or secton 20(a).
Statements smar to the provsons of secton 29.125-1(6) of Regua-
tons 111 appear n the Congressona commttee reports on the reve-
nue b of 1942. (See . R. Report No. 2333, C. . 1942-2, 372, 432
Senate Report No. 1631, C. . 1942-2, 504, 574.)
Snce, under the defnton n secton 125(d) of the Code, supra, of
the term bond as used n secton 125 of the Code, bonds owned by
deaers n securtes and hed by them n such busness are e cuded,
secton 125 has no appcaton thereto, even though the bonds are
whoy ta -e empt.
mong the tems enterng nto the computaton of corporate earnngs or profts
for a partcuar perod are a ncome e empted by .statute, ncome not ta abe
| the edera Government under the Consttuton, as we as a tems ncudbe
n gross ncome under secton 22(a) or correspondng provsons of pror Revenue
rts. Gans and osses wthn the purvew of secton 112 or correspondng pro-
vsons of pror Revenue cts are brought nto the earnngs and profts at the tme
and to the e tent such gans and osses are recognzed under that secton (see
secton 29.115-12). Interest on State bonds and certan other obgatons, a-
though not ta abe when receved by a corporaton, s ta abe to the same e tent
as other dvdends when dstrbuted to sharehoders n the form of dvdends.
Secton 71 (a) (4) of the Code provdes n effect that n determnng
equty nvested capta there sha be ncuded the accumuated earn-
ngs and profts as of the begnnng of the ta abe year, and secton
35.71 -2 of Reguatons 112 provdes n part as foows:
The term accumuated earnngs and profts s not defned n the Interna Reve-
nue Code. See, however, secton 115 and the reguatons prescrbed thereunder as
to the effect of certan transactons on earnngs and profts . In genera,
the concept of accumuated earnngs and profts for the purpose of the e cess
profts ta U the same as for the purpose of the ncome ta .
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29.125-1.
190
The corporaton nvoved n the nstant case states that, for each
ta abe year begnnng before anuary 1, 1942, n computng ts earn-
ngs and profts for the purposes of determnng earnngs and profts
avaabe for the payment of dvdends and accumuated earnngs and
profts ncudbe n nvested capta, t ncuded, wth respect to a
bonds owned by t, whether the nterest therefrom was whoy ta abe,
partay ta -e empt, or whoy ta -e empt, the fu amount of the
nterest therefrom for each year wthout any reducton on account
of amortzaton of premums pad n acqurng the bonds. Ths was
correct n vew of the provsons of pror reguatons correspondng
wth those quoted from sectons 29.115-3 of Reguatons 111 and
35.71 -2 of Reguatons 112, spra, and the concept of such a bond
premum then appcabe for edera ncome and e cess profts ta
purposes, namey, that t represented a part of the capta nvestment
n the bond and, hence, was ncudbe n the gan or oss bass thereof
whereby t utmatey was refected n earnngs and profts upon, and
as of the tme of. sae or other dsposton of the bond (see New York
Lfe Insurance Co. v. dwards, 271 U. S., 109, T. D. 3 72, C. . -,
305 (1926)).
The nstant corporaton further states that, for ta abe years be-
gnnng after December 31, 1941, n such computatons, t ncuded,
wth respect to a bonds owned by t, the amount of the nterest there-
from, ess the amortzabe bona premum, for each year. ut t
presents the queston whether ths s correct, wth respect to whoy
ta -e empt bonds owned by t, especay n vew of the statement n
secton 29.125-1 of Reguatons 111, supra, that In the case of a
fuy ta -e empt bond, the amortzabe bond premum for the ta abe
year s smpy an ad|ustment to the bass or ad|usted bass of the
bonds, and smar statements n the Congressona commttee re-
ports reatng to the present secton 125 of the Code, supra. It adds
that t recognzes, of course, that, f t s proper for the purposes here
concerned, to ncude, n the computaton of earnngs and profts for
each ta abe year begnnng after December 31, 1941, the fu amount
of the nterest from such bonds, wthout any reducton on account of
the amortzabe bond premum thereon for each year whe they were
owned, then the aggregate amount of the amortzabe bond premum
for the ta abe years (begnnng after December 31, 1941) durng
whch they were owned woud have to be taken nto account n com-
putng earnngs and profts for such purposes for the ta abe year
n whch they are sod or otherwse dsposed of. owever, n so far
as such statements n the reguatons and Congressona commttee
reports are here concerned, t s manfest that, when read wth ther
conte t, they merey pont out the dfferences n the operaton of
amortzabe bond premum under secton 125 of the Code, supra, as
between fuy ta -e empt bonds, fuy ta abe bonds, and partay
ta -e empt bonds, for the purposes of (1) ad|ustment of bass or
ad|usted bass (under secton 113(b)(1)( ), supra), (2) deducton
n computng net ncome (under sectons 23(v) and 125(a)(1),
supra), and (3) ad|ustment of credt aganst net ncome for nterest
Sunder secton 25(a) (1) or (2), or secton 26(a), and secton 125(a)
(3), supra).
Therefore, the queston here presented, as to whether the amortz-
abe bond premum on whoy ta -e empt bonds shoud be taken nto
account for each ta abe year n computng earnngs and profts for
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191
29.12 -1.
that year for the purposes of determnng (1) earnngs and profts
avaabe for dvdends (under secton 115, supra), and (2) accumu-
ated earnngs and profts ncudbe n nvested capta (under sec-
ton 71 , supra), s not controed by such statements. On the other
hand, certan provsons of secton 125 of the Code, supra, under
Much the new concept n the treatment of bond premum for edera
ncome ta purposes was generay adopted for ta abe years begn-
nng after December 31,1941, ndcate t was the ntent that the amor-
tzabe bond premum, even on whoy ta -e empt bonds to whch the
secton s appcabe, s to be taken nto account for each ta abe year
n so far as the computaton of earnngs and profts for the. purposes
of determnng earnngs and profts avaabe for dvdends and accu-
muated earnngs ana profts ncudbe n nvested capta s con-
cerned. Secton 125(b)(2) of the Code, supra, provdes that the
amortzabe bond premum of the ta abe year sha be the amount of
the bond premum attrbutabe to such year, and secton 125(a)(2)
provdes, wth respect to whoy ta -e empt bonds, that no deducton
sta be aowed for the amortzabe bond premum for the ta abe
year. In other words, athough no deducton from gross ncome for
thepurpose of computng net ncome s aowabe for amortzabe bond
premum on bonds the nterest from whch s not ncudbe n gross
ncome, the provsons of secton 125 of the Code ndcate that the
amortzabe bond premum thereon, as n the case of other bonds to
whch secton 125 s appcabe, s defntey attrbutabe to each ta -
abe year (begnnng after December 31, 1941) durng whch the
bonds are owned, and shoud be taken nto account n computng the
earnngs and profts for each such ta abe year for the purposes of
detsrmnng earnngs and profts avaabe for the payment of dv-
dends and accumuated earnngs and profts ncudbe n nvested
capta.
In the absence of any e press provson to the contrary, ths vew
sconsstent wth the provson of secton 113(b) (1) (II) of the Code,
supra, for ad|ustment of the gan or oss bass of the bonds to the
e tent of the amortzabe bona premum dsaowabe as a deducton
pursuant to secton 125(a) (2), couped wth the provsons of sec-
ton 115(1) of the Code, and secton 29.115-12 of Reguatons 111,
reatng to the effect on earnngs and profts for the purposes here con-
cerned of gan or oss reazed from the sae or dsposton (after eb-
ruary 2 ,1913) of property by a corporaton, under whch the amortz-
abe bond premum w not be refected n such gan or oss for the
purposes here concerned. Ths vew s aso consstent wth the e pres-
sons n secton 29.125-1 of Reguatons 111, supra, that secton 125 of
the Code, supra, wth respect to bonds to whch t s appcabe,
makes provson for the amortzaton of bond premum by the own-
ers of the bonds, and that It s mandatory wth respect to (1)
fuy ta -e empt bonds, uness the bonds are hed by the owner as
a deaer n securtes. Moreover, such treatment of the amortzabe
bond premum on whoy ta -e empt bonds corresponds wth the
treatment, for the same purposes, of many other tems whch are
attrbutabe to a partcuar ta abe year but are not aowabe as deduc-
tons n computng net ncome for that year, such as chartabe and
other contrbutons not aowabe under secton 23 (o) and (q) of
the Code and certan e penses and nterest not aowabe under secton
24(c) of the Code.
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29.126-1.
192
In vew of the foregong, t s hed that the amortzabe bond pre-
mum (determned under secton 125 of the Code, supra, for ta abe
years begnnng after December 31,1941) on whoy ta -e empt bonds
owned by a corporaton otherwse than as a deaer n securtes, must
be taken nto account, together wth the nterest from the bonds, for
each ta abe year n computng earnngs and profts for that year for
the purposes of determnng (1) earnngs and profts avaabe for
the payment of dvdends (under secton 115, supra), and (2) accumu-
ated earnngs and profts ncudbe n nvested capta (under secton
71 , supra). Stated otherwse, n such computatons, the fu amount
of the nterest from the bonds for each ta abe year must be added
to other earnngs and profts for that year and the amortzabe bond
premum for the year must be subtracted.
Where a retred Unted States cv servce empoyee has receved,
as ta -free ncome, annuty payments equa to, or In e cess of, hs
entre contrbuton to the cv servce retrement fund, the aggregate
amount of the une pended baance In the fund whch was pad to the
admnstrator of hs estate upon the death of the empoyee n 1944
s Incudbe, under secton 126(a) of the Interna Revenue Code, In
the gross Income of the estate for the ta abe perod In whch
receved.
dvce s requested as to the treatment, for edera ncome ta
purposes, of the amount pad from the cv servce retrement fund to
the admnstrator of the estate of a retred Unted States cv servce
empoyee.
The empoyee retred n 1940 and ded n 1944. e had receved
durng hs fetme, as ta -free ncome, annuty payments n e cess
of hs entre contrbuton to the retrement fund. mounts receved
thereafter were ta ed to hm n fu n accordance wth the provsons
of secton 22(b) (2) ( ) of the Interna evenue Code. (See T. D.
520 , C. . 1943, 65.) In 1944 the une pended baance, ncudng
nterest, n the cv servce retrement fund to whch the empoyee was
entted was pad to the admnstrator of hs estate.
Secton 126(a) of the Interna Revenue Code, as added by secton
134(e) of the Revenue ct of 1942, appcabe wth respect to ta abe
years endng after December 31,1942, provdes n part as foows:
(1) Genera rue. The amount of a tems of gross ncome
In respect of a decedent whch are not propery Incudbe n respect of the
ta abe perod n whch fas the date of hs death or a pror perod sha
be ncuded n 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) Cfa|actfr of ncome determned by reference to decedent. The
rght, descrbed n paragraph (1), to receve an amount sha be treated,
In the hands of the estate of the decedent as If t had been acqured
by the estate In the transacton by whch the decedent acqured
S CTION 126. INCOM IN R SP CT O
D C D NTS.
Secton 29.126-1: Incuson n gross ncome of
ncome n respect of a decedent.
1945-12-12062
I. T. 3744
INT RN L R NU COD .
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193
29.12 -1.
such rght and the amount ncudbe In gross Income under paragraph
(1) sha be consdered In 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 where a retred Unted States cv servce empoyee
has receved, as ta -free ncome, annuty payments equa to, or n
e cess of, hs entre contrbuton to the cv servce retrement fund,
the aggregate amount of the une pended baance n such fund whch
was pad to the admnstrator of hs estate upon the death of the
empoyee n 1944 s ncudbe, under secton 120(a) of the Interna
Revenue Code, supra, n the gross ncome of the estate for the ta abe
perod n whch receved. (See secton 29.22(b) (2)-5, Reguatons
Secton 29.126-1: Incuson n gross ncome 1945-13-12074
of ncome n respect of a decedent. T. D. 5459
I COM T T L Y RS GINNING T R D C M R 31, 1941.
Income n respect of a decedent. Secton 29.12 -1 of Reguatons
111 amended. ,
Washngton, D. C.
Secton 29.126-1 of Reguatons 111 Part 29, Tte 26, Code of
53 9, approved uy 10, 1944 C. . 1944, 196 , s further amended
as foows:
( ) y strkng the ast sentence of the frst paragraph.
( ) y strkng the ffth sentence of the fourth paragraph, whch
reads as foows:
tpon hs death, the payments by the survvng partners must be Incuded n the
wdow s ncome to the e tent they e ceed the ad|usted bass of such assets n
the hands of the decedent mmedatey pror to hs death.
and by nsertng n eu thereof the foowng:
Tpon hs death, the payments by the survvng partners must be Incuded n the
wdow s ncome to the e tent they are attrbutabe to the earnngs of the partner-
shp accrued ony by reason of hs death.
(C) y strkng at the begnnng of the s th sentence of the fourth
paragraph the words Ths gan and by nsertng n eu thereof
the foowng:
The ncome refected by the payments to the e tent they are so attrbutabe
(D) y strkng at the end of the fourth paragraph the words
represent the gan on the sae. and by nsertng n eu thereof the
foowng:
are attrbutabe to the earnngs of the partnershp accrued ony by reason of
the death.
( ) y nsertng mmedatey after the fourth paragraph the
foowng:
ampe. Suppose that and the decedent were equa partners n a busness
possessed of tangbe assets havng a present vaue consderaby In e cess of
cost suppose that certan current partnershp busness was we advanced
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29.126-1.
194
toward competon pror to the death of and suppose that the partnershp
agreement provded that, upon the death of one of the partners, a partnershp
assets, ncudng unfnshed busness, shoud pass to the survvng partner, and
that the survvng partner shoud make certan payments to the estate of the
decedent. To the e tent that the payments by to the estate of are attrbutabe
to s nterest In the prevousy earned proporton of the unfnshed partnershp
busness transactons, ther recept by the estate of w refect the reazaton
of ncome. Wth respect to such porton of the payments by as s attrbutabe
to s nterest In the tangbe assets of the partnershp whch had apprecated
In vaue, no gan to the estate of w be recognzed. If some porton of the
payments by s attrbutabe to a sae of s nterest n partnershp assets con-
summated by pror to hs death, however, the gan to the estate of refected
n such payments w be recognzed regardess of the character of the assets sod,
and regardess of whether or not payment was due on a day whch must occur
after s death.
sectons 62 and 126 of the Interna evenue Code (53 Stat., 32 56 Stat.,
31 26 U. S. C. and Sup., 62,126).)
pproved une 1 ,1945.
oseph . O Connet., r.,
( ed wth the Dvson of the edera Regster une 20, 1945, 2.06 p. m.)
Secton 29.126-1: Incuson n gross ncome 1945-23-1217
of ncome n respect of a decedent. I. T. 3771
INT RN L R NU COD .
Where the actua date of death of an Indvdua who had been re-
ported mssng n acton whe a member of the armed forces s
known, that date and not the presumptve date of death as deter-
mned by the head of the department concerned n accordance wth
secton 5 of Pubc Law 490, Seventy-seventh Congress, second
sesson (56 Stat., 143), as amended by Pubc Law 4 , Seventy-
seventh Congress, second sesson (56 Stat., 1092), consttutes the date
of death for edera ncome ta purposes.
I. T. 3750 (page 120, ths uetn) dstngushed.
dvce s requested whether, n the case of an ndvdua who
had been reported mssng n acton whe a member of the armed
forces, the actua date of death, or the presumptve date of death as
determned by the head of the department concerned n accordance
wth secton 5 of Pubc Law 490, Seventy-seventh Congress, second
sesson (56 Stat., 143), as amended by Pubc Law 4 , Seventy-seventh
Congress, second sesson (56 Stat., 1092), shoud be consdered the
date of death for edera ncome ta purposes.
In the nstant case, the decedent was reported mssng n acton n
1942 and was so carred on the records of the War Department unt
pr , 1945. s of that date, the d|utant Genera of the rmy
advsed the decedent s mother that he had ded on uy , 1942, whe
a prsoner of war, but that for the purpose of accountng he woud
be deemed to have ded as of pr , 1945.
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( 29.126-1.
Secton 2 of Pubc Law 490, supra, provdes n part as foows:
ny person who Is n actve servce and s offcay reported as mssng, mssng
n acton, Interned 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
Secton 3 of Pubc Law 490, as amended, provdes n part as foows:
ay person entted under secton 2 of ths ct to receve pay and aowances,
and who has made an aotment of pay for the support of dependents or for the
payment of nsurance premums, sha be entted to have such aotments for
dependents or nsurance premums as he prevousy may have e ecuted contnued
for a perod of tweve months from date of commencement of absence
Secton 5 of Pubc Law 490, as amended, provdes as foows:
When the tweve months perod from date of commencement of absence s
about to e pre n any case of a person mssng or mssng n acton and no offca
rsport of death or of beng a prsoner or of beng Interned has been receved, the
bd of the department concerned sha cause a fu revew of the case to be made.
oowng such revew and when the tweve months absence sha have e pred,
w foowng any subsequent revew of the case whch sha be made whenever
warranted by nformaton receved or other crcumstances, the head of the de-
partment concerned s authorzed to drect the contnuance of the person s mfssng
Saras, f the person may reasonaby be presumed to be vng, or Is authorzed to
Me a fndng of death. When a fndng of death s made t sha ncude the
date upon whch death sha be presumed to have occurred for the purposes of
termnaton of credtng pay and aowances, settements of accounts, and pay-
ments of death gratutes and such date sha be the day foowng the day of
e praton of an absence of tweve months, or n cases n whch the mssng status
sta have been contnued as herenbefore authorzed, a day to be determned by
te head of the department.
In genera, f ng of the date of death pursuant to Pubc Law 490,
as amended, supra, may be sad to be for the purposes stated n that
ct. owever, such determnaton was aso desgned to ad other
departments or agences of the edera Government n those cases n
whch the queston of the date of death s pertnent. In I. T. 3750
(page 126, ths uetn), where the date of death of the decedent was
not known, t was hed that the presumptve date of death of an nd-
vdua reported mssng n acton whe a member of the armed forces
consttutes the date of death for edera ncome ta purposes. In the
nstant case, the actua date of death was reported by the d|utant
Genera of the rmy as uy , 1942, whereas the presumptve date of
death, for purposes of termnaton of credtng pay and aowances,
settements of accounts, and payments of death gratutes, was deemed
to have occurred on pr , 1945, the date as of whch notce of the
actua date of death was furnshed. It s beeved, therefore, that the
presumptve date of death when determned under the provsons of
Pubc Law 490, as amended, supra, s to be regarded as concusve
ony for the purposes prescrbed n that ct. or where Congress has
by coatera egsaton made t concusve for other purposes. No
such coatera egsaton has been adopted by Congress n respect of
edera ncome ta . ccordngy, n the admnstraton of the ed-
era ncome ta aws, where the actua date of death of a ta payer
becomes matera and such date s known, the ureau w not recog-
nze a presumptve date of death rather than the estabshed date of
death. Nevertheess, as ndcated n I. T. 3750, supra, where the ac-
tua date of death s not reaby estabshed, the ureau, as a matter
of admnstratve practce, w adopt the presumptve date of death
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29.129-1.
196
f ed by the head of the approprate department as the date of death
n so far as that date may be matera for edera ncome ta purposes.
In vew of the foregong, t s hed that where the actua date of
death of an ndvdua who had been reported mssng n acton whe
a member of the armed forces s known, that date, and not the pre-
sumptve date of death as determned by the head of the department
concerned n accordance wth secton 5 of Pubc Law 490, as amended,
supra, consttutes the date of death of such ndvdua for edera
ncome ta purposes.
S CTION 127(c). W R LOSS S: R CO RI S
INCLUD D IN GROSS INCOM .
Secton 29.127(c)-1: Recoveres ncuded n gross ncome.
( so Sectons 19.127(c)- and 19.127(c)-2, Regua-
tons 103.)
INT RN L R NU COD .
Reguatons 103 and 111 amended. (See T. D. 5454, page 6 .)
S CTION 127(f) W R LOSS S: D T RMIN TION
O T N ITS.
Secton 29.127(f )-: Determnaton of ta benefts
from aowabe deductons.
Reguatons 111 amended. (See T. D. 5454, page 6 .)
S CTION 129. C UISITIONS M D TO D OR
OID INCOM OR C SS PRO ITS T .
Secton 29.129-1: Meanng and use of terms. 1945-2-11936
( so Sectons 29.129-2, 29.129-3, 29.129-4, and T. D. 5426
29.129-5 Secton 45, Secton 29.45-1.)
Reguatons 111 amended to conform to secton 12 of the Revenue
ct of 1943, reatng to acqustons to evade or avod Income or
e cess profts ta .
Washngton, D. C.
edera Reguatons, Cum. Sup. to secton 12 of the Revenue ct of
1943 (Pubc Law 235, Seventy-eghth Congress), enacted ebruary
25,1944, such reguatons are amended as foows:
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197
29.129-1.
Paragraph 1. There s nserted mmedatey after secton 29.12 -1
the foowng:
S C. 12 . C UISITIONS TO OID INCOM OR C SS
P O ITS T . (R NU CT O 1943.)
(a) In Genera Chapter 1 s amended by Insertng after secton 12
the foowng new secton:
S C 129. C UISITIONS M D TO D OR OID INCOM
OR C SS PRO ITS T .
(a) Dsaowance of Deducton, Credt, or owance. If (1)
any person or persons acqure, on or after October , 1940, drecty or
ndrecty, contro of a corporaton, or (2) any corporaton acqures,
on or after October , 1940, drecty or ndrecty, property of another
corporaton, not controed, drecty or ndrecty, mmedatey pror to
such acquston, by such acqurng corporaton or ts stockhoders, the
bass of whch property, n the hands of the acqurng corporaton, s
determned by reference to the bass n the hands of the transferor
corporaton, and the prncpa purpose for whch such acquston was
made s evason or avodance of edera ncome or e cess profts ta
by securng the beneft of a deducton, credt, or other aowance whch
such person or corporaton woud not otherwse en|oy, then such deduc-
ton, credt, or other aowance sha not be aowed. or the purposes
cf causes (1) and (2), contro means the ownershp of stock possessng
at east 50 per centum of the tota combned votng power of a casses
of stock entted to vote or at east 50 per centum of the tota vaue of
shares of a casses of stock of the corporaton.
u(b) Power of Commssoner to ow Deducton, tc., n Part.
In any case to whch subsecton (a) s appcabe the Commssoner Is
authorzed
(1) to aow as a deducton, credt, or aowance any part of any
amount dsafowed by such subsecton, If he determnes that such
aowance w not resut n the evason or avodance of edera
ncome and e cess profts ta for whch the acquston was made or
(2) to dstrbute, apporton, or aocate gross ncome, and ds-
trbute, apporton, or aocate the deductons, credts, or aowances
the beneft of whch was sought to be secured, between or among
the corporatons, or propertes, or parts thereof, Invoved, and to
aow such deductons, credts, or aowances so dstrbuted, appor-
toned, or aocated, but to gve effect to such aowance ony to such
e tent as he determnes w not resut In the evason or avodance
of edera Income and e cess profts ta for whch the acquston
was made or
(3) to e ercse hs powers In part under paragraph (1) and In
part under paragraph (2).

(c) Ta abe Years to W cn ppcabe. The amendments made
by ths secton sha be effectve wth respect to ta abe yenrs begnnng
after December 31, 1943. The determnaton of the aw appcabe to
pror ta abe years sha be made as f ths secton had not been
enacted and wthout Inferences drawn from the fact that the amend-
ment made by ths secton s not e pressy made appcabe to pror
ta abe years.
Sec. 29.129-1. MR NrNo and Use of Terms. s used n secton 129 and n
sectons 29.129-2 to 29.129-5, ncusve
(a) The term aowance refers to anythng In the Interna revenue aws
whch has the effect of dmnshng ta abty. The term ncudes, among other
thngs, a deducton, a credt, an ad|ustment, an e empton, or an e cuson.
(6) The phrase evason or avodance s not mted to cases nvovng
crmna penates, or cv penates for fraud.
(c) The phrase edera ncome or e cess profts ta refers to any edera
ta mposed by Congress upon an ncome base.
(4) The term contro means the ownershp of stock possessng at east
50 per cent of the tota combned votng power of a casses of stock entted to
Tote, or at east 50 per cent of the tota vaue of shares of a casses of stock
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29.129-1.
19
of the corporaton. To acqure, on or after October ,1940, contro,
It s not necessary that a of such stock be acqured on or after October , 1940.
Thus, f , on October 7, 1940, and at a tmes thereafter, owns 40 per cent of
the stock of Corporaton and acqures on October , 1940, an addtona 10
per cent of such stock, an acquston wthn the meanng of such phrase s made
by on October , 1940. Smary, f , ou October 7, 1940, owns certan assets
and transfers on October , 1940, such assets to a newy organzed Corporaton Y
n e change for a the stock of Corporaton Y, an acquston wthn the meanng
of such phrase s made by on October , 1940. If, under the facts stated n
the precedng sentence, s a corporaton, a of whose stock s owned by
Corporaton C, then an acquston wthn the meanng of such phrase s aso
made by Corporaton C on October , 1940, by the sharehoders taken as a group
on such date, and by any of such sharehoders f such sharehoders as a group own
50 per cent of the stock of C ou such date.
(e) The term person ncudes an ndvdua, a trust, an estate, a partner-
shp, a company, or a corporaton.
Seo. 29.129-2. Pt|bposb and Scope of Secton 129. Secton 129 s desgned to
prevent n the nstances specfed theren the use of the sectons of the Interna
evenue Code provdng deductons, credts, or aowances n evadng or avodng
edera ncome or e cess profts ta es. See secton 29.129-3.
Under the Code, an amount otherwse consttutng a deducton, credt, or other
aowance becomes unavaabe as such under certan crcumstances. Charac-
terstc of such crcumstances are those n whch the effect of the deducton,
credt, or other aowance woud be to dstort the abty of the partcuar ta -
payer when the essenta nature of the transacton or stuaton s e amned n
the ght of the basc purpose or pan whch the deducton, credt, or other aow-
ance was desgned by the Congress to effectuate. The dstorton may be ev-
denced, for e ampe, by the fact that the transacton was not undertaken for
reasons germane to the conduct of the busness of the ta payer, by the unrea
nature of the transacton such as ts sham character, or by the unrea or unrea-
sonabe reaton whch the deducton, credt or other aowance bears to the
transacton. The prncpe of aw makng an amount unavaabe as a deducton,
credt, or other aowance n cases n whch the effect of makng an amount so
avaabe woud be to dstort the abty of the ta payer, has been |udcay
recognzed and apped n severa cases. Incuded n these cases are Gregory v.
cverng (1935) (293 U. S., 465 C. . I -1, 193 ) Grffths v. cverng
(1939) (30 U. S., 355 C. . 1940-1, 136 ) ggns v. Smth (1940) (30 U. .,
473 fC. . 1940-1, 127 ) and . 1). t . . Spreckes Co. v. Commssoner (1940)
(41 . T. ., 370). In order to gve effect to such prncpe, but not n mtaton
thereof, severa provsons of the Code, for e ampe, secton 24 (b) and (c) and
secton 130, specfy wth some partcuarty nstances In whch dsaowance of
the deducton, credt, or other aowance s requred. Secton 129 Is aso ncuded
n such provsons of the Code. The prncpe of aw and the partcuar sectons
of the Code are not mutuay e cusve and n approprate crcumstances they
may operate together or they may operate separatey.
Sec. 29.129-3. Instances n Whch Secton 129(a) Dsaows a Deducton,
Credt, or Other owance. Secton 129 specfes two nstances n whch a
deducton, credt, or other aowance s to be dsaowed. These nstances, de-
scrbed n (1) and (2) of secton 129(a), are those n whch:
(1) ny person or persons acqure, drecty or ndrecty, on or after Octo-
ber , 1940, contro of a corporaton and
(2) ny corporaton acqures, drecty or ndrecty, on or after October ,
1940, property of another corporaton (not controed, drecty or ndrecty,
mmedatey pror to such acquston by such acqurng corporaton or ts
stockhoders), the bass of whch property n the hands of the acqurng
corporaton s a substtuted bass.
In ether nstance the prncpa purpose for whch the acquston was made must
have been the evason or avodance of edera ncome or e cess profts ta by
securng the beneft of a deducton, credt, or other aowance whch such person
or corporaton woud not otherwse en|oy. The prncpa purpose actuatng the
acquston must have been to secure the beneft whch such person or persons or
corporaton woud not otherwse eu|oy. If ths requrement s satsfed, It Is Im-
matera by what method or by what con|uncton of events the beneft was sought
If the purpose to evade or avod edera ncome or e cess profts ta e ceeds n
Importance any other purpose, t s the prncpa purpose. Ths does not mean
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199
29.129-1.
that ony those acqustons fa wthn the provsons of secton 129 whch woud
not have been made f the evason or avodance purpose was not present The
determuaton of the purpose for whch an acquston was made requres a scru-
tny of the entre crcumstances n whch the transacton or course of conduct
occurred, n connecton wth the ta resut camed to arse therefrom.
If the requste acquston and purpose e st, among the transactons wthn
(1) of secton 129(a) are the foowng:
(1) corporaton (or the nterest controng such a corporaton) wth
arge profts acqures contro of another corporaton wth current, past, or
prospectve credts, deductons, net operatng osses, unused e cess profts
credts, or other aowances and the acquston s foowed by such transfers
or other acton as s necessary to brng the deducton, credt, or other aow-
ance nto con|uncton wth the Income or
(2) corporaton wth arge profts transfers the assets of each of Its
branches or departments to newy organzed corporatons n order to secuv
the beneft of the e empton provded In secton 710(b) (1) or
(3) corporaton wth hgh earnng assets transfers them to a newy or
organzed subsdary retanng assets key to produce osses or to be dsposed
of at a oss for the purpose of securng refunds through a utzaton of the
unused e cess profts carry-back or the net operatng oss carry-back.
If the requste acquston and purpose e st, among the transactons wthn
(2) of secton 129(a) s the foowng:
corporaton acqures property havng In ts hands a substtuted bass
whch Is materay greater than Its far market vaue at the tme of such
acquston n order to secure a arger e cess profts credt or to utze the
property to create ta -reducng osses.
Sec. 29.129-4. Power op Commssoner to ocate Deducton, Credt, or
owance ot Part. The Commssoner s authorzed by subsecton (b) of sec-
ton 129 to aow a part of the amount dsaowed by secton 129(a), but he may
aow such part ony If and to the e tent that he determnes that the amount
aowed w not resut In the evason or avodance of edera Income and e cess
profts ta for whch the acquston was made. The Commssoner Is aso
authorzed to use other methods to gve effect to part of the amount dsaowed
under subsecton (a) of secton 129 but ony to such e tent as he determnes w
not resut n the evason or avodance of edera Income and e cess profts ta
for whch the acquston was made. Whenever approprate to gve proper effect
to the deducton, credt, or other aowance, or such part of It whch may be
aowed, ths authorty Incudes the dstrbuton, apportonment, or aocaton of
both the gross Income and the deductons, credts, or other aowances the beneft
of whch was sought, between or among the corporatons, or propertes, or parts
thereof. Invoved, and Incudes the dsaowance of any such deducton, credt, or
other aowance to any of the ta payers Invoved.
Sec. 29.129 5. Ta abe Years to Whch ppcabe. The provsons of sec-
ton 129 appy to ta abe years begnnng after December 31,1943. deducton,
credt, or other aowance whch woud be dsaowed by secton 129 If that secton
were appcabe to ta abe years begnnng pror to anuary 1, 1944, s neverthe-
ess dsaowed f Its dsaowance Is requred under any appcabe aw or rue of
aw.
foowng:
S C. 12 . C UISITIONS TO OID INCOM OR C SS
PRO ITS T . (R NU CT O 1943.)

(b) Technca mendment. Secton 45 (reatng to aocaton of
ncome and deductons) Is amended by strkng out gross Income or
deductons and Insertng In eu thereof gross Income, deductons,
credts, or aowances .
(c) Ta abe Tears to Whch ppcabe. The amendments made by
ths secton sha be effectve wth respect to ta abe years begnnng
after December 31, 1943. The determnaton of the aw appcabe to
pror ta abe years sha be made as If ths secton had not been enacted
and wthout nferences drawn from the fact that the amendment made
by ths secton s not e pressy made appcabe to pror ta abe years.
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29.120-2. 200
Pah. 3. Secton 29.45-1 s amended as foows:
( ) y amendng the ast sentence of subsecton (a) to read as
foows:
If doos not mean the Income, the deductons, the credts, the aowances, or the
tem or eement of ncome, deductons, credts, or aowances, resutng to the
controed ta payer by reason of the partcuar contract, transacton, or arrange-
ment, the controed ta payer, or the nterests controng t, chose to make (even
though such contract, transacton, or arrangement be egay bndng upon the
partes thereto).
( ) y strkng the words gross ncome or deductons, from the
thrd sentence of the frst paragraph of subsecton (b) and nsertng n
eu thereof the foowng: gross ncome, deductons, credts, or
aowances, .
(C) y amendng the second sentence of the thrd paragraph of sub-
secton (o) to read as foows:
It s not Intended (e cept n the case of the computaton of consodated net
ncome under a consodated return) to effect n auy case such a dstrbuton,
apportonment, or aocaton of gross ncome, deductons, credts, or aowances,
or any tem of gross ncome, deductons, credts, or aowances, as woud produce
a resut equvaent to a computaton of consodated net ncome under secton 141.
(D) y strkng the ast three words ncome or deductons from
the second sentence of the frst paragraph of subsecton (c) and nsert-
ng n eu thereof the foowng: ncome, deductons, credts, or
aowances.
secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. C, 62)
and secton 12 of the Revenue ct of 1943 (Pubc Law 235, Seventy-
eghth Congress).)
Geo. . Schoeneman,
Secton 29.129-2: Purpose and scope of secton 129.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 542G, page 196.)
Secton 29.129-2: Purpose and scope of 1945-17-12119
secton 129. I. T. 3757
INT RN L R NU COD .
The creaton of a new domestc corporaton to carry on the bus-
ness n the Western emsphere (other than n the Unted States)
of an e stng domestc corporaton does not consttute ta avodance
wthn the meanng of secton 129 of the Interna Revenue Code,
even though the new corporaton was created for the prncpa
purpose of ganng tho benefts provded by the frst e cepton n
secton 15(b) of the Code, reatng to e empton from surta n the
case of Western emsphere trade corporatons, and by secton
727(g) of the Code, rentng to certan domestc corporatons whch
are e empt from e cess profts ta .
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201
29.129-2.
dvce s requested whether the creaton of a new domestc cor-
poraton to carry on the busness n the Western emsphere (other
than n the Unted States) of an e stng domestc corporaton con-
sttutes ta avodance wthn the meanng of secton 129 of the Interna
Revenue Code where the new corporaton was created for the prncpa
purpose of ganng the benefts provded by the frst e cepton n
secton 15(b) of the Code, reatng to e empton from surta n the
ease of Western emsphere trade corporatons, and by secton 727(g)
of the Code, reatng to certan domestc corporatons whch are e -
empt from e cess profts ta .
Secton 15(b) of the Interna Revenue Code provdes n the frst of
two parenthetca e ceptons for an e empton from corporaton sur-
ta n the case of Western emsphere trade corporatons, as defned
n secton 109 of the Code. The atter secton defnes a Western
emsphere trade corporaton to be a domestc corporaton a of whose
busness s done n any country or countres n North, Centra, or
South merca, or n the West Indes, or n Newfoundand, and whch
meets certan other requrements wth respect to the percentage of
gross ncome derved from sources other than sources wthn the
Unted States. Secton 727(g) of the Code provdes for an e empton
from e cess profts ta n the case of a domestc corporaton (e cept
a member of an affated group of corporatons fng consodated
returns) where specfed percentages of ts gross ncome for certan
perods were derved from sources other than sources wthn the
Unted States and from the actve conduct of a trade or busness.
Secton 129 of the Code, as added by secton 12 (a) of the Revenue
ct of 1943, provdes n part as foows:
S C. 129. C UISITIONS M D TO D OR OID INCOM OR
C SS P O ITS T .
(a) Dsaowance of Deducton, Credt, or owance. If (1) any person
or persons acqure, on or after October , 1910, drecty or ndrecty, contro
of a corporaton, or (2) any corporaton acqures, on or after October , 1940,
drecty or ndrecty, property of unother corporaton, not controed, drecty
or Indrecty, mmedatey pror to such acquston, by s ch acqurng corporaton
or ts stockhoders, the bass of whch property, n the hands of the acqurng
corporaton, s determned by reference to the bass In the hands of the transferor
corporaton, and the prncpa purpose for whch such acquston was made s
evason or avodance of edera ncome or e cess profts ta by securng the
beneft of a deducton, credt, or other aowance whch such person or corporaton
woud not otherwse en|oy, then such deducton, credt, or other aowance sha
not be aowed.
The e empton provded by the frst e cepton n secton 15(b) of
the Code was ntended prmary to remove compettve dsadvantages
created by doube ta aton wth respect to the ncome of domestc
corporatons dong busness to a substanta degree n foregn countres.
(Senate Report No. 1631, Seventy-seventh Congress, second sesson
(C. . 1942-2, 504, 532).) The purpose of the enactment of secton
727(g) of the Code appears to have been smar n nature. It s not
beeved that Congress, n enactng secton 129 of the Code, had any
ntenton of repeang or otherwse varyng e stng benefts provded
by the frst e cepton n secton 15(b) and by secton 727(g) of the
Code. It appears from the structure of sectons 109 and 727(g) of
the Code, and the apparent purpose thereof, that Congress sought to
make ths reef avaabe to any domestc corporaton, provded ony
that t coud satsfy the gross ncome and other specfc requrements
6 4354 46 14
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29.131-1. , 202
of those sectons of the Code. The absence of any other restrctons
or condtons reatng to egbty for such reef eads to the concu-
son that the basc pocy underyng those sectons contempates that
they sha appy to any domestc corporaton whch can, for a partcu-
ar ta abe year, satsfy such condtons as are specfcay set forth
theren wthout regard to the tme of, or the occason for, the organ-
zaton of such corporaton.
In vew of the foregong, t s hed that the creaton of a new do-
mestc corporaton to carry on the busness n the Western em-
sphere (other than n the Unted States) of an e stng domestc corpo-
raton does not consttute ta avodance wthn the meanng of secton
129 of the Code, even though the new corporaton was created for the
prncpa purpose of ganng the benefts provded by the frst e cep-
ton n secton 15(b) of the Code and by secton 727(g) of the Code.
Secton 29.129-3: Instances n whch secton 129(a) ds-
aows a deducton, credt, or other aowance.
INT RN L R NU COD .
Secton 29.129-4: Power of Commssoner to aocate
deducton, credt, or aowance n part.
INT RN L R NU COD .
Secton 29.129-5: Ta abe years to whch appcabe.
INT RN L R NU COD .
SUPPL M NT C CR DITS G INST T .
S CTION 131. T S O OR IGN COUNTRI S ND
POSS SSIONS O UNIT D ST T S.
Secton 29.131-1: nayss of credt for ta es. 1945-14-120 5
I. T. 3749
INT RN L R NU COD .
Under artce 14( ) (a) of the ta conventon and protoco between
the Unted States and the rench Repubc (page 522, ths uetn),
effectve anuary 1, 1945, a rench ctzen who s a resdent of the
Unted States may cam the credt provded by secton 131(a) (3)
of the Interna Revenue Code for Income ta es pad to rance
e s not entted to such a credt for any Income ta es pad to any
other foregn country.
dvce s requested whether, under the ta conventon and protoco
between the Unted States and the rench Repubc (page 522, ths u-
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203
29.131-1.
etn), effectve anuary 1, 1945, a rench ctzen who s a resdent of
the Unted States may cam the credt provded by secton 131(a) (3)
of the Interna Revenue Code for ncome ta es pad to rance or to
any other foregn country.
Secton 131(a)(3) of the Interna Revenue Code provdes that f
the ta payer chooses to have the benefts of secton 131, the ta mposed
by Chapter 1 of the Code (whch ncudes the norma ta and surta
on the ncome of ndvduas) sha, n the case of an aen resdent
of the Unted States, be credted wth the amount of any ncome, war-
profts, and e cess-profts ta es pad or accrued durng the ta abe
year to any foregn country, f the foregn country of whch such
aen resdent s a ctzen or sub|ect, n mposng such ta es, aows
a smar credt to ctzens of the Unted States resdng n such country.
The aowance of such a credt aganst edera ncome ta for ncome
ta es pad by a rench ctzen, who s a resdent of the Unted States,
to any foregn country depends on whether the rench Government
aows an mercan ctzen who s a resdent of rance a smar credt
ganst hs rench ncome ta es for any ncome ta es pad by hm to
arch country.
rtce 14( ) (a) of the conventon consttutng a part of the ta
conventon and protoco, supra, provdes, wth respect to rench
scfteduar ta es, as foows:
Income from securtes, debts and trusts havng ts source In the Unted States
of merca sha be sub|ect In rance to the ta on Income from securtes
bat ths ta sha bo reduced by the amount of the ta aready pad n the
Unted States of merca on the same ncome.. In consderaton of the fsca
regme to whch the egsaton of the Unted States of merca sub|ects the
ncome of nonresdent aens and foregn corporatons or other enttes, the
deducton of the ta pad n the Unted States of merca sha be effected n
a ump sum through a reducton of 12 In the rate of the ta estabshed by the
rench aw.
The ncome other than that ndcated In the precedng paragraph sha not be
sub|ect to any scheduer ta n rance when, accordng to ths conventon, t s
ta abe In the Unted States of merca.
rtce 14( ) (b) of the conventon deas wth the rench genera
ta on revenue. No reference s made n that artce to credt for
Unted States ta es for the reason that under artce 14( ) (a) rance
has aready aowed a drect or ndrect credt by e cuson of ncome
from Unted States sources, thereby n practcay a nstances e -
haustng the Unted States ta es pad (the rench scheduar ta es
beng hgher) before the computaton of the genera ncome ta s
reached. (See Senate ecutve Report No. 4, Seventy-eghth Con-
gress, second sesson, reatng to ths provson.)
The ta conventon and protoco contan no provson whereby credt
aganst rench ncome ta es s aowed an mercan ctzen who s
a resdent of rance for ncome ta es pad by hm to any country other
than the Unted States.
ccordngy, t s hed that under artce 14( ) (a) of the ta
conventon and protoco between the Unted States and the rench
Repubc, a rench ctzen who s a resdent of the Unted States may
cam the credt provded by secton 131 (a) (3) of the Interna Revenue
Code for ncome ta es pad to rance. e s not, however, entted
to such a credt for any ncome ta es pad to any other foregn country.
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29.131-2.
204
Secton 29.131-1: nayss of credt for 1945-24-12193
ta es. I. T. 3774
INT RN L R NU COD .
Credt aganst edera ncome ta es for Income ta es pad to the
Government of Curacao, Netherands West Indes.
dvce s requested whether certan ta es pad by a domestc cor-
poraton to the Government of Curacao, Netherands West Indes, may
be camed as a credt under secton 131 (a) (1) of the Interna Revenue
Code.
The ta es n queston were assessed under offca decrees ssued by
the Governor of Curacao, namey, Decrees P 34 and P 35, both
dated pr 30, 1940, Decree P 104, dated une 21,1940, Decree P
157, dated ugust 11, 1942, and Decree P 126, dated uy 10, 1943.
n e amnaton of the above-mentoned decrees shows that they
were promugated for the purpose of evyng ta accordng to the
proft of corporatons derved from wthn Curacao terrtory. y
proft s meant the net advantages (reazatons), under any name
and n any form acqured, from busness and from capta empoyed
outsde busness. Snce the ta es mposed under the offca decrees
ssued by the Governor of Curacao, Netherands West Indes, referred
to above, come wthn the mercan concept of ncome, war-profts,
and e cess-profts ta es, they are aowabe as credts to a domestc
corporaton under the provsons of secton 131(a) (1) of the Interna
Revenue Code, sub|ect to the mtatons contaned n secton 131(b).
( so Secton 23(a), Secton 29.23(a)-.) I. T. 376
INT RN L R NU COD .
The contrbuton equvaent to not ess than 5 per cent of net
profts, requred to be pad by empoyers under artce 374 of
cuadoran Decree No. 210, dated ugust 5,193 , s not aowabe as
a credt, under secton 131 of the Interna Revenue Code, aganst
Unted States ncome ta . Such contrbuton s deductbe as a
busness e pense under secton 23(a) of the Code.
dvce s requested whether the contrbuton equvaent to not ess
than 5 per cent of net profts, requred to be pad by empoyers under
artce 374 of cuadoran Decree No. 210, dated ugust 5, 193 , s
aowabe as a credt, under secton 131 of the Interna Revenue Code,
aganst Unted States ncome ta .
y Presdenta Decree No. 210, the Repubc of cuador estabshed
a Labor Code to provde numerous benefts for empoyees n that coun-
try. rtce 374 of such decree, whch provdes the means for rasng
the funds for the purpose of enforcng the Labor Code, reads as
foows:
The undertakng concerned sha be bound to pay a contrbuton equvaent to
not ess than 5 per cent, of, ts net profts to the works counc. Ths contrbuton
sha be pad on the bass of the baance sheet and at the tme when the baance
sheet s drawn up.
The queston presented s whether the contrbuton equvaent
to not ess than 5 per cent of net profts s an ncome ta wthn the
meanng of secton 131(a) (1) of the Interna Revenue Code. The
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205
29.131-2.
purpose of the foregn ta credt provsons of secton 131 of the Code
s to avod doube ncome ta aton by permttng a domestc corpora-
ton to cam as an offset aganst Unted States ncome ta the amount
of ncome, war-profts, and e cess-profts ta es pad to a foregn coun-
try n respect to the same ncome, sub|ect to the mtatons contaned
n secton 131(b) of the Code. (See urnet v. Chcago Portrat Co.,
2 5 U. S., 1, Ct. D. 463, C. . I-1, 2 6 (1932) Chares II. ubbard
v. Unted States, 17 ed. Supp., 93, certorar dened, 300 U. S., GG6,
Ct. D. 1224, C. . 1937-1, 259.) It was not the purpose of Congress
to aow as a credt aganst Unted States ncome ta any and a ta es
whch mght be eved or mposed by foregn countres. The Repubc
of cuador has an ncome ta aw separate and dstnct from the
Labor Code, and the ureau has hed that the ta mposed thereunder
on domestc corporatons operatng n cuador s an ncome ta wthn
the meanng of secton 131(a) (1) of the Revenue ct of 192 whch
corresponds to secton 131(a) (1) of the Interna Revenue Code. (See
LT. 2445, C. . III-1, 102 (1929).)
The word ta es, n ts most enarged sense, embraces a the regu-
armpostons made by government upon the person, property, prv-
fsts, occupatons, and en|oyments of the peope for the purpose of
rasng pubc revenue. (See Cooey s Prncpes of Consttutona
Law, page 56.) undamentay, a ta s an e acton mposed by a
government upon ts peope for pubc purposes. though a sov-
eregn State, n genera, has authorty by egsatve enactment to
compe enforced contrbuton for the purpose of reguatng busness
or ndustry, such an mposton can not correcty be desgnated a ta .
(Cf. G. C. I. 4606, C. . II-2, 256 (192 ) and I. T. 2759, C. .
III-1, 33 (1934), reatng to amounts recaptured under secton
15(a)6 of the Interstate Commerce ct, as amended.) In aey v.
Dre e urnture Co. (259 U. S., 20), aso known as the Chd Labor
Ta case, t was hed that the so-caed ta mposed by the chd abor
ta aw, whch was desgned to reguate chd abor, was not n fact
a ta under rtce I, secton , of the Consttuton, because the e ac-
ton was a penaty for voaton of the reguatons. In Unted States
v. Wam M. uter et a. (297 U. S., 1, Ct. D. 1070, C. . -1, 421
(1936)), t wras hed that the so-caed processng ta mposed on
processors of basc agrcutura commodtes, under the grcu-
tura d|ustment ct, 1933 (4 Stat., 31), to defray the cost of regu-
atng agrcutura producton and payment to farmers of certan ben-
efts, was not a ta . In other words, an mposton for the purpose
of reguatng certan ndustres or busness enterprses, rather than
for the purpose of rasng revenue for the genera support of govern-
ment, does not come wthn the defnton of the word ta es.
rom an e amnaton of the Labor Code of cuador, t appears
that the contrbuton n queston s an e acton for the enforcement
of the Labor Code wth respect to a empoyers of abor n that coun-
try. urthermore, the amount so pad by the empoyer s pad drecty
to the works counc, as specfcay provded by artce 374 of the
decree estabshng the Labor Code, and the works counc s, n
turn, composed of at east 50 per cent of wage-earnng empoyees of
the undertakng, as provded by artce 369 of the Labor Code.
It s therefore hed that the contrbuton equvaent to not ess than
5 per cent of net profts, requred to be pad by empoyers under artce
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29.131- .
206
374 of cuadoran Decree No. 210, supra, s not aowabe as a credt,
under secton 131 of the Interna Revenue Code, aganst Unted States
ncome ta . Such contrbuton s deductbe, however, as a busness
e pense under secton 23(a) of the Code.
Secton 29.131-5: Countres whch do or do not 1945-4-11967
satsfy the smar credt requrement. I. T. 3717
INT RN L R NU COD .
rgentna satsfes the smar credt requrement of secton
131(a) (3) of the Interna Revenue Code.
Secton 29.131-5: Countres whch do or do not 1945- -12020
satsfy the smar credt requrement. I. T. 3729
INT RN L R NU COD .
enezuea satsfes the smar credt requrement of secton
131(a) (3) of the Interna Revenue Code.
Secton 29.131-7: Ta es of subsdary corporaton.
( so Secton 19.131-7, Reguatons 103.)
INT RN L R NU COD . .
Reguatons 103 and 111 amended. (See T. D. 5452, beow.)
Secton 29.131- : Lmtatons on credt for 1945-9-12034
foregn ta es. T. D. 5452
( so Secton 29.131-7 Sectons 19.131-7 and
19.131- , Reguatons 103 Secton 729, Sec-
ton 35.729 , Reguatons 112.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RTS 19, 29,
ND 35. INCOM T ND C SS PRO ITS T .
mendng Reguatons 103, 111, and 112 to conform to secton
130 of the Revenue ct of 1943, reatng to credt for ta es of for-
egn countres and possessons of the Unted States.
Ornc of Commssoner of Interna Revenue,
Washngton, D. G.
In order to conform Reguatons 103, 111, and 112 Parts 19, 29, and
35, Tte 26, Code of edera Reguatons, 1940 Sup., Cum. Sup., and
Cum. Sup., respectvey to the provsons of secton 130 of the Rev-
enue ct of 1943 (Pubc Law 235, Seventy-eghth Congress), enacted
ebruary 25,1944, such reguatons are amended as foows:
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29.131- .
R GUL TIONS 103.
19.131-1 the foowng:
S C. 130. T C NIC L M NDM NTS R L TING TO OR IGN
T CR DIT. (R NU CT O 1043, TITL L)

(b) Ta es op oregn Subsdary. The frst sentence of secton
131(f) (reatng to foregn ta es deemed to have been pad by a domes-
tc corporaton wth respect to the accumuated profts of a foregn sub-
sdary) s amended to read as foows: or the purposes of ths sec-
ton, a domestc corporaton whch owns a ma|orty of the votng stock
of a foregn corporaton from whch t receves dvdends n any ta -
abe year sha be deemed to have pad the same proporton of any n-
come, war-profts, or e cess-profts ta es pad or deemed to be pad by
such foregn corporaton to any foregn country or to any possesson
of the Unted States, upon or wth respect to the accumuated profts
of such foregn corporaton from whch such dvdends wen pad, whch
the amount of such dvdends bears to the amount of such accumuated
profts.
(c) Ta abe Tears to Whch ppcabe. The amend-
ment made by subsecton (b) sha be effectve wth respect to a ta -
abe years begnnng after December 31, 1930.
Par. 2. Secton 19.131-7(a), as amended by Treasury Decson 5226,
approved ebruary 10, 1943 C. . 1943, 375 , s further amended by
strkng out the second sentence and nsertng n eu thereof the
foowng:
The amount of ta es deemed to have been pad s mted, however, for ta abe
years begnnng pror to anuary 1, 1940, to an amount whch sha n no case
e ceed the snme proporton of the ta aganst whch the credt for foregn ta es
a taken, whch the amount of such dvdends bears to the amount of the entre
net Income of the domestc corporaton n whch such dvdends are Incuded.
Par. 3. Secton 19.131- , as amended by Treasury Decson 5226,
s further amended by strkng from the fourth e ampe mmedatey
precedng the paragraph begnnng wth the words Under the pro-
vsons of secton 202, the foowng:
Lmtaton under secton 131(f) of 54, 62.50) 10,450
Income and profts ta es deemed to have been pad ( rench ta es ap-
pcabe to accumuated profts dstrbuted to domestc corporaton,
reduced n accordance wth the mtaton under secton 131(f)) 7, 5C0. 00
Income and profts ta es deemed to have been pad ( rench ta es ap-
pcabe to accumuated profts dstrbuted to domestc corpora-
ton) 7,500.00
R GUL TIONS 111.
the foowng:
S C. 130. T C NIC L M NDM NTS R L TING TO OR IGN
T CR DIT. (R NU CT O 1943, TITL I.)
(a) Lmt on Credt. Secton 131(b) (reatng to mtatons on
credt aowed for ta es of foregn countres and possessons of the
Unted States) s amended to read as foows:
(b) Lmt on Credt. The amount of the credt taken under ths sec-
ton sha be sub|ect to each of the foowng mtatons:
(1) The amount of the credt n respect of the ta pad or accrued
to any country sha not e ceed, n the case of a ta payer other than
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f 29.131- .
20
a corporaton, the same proporton of the ta aganst whch such
credt s taken, whch the ta payer s net Income from sources wthn
such country bears to hs entre net Income for the same ta abe
year, or n the case of a corporaton, the same proporton of the ta
aganst whch such credt s taken, whch the ta payer s norma-
ta net Income from sources wthn such country bears to ts en-
tre norma-ta net ncome for the same ta abe year and
(2) The tota amount of the credt sha not e ceed. In the case
of a ta payer other than a corporaton, the same proporton of the
ta aganst whch such credt s taken, whch the ta payer s net
ncome from sources wthout the Unted States bears to hs entre
net ncome for the same ta abe year, or, In the case of a cor-
poraton, the same proporton of the ta aganst whch such credt
s taken, whch the ta payer s norma-ta net ncome from sources
wthout the Unted States bears to ts entre norma-ta net ncome
for the same ta abe year and
(3) or the purposes of paragraphs (1) and (2) of ths subsec-
ton, the terms norma-ta net ncome from sources wthn such
country and norma-ta net ncome from sources wthout the
Unted States sha mean the net Income from such sources mnus
an amount equvaent to the same proporton of the credt provded
In secton 26(e) whch the ta payer s e cess profts net ncome from
such sources bears to ts entre e cess profts net Income for the
same ta abe year.
(b) Ta es of oregn Subsdary. The frst sentence of secton
131(f) (reatng to foregn ta es deemed to have been pad by a do-
mestc corporaton wth respect to the accumuated profts of a foregn
subsdary) s amended to rend as foows: or the purposes of ths
secton, a domestc corporaton whch owns a ma|orty cf the votng
stock of a foregn corporaton from whch t receves dvdends n any
ta abe year sha be deemed to have pad the same proporton of any
Income, war-profts, or e cess-profts ta es pad or deemed to be pad
by such foregn corporaton to any foregn country or to any possesson
of the Unted States, upon or wth respect to the accumuated profts
of such foregn corporaton from whch such dvdends were pad, whch
the amount of such dvdends bears to the amount of such accumuated
profts.
(c) Ta abe Yeabs to Whch ppcabe. The amendment made
by subsecton (a) sha be effectve for a ta abe years begnnng after
December 31, 1941. The amendment made by subsecton (b) sha be
effectve wth respect to a ta abe years begnnng after December
31, 193 ).
Par 5. Secton 29.131-7(a) s amended by strkng out the second
sentence readng as foows:
The amount of ta es deemed to have been pad Is mted, however, to an amount
whch sha n no case e ceed the same proporton of the ta aganst whch the
credt for foregn ta es s taken whch the amount of such dvdends bears to
the amount of the norma-ta net ncome of the domestc corporaton In whch
such dvdends are ncuded.
Par. 6. Secton 29.131- s amended as foows:
( ) y strkng out the frst two sentences and nsertng n eu
thereof the foowng:
The amount of the ncome and profts ta es pad or accrued (ncudng the
ta es whc), n accordance wth the provsons of secton 131(f), are deemed
to have been pad) durng the ta abe year to each foregn country or posses-
son of the Unted States, mted under secton 131(b) (1) so as not to e ceed
that proporton of the ta aganst whch credt s taken whch the ta payer s net
Income from sources wthn such country or possesson bears to hs entre net
Income, or, n the case of a corporaton, whch the ta payer s norma-ta net
Income from sources wthn such country or possesson bears to ts entre
norma-ta net ncome, for the same ta abe year, s the tentatve credt In
respect of the ta es pad or accrued to such country or possesson. The sum of
these tentatve credts, mted under secton 131(b) (2) so as not to e ceed the
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209
29.131- .
same proporton of the ta aganst whch credt s taken whch the ta payer s
net ncome from sources wthout the Unted States bears to hs entre net
ncome, or, n the case of a corporaton, whch the ta payer s norma-ta net
ncome from sources wthout the Unted States bears to ts entre normn-ta
net ncome, for the same ta abe year, s the amount aowabe as a credt
aganst the Income ta under Chapter 1 for Income or profts ta es pad or
accrued to foregn countres or possessons of the Unted States.
( ) y strkng out the ast two paragraphs thereof.
(C) y nsertng at the end of e ampe (2) the foowng:
It s provded n secton 131(b) that n the case of a domestc corporaton
the amount of the credt for any ta abe year wth respect to the ta pad or
accrued to any foregn country or possesson of the Unted States sha not
e ceed the same proporton of the ta mposed by Chapter 1 whch the corpo-
raton s norma-ta net ncome from sources wthn such foregn country or
possesson of the Unted States bears to the entre norma-ta net ncome of
such corporaton for the same ta abe year. The tota amount of the credt
sha not e ceed the same proporton of the ta Imposed by Chapter 1 whch
the corporaton s norma-ta net ncome from sources wthout the Unted States
bears to the entre norma-ta net Income for the same ta abe year.
The norma-ta net ncome from sources wthn any foregn country or
pssesson of the Unted States sha be determned by deductng from net n-
esw from such country or possesson of the Unted States the same proporton
of te credt provded n secton 20(e) whch the ta payer s e cess profts net
ncome from sources wthn such country or possesson of the Unted States
fars to the ta payer s entre e cess profts net ncome. The norma-ta net n-
come from sources wthout the Unted States sha kewse be determned by de-
ductng from the net ncome from sources wthout the Unted States the same
proporton of such credt as the e cess profts net ncome from sources wthout
the Unted States bears to the entre e cess profts net ncome. or the determ-
naton of e cess profts net ncome from a foregn country or from sources wthout
the Unted States, and of the entre e cess profts net ncome, for the purposes of
the credt for foregn ta es, In the case of a corporaton computng ts e cess
profts ta under sectons 721, 726, 731, or 730(b), see secton 35.720-4, Regua-
tons 112.
The operaton of the mtatons provded n secton 131(b) on the credt for
foregn ta es pad by corporatons may be ustrated by the foowng e ampes:
ampe (3). The foowng facts e st for the caendar year 1942 wth re-
spect to the Corporaton, whch makes Its Income ta returns on the caendar
year bass:
Net ncome from a sources 250, 000. 00
Leas:
d|usted e cess profts net ncome , 75, 000. 00
Norma ta net ncome 175, 000. 00
Net ncome from foregn country 100, 0110. 00
oregn ta pad on country ncome 3, , 000. 00
Tota norma ta and surta 70, 000. 00
Computaton of foregn ta credt for purposes of norma ta and surta :
1100,000 mnus ( . 75,000)
-R-n . v r_ 70,000 equas
2u0,000 mnus 75,000
mount aowabe as a credt
or the purpose of the computaton, t Is assumed that there are no ad|ust-
ments to net Income n determnng e cess profts net Income.
In the event that norma-ta net ncome s derved from more than one foregn
country or possesson of the Unted States, the mtaton provded In secton
131(b)(2) sha be apped based upon the ta payer s norma-ta net Income
from sources wthout the Unted States and the entre norma-ta net ncome
of the corporaton and such mtaton Is In addton to the mtaton provded
n secton 131(b) (1).
s to the aowance of credt for foregn ncome, war profts, or e cess profts
ta es aganst the e cess profts ta mposed under Chapter 2 , see secton 729 and
secton 35.729-3, Reguatons 112.
2 , 000.00
2 , 000.00
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29.131- .
210
(D) y strkng out the paragraph n whch appears the thrd e -
ampe (pror to the amendments made by ths Treasury decson)
ampe (4). The net ncorfe for the caendar year 1942 and the Income and
profts ta es pad or accrued to foregn countres and possessons of the Unted
States n the case of a domestc corporaton were as foows:
Income and
profts taes
(pad or
accrued).
Country.
Net n-
come.
Loss.
Unted States
157,500
30,000
20,000
40,000
60,000
Great rtan .
17,000
5,600
5, 00
None
None
2,250
,000
6,000
Canada - .
10,000
50,000
20,000
100,000
Net ncome 2 7, 500. 00
Less: Interest on Unted States obgatons 25, 000. 00
262. 500.00
Less: Credt provded In secton 26(e) for Income sub|ect to e cess
profts ta 105,000.00
Norma ta net Income 157, 500. 00
Surta net Income ( 2 7,500 mnus 105,000) , 1 2,500.00
Tota foregn net Income 130,000.00
Unted States ta (not Incudng ta Imposed under secton 102)
Norma ta 37, 00. 00
Surta 29,200.00
67, 000.00
The ncome and osses from a foregn countres and possessons of the
Unted States, e cept the dvdend from sources wthn rance, were derved
from branch operatons. Dvdends of 50,000 were receved from a rench
corporaton, a ma|orty of the votng stock of whch was owned by the domestc
corporaton. The rench corporaton pad to rance ncome and profts ta es
on ncome earned by t and n addton a dvdend ta for the account of ts
sharehoders on Income dstrbuted to them, the atter ta beng wthhed and
pad at the source. or the purpose of smpcty t s assumed that the corpora-
ton computes Its e cess profts credt under secton 713 and that there are no
ad|ustments under secton 711 other than that under secton 711(a) (1) ( ),,
and that consequenty the net Income from the countres referred to Is the
same as the e cess profts net Income frdra such countres.
The computaton of the credt Is as foows:
Great rtan.
Income and profts ta es pad or accrued 17, 000.00
Lmtaton under secton 131(b)(1)
30,000 mnus f It t 105,000)
262,500 105,000 W7.000 7.657.14
Tentatve credt 7,657.14
Canada.
Income and profts ta es pad or accrued 5,600.00
Lmtaton under secton 131(b) (1)
(20 000
oTw n 105,000) mm mfn2ns7105 000 67,000 5.104 76
Tentatve credt 5,104.76
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211 5 29.131- .
raz.
Income and profts ta es pad or accrued 5, 00. 00
40,000 mnus 105,000)
,- ro r,v, r,m 67,000 10,209.52
202,500 mms 105,000
Teutatve credt 5, 00. 00
rgentne Repubc.
Tentatve credt None
Me co.
Tentatve credt None
Puerto Rco.
Income and profts ta es pad or accrued 2,250. 0
Lmtaton under secton 131(b)(1)
(10 000
105,000)
o o IL- nnn 07,000 2. 552. 3
262,o00 mnus 10o,000
Tentatve credt 2, 250. 00
rance.
Dvdend ta pad at source 9, 000. 00
Income and profts ta es pad or accrued on branch operatons 0,000. 00
Income and profts ta es deemed under secton 131(f) to have been
pad, computed as foows:
Dvdend, receved on December 1 of the ta abe
year 50,000.00
Income of rench corporaton earned durng ta abe
year 200,000.00
Income and profts ta es pad to rance on 200,000__ 30,000.00
ccumuated profts 200,000 mnus 30,000 170, 000. 00
rench ta es appcabe to accumuated profts dstrbuted
of -S f ww 7-500 00
Tota ncome and profts ta es pad or accrued and deemed to
have been pad to rance 22, 500. 00
_ / 70,000
70,000 mnus I ofo -. 10o,000)
, f 67,060 17, S6(. 66
262,500 105,000
Tentatve credt 17, 66.66
um of tentatve credts.
Great rtan 7, 657.14
Canada 5,104. 70
raz 5, 00. 00
Puerto Rco 2,250.00
rance 17, 00. 66
Lmtaton on sum of tentatve credts under secton 131(b) (2) to de-
termne credt
(130 000
o o vT 105,000) v S07 000
262,500- 105,000 o ,uw
Tota amount of credt aowabe (sum of tentatve credts or
the mtaton under secton 131(b)(2), whchever s the
3 , 67 .56
33,1 0. 04
33,1 0. 94
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20.131- .
212
R GUL TIONS 112.
Par. 7. There s added mmedatey foowng secton 35.729-3
the foowng new secton:
Sec. 35.729-4. ppcaton of Credt to Cases Wthn Reef Pbovsons.
In cases wthn the scope of sectons 721, 726, 731, or 736(b), reatng to reef
provsons affectng the ta Imposed under Chapter 2 , speca rues, as set forth
heren, are appcabe wth respect to the determnaton of the credt for foregn
ta under secton 729.
In any case wthn the provsons of secton 721, reatng to abnormates n
ncome n the ta abe year, the amount of the abnorma ncome attrbutabe to
any pror ta abe year sha, for the purposes of computng the amount of the
credt under secton 729 for the ta abe year, be Incuded n gross ncome n
determnng the e cess profts net Income for the year n whch the whoe of such
abnorma ncome woud wthout regard to secton 721 be ncudbe. In such
ease the e cess profts ta for the ta abe year aganst whch the credt s taken
sha be deemed to ncude the ncrease n e cess profts ta for any prevous
ta abe year resutng from the ncuson n the gross ncome for such prevous
ta abe year of the porton of the abnorma Income attrbutabe to such prevous
ta abe year. or computaton of such e cess profts ta , see secton 35.721-4.
In any case n whch an amount of abnorma ncome Is attrbutabe to any
future ta abe year such amount sha, for the purposes of computng the amount
of the credt under secton 729, be e cuded from gross Income n determnng the
e cess profts net ncome for the ta abe year In whch the whoe of such abnorma
ncome woud wthout regard to secton 721 be ncudbe. In such case the e cess
profts ta for such ta abe year aganst whch the credt s taken sha not ncude
the ncrease n e cess profts ta for any such future ta abe year resutng from
the ncuson In the gross ncome for such future ta abe year of the porton of
the abnorma ncome attrbutabe to such future ta abe year. In such case the
amount so attrbutabe to a future ta abe year sha be ncuded n the gross
Income for such future ta abe year for the purpose of determnng the e cess
profts net Income for such future ta abe year. or computaton of e cess
profts ta for such future ta abe year, see secton 35.721-5.
In any case wthn the scope of secton 726, reatng to corporatons competng
contracts under Merchant Marne ct, 1936, the ta aganst whch the credt s
taken sha be the ta computed under secton 726(b) f, and ony f, the ta so
computed s ess than the ta computed under secton 710. In that event any
payments made or to be made to the Unted States Martme Commsson for any
ta abe year sha be ncuded n gross ncome for the purpose of determnng
the entre e cess profts net ncome under secton 729 (c) and (d).
In any case wthn the scope of secton 731, reatng to corporatons engaged n
the mnng of strategc materas, the e cess profts net ncome attrbutabe to
such mnng sha be e cuded from the entre e cess profts net ncome for the
purpose of determnng the credt provded n secton 729.
In any case wthn the scope of secton 730(b), reatng to ta payers wth
Income from ong-term contracts, the ncome attrbutabe under such subsecton
to pror ta abe years sha, for the purpose of computng the amount of the credt
under secton 729, be Incuded n determnng e cess profts not ncome for the
year n whch such ncome woud wthout regard to secton 736(b) be Incuded
In e cess profts net ncome. In such case the ta aganst whch credt s taken
for the purposes of secton 729 sha be deemed to ncude any ncrease n e cess
profts ta for any year begnnng pror to the ta abe year n whch the entre
ncome from a ong-term contract woud wthout regard to secton 736(b) be
Incuded for e cess profts ta purposes. Thus, for e ampe, the e cess profts
ta for a ta abe year begnnng n 1942 sha be deemed to ncude any ncrease
n e cess profts ta for a ta abe year begnnng n 1940 or 1941 and attrbutabe
to the contract endng n the ta abe year 1942. or the method of determnaton
of such ncrease see secton 35.730(b)-3.
The appcaton of these prncpes may be Iustrated by the foowng
e ampes:
ampe (1). The Corporaton has for the ta abe year 1942 the foowng
Income and e cess profts ta abty:
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29.131- .
Tota e cess profts net ncome 500,000.00
oregn e cess profts net ncome, representng royates from
patents 200,000. 00
oregn ta pad wth respect to foregn royates 90,000. 00
Porton of foregn ncome attrbutabe as abnorma ncome under
secton 721 to ta abe year 1941 100,000. 00
cess profts credt for 1942 220,000. 00
Speca e empton 5,000.00
225,000.00
The computaton of the credt for foregn ta s as foows:
Tota e cess profts net ncome 500, 000. 00
Less: oregn ncome attrbutabe to 1941 100, 000. 00
cess profts net ncome attrbutabe to 1942 400,000.00
Less: cess profts credt and specfc e empton, as above 225,000. 00
d|usted e cess profts net ncome for 1042 . 175, 000.00
cess profts ta at 1942 rates 157, 500. 00
ssumed ncrease n e cess profts ta for 1942 due to
amount of e cess profts net ncome attrbutabe
to 1941 32, 500. 00
Tota e cess profts ta for 1942 190,000. 00
mtaton upon amount of foregn ta credt for the purpose of Chapter 2 :
f 000
190,000 76,000.00
See, however, the mtaton provded n secton 35.729-3. ppyng such atter
mtaton and assumng that the credt aowed for such foregn ta under
Chapter 1 Is 4 ,000, the amount aowabe as a credt for e cess profts ta
purposes s 90,000 mnus 4 ,000, or 42,000.
ampe (2). The Corporaton has for 1942 tota e cess profts net ncome
of 600,000, whch for the purposes of ths e ampe s equa to the entre net
ncome, of whch 200,000 s attrbutabe to the mnng n the Unted States of
a strategc mnera and 100,000 s derved from sources n the foregn country
upon whch the sum of 50,000 ncome ta has been pad to the government of
the country. The e cess profts ta , after the appcaton Of sec ton 731, on
the porton of the ad|usted e cess profts net ncome not attrbutabe to the
mnng n the Unted States of a strategc mnera s assumed to be 135,000.
100 000
The mtaton on the credt under secton 729 s- - - 135,000,
000,000 mnus 200,000
or 33,750. owever, the amount aowabe aganst such ta sha not n any event
e ceed the amount by whch the sum of 50,000, foregn Income ta , e ceeds the
credt aowed the Corporaton aganst the ta mposed under Chapter 1. or
the purposes of the credt under secton 131, the norma-ta net Income from
country s 100,000 mnus 77 135,000) or 100,000 mnus 37,500,
400,000 90
or 62,500. Ths amount, 02,500, consttutes the numerator of the mtaton
fractons under secton 131(b) whe the denomnator of the fracton a 000,000
mnus 150,000, or 450,000.
ampe (3). The Corporaton had for the ta abe year 1042 a net ncome
of 1,000,000, of whch the sum of 600,000 was derved from the performance of
a ong-term contract requrng more than 12 months to compete. The corpora-
ton reported ncome upon the competed contract bass for Income ta purposes.
It aso derved 100,000 ordnary ncome from the Y country upon whch the sum
of 45,000 ncome ta was pad to that country. The remander of the net n-
come was ordnary domestc Income. The Corporaton eects to compute Its
e cess profts ta under the provsons of secton 736(b). Under that secton,
of the tota amount of 600,000 derved from the ong-term contract, the sum
of 150,000 s attrbutabe to 1940 and 200,000 s attrbutabe to 1941, eavng
250,000 sub|ect to 1942 e cess profts ta rates. The e cess profts ta for 1942,
before takng Into consderaton the addtona e cess profts ta by reason of
ong-term contract ncome attrbutabe to 1940 and 1941 under the percentage of
competon method, s assumed to be 125,000, and the amounts by whch the
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29.141-1.
214
e cess profts ta mposed for the ta abe years 1940 and 1941, resutng from
attrbutng to such years the porton of the ncome from the ong- term contract,
e ceeds the e cess profts ta mposed for such years wthout consderng any
ncome from the contract competed n 1942, are assumed to be 45,000 and
100,000, respectvey. In such case the credt for foregn ta under secton 729
s determned as foows:
Tota e cess profts ta ( 125,000 pus 45,000 pus 100,000) 270,000.00
(100 000
1001)000 270 000) 27 000.00
The amount actuay aowabe as credt (e cess of foregn ta pad over credt
under secton 131) s 17,000. The 17,000 credt s determned as foows:
cess profts ta for 1942 pus the Increases n e cess profts ta for
1040 and 1941 caused by the ncuson of ncome from the ong-
term contract competed n 1942 270, 000.00
100
Credt under secton 26(e), g - 27,000 300,000.00
Norma-ta net ncome from, foregn sources ( 100,000 mnus
(/oooooo 300 000 70- 00
ntre norma-ta net ncome ( 1,000,000 mnus 300.000) 700,000.00
Norma ta and surta (40 per cent) 2 0,000.00
Lmtaton upon credt ( |||| 2S0,000) 2 , 000.00
oregn ta pad 45,000.00
mount avaabe as credt aganst e cess profts ta ( 45,000
mnus 2 .000) 17,000.00
sectons 62 and 729(a) of the Interna Revenue Code (53 Stat., 32 54
Stat., 9 9 26 U. S. C, 62 and 729 (a)) and secton 130 of the Revenue
ct of 1943 (Pubc Law 235, Seventy-eghth Congress).)
G O. . SC O N M N,
pproved pr 19, 1945.
( ed wth the Dvson of the edera Regster pr 20, 1945,11.26 a. m.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 141. CONSOLID T D R TURNS.
INT RN L R NU COD .
Reguatons 111 amended. (See T. D. 547 , page 262.)
Secton 29.141-1: Consodated ncome and e cess 1945-5-119 9
profts ta returns of affated corporatons. T. D. 5441
( so Secton 23.34, Reguatons 104 Secton 33.34,
Reguatons 110.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 29, P RT 23,
ND P RT 33.
Reguatons 111, reatng to ncome a n so far as they pertan
to affated corporatons. Reguatons 104, reatng to consodated
ncome ta returns of affated corporatons, and Reguatons 110,
reatng to consodated e cess profts ta returns of affated
corporatons, amended to conform to the Revenue ct of 1943, and
for other purposes.
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29.141-1.
Washngton, D. C.
edera Reguatons, Cum. Sup. , Reguatons 104 Part 23, Tte 26,
Code of edera Reguatons, Cum. Sup. , and Reguatons 110 Part
33, Tte 26, Code of edera Reguatons, Cum. Sup. to the prov-
sons of the Revenue ct of 1943 (Pubc Law 235, Seventy-eghth
Congress), enacted ebruary 25, 1944, and for other purposes, such
reguatons are amended as foows:
reguatons 111.
Paragraph 1. Secton 29.113(a) ()- s amended by changng the
ast paragraph thereof to read as foows:
cept as otherwse provded In Reguatons 104, the bass of property after a
consodated retnrn perod sha be the same as mmedatey pror to the cose
t such perod.
Par. 2. Secton 29.141-1 (c) (7), as added by Treasury Decson
m, approved ugust 26, 1944 C. . 1944, 204 , s amended by
strkng out the ast two sentences and nsertng n eu thereof the
foowng:
If such corporaton s a common parent corporaton, the makng and fng of
the consodated ncome ta return sha consttute the makng and fng of
Its consent under secton 141(e)(7). If such corporaton s a subsdary, the
fng of ts authorzaton and consent on orms 1122 and 1122 n the manner
prescrbed by secton 23.12(6) of Reguatons 104 and secton 33.12(0) of Reg-
uatons 110 sha consttute the makng and fng of such consent. consent
to be treated as an Incudbe corporaton under secton 141(e)(7) can not be
wthdrawn or revoked at any tme after the consodated return s fed for the
frst ta abe year for whch the consent s fed.
R GUL TIONS 104.
Par. 3. There s nserted mmedatey precedng secton 23.0 the
foowng:
S C. 131. T NSION O CONSOLID T D R TURNS PRI IL G
TO C RT IN CORPOR TIONS. (R NU CT O 1943,
TITL L)
Secton 141(e) (reatng to the defnton of ncudbe corporatons)
Is amended by addng at the end thereof the foowng new paragraph:
(7) ny corporaton descrbed In secton 725(a), or n secton
727 (e), (g), or (h) (wthout regard to the e cepton n the Inta
cause of secton 727) but not ncudng such a corporaton whch
has made and fed a consent, for the ta abe year or any pror ta -
abe year begnnng after December 31, 1943, to be treated as an
Incudbe corporaton. Such consent sha be made and fed at such
tme and n such manner as may be prescrbed by the Commssoner
wth the approva of the Secretary.
S C. 101. T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT O 1943, TITL L)
tte sha be appcabe ony wth respect to ta abe years begnnng after
December 31, 194 .
S C. 204. INCR S IN SP CI IC MPTION. (R NU
CT O 1043, TITL II.)

c) Consodated Returns. Secton 141(c) (reatng to computa-
ton of fa n case of consodated return) s amended by strkng out
5,000 and Insertng In eu thereof 10,000 .
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29.141-1.
216
S C. 20L T L Y RS TO W IC M NDM NTS PPLI-
C L . (R NU CT O 1043, TITL II.)
tte sha be appcabe ony wth respect to ta abe years begnnng
Par. 4. Secton 23.2(6), as amended by Treasury Decson 5244, ap-
proved March 13,1943 C. . 1943,439 , s further amended as foows:
( ) y strkng from the frst and the fourth paragraphs the words
secton 159 of the Revenue ct of 1942 and nsertng n eu thereof
the words secton 159 of the Revenue ct of 1942 and secton 131 of
the Revenue ct of 1943 :
( ) y nsertng mmedatey after the fourth paragraph the fo-
owng new paragraph:
In the determnaton of the Incudbe corporatons of the affated group for
a ta abe year begnnng afterN ecember 31, 1943, a persona servce corporaton
as descrbed secton 725(a) or a corporaton otherwse entted to e empton
from e cess profts ta .under secton 727 (e), (g), or (h) sha be treated as nn
Incudbe corporaton ony If t has made and fed pursuant to secton 141(e) (7)
ts consent to be treated as an ncudbe corporaton for such year or for a pror
ta abe year begnnng after December 31, 1943.
Par. 5. Secton 23.12(6) s amended as foows:
( ) y changng the headng to read:
(b) uthorzatons and Consents.
( ) y nsertng at the end the foowng:
The fng of orm 1122 for a ta abe year begnnng after December 31, 1943,
by a subsdary whch Is ether a persona servce corporaton as descrbed n
secton 725(a) or a corporaton descrbed n secton 727 (e), (g), or (h) sha
consttute the makng and fng of ts consent to be treated as an ncudbe
corporaton under secton 141(e)(7).
If the common parent corporaton s a persona servce corporaton as descrbed
n secton 725(a) or a corporaton descrbed n secton 727 (e), (g), or (h),
the makng and fng of the consodated ncome ta return for a ta abe year
begnnng after December 31, 1943, sha consttute the makng and fng of Its
consent to be treated as an ncudbe corporaton under secton 141(e) (7).
corporaton whch consents to be treated as an ncudbe corporaton for
a ta abe year begnnng after December 31, 1943, sha be treated as an ncud-
be corporaton for a subsequent years, regardess of whether the affated
group of whch such corporaton s a member durng such subsequent years s
the same as the affated group of whch such corporaton was a member when
such consent was fed. No consent to be treated as an Incudbe corporaton
under secton 141(e)(7) can be wthdrawn or revoked at any tme after the
consodated return s fed for the frst ta abe year for whch the consent Is
fed.
Par. 6. Secton 23.31(6) (2) ( ), as added by Treasury Decson
5244, s amended by strkng the words for the ta abe year s 90
per cent, and by nsertng n eu thereof the words s 90 per cent for
a ta abe year begnnng pror to anuary 1, 1944, or 95 per cent
for a ta abe year begnnng after December 31,1943, .
Par. 7. Secton 23.33, as amended by Treasury Decson 5127, ap-
proved March 5, 1942 C. . 1942-1, 117 , s further amended by
changng paragraphs (b) and (c) to read as foows:
( ) That the bass for determnng the gan or oss, n the case of shares of
stock, or n the case of bonds or other obgatons, hed durng any part of a
consodated return perod, sha be determned In accordance wth sectons 23.34
and 23.35 and
(o) s provded n secton 23.36 (mposng certan mtatons upon osses
otherwse aowabe upon saes of stock, or bonds or other obgatons).
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29.141-1.
Par. . Secton 23.34, as amended by Treasury Decson 5244, s
( ) y strkng paragraphs (a) and (6) and that porton of para-
graph (c) precedng subparagraph (3), and by nsertng n eu
thereof the foowng:
(0) Scope of Secton.
Ths secton prescrbes the bass for determnng the gan or oss upon
any sae or other dsposton (herenafter referred to as sae ) by a corpora-
ton, whch s (or has been) a member of an affated group whch makes (or has
made) a consodated return for any ta abe year, of any share of stock ssued
by another member of such group (whether ssued before or durng the perod
that t was a member of the group and whether ssued before, durng, or after
the ta abe year 192D), and hed by the seng corporaton durng nny part of
a perod for whch a consodated return s made or requred under these regua-
tons.
or the bass n the case of a sae whc does not break the affaton and
whch s made durng a ta abe year for whch a return s requred to be ted
on or before March 1,1045, see paragraph (6).
or the bass n the case of a sae whch does not break the affaton and
shut s made durng a ta abe year for whch a return s requred to be fed
stt March 1, 1945, and n the case of a sae made at any tme whch breaks
tbe. aton, see paragraph (c).
or the bass n the case of a sae made after the seng corporaton has ceased
t be a member of the affated group, see paragraph (d).
or the bass n the case of a sae of bonds, see secton 23.35.
(1) Saes Made Durng Ta au.e Year for Whoh Retubn Requred on ob
ehee March 1, 1945, Whch Do Not reak ffaton.
Wth respect to a sae made durng a ta abe year for whch the ast day pre-
scrbed by aw for the fng of the return fe on or before March 1, 1945, the
date on whch Treasury Decson 5441 was fed wth the Dvson of the edera
Regster, f, notwthstandng such sae, the Issung corporaton remans a mem-
ber of the affated group, the bass sha be determned and ad|usted In the
same manner as f the seng corporaton and the Issung corporaton had never
been members of an affated group.
ut see secton 23.3 ( ), reatng to ntercompany transactons.
(c) Saes Made Dubng Ta abe Yeab fob. Whch Return Requred fter
Ma|ch 1, 1945, Whch Do Not reak faton and Saes Made at ny
Tke Whch beak ffaton.
If the sae s made wthn a perod durng whch the seng corporaton s a
member of the affated group, whether or not durng a consodated return perod,
and whether or not, as a resut of such sae, the ssung corporaton ceases to be a
member of the group (not ncudng saes made durng a ta abe year for whch
the ast day prescrbed by aw for the fng of the return fe on or before March 1,
f such sae dd not break the affaton), the bass sha be determned as
Mows:
(1) The aggregate bases of a shares of stock of the ssung corporaton
hed by each member of the affated group (e cusve of the ssung corpora-
ton) mmedatey pror to the sae sha be determned separatey for each
member of the group and ad|usted n accordance wth the Code, but
wthout regard to any ad|ustment under the ast sentence of secton
113(a) (11) reatng to osses of the ssung corporaton sustaned by such
corporaton after t became a member of the affated group.
(2) Prom the combned aggregate bases as determned n paragraph
(1), there sha be deducted the sum of the osses of such ssung corporaton
sustaned durng ta abe years for whch consodated ncome ta returns
were made or were requred (whether the ta abe year 1929 or any pror
or subsequent ta abe year) after such corporaton became a member
of the affated group and pror to the sae of the stock to the e tent that
such hsses coud not have been avaed of by such corporaton as a net oss
or net operatng oss n computng Its net ncome for such ta abe years f
t had made a separate return for each of such years, reduced by any osses
of the ssung corporaton apportoned under ths secton to ts stock sod
or otherwse dsposed of In a pror transacton, dsregardng any transac-
ton between members of the affated group durng a consodated return
6 43W 40 15
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29.141-1.
21
perod whch dd not consttute a parta qudaton of the Issung cor-
poraton. or any ta abe year n whch the group sustaned a conso-
dated oss not avaed of n pror or subsequent years as a deducton under
net oss or net operatng oss provsons, the amount deducted under ths
paragraph sha be further reduced by an amount equa to that proporton
of such consodated oss whch the oss of the ssung corporaton for
the year n whch such oss was sustaned bears to the aggregate osses of
the members of the group for such year
( ) y renumberng subparagraphs (2) and (3) of paragraph
(d) as (3) and (4), respectvey, and by nsertng mmedatey foow-
ng subparagraph (1) the foowng new subparagraph:
(2) The reducton (under paragraph (c)(2)) wth respect to osses
apportoned to stock sod or otherwse dsposed of n pror transactons sha
be determned wthout regard to the transacton whch termnated the
affaton and a subsequent transactons.
proved March 5, 1942, s further amended to read as foows:
Sec. 23.35. Sae of onds ob Other Obgatons ass fob Determnhg
Gan or Loss.
In the case of a sae or other dsposton by a corporaton, whch s (or has
been) a member of an affated group whch makes (or has made) a consodated
ncome ta return for any ta abe year, of bonds or other obgatons ssued or
ncurred by another member of such group (whether or not ssued or Incurred
whe t was a member of the group and whether ssued or Incurred before, durng
or after the ta abe year 1929) and hed by the seng corporaton durng any
part of a perod for whch a consodated return s made or requred under the
reguatons, the bass of each bond or obgaton, for determnng the gan or oss
upon such sae or other dsposton, determned n accordance wth the Code,
but wthout regard to any ad|ustment under the ast sentence of secton 113
(a) (11), sha be decreased (e cept as otherwse provded In ths secton) by
the e cess, f any, of the aggregate of the deductons computed under paragraph
(c) (2) or ( f) of secton 23.34 over the sum of the aggregate bases of the stork
of the debtor corporaton as computed under paragraph (c)(1) or (d), as the
case may be, hed by the members of the group. The ad|ustment wth respect
to so much of such deductons as s based upon osses sustaned durng the ta abe
year 1929 and subsequent ta abe years for whch the ast day prescrbed by
aw for the fng of the return fe on or before March 1, 1945 (the date on
whch Treasury Decson 5441 was fed wth the Dvson of the edera Reg-
ster), and avaed of on consodated returns fed for such years sha be made
ony In those cases n whch the saes or other dsposton of such bonds or other
obgatons resuted n a oss. (See, aso, secton 23.40, reatng to dsaowance
of oss upon ntercompany bad debts.)
Par. 10. Secton 23.3 (a) s amended to read as foows:
(a) Genera Rue.
Sub|ect to the provsons of paragraphs (6) and (c) and e cept as otherwse
provded n sectons 23.34 and 23.39, the bass durng a consodated return perod
for determnng the gan or oss from the sae or other dsposton of property,
or upon whch e hauston, wear and tear, obsoescence, and depeton are to be
aowed, sha be determned and ad|usted n the same manner as f the cor-
poratons were not affated (see sectons 111 to 115, Incusve), whether such
property was acqured before or durng a consodated return perod. cept
as otherwse provded n secton 23.39, such bass mmedatey after a conso-
dated return perod (whether the affaton has been broken or whether the
prvege of makng a consodated return s not e ercsed) sha be the same as
mmedatey pror to the cose of such perod.
Pak. 11. Secton 23.3 (c) (4), as amended by Treasury Decson 5127,
s further amended by strkng that porton precedng subdvson ()
and by nsertng n eu thereof the foowng:
(4) Where property was acqured ether durng the month of December,
193 , upon a dstrbuton n whch gan or oss to the dstrbutee was recog-
nzed pursuant to the provsons of secton 112(b) (7) of the Revenue ct of
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219 29.141-1.
1 13 , or durng some one caendar month of 1944 upon a dstrbuton In
whch gan or oss to the dstrbutee was recognzed pursuant to the pro-
vsons of secton 112(b) (7) of the Code, as added by secton 120(a) of the
Revenue ct of 1943, the bass of such property sha be the same as the
bass (determned n accordance wth sectons 111 to 115, Incusve, and
secton 23.34) of the stock e changed therefor, ad|usted
(1) or the transfer of assets wthn the affated group by the ds-
trbutng conwraton (by sae, gft, or otherwse) wthout consderaton
or at markedy fcttous vaues, durng the perod for whch the corpora-
tons were affated (whether or not a consodated return was made and
regardess of the ta abe year n whch such transfer occurred)
Par. 12. Secton 23.43(a) (2), as amended by Treasury Decson 5127,
s further amended to read as foows:
(2) In computng the credt for a ta abe year begnnng after De-
cember 31, 1939, the norma-ta net ncome for the ta abe year sha
be ts norma-ta net Income computed as f a separate return were
fed e cept that the net ncome used n such computaton sha be de-
termned n accordance wth the provsons of secton 23.31(c), and the
ta aganst whch such credt s taken sha be that proporton of the
ta computed upon the consodated norma-ta net ncome of the af-
fated group whch s aocabe to such corporaton, and
R GUL TIONS 110.
Par. 13. There s nserted mmedatey precedng secton 33.0
tk foowng:
S C. 131. T NSION O CONSOLID T D R TURNS PRI IL G
TO C RT IN CORPOR TIONS. (R NU CT O 1943,
TITL I.)
Secton 141(e) (reatng to the defnton of ncudbe corporatons)
s amended by addng at the end thereof the foowng new paragraph:
(7) ny corporaton descrbed n secton 725(a), or In secton
727 (e), (g), or (h) (wthout regard to the e cepton In the nta
cause of secton 727) but not ncudng such a corporaton whch
has made and fed a consent, for the ta abe year or any pror
ta abe year begnnng after December 31, 1943, to be treated as an
ncudbe corporaton. Such consent sha be made and fed at such
tme and n such manner as may be prescrbed by the Commssoner
wth the approva of the Secretary.
C L . (R NU CT O 1943, TITL I.)
ths tte sha be appcabe ony wth respect to ta abe years begnnng
S C. 204. INCR S IN SP CI IC MPTION. (R NU CT
O 1943, TITL II.)

(c) Consodated Retuhns. Secton 141(c) (reatng to computaton
of ta n case of consodated return) s amended by strkng out
15,000 and nsertng n eu thereof 10,000 .
ths tte sha be appcabe ony wth respect to ta abe years begnnng
Pah. 14. Secton 33.1(a), as amended by Treasury Decson 5249,
approved March 13, 1943 C. . 1943, 01 , s further amended by
strkng the words and secton 141 as amended by secton 159 of the
Revenue ct of 1942, appcabe wth respect to subsequent ta abe
years, and by nsertng n eu thereof the words secton 141 as
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29.141-1.
220
amended by secton 159 of the Revenue ct of 1942, appcabe wth
respect to ta abe years begnnng after December 31, 1941, but pror
to anuary 1,1944, and as further amended by secton 131 of the Rev-
enue ct of 1943, appcabe wth respect to ta abe years begnnng
after December 31, 1943, .
Par. 15. Secton 33.2(6), as amended by Treasury Decson 5245,
( ) y strkng from the frst and thrd paragraphs the words
secton 159 of the Revenue ct of 1942 wherever appearng theren
and by nsertng n eu thereof n each case the words secton 159 of
the Revenue ct of 1942 and secton 131 of the Revenue ct of 1943.
- ( ) y nsertng mmedatey after the thrd paragraph the fo-
owng new paragraph:
In the determnaton of the ncudbe corporatons of the affated group for
a ta abe year begnnng after December 31, 1943, a persona servce corporaton
as descrbed n secton 725(a) or a corporaton otherwse entted to e empton
from e cess profts ta under secton 727 (e), (g), or (h) sha be treated as an
ncudbe corporaton ony f t has made and fed pursuant to secton 141(e) (7)
ts consent to be treated as an ncudbe corporaton for such year or for a pror
ta abe year begnnng after December 31, 1943.
Par. 16 . Secton 33.12(6) s amended as foows:
( ) y changng the headng to read:
(6) UT O IZ TION ND CONS NTS.
( ) y nsertng at the end the foowng:
The fng of orm 1122 for n ta abe year begnnng after December 31, 1943,
by a subsdary whch s ether a persona servce corporaton as descrbed n
secton 725(a) or a corporaton descrbed n secton 727 (e), (g), or (h) sha
consttute the makng and fng of Its consent to be treated as an ncudbe cor-
poraton under secton 141(e) (7).
If the common parent corporaton s a persona servce corporaton as de-
scrbed n secton 725(a) or a corporaton descrbed n secton 727 (e), (g), or
(h), the makng and fng of the consodated ncome ta return for a ta abe
year begnnng after December 31, 1943, sha consttute the makng and fng
of ts consent to be treated as an ncudbe corporaton under secton 141(e) (71.
corporaton whch consents to be treated as an Incudbe corporaton for
a ta abe year begnnng after December 31, 1943, sha be treated as an n-
cudbe corporaton for a subsequent years, regardess of whether the affated
group of whch such corporaton Is a member durng such subsequent years s
the same as the affated group of whch such corporaton was a member when
su h consent was fed. No consent to be treated as an ncudbe corporaton
under secton 141(e)(7) can be wthdrawn or revoked at any tme after the
consodated return s fed for the frst ta abe year for whch the consent s
fed.
Par. 17. Secton 33.14 s amended by strkng from the second para-
graph the words secton 19.46-1, Reguatons 103, and by nsertng
m eu thereof the words secton 19.46-1 of Reguatons 03, or sec-
ton 29.46-1 of Reguatons 111, as the case may be, .
Par. 1 . Secton 33.1 (6), as amended by Treasury Decson 5245, s
further amended by strkng the words secton 159 of the Revenue
ct of 1942, and by nsertng n eu thereof the words secton 159
of the Revenue ct of 1942 and secton 131 of the Revenue ct of
1943, .
Par. 19. Secton 33.30, as amended by Treasury Decson 5245, s
further amended by changng the ne t to the ast paragraph to read
as foows:
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221
29.141-1.
or a consodated return perod begnnng after December 31, 1941, the con-
sodated e cess profts ta abty sha be whchever of the foowng amounts
s the esser:
( ) Nnety-fve per cent (or for ta abe years begnnng pror to anuary
1, 1944, 90 per cent) of the consodated ad|usted e cess profts net ncome,
or
( ) n amount whch when added to the consodated ta computed
under Reguatons 104 (not ncudng any ta mposed by secton 102 or
secton 500) equas 0 per cent of the consodated corporaton surta net
Income, computed wthout regard to the secton 26(e) credt (reatng to
ncome sub|ect to e cess profts ta ) and, for a ta abe year begnnng
after December 31, 1943, wthout regard to 0 per cent of the consodated
secton 26(h) credt (reatng to dvdends pad on certan pubc utty
preferred stock) computed wth the mtatons provded In secton
23.31(6) (2) ( ) (C) of Reguatons 104, ncreased by the e cess, f any,
of the consodated net ncome computed under these reguatons over the
consodated net Income computed under Reguatons 104, or decreased by
the e cess, f any, of the consodated net ncome computed under Regua-
tons 104 over the consodated net ncome computed under these regua-
tons, and computed wth a dvdend receved credt determned by reference
to a consodated net ncome smary ncreased or decreased.
Pah. 20. Secton 33.31 ( ), as added by Treasury Decson 5245, s
amended as foows:
( ) y strkng from subparagraph (19) the e presson 90 per-
cent, and nsertng n eu thereof the e presson 95 per cent (or
for a ta abe year begnnng pror to anuary 1 , 1944, 90 per cent),
( ) y changng subparagraph (24) () to read as foows:
(I) specfc e empton of 10,000 ( 5,000 for a ta abe year begnnng
pror to anuary 1, 1944),
(G) y changng subparagraph (26) to read as foows:
(26) The consodated e cess profts credt based on nvested capta
sha be the sum of
(1) Wth respect to ta abe years begnnng after December 31, 1943
( ) ght per cent of that porton of the consodated nvested
capta not n e cess of 5,000,000,
( ) S per cent of that porton of the consodated Invested
capta n e cess of 5,000,000 but not n e cess of 10,000,000, and
(C) ve per cent of that porton of the consodated nvested
capta n e cess of 10,000,000, or
() Wth respect to ta nbe years begnnng after December 31, 1941,
but pror to anuary 1, 1944
( ) ght per cent of that porton of the consodated nvested
capta not n e cess of 5,000,000,
( ) Seven per cent of that porton of the consodated nvested
capta n e cess of 5,000,000 but not n e cess of 10,000,000,
(C) S per cent of that porton of the consodated nvested
capta In e cess of 10,000,000 but not n e cess of 200,000,000, and
(D) ve per cent of that porton of the consodated nvested
capta n e cess of 200,000,000
Par. 21. Secton 33.31(c), as added by Treasury Decson 5245, ap-
proved March 13, 1943, and amended by Treasury Decson 5341,
approved March 14, 1944 C. . 1944/297 , s further amended
as foows:
( ) y nsertng n subparagraph (2) ( ) ( ) mmedatey after
the e presson Reguatons 109 the foowng: or secton 35.742-
3(6) of Reguatons 112, as the case may be,
( ) y nsertng n subparagraph (2) ( ) ( ) mmedatey after
the e presson Reguatons 109 the foowng: or secton 35.743-
1(6) of Reguatons 112, as the case may be,
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29.141-1.
222
(C) y strkng from subparagraph (2) ( ) (C) the perod at the
end thereof and nsertng n eu thereof the foowng: u or secton
(bb) provson of aw Is appcabe prescrbng the nonreoognton of gan
or oss, n whoe or n part, upon such recept, ncudng a provson of the regu-
atons appcabe to a consodated ncome or e cess profts ta return, but not
ncudng the provsons of secton 112(b)(7) of the Revenue ct of 193
reatng to certan compete qudatons occurrng durng December 103 , the
provsons of secton 112(b)(7) of the Interna Revenue Code reatng to cer-
tan compete qudatons occurrng durng some one caendar month n 1944,
the provsons of secton 112(b)(9) reatng to certan compete qudatons
of raroad corporatons, or the provsons of secton 112(b) (10) reatng to
reorganzatons of corporatons n certan recevershp and bankruptcy
proceedngs,
( ) y amendng subparagraph (14) () to read as foows:
(1) The porton of the consodated e cess profts credt otherwse aow-
abe wth respect to the common parent corporaton and wth respect to any
subsdares whch were members of the group on March 14, 1941, sha not
e ceed
( ) The porton of the consodated e cess profts net ncome for
the ta abe year attrbutabe to such common parent corporaton, n
the case of a group formed subsequent to March 14, 1941, or
( ) In the case of a group formed pror to March 15, 1941, but
havng among ts members n the ta abe year one or more subsdares
whch became members of the group subsequent to March 14, 1941, the
aggregate of the porton of the consodated e cess profts net ncome
for the ta abe year attrbutabe to the common parent corporaton
and to the severa subsdary corporatons whch were members of the
group on March 14, 1941
( ) y strkng from that porton of subparagraph (14) (v) pre-
cedng the ettered nferor subdvsons the words or to the common
parent corporaton of a group n e stence on March 14, 1941, and
nsertng n eu thereof the words or to the common parent corpo-
raton or subsdares of a group n e stence on March 14, 1941, .
Par. 22. Secton 33.33, as amended by Treasury Decson 5126,
approved March 5, 1942 C. . 1942-1, 147 , s further amended by
changng paragraphs (b) and (c) to read as foows:
(6) That the bass for determnng the gan or oss, n the case of shares of
stock, or n the case of bonds or other obgatons, hed durng any part of a
consodated return perod, sha be determned n accordance wth sectons
33.34 and 3335 and
(c) s provded n secton 33.36 (mposng certan mtatons upon osses
otherwse aowabe upon saes of stock, or bonds or other obgatons).
( ) y strkng paragraphs (a) and (b) and that porton of para-
graph (c) precedng subparagraph (3), and by nsertng n eu
thereof the foowng:
(a) Scope of Secton.
or the purpose of computng e cess profts net ncome, ths secton prescrbes
the bass for determnng the gan or oss upon any sae or other dsposton
(herenafter referred to as sae ) by a corporaton, whch s (or has been)
a member of an affated group whch makes (or has made) a consodated
ncome or e cess profts ta return for any ta abe year, of any share of stock
ssued by another member of such group (whether ssued before or durng the
perod that t was a member of the group and whether ssued before, durng,
or after the ta abe year 1929), and hed by the seng corporaton durng any
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29.141-1.
part of a perod for whch a consodated return Is made or requred under
these reguatons.
whch s made durng a ta abe year for whch a return s requred to be fed
on or before March 1, 1945, see paragraph (6).
whch s made durng a ta abe year for whch a return s requred to be fed
after March 1, 1945, and n the case of a sae made at any tme whch breaks
the affaton, see paragraph (c).
or the bass n the case of a sae made after the seng corporaton has ceased
to be a member of the affated group, see paragraph ( Z).
or the bass n the case of a sae of bonds, see secton 33.35.
(b) Saes Made Durng Ta abe Year for Whch Return Requred on or
efore March 1, 1945, Whch Do Not reak ffaton.
Wth respect to a sae made durng a ta abe year for whch the ast day
prescrbed by aw for the fng of the return fe on or before March 1, 1945, the
date oa whch Treasury Decson 5441 was fed wth the Dvson of the edera
Regster, f, notwthstandng such sae, the ssung corporaton remans a mem-
ber of the affated group, the bass sha be determned and ad|usted n the
same manner as f the seng corporaton and the ssung corporaton had never
teen members of an affated group.
ut see secton 33.3 (b), reatng to ntercompany transactons.
(r Saes Made Durng Ta abe Year for Whch Return Requred fter
Much 1, 1945, Whch Do Not reak ffaton and Saes Made at ny
Tm Whch reak ffaton.
If the sae s made wthn a perod durng whch the seng corporaton s a
member of the affated group, whether or not durng a consodated return
perod, and whether or not, as a resut of such sae, the Issung corporaton ceases
to be a member of the group (not ncudng saes made durng a ta abe year
(or whch the ast day prescrbed by aw for the fng of the return fe on or
before March 1, 1945, f such sae dd not break the affaton), the bass sha
be determned as foows:
(1) The aggregate bases of a shares of stock of the ssung corporaton hed
breach member of the affated group (e cusve of the ssung corporaton)
mmedatey pror to the sae sha be determned separatey for each member
of the group and nd|usted n accordance wth the Code, but wthout regard to
any ad|ustment under the ast sentence of secton 113(a) (11) reatng to osses
of the ssung corporaton sustaned by such corporaton after t became a member
of the affated group.
(2) rom the combned aggregate bases as determned n subparagraph (1),
there sha be deducted the sum of
(I) osses of such ssung corporaton sustaned durng ta abe years
for whch consodated ncome ta returns were made or were requred
(whether the ta abe year 1929 or any pror or subsequent ta abe year)
after such corporaton became a member of the affated group and pror
to the sae of the stock to the e tent that such osses coud not have been
avaed of by such corporaton as net oss or net operatng oss In computng
ts net Income for such ta abe years f t had made a separate return for
each of suc years,
(II) Wth respect to each of such ta abe years for whch consodated
returns were made or were requred both for ncome and for e cess profts
ta purposes, the e cess, f any, of a osses of such ssung corporaton for
such year, propery ad|usted n the computaton of consodated e cess profts
net ncome, over the amount of such osses for such year computed under
(I) to the e tent that such e cess coud not have been avaed of by such
corporaton as a net operatng oss n computng ts e cess profts net ncome
for such ta abe years f t had made a separate e cess profts ta return
for each of such years, and
() Wth respect to each of such ta abe years for whch consodated
returns were made or were requred for e cess profts ta purposes ony,
a osses of such ssung corporaton for such year, propery ad|usted n the
computaton of consodated e cess profts net ncome, to the e tent that
such osses coud not have been avaed of by such corporaton as a net
operatng oss n computng ts e cess profts net ncome for such ta abe
years f t had made a separate e cess profts ta return for each of such
years,
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29.141-1.1
224
reduced by any osses of the Issung corporaton apportoned under ths secton
to ts stock sod or otherwse dsposed of n a pror transacton, dsregardng
any transacton between members of the affated group durng a consodated
ncome or e cess profts ta return perod whch dd not consttute a parta
qudaton of the ssung corporaton. or any ta abe year (whether begn-
nng pror to anuary 1, 1940, or on or after such date) n whch the group sus-
taned a consodated oss not avaed of n pror or subsequent years as a
deducton under net oss or net operatng oss provsons, the amount deducted
under ths subparagraph sha be further reduced by an amount equa to that
proporton of such consodated oss whch the oss of the ssung corporaton for
the year n whch such oss was sustaned bears to the aggregate osses of the
members of the group for such year.
( ) y renumberng subparagraphs (2) and (3) of paragraph (d)
as (3) and (4), respectvey, and by nsertng mmedatey foowng
subparagraph (1) the foowng new subparagraph:
(2) The reducton (under paragraph (c)(2)) wth respect to osses ap-
portoned to stock sod or otherwse dsposed of n pror transactons sha
be determned wthout regard to the transactons whch termnated the
affaton and a subsequent transactons.
proved March 5, 1942, s further amended to read as foows:
Sec. 33.35. Sae of onds or Other Obgatons ass fob Deteuunno Gan
ok Loss.
In the case of a sae or other dsposton by a corporaton, whch Is (or has
been) a member of an affated group whch makes (or has made) a conso-
dated ncome or e cess profts ta return for any ta abe year, of bonds or other
obgatons ssued or ncurred by another member of such group (whether or not
ssued or ncurred whe t was a member of the group and whether ssued or
ncurred before, durng, or after the ta abe year 1929) and hed by the seng
corporaton durng any part of a perod for whch a consodated return s made
or requred under these reguatons, the bass of each bond or obgaton, for
determnng the gan or oss upon such sae or other dsposton, determned In
accordance wth the Code, but wthout regard to any ad|ustment under the ast
sentence of secton 113(a) (11), sha be decreased (e cept as otherwse pro-
vded n ths secton) by the e cess, f any, of the aggregate of the deductons
computed under paragraph (c)(2) or (d) of secton 33.34 over the sum of the
aggregate bases of the stock of the debtor corporaton as computed under para-
graph (c)(1) or (rf), as the case may be, hed by the members of the group.
The ad|ustment wth respect to so much of such deductons as s based upon
osses sustaned durng the ta abe year 1929 and subsequent ta abe years for
whch the ast day prescrbed by aw for the fng of the retnrn fe on or before
March 1, 1945 (the date on whch Treasury Decson 5441 was fed wth the
Dvson of the edera Regster), and avaed of on consodated returns fed
for such years sha be made ony n those cases n whch the sae or other
dsposton of such bonds or other obgatons resuted n a oss. (See, aso,
secton 33.40, reatng to dsaowance of oss upon ntercompany bad debts.)
Par. 25. Secton 33.3 (a) s amended to read as foows:
(o) Genera Rue.
Sub|ect to the provsons of paragraphs (6) and (c) and e cept as otherwse
provded n sectons 33.34 and 33.39, the bass durng a consodated return
perod for determnng the gan or oss from the sae or other dsposton of
property, or upon whch e hauston, wear and tear, obsoescence, and depe-
ton are to be aowed, sha be determned and ad|usted n the same manner as
f the corporatons were not affated (see sectons 111 to 115, ncusve), whether
such property was acqured before or durng a consodated return perod.
cept as otherwse provded n secton 33.39, such bass mmedatey after a
consodated return perod (whether the affaton has been broken or whether
the prvege of makng a consodated return s not e ercsed) sha be the same
as mmedatey pror to the cose of such perod.
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29.141-1.
Par. 26. Secton 33.39 (c) as amended by Treasury Decson 5245,
s further amended by strkng the words subparagraph (2) of ths
subsecton wherever they appear and by nsertng n eu thereof
n each case the words paragraph (b) of ths secton.
(Ths Treasury decson s ssued under the authorty of secton 62
of the Interna Revenue Code (53 Stat., 32 26 U. S. C., 62), secton
141 of the Interna Revenue Code (53 Stat., 5 26 U. S. C, 141) as
amended by secton 159 of the Revenue ct of 1942 (56 Stat., 5 ),
and secton 131 of the Revenue ct of 1943 (Pubc Law 235, Seventy-
eghth Congress).)
oseph D. Nunan, r.,
pproved ebruary 2 , 1945.
( ed wth the Dvson of the edera Regster March 1,1945,11.10 a. m.)
eqtatons 104, Secton 23.11: Consodated 1945-22-121G
returns for subsequent years. I. T. 37G 9
( so Secton 33.11, Reguatons 110.)
ecton wth respect to fng separate edera Income and e cess
profts ta . returns for fsca years endng n 1945 by affated cor-
poratons whch fed consodated edera ncome and e cess profts
ta returns for fsca years ended n 1944.
dvce s requested whether affated corporatons whch fed con-
sodated edera ncome and e cess profts ta returns for fsca
years ended n 1944 may eect to fe separate edera ncome and e cess
profts ta returns for fsca ears endng n 1945.
Secton 141(a) of the Interna Revenue Code, as amended, provdes
n part as foows:
(a) Prvege to e Consodated Income and cess-Profts-Ta k-
ICSNs. he makng of consodated returns sha be upon the cond-
ton that the affated group sha make both a consodated Income-ta return
and a consodated e eess-profts-ta return for the ta abe year, and that a
corporatons whch at any tme durng the ta abe year have been members of
the affated group makng a consodated ncome-ta return consent to a the
consodated ncome- and e cess-profts-ta reguatons prescrbed under subsec-
ton (b) pror to the ast day prescrbed by aw for the fng of such
return.
Secton 23.11(a) of Reguatons 104, as amended bv Treasury Dec-
son 50 7 (C. . 1941-2, 141), reatng to consodated ncome ta re-
turns of affated corporatons, provdes n part as foows:
If a consodated return Is made under these reguatons for any
ta abe year, a consodated return must be made for each subsequent ta abe
year durng whch the affated group remans In e stence uness
U) Chapter 1 of the Code to the e tent appcabe to corporatons, or these regu-
wont chch have been consented to, have been amended and any such amend-
ment s of a character whch makes ess advantageous to affated groups as a
cass the contnued fng of consodated returns Itacs supped.
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29.141-1.
226
Secton 33.11(a) of Reguatons 110, as amended by Treasury De-
cson 50 7, supra, reatng to consodated e cess profts ta returns
of affated corporatons, provdes n part as foows:
If a consodated return s made under these reguatons for any
ta abe year, a consodated return must be made for each subsequent ta abe
year durng whch the affated group remans u e stence uness
(2) Chapter 1 of the Code to the e tent appcabe to corporatons, or Subchapter
of Chapter 2 of the Code, or these reguatons whch have been consented to,
have been amended and any such amendment s of a character whch makes ess
advantageous to affated groups as a cass the contnued fng of consodated
returns Itacs supped.
It s hed that Reguatons 104 and Reguatons 110 have been so
amended by paragraphs and 23, respectvey, of Treasury Decson
5441 (page 214, ths uetn), approved ebruary 2 ,1945, as to make
ess advantageous to affated groups as a cass the contnued fng of
consodated edera ncome and e cess profts ta returns. ccord-
ngy, affated corporatons fng returns on a fsca year bass may
eect to fe separate ncome and e cess profts ta returns for a ta -
abe year endng n 1945, notwthstandng the. fact that consodated
ncome and e cess profts ta returns were fed for a fsca year ended
n 1944, e cept where, pursuant to an e tenson of tme granted by
the Commssoner, the consodated returns for the fsca year ended
n 1944 were not requred to be fed unt after March 1,1945, the date
on whch Treasury Decson 5441, supra, was fed wth the Dvson of
the edera Regster. (See secton 23.1(a) of Reguatons 104 and
secton 33.1(a) of Reguatons 110 cf. L T. 36 4, C . 1944, 304.)
Reguatons 104, Secton 23.31: ases of ta 1945-1 -12133
computaton. T. D. 5476
( so Secton 33.31, Reguatons 110.)
P RT 33.
Reguatons 104, reatng to consodated ncome ta returns of
affated corporatons, and Reguatons 110, reatng to consodated
e cess profts ta returns of affated corporatons, amended wth
respect to deducton for chartabe contrbutons, and wth respect to
certan computatons nvovng capta gans and osses and gans
and osses under secton 117( ) of the Interna Revenue Code.
Washngton, D. G.
ffectve for ta abe years for whch the return s due to be fed
on or after the date of the approva of ths Treasury decson, Regua-
tons 104 Part 23, Tte 26, Code of edera Reguatons, Cum. Sup.
and Reguatons 110 Part 33, Tte 26, Code of edera Reguatons,
Cum. Sup. are amended as foows:
R GUL TIONS 104.
Paragraph 1. Secton 23.31 (b) (2) () ( ), as amended by Treasury
Decson 5244, approved March IS, 1943 C. . 1943, 439 , s further
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29.141-1.
( ) Mnns the sum of
(aa) ny consodated net operntng oss deducton,
(bb) ny consodated net oss from nvountary conversons and
from saes or e changes of property sub|ect to the provsons of
secton 117(|), and
(cc) The aggregate amount of any contrbutons or gfts made
by the severa affated corporatons durng the ta abe year, sub|ect
to the provsons of secton 23(q), but not n e cess of 5 per cent of
the consodated net ncome computed wthout regard to such con-
trbutons or gfts, and
Par. 2. Secton 23.31(6) (2) () (D), as amended by Treasury
Decson 524-1, s further amended to read as foows:
(D) The amount of the net operatng oss, f any, sustaned by such
corporaton for the second precedng ta abe year reduced by the net
ncome, f any, of such corporaton for the frst precedng ta abe year,
or, f the ncome of such corporaton s ncuded n the consodated
return for the frst precedng ta abe year, reduced ether by the net
ncome of such corporaton for such year Increased wth respect to ts
separate net short-term and ong-term capta gans (or for years begn-
nng after December 31,1941, ts separate net capta gan) and ncreased
or decreased, as the case may be, wth respect to Its separate gans or
osses from nvountary conversons and from saes or e changes of
property sub|ect to the provsons of secton 117(|) or by the consodated
net Income for such year, whchever s the esser, the net ncome for the
frst precedng ta abe year beng computed n suc case wt the e cep-
tons, addtons, and mtatons provded n secton 122(d) (1), (2),
(4), and (0), and wth a net operatng oss deducton or a consodated
net operatng oss deducton, as the case may be, for such frst precedng
ta abe year determned wthout regard to the net operatng oss of
such corporaton for the second precedng ta abe year and wthout
regard to any net operatng oss carry-back,
Par. 3. Secton 23.31(6) (2) (v) (C), as amended by Treasury De-
cson 5244, s further amended to read as foows:
(C) The amount of the net operatng oss. If any, sustaned by such
corporaton for the frst succeedng ta abe year reduced by the net
ncome, f any, of such corporaton for the frst precedng ta abe year,
or. If the ncome of such corporaton s ncuded n the consodated
return for the frst precedng ta abe year, reduced cther by the net
ncome of such corporaton for such year ncreased wth respect to Its
separate net short-term and ong-term capta gans (or, -for years
begnnng after December 31, 1941, ts separate net capta gan) and
ncreased or decreased, as the case may be, wth respect to ts sep-
arate gans or osses from nvountary conversons and from saes or
e changes of property sub|ect to the provsons of secton 117( ) or by
the consodated net ncome for such frst precedng ta abe year, whch-
ever s the esser, the net ncome for the frst precedng ta abe year
beng computed n ether case wth the e ceptons, addtons, and m-
tatons provded n secton 122(d) (1), (2), (4), and (6), and wth
a net operatng oss deducton or a consodated net operatng oss de-
ducton, as the case may be, for the frst precedng ta abe year deter-
mned wthout regard to the net operatng oss of such corporaton for
. the frst succeedng ta abe year, and
Par. 4. Secton 23.31 (d)(1), as amended by Treasury Decson
5541, approved March 14, 1944 C. . 1944, 297 , s further amended
by strkng from subdvson (v) the word and by strkng the
perod at the end of subdvson (v) and nsertng n eu thereof
a comma and the word and and by nsertng theren the foowng
new subdvson:
(v) No deducton under secton 23(q) wth respect to chartabe or
other contrbutons sha be taken nto account.
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29.141-1.
22
Par. 5. Secton 23.31 (d) (2) (), as amended by Treasury Decson
5341. s further amended as foows:
( ) y revsng that porton thereof precedng the ettered n-
feror subdvsons to read:
() Capta gans and osses, short-term capta gans and osses, ong-
term capta gans and osses, and the nddtonn capta oss deducton
authorzed by secton 204(c)(5) sha be determned wthout regard to
( ) y revsng nferor subdvson (C) to read:
(C) The net capta oss carry-overs provded n secton 117(e)(1),
and, n the frst ta abe year begnnng after December 31, 1941, the
net short-term capta oss carry-over provded n secton 117(e)(2),
Par. 6. Secton 23.31 (d) (2) ( ), as added by Treasury Decson
5341, s amended to read as foows:
( ) Gans and osses from nvountary conversons and from saes or
e changes of property sub|ect to the provsons of secton 117( ) sha be
determned wthout regard to
( ) Gans or osses from ntercompany transactons, and
( ) In the case of a corporaton whch became a member of the
affated group subsequent to March 14, 15)41, common parent corpora-
ton or subsdary, as the case may be, such porton of any such oss
as s dsaowed pursuant to the provsons of subparagraph (11) of
ths paragraph.
Par. 7. Secton 23.31 (d) (3), as amended by Treasury Decson
5244, s further amended by strkng the perod at the end of the frst
sentence and by nsertng n eu thereof the foowng:
and ncreased or decreased, as the case may be, wth respect to ts separate
gans or osses from nvountary conversons and from saes or e changes of
property sub|ect to the provsons of secton 117(|).
Par. . Secton 23.31 (d) (10), as added by Treasury Decson 5341,
s amended by strkng the perod at the end and by nsertng n eu
thereof the foowng:
Increased wth respect to ts separate net gans from Invountary conversons and
from saes or e changes of property sub|ect to the provsons of secton 117(|).
R GUL TIONS 110.
Par. 9. Secton 33.31(5) (1) (), as amended by Treasury Decson
5245, approved March 13, 1943 C. . 1943, 01 , s further amended
to read as foows:
() Mnus the sum of
( ) ny consodated net operatng oss deducton,
( ) ny consodated net oss from nvountary conversons and
from saes or e changes of property sub|ect to the provsons of secton
117(|), and
(C) The aggregate amount of any contrbutons or gfts made by
the severa afated corporatons durng the ta abe year, sub|ect to
the provsons of secton 23(q), but not n e cess of 5 per cent of the
consodated net ncome computed wthout regard to such contrbutons
or gfts, and
Par. 10. Secton 33.31(6) (3), as amended by Treasury Decson
5245, s further amended by strkng a of that porton thereof fo-
owng subdvson () and by nsertng n eu thereof the foowng:
(v) The amount of the net operatng oss, f any, sustaned by such cor-
poraton for the second precedng ta abe year reduced by the net Income,
If any, of such corporaton for the frst precedng ta abe year, or, If the
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229
29.141-1.
Income of such corporaton Is Incuded In the consodated return for the
frst precedng ta abe year, reduced ether by the net ncome of such cor-
poraton for such year ncreased wth respect to Its separate net short-
term and ong-term capta gans (or for years begnnng after December
1, 1941, ts separate net capta gan) and ncreased or decreased, as the
case may be, wth respect to ts separate nns or osses from Invountary
conversons and from saes or e changes of property sub|ect to the pro-
vsons of secton 117(|) or by the consodated net ncome for such year,
whchever s the esser, the net ncome for the frst precedng ta abe year
beng computed n such case wth the e ceptons, addtons, and mtatons
provded n secton 122(d) (1), (2) (4), and (6), and wth a net operatng
oss deducton or a consodated net operatng oss deducton, as the case
may be, for such frst precedng ta abe year determned wthout regard
to the net operatng oss of such corporaton for the second precedng ta -
abe year and wthout regard to any net operatng oss carry-back,
but ony to the e tent that such net operatng osses, consodated or separate,
as the case may be, were not absorbed as net operatng oss carry-backs, and.
wth respect to net operatng osses sub|ect to the provsons of (v), were not
absorbed by the group In the frst precedng ta abe year as war osses pursuant
to the ast sentence of secton 141(b) of the Code
Par. 11. Secton 33.31(6) (4) (), as amended by Treasury Dec-
son 5245, s further amended to read as foows:
() The amount of the net operatng oss, f any, sustaned by such cor-
poraton for the frst succeedng ta abe year reduced by the net ncome,
f any, of such corporaton for the frst precedng ta abe year, or, f the
ncome of such corporaton s Incuded n the consodated return for the
frst precedng ta abe year, reduced ether by the net ncome of such corpora-
ton for such year ncreased wth respect to ts separate net short-term and
ong-term capta gans (or, for years begnnng after December 31, 1941, ts
separate net capta gan) and ncreased or decreased, as the case may be,
wth respect to ts separate gans or osses from nvountary conversons and
from saes or e changes of property sub|ect to the provsons of secton
117(|) or by the consodated net ncome for such frst precedng ta abe
year, whchever s the esser, the net ncome for the frst precedng ta abe
year beng computed n ether case wth the e ceptons, addtons, and mta-
tons provded n secton 122(d) (1), (2), (4), and (0), and wth a net
operatng oss deducton or a consodated net operatng oss deducton, as
the case may be, for the frst precedng ta abe year determned wthout
regard to the net operatng oss of such corporaton for the frst succeedng
ta abe year, and
Par. 12. Secton 33.31(e)(1), as amended by Treasury Decson
5341, approved March 14, 1944, s further amended by strkng from
subdvson (v) the word and by strkng the perod at the end
of subdvson (v) and nsertng n eu thereof a comma and the
word and and by nsertng theren the foowng new subdvson:
(v) No deducton under secton 23(q) wth respect to chartabe or other
contrbutons sha be taken Into account.
Par. 13. Secton 33.31(c) (2) (), as amended by Treasury Decson
5341, s further amended by strkng from nferor subdvson ( )
the word and by nsertng mmedatey foowng the semcoon at
the end of nferor subdvson ( ) the word and and by nsertng
theren the foowng new nferor subdvson:
(C) Capta gans and osses, short-term capta gans and osses, and ong-
term capta gans and osses sha be determned wthout regard to
(aa) Gans or osses from nvountary conversons and from saes or
e changes of property sub|ect to the provsons of secton 117( ), and
(bb) The net capta oss carry-overs provded n secton 117(e)(1),
and, In the frst ta abe year begnnng after December 31, 1941, the net
short-term capta oss carry-over provded by secton 117(e) (2)
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29.142-1.
230
Par. 14. Secton 33.31(c)(3), as amended by Treasury Decson
5245, s further amended by strkng the perod at the end of the frst
sentence and by nsertng n eu thereof the foowng:
and ncreased or decreased, as the case may be, wth respect to ts separate gans
or osses from nvountary conversons and from saes or e changes of property
sub|ect to the provsons of secton 117(|).
Pah. 15. Secton 33.31(c) (15), as added by Treasury Decson 5341,
s amended by strkng the perod at. the end and by nsertng n eu
thereof the foowng:
ncreased wth respect to ts separate net gans from nvountary conversons and
from saes or e changes of property sub|ect to the provsons of secton 117(|).
(Ths Treasury decson s ssued under the authorty of secton
141(b) of the Interna Revenue Code as amended by secton 159 of
the Revenue ct of 1942 (53 Stat,, 5 , 56 Stat., 5 26 U. S. C, 1940
ed. and Sup., 141).)
oseph D. Nunan, r.,
pproved September 10,1945.
ctng Secretary of. the Treasury.
( ed wth the Dvson of the edera Regster September 11, 1945, 4.31 p. m.)
Reguatons 104, Secton 23.34: Sae of stock
ass for determnng gan or oss.
INT RN L R NU COD .
Reguatons 104 amended. (See T. D. 5441,.page 214.)
Reguatons 110, Secton 33.31: ases of ta computaton.
INT RN L R NU COD .
Reguatons 110, Secton 33.34: Sae of stock
ass for determnng gan or oss.
INT RN L R NU COD .
S CTION 142. IDUCI RY R TURNS.
Secton 29.142-1: ducary returns.
INT RN L R NU COD .
ankrupt partnershp estates. (See G. C. M. 2461T, page 235.)
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29.143-3.
S CTION 143. WIT OLDING O T T SOURC .
Secton 29.143-1: Wthhodng ta at source.
INT RN L R NU COD .
Wthhodng of ncome ta on compensaton of ctzens of Puerto
co brought nto the Unted States through the factes of the War
Manpower Commsson for temporary empoyment essenta to the war
effort. (See I. T. 3709, page 24 .)
Secton 29.143-3: empton from wthhodng. 1945-6-11993
( so Secton 211, Secton 29.211-7 Secton 231, T. D. 5443
Secton 29.231-1.)
Reguatons 111 amended to conform to the ta conventon and
protoco between the Unted States and rance, effectve anuary 1,
1945.
. . Washngton, D. C.
Paragraph 1. The ta conventon and protoco between the Unted
States and rance, procamed by the Presdent of the Unted States
on anuary 5, 1945, effectve on anuary 1, 1945, provde n part as
foows:
TICL 7.
.
Royates derved from wthn one of the contractng Stntes by a resdent or
by a corporaton r other entty of the other contractng State as consderaton
for the rght to use copyrghts, patents, secret processes and formuae, trademarks
and other anaogous rghts sha be e empt from ta aton n the former State,
provded such resdent, corporaton or other entty does not have a permanent
estabshment there.
rtce .

Prvate pensons and fe annutes derved from wthn one of the contractng
States and pad to ndvduas resdng n the other contractng State sha be
e empt from ta aton In the former State.
btce 14.

Notwthstandng any other provson of ths conventon, the Unted States of
merca n determnng the ncome and e cess-profts ta es, ncudng a sur-
ta es, of ts ctzens, or resdents, or corporatons, may ncude n the bass upon
whch such ta es are mposed, n tems of ncome ta abe under the revenue aws
of the Unted States of merca, as though ths conventon had not come nto
effect. The Unted States of merca sha, however, deduct from the ta es thus
computed the amount of rench ncorrre ta pad. Ths deducton sha be made
n accordance wth the bent-fts and mtatons of secton 131 of the Unted
States Interna Revenue Code reatng to credt for foregn ta es.

btce 27.

Ths conventon sha become effectve on the 1st day of anuary foowng the
e change of the nstruments of ratfcaton.
The conventon sha reman n force for a perod of fve years and ndefntey
thereafter but may be termnated by ether contractng State at the end of the
5-year perod or at any tme thereafter, provded s months pror notce of
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29.143-3.
232
termnaton has been gven, the termnaton to become effectve on the 1st day of
anuary foowng the e praton of the 6-month perod.
Upon the comng nto effect of ths conventon, the conventon for the avodance
of doube ncome ta aton between the Unted States of merca and rance,
sgned pr 27,1932 C. . I -2, 535 (1935) , sha termnate.

PROTOCOL.
III.

(a) The term peramnent estabshment ncudes branches, mnes and o
wes, pantatons, factores, workshops, stores, purchasng and seng and other
offces, agences, warehouses, and other f ed paces of busness but does not
ncude a subsdary corporaton.
When an enterprse of one of the contractng States carres on busness In the
other State through an empoyee or agent, estabshed there, who has genera
authorty to negotate and concude contracts or has a stock of merchandse from
whch he reguary fs orders whch he receves, ths enterprse sha be deemed
to have a permanent estabshment n the atter State. ut the fact that an enter-
prse of one of the contractng States has busness deangs In the other State
through a bona f e commsson agent or broker sha not be hed to mean that
such enterprse hns a permanent estabshment n the atter State.
Insurance enterprses sha be consdered as havng a permanent estabshment
n one of the States as soon as they receve premums from or nsure rsks n the
terrtory of that State.

Par. 2. Reguatons 111 Part 29, Tte 26, Code of edera Regua-
tons, Cum. Sup. are amended as foows:
( ) Secton 29.143-3, as amended by Treasury Decson 5425, ap-
proved December 29,1944 page 10, ths uetn , s further amended
by strkng out the paragraph Degnnng wth the words The foow-
ng tems and the paragraph begnnng wth the words The person
payng and substtutng n eu of such paragraphshe foowng:
The foowng tems of f ed or determnabe annua or perodca ncome from
sources wthn the Unted States receved before anuary 1, 1945, by a ctzen of
rance resdng n rance or a corporaton organzed under the aws of rance,
or receved on or after anuary 1. 1945, by a resdent of rance (whether or not
such resdent s a ctzen of rance) or by a corporaton or other entty organ-
zed under the aws of rance, are not sub|ect to the wthhodng provsons of
the Interna Revenue Code, snce such ncome s, e cept n the case of ctzens
of the Unted States, e empt from edera ncome ta , f receved before anuary
1, 1945, under the provsons of the ta conventon and protoco between the
Unted States and rance, sgned pr 27, 1932, and effectve anuary 1, 1936
(see paragraph 10 of the ppend to these reguatons), or, f receved on or
after anuary 1. 1945, under the provsons of the ta conventon and protoco
between the Unted States and rance, sgned uy 25, 193D, and effectve anuary
1,1945:
(1) Royates derved as consderaton for the rght to use copyrghts,
patents, secret processes and formuas, trade-marks, and other anaogous
rghts, provded, however, n the case of such royates receved on or after
anuary 1,1945, such resdent of rance, or corporaton or other entty organ-
zed under the aws of rance, does not have a permanent estabshment
wthn the Unted States.
(2) Prvate pensons and fe annutes.
The person payng such Income sha be notfed by etter from the rench
ctzen resdng n rance, the ndvdua resdent of rance, or the corporaton
or other entty organzed under the aws of rance, as the case may be, that
the ncome s e empt from ta aton under the provsons of the appcabe con-
venton and protoco. Such etter from a ctzen of rance, wth respect to In-
come receved before anuary 1, 1945, sha contan hs address and a state-
ment that he s a ctzen of rance resdng n rance. The etter of notfca-
ton from an ndvdua resdent of rance sha contan hs address and a
statement that he s a resdent of rance. The etter of notfcaton from a
corporaton or other entty organzed under the aws of rance sha contan the
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233
29.143-3.
address of Its offce or pace of busness and a statement that It Is a corporaton
or other entty organzed under the ows of Prance, sha be sgned by an offcer
of sneb corporaton or entty, and sha set forth hs offca tte. In the case of
royates derved on or after anuary 1, 1945, the etter of notfcaton sha aso
state that the ndvdua resdent of rance, or corporaton or other entty or-
ganzed under the aws of rance, as the case may be, does not have a permanent
estabshment n the Unted States. The recpent of the etter of notfcaton
fha mmedatey forward such etter or a copy thereof to the Commssoner
of Interna Revenue, Wthhodng Returns Secton, Washngton 25, D. C.
( ) Secton 29.211-7, as amended by Treasury Decson 5425, s
further amended by strkng out the sentence begnnng wth the
words The tems of f ed or determnabe whch occurs n the frst
paragraph of subdvson (a) thereof and nsertng n eu of such
sentence the foowng:
e tems of f ed or determnabe annua or perodca ncome from sources
wthn the Unted States receved before anuary 1, 1945, by a ctzen of rance
resdng n rance whch are e empt from edera ncome ta aton under the
provsons of the ta conventon and protoco between the Unted States and
rance, sgned pr 27, 1932, and effectve anuary 1, 1936 (see paragraph 106 of
u ppend to these reguatons), or receved on or after anuary 1, 1945, by
a resdent of rance whch are so e empt under the provsons of the ta con-
radon and protoco between the Unted States and rance, sgned uy 25,
ISP, and effectve anuary 1, 1C43, are descrbed n secton 29.143-3.
(C) Secton 29.231-1 s amended by strkng out the sentence be-
gnnng wth the words The tems of f ed or determnabe whch
occurs m subdvson (a) thereof and substtutng n eu of such sen-
tence the foowng:
The tems of f ed or determnabe annua or perodca ncome from sources
wthn the Unted States receved before anuary 1, 1945, by a corporaton or-
ganzed under the aws of rance, whch are e empt from edera Income ta
trader the provsons of the ta conventon and protoco between the Unted
States and rance, sgned pr 27, 1932, and effectve anuary 1, 1936 (see para-
graph 10 of the ppend to these reguatons), or receved on or after anuary
1. 1W5, by a corporaton or other entty organzed under the aws of rance,
whch are so e empt under the provsons of the ta conventon and protoco
between the Unted States and rance, sgned uy 25, 1939, and effectve anu-
ary 1,1945, are descrbed n secton 29.143-3.
Par. 3. In the case of ncome pad after December 31, 1944, and
before March 15, 1945, compance wth the provsons of secton
29.143-3 of Reguatons 111 pror to ts amendment by ths Treasury
decson as appcabe wth respect to nonresdent aens who are
ctzens of rance resdng theren, or corporatons organzed under
the aws of rance, sha be consdered as suffcent compance wth
the provsons of aw and reguatons reatng to wthhodng of the
ta at the source of resdents of rance or corporatons or other
enttes organzed under the aws of rance.
secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. G, 62)
and the ta conventon and protoco between the Unted States and
rance, sgned uy 25,1939, effectve anuary 1, 1945 (Treaty Seres
No. 9 ).)
Geo. . Schoeneman,
( ed wth the Dvson of the edera Regster March 3, 1945, 4.16 p. m.)
6 4354 46 16
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29.147-2. 234
S CTION 147. IN ORM TION T SOURC .
Secton 29.147-2: Return of nformaton as to 1945-19-12140
payments to empoyees. T. D. 54 0
Reguatons 111 amended return of nformaton as to payments
to empoyees.
Washngton, D. C.
5313, approved December 21, 1943 C. . 1944, 30 , s further
Sec. 29.147-2. Return of Informaton as to Payments to mpoyees. The
names of a empoyees to whom payments of 500 or more are made n any ca-
endar year, whether such tota sum s made up of wages, saares, annutes,
commssons, or compensaton n any other form, must be reported. In the case
of any such payments of 500 or more made durng the caendar year 1945 or a
subsequent caendar year, f a porton thereof consttutes wages sub|ect to wth-
hodng under secton 1622 and such porton s reported on orm W-2, the re-
mander of such payments must be reported on orm 1099. or e ampe, f such
payments made to an empoyee by hs empoyer n 1945 amount to 600 and 400
thereof represent wages sub|ect to wthhodng under secton 1622, and the re-
manng 200 represent compensaton not sub|ect to wthhodng, for nstance,
advances or rembursements for traveng or other e penses, or nsurance pre-
mums whch n accordance wth secton 29.165-6 are ncome to the empoyee for
the year In whch the nsurance s purchased, the 400 must be reported on orm
W-2 and the 200 must be reported on orm 1099. eads of branch offces and
subcontractors empoyng abor, who keep the ony compete record of payments
therefor, shoud fe returns of nformaton n regard to such payments wth the
Commssoner of Interna Revenue, Processng Dvson, 260 ast One undred
S ty-frst Street, Now York 51, N. Y. When both man offce and branch offce
have adequate records, the return shoud be fed by the man offce.
or years pror to 1945, amounts dstrbuted or made avaabe under an em-
poyees trust governed by the provsons of secton 165 to any benefcary, n e -
cess of the sum of hs persona e empton and the amounts pad nto the fund by
hm, must be reported by the trustee. or the caendar year 1945 and subsequent
caendar years amounts dstrbuted or made avaabe under an empoyees trust
governed by the provsons of secton 165, or under an annuty pan to whch sec-
ton 29.22(b) (2)-5 reates, to a benefcary sha be reported to the e tent such
amounts are ncudbe n the gross ncome of such benefcary where the amounts
so ncudbe are 500 or more.
In the case of payments made by the Unted States to persons n Its servce
(cv, mtary, or nava) of wages, saares, or compensaton n any other form,
the returns of nformaton sha be made by the heads of the e ecutve depart-
ments and other Unted States Government estabshments.
or cases where no returns of nformaton are requred, see secton 29.147-3.
(See aso secton 29.22(a)-3.)
sectons 02 and 147 of the Interna Revenue Code (53 Stat., 32, 64
56 Stat., 2 26 U. S. C, 62, 147).)
Wm. T. Sherwood,
pproved September 26, 1945.
( ed wth the Dvson of the edera Regster September 26, 1945, 4. 5 p. m.)
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235
29.161-1.
Secton 29.147-2: Return of nformaton as 1945-23-12179
to payments to empoyees. Mm. 5947
Character of advances or rembursements for traveng or other
e penses to be reported on orm 1099.
Washngton 26, D. C, November 19,1945.
1. Inqury has been made as to the scope of that part of Treasury
Decson 54 0, approved September 26,1945 page 234, ths uetn ,
whch provdes that compensaton not sub|ect to wthhodng, for
nstance, advances or rembursements for traveng or other e penses
s to be reported on orm 1099 f the wages sub|ect to wthhodng and
such advances or rembursements tota 500 or more for the caendar
year.
2. Treasury Decson 54 0 does not change the rue that nforma-
ton returns are requred from a persons makng payment to em-
p o|ees of wages, saares, annutes, commssons, or compensaton
n any other form amountng to 500 or more n any caendar year.
It merey provdes that n such cases f ony a porton of such com-
pensaton consttutes wages sub|ect to wthhodng and such porton
s reported on orm W-2, the remander of such payments must be
reported on orm 1099.
3. The advances or rembursements for e penses contempated by
Treasury Decson 54 0 are those whch are made by the empoyer
wthout requrng an accountng by the empoyee to the empoyer that
the e penses are ordnary and necessary e penses ncurred n the
busness of the empoyer. The ureau w consder that the empoyer
nas comped wth the provsons of the Treasury decson f the
advances or rembursements for e penses to be reported on orm 1099
are confned to those wth respect to whch the empoyer does not
requre the empoyee to submt e pense accounts showng that the
advances or rembursements are ordnary and necessary e penses
n the empoyer s busness.
4. Correspondence n regard to ths mmeograph shoud refer to ts
number and the symbos IT: NDC. Wm t
ctng Commssoner.
suppement e. estates and trusts.
S CTION 161. IMPOSITION O T .
Secton 29.161-1: Imposton of the ta . 1945- -12021
( so Secton 142, Secton 29.142-1.) G. C. M. 24617
INT RN L R NU COD ND R NU CTS O 1921 ND 1926.
The ncome of a bankrupt partnershp estate, ke that of a bank-
rupt ndvdua s estate, shoud be ta ed as ncome of an estate
under secton 161 of the Interna Revenue Code, and the returns of
such estates shoud be made on orm 1041 ( ducary Income Ta
Return).
G. C. M. 4 (C. . -, 270 (1931)) modfed recommended that
L T. 1540 (C. . 1-2,17 (1922)) be modfed.
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29.161-1.
236
Reconsderaton has been gven to G. C. M. 4 (C. . -, 270
(1931)), n whch t was hed, among other thngs, that the ncome
of a bankrupt partnershp estate shoud be reported by the trustees
n bankruptcy on orm 1005 (Partnershp Return of Income), and
that the amounts reported as dstrbuted to themseves as trustees
n bankruptcy of the bankrupt partners shoud be ncuded n the
ncome reported by them on orm 1040 or orm 1040- (Indvdua
Income Ta Returns) for the bankrupt ndvduas.
It appears that the above-stated concusons n G. C. M. 4 , supra,
were based prmary upon the premse that the status of a trustee n
bankruptcy s dentca wth that of such a recever as was contem-
pated by artce 424 of Reguatons 09, prescrbed under the Revenue
ct of 1920, now secton 29.142-4 of Reguatons 111, prescrbed under
the Interna Revenue Code. pparenty t was consdered that the
fact that partnershp assets were n the hands of a trustee n bank-
ruptcy dd not change the status of the frm for edera ncome ta
purposes, . e., t was thought to be a unt for the purpose of fng
an nformaton return on behaf of a group of ndvduas rather than
a separate ta abe entty. t the same tme, the nterventon of a
trustee n bankruptcy for an ndvdua was regarded as creatng an
entty separate and apart from the ndvdua bankrupt. vdenty
the atter concuson depended upon the effect of the bankruptcy
acton, whe a ke effect was not attrbuted to bankruptcy acton wth
respect to a partnershp. In accordance wth a suggeston that the
two vews seem nconsstent, the probem has been reconsdered.
Under the ong-estabshed practce of the ureau, the estate hed
by a trustee n bankruptcy for an ndvdua bankrupt s treated as
an estate wthn the meanng of secton 101 of the Interna Revenue
Code and correspondng provsons of pror revenue aws, and ds-
trbutons to credtors are not consdered deductbe by the estate
because such dstrbutons represent capta payments wthn the pur-
vew of everng v. Pardee ct a. (290 U. S., 305, Ct. D. 709, C. .
III-1, 151 (1934)). G. C. M. 4 , supra, adopts ths vew n re-
qurng that the ta on ncome of the estate of a bankrupt partner
be assessed aganst such estate. Secton 101 of the Code s genera
n ts terms and shoud be hed to appy to a estates and trusts uness
there e sts some speca reason for makng an e cepton to the rue
stated. That a trustee n bankruptcy s a fducary s not open to
queston, and ths offce perceves no reason why an estate of an nd-
vdua n bankruptcy shoud not be regarded as an estate wthn the
meanng of secton 101 of the Code. The concuson that an estate
n bankruptcy n the case of an ndvdua s an estate wthn the
meanng of secton 101 of the Code s based on the nterventon of
the status of bankruptcy nto the affars of the ndvdua. Upon
reconsderaton, t s beeved that such a rue s equay appcabe
to the estate of a bankrupt partnershp. Secton 5 of the ankruptcy
ct, as amended, makes no dstncton between the status of an estate
hodng the assets of a bankrupt partnershp and an estate hodng
the assets of a bankrupt ndvdua.
The above-stated premse eadng to the opposte concuson seems
unsound. That the term recever, as used n secton 29.142-4 of
Reguatons 111, supra, was not ntended to ncude a trustee n bank-
ruptcy s shown by the fact that the frst sentence of such secton states
n effect that a recever who has a the property of an ndvdua must
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237
5 19.126-1.
fe a return and pay the ta . In ony rare cases w a trustee of an
ndvdua bankrupt have a of such ndvdua s property. Ordnar-
y, the ndvdua w retan such property as s e empt under bank-
ruptcy aw, and, n the case of a partner, the partnershp property w
be n the hands of the other members of the partnershp, or, f the
partnershp be aso bankrupt, n the hands of the partnershp trustee
n bankruptcy. The recever ntended by secton 29.142-4 s ceary
a recever actng n a manner smar to that of the fducary descrbed
n secton 29.142-1 (a) of Reguatons 111, rather than a trustee n
bankruptcy. The same reasonng mpes the concuson that the status
of a trustee n bankruptcy, though smar n some respects, s not
dentca wth that of a recever for edera ncome ta purposes.
In vew of the foregong, t s the opnon of ths offce that the
ncome of a bankrupt partnershp estate, ke that of a bankrupt nd-
vdua s estate, shoud be ta ed as ncome of an estate under secton
161 of the Interna Revenue Code, and the returns of such estates
shoud be made on orm 1041 ( ducary Income Ta Return).
G.C. M. 4 , supra, s modfed n so far as t s nconsstent herewth.
To the e tent that I. T. 1540 (C. . 1-2, 17 (1922)) may be con-
strued as ndcatng that a trustee n bankruptcy s a recever for the
parposes of secton 29.142-4 of Reguatons 111, supra, and smar
provsons of pror reguatons, t s recommended that such rung be
modfed.
. P. Wenche,
S CTION 162. N T INCOM .
Secton 19.162-1: Income of estates and trusts.
INT RN L R NU COD .
penses of tgaton, etc., n connecton wth management and
dstrbuton of trust property. (See Ct. D. 1643, page 103.)
Secton 19.162-1: Income of estates and trusts. 1945-1 -12134
G. C. M. 24749
Where the e ecutor of nn estate dstrbutes estate ncome before
anuary 1, 1042 (the effectve date of the amendment of secton
1 2 of the Interna Revenue Code by secton 111 of the Revenue
ct of 1942), to a resduary egatee, ncudng a trustee-egatee,
durng the perod of admnstraton or settement of the estate, the
w and State aw not provdng for Income dstrbutons, such
dstrbutons are deductbe by the estate and ta abe to the egatee
as propery pad under the provsons of secton 162(c) of the
Interna Revenue Code and secton 162(c) of the Revenue ct of
193 , provded the dstrbutons are pad to and receved by the
egatee as ncome.
G. C. M. 22034 (C. 15. 1940-1, 90) modfed.
Reconsderaton has been gven to G. C. M. 22034 (C. . 1940-1,
90). whch hods that dstrbutons of ncome, ncudng gans on the
sae of capta assets, to resduary testamentary trustees by the e ecu-
tor of an estate durng the perod of admnstraton of the estate,
the w beng sent as to dstrbutons durng admnstraton and
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19.162-1.
23
the State aw not provdng for such dstrbutons, are not deductbe
pad to a egatee, her, or benefcary under the provsons of sec-
ton 162(c) of the Revenue ct of 193 . G. C. M. 22034 aso hods
that dstrbutons of such ncome to ndvdua resduary benefc-
ares are deductbe by the estate and ta abe to the benefcares.
The ast two paragraphs of that memorandum read as foows:
The w of not ony drects that portons of the resduary estnte be pad
drecty to certan named benefcares but t drects that a part of such estate
be pad to certan named persons n trust for the beneft of others. Wth respect
to the dstrbuton of estate ncome to trustees, t was hed n Wege et a. v.
Commssoner (96 ed. (2d), 3 7), that the resdue of an estate, ncudng
ncome, s receved by a testamentary trustee as a bequest or devse of trust
corpus and, therefore, the payment of such ncome s not deductbe by an
estate under the provsons of secton 162(c) of the Revenue ct of 192 .
ppyng the rue ad down n the Wege case, supra, the dstrbutons of
ncome to testamentary trustees by the e ecutor of the estate of durng the
perod of admnstraton are not deductbe by the estate for edera ncome
ta purposes as ncome propery pad to any egatee, her, or benefcary
under the provsons of secton 162(c) of the Revenue ct of 193 . Suc Income
s ta abe to the estate.
t the tme G. C. M. 22034, supra, was promugated, t was the
poston of ths offce that a trustee coud not be a egatee for the
purposes of secton 162(c) of the Revenue ct of 193 and smar
provsons of pror Revenue cts. Ths poston was based on cer-
tan anguage used n Wege et a. v. Commssoner (96 ed. (2d),
3 7), whch patenty mped that a trustee coud not be a egatee.
owever, snce that memorandum was ssued, t as been hed n.
severa cases that a trust or a trustee can be a egatee or benefcary
under secton 162(c) of the Interna Revenue Code or ts counterpart
n the varous Revenue cts. In state of Ida . Whte et a. v.
Commssoner (41 . T. ., 525, acquescence, page 7 of ths uetn),
the oard of Ta ppeas (now The Ta Court) stated:
We have no doubt that a trust, and hence ts controng trustees, can be a
egatee wthn the contempaton of the statute. The word egatee
connotes the recpent or ob|ect of a egacy. The trustees, beng such recpent
here, became the egatee under the drecton of the w. The trust was a
ta abe entty and returned the ncome receved for ta aton. ere the secu-
rtes not needed to pay the debts of the estate were specfcay bequeathed to
the trustees by the codc to Mrs. Whte s w. They were thus made egatees
by force of ts testamentary anguage.
The decsons n Commssoner v. shop Trust Co., Ltd. (136 ed.
(2d). 390). affrmng state of ohn . McCandess v. Commssoner
(42 . T. ., 1309) Commssoner v. state of George W. Crawford
et a. (139 ed. (2d), 616) and state of Robert W. arwood et a.
v. Commssoner (3 T. C, 1104, acquescence, C. . 1944, 13) are to
the same effect. In each of those cases t was hed that dstrbutons
of ncome by the e ecutors to the trusts or trustees were propery de-
ductbe by the e ecutors under the provsons of secton 162(c) of
the controng Revenue ct. In addton, t has been hed that a
subsdary trust can be a benefcary of a prncpa trust and that,
therefore, dstrbutons of ncome by a prncpa trust to a subsdary
trust are deductbe by the prncpa trust. (See Lynchburg Trust
Savngs ank et a. v. Commssoner, 6 ed. (2d), 356, certorar
dened, 292 ITS., 640 nger . Duke v. Commssoner, 3 . T.
1264, acquescence, C. . 1939-1 (Part 1), 10 George G. en et a. v.
Commssoner, 40 . T. ., 351, acquescence, C. . 1939-2, 1.)
by the estate for edera ncome
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239
19.162-1.
In vew of the foregong, t s the opnon of ths offce that a resd-
uary testamentary trust may be a egatee or benefcary for the pur-
pose of secton 162(c) of the Interna Revenue Code and secton
162(c) of the Revenue ct of 193 .
ven though a trust or trustee can be a egatee or benefcary, n
order for the dstrbuton by the e ecutor of the estate to be deductbe
wthn the meanng of the phrase propery pad or credted as
used n secton 162 (c), supra, the dstrbuton must be pad or credted
to the trustee as ncome. If such dstrbuton s pad or credted as
a egacy (corpus), t s nonta abe as ncome to the egatee under sec-
ton 22(b) (3) of the Code and correspondng provsons of pror
revenue aws. The genera purpose of secton 162(c), supra, s to
ta estate or trust ncome ether to the fducary or to the benefcary.
(See everng v. ua utterworth et a, 290 U. S., 365, Ct. D. 769,
C. . III 1, 151 (1934).) owever, the estate or trust may deduct
the amounts dstrbuted and the benefcares are ta abe thereon ony
ncase the amounts dstrbuted consttute ncome pad as such to, and
rasved as such by, the benefcares. Thus, the queston n each par-
tcuar case s whether the amounts were dstrbuted as ncome or
s corpus.
In Wer/e et a. v. Commssoner, supra, the testatr by the terms
of her w gave, devsed, and bequeathed the resdue of her estate
to her e ecutors n trust for the fetme of her husband and provded
that part of the ncome of the trust be pad to a fathfu servant and
the remander to her husband. Durng the course of admnstraton
of the estate, the e ecutors sod certan shares of stock at a arge proft
and, durng the ta abe year nvoved, dstrbuted part of the proft
to themseves as trustees of the testamentary trust. controversy
arose as to whether the dstrbuton of such ncome was deductbe
under the provsons of secton 162(c) of the Revenue ct of 192 .
In hodng the dstrbuton was not deductbe, the court stated n part
as foows:
Under the term of the w In the nstant case there can be no proper dstr-
buton of the estate ncome, as ncome, to the trustees of the testamentary trust.
The term estate ncome when apped to any assets of the estate whch were
transferred or pad to the trustees merey desgnates the source of that
partcuar porton of the resdue of the estate. y the terms of the w the
resdue of the estate, ncudng a estate ncome as we as persona property
whch passed to the e ecutors, became and consttuted the corpus of the trust
estate and, n our opnon, the resdue of the estate was receved by the trustees
as a bequest or devse of trust corpus and not as a payment of ncome, ether
trust or estate. The property thus receved came wthn the cassfcaton of
secton 22(b) (3) and was, therefore, e empt from the ta mposed by the ct
of 192 . Itacs supped.
Thus, the bass of that decson s that the amount of the dstrbuton
fas not pad or credted as ncome but was dstrbuted as part of the
corpus of the trust estate by vrtue of the terms of the w.
oweyer, there s other anguage n the Wege opnon to the effect
that a dstrbuton of resdue, consstng of estate corpus and estate
ncome, to a testamentary trust s receved as corpus because t becomes
a part of the trust res, but f a ke dstrbuton were made to an nd-
vdua resduary egatee, that porton representng estate ncome
woud be receved by the egatee as ncome. The decsons by the
oard of Ta ppeas (now The Ta Court) and the crcut courts
on ths pont are to the same effect, namey, that dstrbutons of
estate ncome to ndvdua resduary egatees durng the perod of
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19.162-1.
admnstraton are ta abe to the dstrbutees and deductbe by the
estates. (See Marnda Leth v. Commssoner, 3 . T. ., 10 2 arod
. Whtock et a. v. Commssoner, 22 . T. ., 1355 Came G. Co
et a. v. Commssoner, 31 . T ., 19 Samue Rker v. Commssoner,
42 ed. (2d), 150, Ct. D. 204, C. . I -2, 366 (1930) Margaretha
Weber v. Commssoner, 111 ed. (2d), 766 County Natona ankds
Trust Co. of Safta arbara v. everng, 122 ed. (2d), 29.)
It s beeved that the consderatons for determnng the ta aton
of dstrbutons of estate ncome to resduary testamentary trusts are
the same as those appcabe to ke dstrbutons to ndvdua resdu-
ary egatees, and that t s mmatera that the dstrbuton of ncome
to the trustees becomes a part of the trust res so ong as the dstrbuton
s receved by the trustees as ncome. (See Commssoner v. state of
George W. Crawford et a., supra.) ny other concuson woud ap-
pear to be n drect confct wth a hodng that a testamentary trust
can be a egatee or benefcary.
It shoud be noted that a dstncton has been made by the courts
between dstrbutons durng the perod of admnstraton or sette-
ment of the estate on the one hand and fna dstrbutons on the other,
n the appcaton of secton 162(c) of the Code to dstrbutons made
before anuary 1,1942, the effectve date of the amendment of secton
162 of the Code by secton 111 of the Revenue ct of 1942. Where the
w or the State aw does not provde for the current dstrbuton of
estate ncome to the egatee and the resduary egatee receves the
resdue of the estate, ncudng estate ncome, upon the competon of
admnstraton, the courts have consstenty hed that the egatee s not
sub|ect to ncome ta wth respect to any porton of the amount
receved as resdue, t beng receved as a egacy, e empt under, secton
22(b)(3), supra, and, therefore, nondeductbe by the estate under
secton 162(c), supra. (See S. . Durkhcmer v. Commssoner, 41
. T. ., 5 5, acquescence, C. . 1943, 6 zabeth S. Whtaker v.
Unted States, 44 ed. Supp., 4 4 Sarah . razer v. DrscoU, 46 ed.
Supp., 3 mma S. Norrs v. Genn, 4 ed. Supp., 673.) owever,
f the State aw provdes that the egatee s entted to estate ncome
from the date of the settor s death, t has been hed that the dstrbu-
ton of such ncome, even n fna settement of the estate, s deductbe
by the estate and ta abe to the egatee-trust. (See Commssoner v.
shop Trust Co., Ltd., supra.)
ccordngy, where the e ecutor of an estate dstrbutes estate n-
come before anuary 1, 1942 (the effectve date of the amendment of
secton 162 of the Interna Revenue Code by secton 111 of the Revenue
ct of 1942), to a resduary egatee, ncudng a trustee-egatee, durng
the perod of admnstraton or settement of the estate, the w ana
State aw not provdng for ncome dstrbutons, t s the opnon of
ths offce that such dstrbutons are deductbe by the estate and ta a-
be to the egatee as propery pad under the provsons qf secton
162(c) of the Interna Revenue Code and secton 162(c) of the Revenue
ct of 193 , provded the dstrbutons are pad to and receved by the
egatee as ncome.
G. C. M. 2034, supra, s modfed to accord wth the concusons
reached heren.
. P. Wenche,
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241
2.5.162-1.
1945-19-12141
G. C M. 24702
mounts dstrbuted by an estate out of Its ncome durng the
ta abe year n whch the resdue becomes payabe are, to the
e tent the estate had ncome (other than Income In respect of a
decedent) for such ta abe year, ta abe to the egatee and de-
ductbe by the estate under secton 162(b) of the Interna Revenue
Code, as amended by secton 111 of the Revenue ct of 1942, regard-
ess of the fact that under State aw such Income s consdered
prncpa to th: egatee, e cept where the dstrbuton s made n
satsfacton or payment of a pecunary egacy.
n opnon s requested whether amounts dstrbuted by an estate
out of ts ncome durng the ta abe year n whch the resdue becomes
payabe are ta abe to the egatee and deductbe by the estate under
secton 162(b) of the Interna Revenue Code, as amended by secton
111 of the evenue ct of 1942, where such ncome s consdered prnc-
pa to the egatee under State aw.
h the nstant case the decedent ded n 1942, a resdent of the State
of Connectcut. Under the terms of hs w, the e ecutor s drected
to dvde the rest, resdue, and remander of the estate nto 10 equa
parts. S of those parts are devsed and bequeathed to a trustee who
s drected to pay to the decedent s wdow the ncome therefrom and
so much of the prncpa thereof as the trustee may deem necessary
or proper for her comfortabe mantenance and support. Upon the
death of the wdow, the trust fund remanng s to be dvded equay
among decedent s chdren then vng. The other four equa parte
of the estate are drected to be dvded among the decedent s chdren.
It s stated that under the aw of Connectcut the wdow, as fe
tenant of 60 per cent of the resdue eft n trust, s entted to 60 per
cent of the ncome earned durng the perod of admnstraton that
the remanng 40 per cent of the resdue consttutes an absoute gft
to the chdren that the ncome earned durng admnstraton on
the atter 40 per cent becomes addtona prncpa whch s added to
the entre resdue wth the resut that upon fna dstrbuton of the
estate 60 per cent of such addtona prncpa w be dstrbuted to
the trustees as prncpa and be added to trust corpus and 40 per cent
w be dstrbuted to the chdren. The aw of Connectcut, as de-
cared by the Supreme Court of rrors n Staney et a. v. Staney
tt a. (10 Conn., 100,142 t., 51), appears to be to that effect. Thus,
the queston s ceary presented whether Congress ntended secton 162
of the Interna Revenue Code, as amended by secton 111 of the Reve-
nue ct of 1942, to be apped wthout resort to the aw of the |ursdc-
ton where the estate s beng admnstered. Secton 162(b) of the
Code, as so amended, provdes as foows:
(b) There sha be aowed as an addtona deducton n computng the net
ncome of the estate or trust the amount of the ncome of the estate or trust
for Its ta abe year whch s to be dstrbuted currenty by the fducary to the
egatees, hers, or benefcares, but the amount so aowed as a deducton sha
be ncuded In computng the net Income of the egatees, hers, or benefcares
whether dstrbuted to them or not. s used n ths subsecton, ncome whch
Is to be dstrbuted currenty ncudes ncome for the ta abe year of the
estate or trust whch, wthn the ta abe year, becomes payabe to the egatee,
Mr. or benefcary. ny amount aowed as a deducton under ths paragraph
sha not be aowed as a deducton under subsecton (c) of ths secton In the
same or any succeedng ta abe year
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29.162-1.
242
Pror to the amendment of secton 162 of the Code by secton 111 of
the Revenue ct of 1942, the oard of Ta ppeas (now The Ta
Court) and the courts hed that where the ncome of an estate for the
ta abe year was dstrbuted to an ndvdua egatee upon fna
settement of the estate, such ncome was not ta abe to the egatee
under secton 162(c) of the Code and correspondng provsons of
pror revenue aws. (See S. . Durkhemer v. Commssoner, 41 .
T. ., 5 5, acquescence, C. . 1943, 6 Mabe I. Wco v. Commsson-
er, 43 . T. ., 931, acquescence, C. . 1943,25 zabeth S. Whtaker
v. Unted States, 44 ed. Supp., 4 4 Sarah . razer v. DrscoUt46
ed. Supp., 3 mma S. Norrs v. Genn, 4 ed. Supp., 673.) Those
decsons are based on the theory that the resdue was determned
when the admnstraton was competed and that the ncome earned
durng admnstraton became prncpa n the resdue, and that,
therefore, both the prncpa and ncome were receved by the egatee
as a egacy, e empt under secton 22(b) (3) of the Code and corre-
spondng provsons of pror revenue aws. The oard of Ta ppeas
and the Unted States Crcut Court of ppeas for the Nnth Crcut
hed to the same effect where estate ncome was pad to a resduary
testamentary trust upon fna settement of the estate. (See state of
rank . nderson v. Commssoner, 126 ed. (2d), 46.)
In G. C. M. 22034 (C. . 1940-1, 90), t was hed n effect that a
testamentary trust coud not be a egatee for the purposes of the pro-
vsons of secton 162(c) of the Revenue ct of 193 . It s now the
opnon of ths offce that a testamentary trust may be a egatee. (See
G. C. M. 24749, page 237, ths uetn, modfyng G. C. M. 22034.)
The genera statutory pan wth respect to estates has been to ta
n some way the whoe net ncome of the estate ( everng v. ua
utterworth et a., 290 U. S., 365, Ct. D. 769, C. . III-1,151 (1934)),
that s, the ncome s ether ta ed to the estate as a separate entty or
to the egatee to whom the ncome s pad. The basc prncpe under-
yng secton 111 of the Revenue ct of 1942 s to mpose the ta , wth
stated mtatons, upon the person who en|oys the ncome (the re-
sduary egatee) and st preserve the nonta abty of pecunary
egatees wth respect to estate ncome used to dscharge ump-sum
bequests. Thus, under secton 162(b) of the Code, as amended, the
amounts dstrbuted to the resduary egatee (ncudng a trust-
egatee) durng the ta abe year n whch the resdue becomes payabe,
to the e tent the estate has ncome for such ta abe year, woud rep-
resent ncome to the resduary egatee.
Senate Report No. 1631, Seventy-seventh Congress, second sesson
(C. . 1942-2, 504, at page 559), states n part as foows:
Your commttee b adds an amendment to secton 162(b) of the Code desgned
to ncude n the ncome of a egatee or benefcary the Income of the estate or
trust for ts ta abe year whch, wthn such ta abe year, becomes payabe to
the egatee or benefcary, even though t then becomes payabe as part of an
accumuaton of ncome hed unt the happenng of some event whch occurs
wthn the ta abe year. Such cases are usuay cases where accumuated ncome
of an estate s pad to a resduary egatee upon termnaton of the estate or where
ncome of a trust s accumuated for dstrbuton upon the benefcary s reachng
a specfed age.
though t s not e pressy stated that the provsons of secton
162(b) of the Code, as amended, shoud be apped wthout regard to
State aw, t s nferred that such was the Congressona ntent, for t
seems cear that Congress ntended to change the rue ad down n the
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243
29.2:2-1.
Durkhemer case, supra, and n smar oases, so that the amount pad
to the resduary egatee woud be ta abe to the egatee to the e tent
that the estate had ncome for the ta abe year n wbch the resdue
became payabe, rrespectve of the fact that under the aw of most
States such ncome woud be consdered an addton of prncpa to the
resdue. (See secton 29.162-2(6) of Reguatons 111.)
ccordngy, t s the opnon of ths ohce that amounts dstrbuted
by an estate out of ts ncome durng the ta abe year n whch the
resdue becomes payabe are, to the e tent the estate had ncome
(other than ncome n respect of a decedent) for such ta abe year,
ta abe to the egatee and deductbe by the estate under secton 162(b)
of the Interna Revenue Code, as amended by secton 111 of the
Revenue ct of 1942, regardess of the fact that under State aw such
ncome s consdered prncpa to the egatee, e cept where the dstr-
buton s made n satsfacton or payment of a pecunary egacy.
(See Od Coony Trust Co. ct a. v. Commssoner, 3 . T. ., 2 ,
m rthur . Weman v. Wech, 99 ed. (2d), 75, wth respect to
the e cepton.)
. P. Wence,
Chef Counse, ureau of nterna Revenue.
S CTION 165. MPLOY S TRUSTS.
Sucton 29. 35-5: ffect of amendments to sec-
ton 165 (a) on od and new stock bonus, pen-
son, proft-sharng, and annuty pans.
INT RN L R NU COD .
SUPPL M NT P RTN RS IPS.
S CTION 1 3. COMPUT TION O P RTN RS IP
INCOM .
Secton 29.1 3-1: Computaton of partnershp ncome.
INT RN L R NU COD .
Indana gross ncome ta . I. T. 3731 (page 0, ths uetn) re
Toked. (See I. T. 3766, page 3.)
SUPPL M NT G. INSUR NC COMP NI S.
S CTION 202. D UST D NORM L-T
N T INCOM .
Secton 29.202-1: Reserve and other pocy a- 1945-2-11937
bty credt for ad|usted norma-ta net ncome. T. D. 5427
TITL 26 INT RN L R NU . C PT R L SU C PT R , P RT 29.
gure to be used n determnng reserve and other pocy a-
bty credt (or fe Insurance companes.
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29.211-2.
244
Offce of the Secretary of the Treasury,
Washngton, D. C, anuary 1,1945.
To Offcers and mpoyees of the Treasury Department and Others
Concerned:
y vrtue of the authorty vested n me by secton 202(b) of the
Interna Revenue Code (53 Stat., 71), as amended by secton 163 of
the Revenue ct of 1942 (56 Stat., 70 26 IT. S. 0., 1940 ed., and
Sup., 202(b)), t s hereby determned that the fgure to be used n
computng the reserve and other pocy abty credt of fe n-
surance companes for the ta abe year 1944 sha be .9261.
suppement h. nonresdent aen ndvduas.
S CTION 211. T ON NONR SID NT LI N
INDI IDU LS.
Secton 29.211-2: Defnton. 1945-13-120 1
( so Secton 29.211-7.) Mm. 5 3
Ta aton of aens dervng ncome from transactons on the stock
market, from the sae of securtes, from deangs n commodtes,
and from other sources wthn the Unted States.
I. T. 33 0 (C. . 1940-1, 66) modfed.
Washngton 25, D. C, une 27,1943.
Concerned:
1. The ureau has under consderaton the queston of the ta aton
of capta gans, profts, and other ncome derved from sources wthn
the Unted States by aens who have eft ther country of orgn, espe-
cay n urope, on account of war condtons and who durng ther
stay n the Unted States have accumuated consderabe ncome as the
resut of transactons n the stock market and on the commodty
e changes. ttenton s nvted to the fact that aens for edera
ncome ta purposes fa wthn the foowng genera casses: (1) non-
resdent aens not engaged n trade or busness wthn the Unted
States who are ta ed ony on f ed or determnabe annua or perodca
ncome (2) nonresdent aens not engaged n trade or busness wthn
the Unted States whose f ed or determnabe annua or perodca
ncome e ceeds 15,400 (3) nonresdent aens engaged n trade or
busness wthn the Unted States (4) resdent aens.
2. ery tte dffcuty s encountered n connecton wth the coec-
ton of ncome ta wth respect to the frst cass. Such aens are ta -
abe under secton 211(a) of the Interna Revenue Code at the rate of
30 per cent, and the entre amount of ta s, n genera, requred to be
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245
( 29.211-2.
wthhed at the source under secton 143(b) of the Interna Revenue
Code. Wth respect to the second cass, athough a ta at the rate of
30 per cent s requred to be wthhed at the source from ther f ed or
determnabe annua or perodca ncome, they are aso sub|ect to
surta and returns are requred to be fed by the ndvduas n such
cases on orm 1040N (a), accountng for the baance of the ta . Wth
respect to those ndvduas engaged n trade or busness wthn the
Unted States, such aens are sub|ect to ta on ther entre ncome
from sources wthn the Unted States, ncudng capta gans. ow-
ever, as provded n secton 211(b) of the Interna Revenue Code, the
phrase engaged n trade or busness wthn the Unted States does
tot ncude the effectng, through a resdent broker, commsson agent,
or custodan, of transactons n the Unted States n commodtes, or n
stocks or securtes. It foows that a nonresdent aen, not otherwse
engaged n trade or busness n the Unted States, woud not be sub|ect
to ta on capta gans merey by reason of such transactons n com-
modtes, or stocks, or securtes. Speca attenton shoud, however,
be gven to the cases of aens who derve profts from these transac-
tons and who cam to be nonresdent aens not engaged n trade or
sness wthn the Unted States. In ths connecton, t shoud be
Mnted out that the term engaged n trade or busness wthn the
Unted States ncudes the performance of persona servces wthn
the Unted States at any tme wthn the ta abe year as specfcay
provded by secton 211(b) of the Code. It foows, therefore, that f
any of the aens of ths cass perform persona servces n the Unted
States at any tme durng the ta abe year, they woud be sub|ect to
ta on ther entre ncome derved from sources wthn the Unted
States, ncudng capta gans. owever, certan other actvtes such
as the buyng and seng of persona or rea property, on the aen s
own behaf or on behaf of others, woud ordnary consttute engag-
ng n trade or busness. In the nvestgaton of the ta abty of any
nonresdent aen camng not to be engaged n trade or busness wthn
the Unted States, partcuar attenton shoud, therefore, be gven to
such actvtes of the aen.
3. The most mportant cass of aens wth whom the ureau s con-
cerned conssts of those who, havng reazed profts on securtes trans-
actons or otherwse, cam to be nonresdents of the Unted States and
have thus faed to fe proper ncome ta returns even though they are
n fact resdents of the Unted States. In connecton wth the genera
queston as to what consttutes resdence n the Unted States, t shoud
be borne n mnd that resdence s a m ed queston of aw and fact and
the eement of ntenton s one of prmary mportance. The edera
ncome ta aws have been unform n evyng a ta on the entre n-
come of aens, f resdent n the Unted States, and resdence has been
construed by the ureau n a rungs as somethng whch may be ess
than domce. (See o orng v. owers, 24 ed. (2d), 91 , T. D. 4164,
C. . II-1, 9 (192 ).) In other words, resdence, athough used as
the equvaent of domce n connecton wth probate matters, succes-
son ta es, and nhertance ta es, as we as the estate ta aw, s not
necessary the same as domce for edera ncome ta purposes. It
s stated n secton 29.211-2 of Reguatons 111 that an aen actuay
present n the Unted States who s not a mere transent or so|ourner s
a resdent of the Unted States for purposes of the ncome ta . It s
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29.211-2. 246
aso stated n that secton that f he ves n the Unted States and has no
defnte ntenton as to hs stay, he s a resdent. urthermore, one who
comes to the Unted States for a defnte purpose whch n ts nature
may be prompty accompshed s a transent but f hs purpose s of
such a nature that an e tended stay may be necessary for ts accom-
pshment, and to that end the aen makes hs home temporary n the
Unted States, he becomes a resdent, though t may be hs ntenton at
a tmes to return to hs domce abroad when the purpose for whch
he came has been consummated or abandoned. These provsons of the
reguatons, t s thought, w cover many cases of aens who, by reason
of condtons stemmng from the war, have come to the Unted States.
4. ttenton s nvted to the ast sentence of secton 29.211-2, Reg-
uatons 111, whch states that an aen whose stay n the Unted States
s mted to a defnte perod by the mmgraton aws s not a resdent
of the Unted States wthn the meanng of that secton, n the absence
of e ceptona crcumstances. The genera rue adopted by the ureau
s that the type of vsa ssued s ony one of the eements enterng nto
the cassfcaton of an aen as a resdent or.nonresdent. It s beeved
that there are many cases now whch w come under the phrase n the
absence of e ceptona crcumstances because of the fact that many
vstors permts, or temporary vsas, were ssued to aens who desred
merey to get out of a war-torn country under any condtons and
under any passport or vsa so ong as they reached the shores of the
Unted States. or e ampe, whe the vast ma|orty of such aens
orgnay entered the Unted States on temporary permts, numerous
e tensons of such permts have been apped for and granted and a
great number of appcatons have been made by such aens to enter a
thrd country n order to quafy for reentry nto the Unted States on
mmgrants vsas, thus ndcatng an ntenton to become resdents of
the Unted States even though such mmgrants vsas may not have
been granted. On the other hand, the possesson of an mmgrant s
vsa by an aen upon hs nta entrance nto the Unted States, s not
concusve of hs cassfcaton as a resdent of ths country. Those
aens, therefore, who are propery cassfed as resdents wthn the
meanng of the reguatons referred to above and under the genera
rues of aw reatng to what consttutes resdence, shoud n every case
be requred to fe returns on orm 1040, accountng for ncome from
a sources, both wthn and wthout the Unted States, ncudng cap-
ta gans. urthermore, a nonresdent aens who are physcay
present n the Unted States and who have been engaged n trade or
busness wthn ths country at any tme durng the ta abe year shoud
fe compete returns on orm 1040 , accountng for ther entre ncome
from sources wthn ths country, ncudng capta gans.
5. In vew of what has been sad above, the fed offcers of the ureau
are requested to take prompt acton and set up the necessary procedure
for the purpose of nvestgatng those cases n whch t s evdent that
the aens have made gans from deangs n stocks, securtes, com-
modtes, and smar transactons, to the end that aens engaged n
trade or busness wthn the Unted States, and those who are resdent
aens, may be propery ta ed on such capta gans and that ony
nonresdent aens not engaged n trade or busness wthn the Unted
States sha be reeved of ta aton n ths respect, as provded by
sectons 211(a) and 211(c) of the Interna Revenue Code.
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247
29.231-1.
6. In connecton wth the e amnaton of aens, nformaton shoud
be obtaned regardng (a) date of arrva n the Unted States (b)
whether members of the aen s famy accompaned hm (c) type of
vsa or permt ssued to hm (d) reasons for comng to the Unted
States (e) whether the aen regstered under the Seect re Servce
ct (/ ) what funds, securtes, or other persona property were
brought nto the Unted States by the aen or transferred to hs ac-
count, or hed for hs beneft drecty or ndrecty through nomnees
or otherwse, pror to or after hs arrva (a) whether he performed
persona servces or engaged n any other busness actvtes wthn
the Unted States (h) compete dscosure as to capta gans from
deangs n securtes or commodtes () whether he owns any rea
estate n the Unted States n hs own name or n the name of a nomnee
(/ ) f the aen entered the Unted States on a temporary permt, how
many tmes t has been renewed and (k) whether the aen has apped
for or been granted an mmgraton vsa or otherwse decared hs
desre or ntenton to resde n the Unted States.
T. I. T. 33 6 (C. . 1940-1, 66), hodng that a sub|ect of a foregn
fftry who entered the Unted States on a temporary vsa whch had
teen renewed from tme to tme durng contnuance of the war has
te status of a nonresdent aen, s modfed to accord wth the fore-
gong prncpes.
Correspondence reatng to ths mmeograph shoud refer to ts num-
ber and the symbos IT: P.
oseph D. Nunan, r.,
Commssoner.
Secton 29.211-7: Ta aton of nonresdent aen ndvduas.
INT RN L R NU COD .
Secton 29.211-7: Ta aton of nonresdent aen
ndvduas.
INT RN L R NU COD .
Income from transactons n securtes and commodtes, and from
other sources wthn the Unted States. (See Mm. 5 3, page 244.)
SUPPL M NT I OR IGN CORPOR TIONS.
S CTION 231. T ON OR IGN CORPOR TIONS.
Secton 29.231-1: Ta aton of foregn corporatons.
INT RN L R NU COD .
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29.253-1. 24
SUPPL M NT . POSS SSIONS O T UNIT D ST T S.
S CTION 252. CITIZ NS O POSS SSIONS
O UNIT D ST T S.
Secton 29.252-1: Status of ctzens of Unted 1945-2-1193
States possesson. I. T. 3709
INT RN L R NU COD .
ppcaton of the wthhodng provsons of the Interna Reve-
nue Code (sectons 143(b) and 1622) n the case of ctzens of
Puerto Rco brought nto the Unted States through the factes
of the War Manpower Commsson, and procedure to be foowed by
such ndvduas n makng and fng edera ncome ta returns.
dvce s requested reatve to the appcaton of sectons 143(b)
and 1622 of the Interna Revenue Code, as amended, to ctzens of
Puerto Rco brought nto the Unted States through the factes of
the War Manpower Commsson for war work n the Unted States,
and to the procedure to be foowed by such ndvduas n makng
and fng edera ncome ta returns.
Ctzens of Puerto Rco are, wth few, f any, e ceptons, ct-
zens of the Unted States. owever, secton 252(a) of the Interna
Revenue Code provdes that any ndvdua who s a ctzen of any
possesson of the Unted States (but not otherwse a ctzen of the
Unted States) and who s not a resdent of the Unted States, sha
be sub|ect to ta aton under Chapter 1 of the Code ony as to ncome
derved from sources wthn the Unted States, and n such case the
ta sha be computed and pad n the same manner and sub|ect
to the same condtons as n the case of other persons who are ta abe
ony as to ncome derved from such sources. In short, such nd-
vduas are ta ed n the same manner as nonresdent aens. (See
secton 29.252-1 of Reguatons 111.)
Secton 143(b) of the Interna Revenue Code provdes generay
that n the case of a nonresdent aen the f ed or determnabe annua
or perodca ncome from sources wthn the Unted States, ncud-
ng wages, s sub|ect to the wthhodng of a ta of 30 per cent of
the gross amount of such ncome. owever, that secton was amended
by secton 132(a) of the Revenue ct of 1943 to provde that n
respect of the compensaton for servces performed by nonresdent
aen ndvduas brought nto the Unted States under the authorty
of the War Manpower Commsson for temporary empoyment es-
senta to the war effort and sub|ect to wthhodng under secton
143(b), the deducton and wthhodng sha be at the rate of 10 per
cent, and there sha be no deducton or wthhodng under secton
1622 of the Code. The amendment s appcabe to a compensa-
ton pad on or after the tenth day after ebruary 25, 1944, the date
of enactment of the Revenue ct of 1943. (Secton 132(b) of the
Revenue ct of 1943.)
s shown by the report of the Senate Commttee on nance on
the revenue b of 1943 (Senate Report No. 627, Sevent|-eghth
Congress, frst sesson, (C. . 1944, 973), the amendment of secton
143(b) of the Code was ntended to appy to ctzens of possessons of
the Unted States who are not otherwse ctzens of the Unted States
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29.252-1.
and who are brought nto the Unted States under authorty of the
War Manpower Commsson for temporary empoyment essenta to
the war effort. ccordngy, Treasury Decson 5357 (C. . 1944,
307) amended secton 29.143-1 of Reguatons 111 to read n part
as foows:
On and after March 6, 1944, the rate of wthhodng provded wth respect
to compensaton for servces performed by a nonresdent aen ndvdua, or
by a ctzen of a possesson of the Unted States not otherwse a ctzen of the
Unted States, brought Into the Unted Stntes under the authorty of the War
Manpower Commsson for temporary empoyment essenta to the war effort
sa be at the reduced rate of 10 per cent. In appyng such reduced rate of
wthhodng, however, to the compensaton of a nonresdent aen or other n-
dvdua comng wthn the scope of ths paragraph the proraton of the per-
sona e empton provded n secton 29.143-3 s not appcabe. The rate of 10
per cent provded In ths paragraph shoud, therefore, be apped aganst the
gross amount of the compensaton derved from abor or persona servces by
such an ndvdua. The provsons of secton 143(b), as amended by secton 132
of the Revenue ct of 1943, sha not be construed as canceng or affectng
sr e empton from wthhodng In the case of any nonresdent aen ndvdua
nter e stng aw, reguatons, or rung, nor do such provsons affect the
kty to ta of such a nonresdent aen Indvdua.
ccordngy, n the case of a ctzen of Puerto Rco who s not
otherwse a ctzen of the Unted States and who was brought nto
the Unted States under authorty of the War Manpower Comms-
son for temporary empoyment essenta to the war effort, the wth-
hodng under secton 143(b) of the Code, as amended, shoud be at
the rate of 10 per cent of the gross amount of the wages pad. t-
tenton s aso caed to the fact that the wages of such ndvduas
are not sub|ect to wthhodng under secton 1622 of the Code, as
amended.
Shoud any such ndvdua eave the Unted States before the cose
of a ta abe year, he must, before departng, obtan a certfcate of
compance wth ncome ta obgatons by fng a return on orm
1M0C wth the coector of nterna revenue for the dstrct n whch
he was empoyed. The amount of the ta abty sha be computed
on that form, credt camed for the amount of ta wthhed at the
source, and payment made of the baance of ta as thus dscosed. In
order to obtan credt for ta wthhed, t s necessary that a wrtten
statement of the empoyer showng the amount of such wthhodng be
furnshed the coector. or the purposes of the orm 1040C, the
norma ta and surta e emptons to whch the ta payer may be en-
tted are prorated n accordance wth the porton of the ta abe year
hch has eapsed at the tme of hs departure.
On or before the 15th day of une foowng the cose of the ta abe
year, each of the above-descrbed cass of ndvduas (ncudng those
ho have eft the country durng the ta abe year), whose gross n-
come from sources wthn the Unted States durng the ta abe year
amounts to 500 or more, s requred to fe a return on orm 1040 ,
reportng theren hs ncome for the entre ta abe year, camng the
deductons and e emptons to whch he s entted, and computng hs
ta upon the ta abe ncome thus dscosed at the same rates whch are
appcabe to Unted States ctzens and resdents. or the purpose
of ths fna return, a ta payer who has departed from the country
durng the ta abe year s aowed the norma ta and surta e emp-
tons to whch he s entted for the perod of the fu year.
6 4354 46 IT
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29.262-3.
250
Credt for the amount of ta wthhed or otherwse pad may be
camed by the ta payer, who w pay ony the amount by whch the
tota ta e ceeds such credt. If the amount of the credt e ceeds the
amount of the ta , the e cess s refundabe. Where such ta payer s
gross ncome from sources wthn the Unted States s ess than 500,
he may, nevertheess, report hs ncome on orm 1040 , as we as the
amount of ta wthhed or otherwse pad for hs account. In such a
case, the ta abty w be zero hence, the ta pad for hs account
durng that year s refundabe n ts entrety. In a cases n whch
the ta payer s entted to a refund, he shoud fe a cam therefor
on orm 43.
The foregong concuson that wthhodng of ta , under secton
143(b) of the Code, sha be at the rate of 10 per cent of the tota
wages pad to the empoyee s based upon the factua assumpton that
the partcuar ndvdua ctzen of Puerto Rco has been brought nto
the Unted States by the War Manpower Commsson for work of a
temporary nature and that the ndvdua s st engaged n such
temporary empoyment, thus retanng the status of a nonresdent.
If any such ndvdua accepts other empoyment not of a temporary
nature, or otherwse evdences an ntenton of remanng n the Unted
States for an ndefnte perod (as s the rght of such an ndvdua
snce he s a ctzen of the Unted States), he w be consdered a
resdent and hs wages w be sub|ect to wthhodng under secton
1622 of the Code, as n the case of any other ctzen who s a resdent
of the Unted States.
ctzen of Puerto Rco who comes to the Unted States (but not
under the auspces of the War Manpower Commsson) and who does
not become a resdent of the Unted States s, under secton 252(-a) of
the Code, ta ed n the same manner as a nonresdent aen ndvdua.
SUPPL M NT . C IN TR D CT CORPOR TIONS.
S CTION 262. CR DIT G INST N T INCOM .
Secton 29.262-3: Meanng of terms used n con- 1945-1-11921
necton wth Chna Trade ct corporatons. T. D. 5424
P RT 29.
mendng secton 19.202-3 of Reguatons 103, and secton 29.262-3
of Reguatons 111, reatng to the atest permssbe date for Chna
Trade ct corporatons to dstrbute speca dvdends under secton
262(b) (1) of the Interna Revenue Code.
Offce of Commssoner of Interna, Revenue,
Washngton, D. G.
Secton 19.262-3 of Reguatons 103 Part 19. Tte 26, Code of
edera Reguatons. 1940 Sup. , and secton 29.262-3 of Reguatons
111 Part 29, Tte 26, Code of edera Reguatons, Cum. Sup. , are
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251
29.271-1.
each amended by strkng out the frst sentence of the thrd paragraph
of each such secton and nsertng n eu thereof the foowng:
The term speca dvdend means the amount whch, durng the year end-
ng on the date f ed by aw for the fng of the corporaton s return, s ds-
trbuted as a dvdend to or for the beneft of such persons as on the ast day
of the ta abe year were resdent n Chna, the Unted States, or possessons
of the Unted States, or were Indvdua ctzens of the Unted States or Chna,
and owned shares of stock of the corporaton. The tme f ed by aw for fng
te return ncudes the perod of any e tenson of tme granted under rues
and reguatons prescrbed by the Commssoner wth the approva of the Secre-
tary.
sectons 62, 262, and 3 05 of the Interna Revenue Code (53 Stat., 32,
66 36 Stat., 961 26 U. S. C, and Sup. 62, 262, 3 05).)
oseph D. Nunan, r.,
(fed wth the Dvson of the edera Regster December 27, 1944, 11.34 a. m.)
SUPPL M NT L. SS SSM NT ND COLL CTION O D ICI NC S.
S CTION 271. D INITION O D ICI NCY.
Secton 29.271-1: Defcency defned. 1945-7-12006
( so Secton 272, Secton 29.272-2 Secton T. D. 5447
322, Secton 29.322-7 Secton 3 01(d),
Secton 29.3 01 (d)-.)
Reguatons 131 amended to conform to secton 14 of the Ind-
vdua Income Ta ct of 1944, reatng to defnton of defcency.
Washngton, D. C.
edera Reguatons, Cum. Sup. to secton 14 of the Indvdua In-
come Ta ct of 1944 (Pubc Law 315, Seventy-eghth Congress),
approved May 29,1944, such reguatons are amended as foows:
S C. 14. T C NIC L M NDM NT O D INITION O D -
ICI NCY. (INDI IDU L INCOM T CT O 1944.)
(a) In Genera. Secton 271 (defnng the term defcency ) s
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5 29.271-1.
252
S C. 271. D INITION O D ICI NCY.
(a) In Genera. s used In ths chapter n respect of a ta Im-
posed by ths chapter, defcency means the amount by whch the ta
mposed by ths chapter e ceeds the e cess of
(1) the sum of ( ) the amount shown as the ta by the ta -
payer upon hs return, f a return was made by the ta payer and
an amount was shown as the ta by the ta payer thereon, pus
( ) the amounts prevousy assessed (or coected wthout assess-
ment) as a defcency, over
(2) the amount of rebates, as defned n subsecton (b)(2),
made.
(b) Rues for ppcaton of Subsecton (a). or the purposes of
ths secton
(1) The ta mposed by ths chapter and the ta shown on
the return sha both be determned wthout regard to payments
on account of estmated ta , wthout regard to the credt under sec-
ton 35, and wthout regard to so much of the credt under secton 32
as e ceeds 2 per centum of the nterest on obgatons descrbed
n secton 143(a)
(2) The term rebate means so much of an abatement, credt
refund, or other repayment, as was made on the ground that the
ta mposed by ths chapter was ess than the e cess of the amount
specfed n subsecton (a) (1) over the amount of rebates prevousy
made and
(3) The computaton by the coector, pursuant to secton 51(f),
of the ta mposed by ths chapter sha be consdered as havng
been made by the ta payer and the ta so computed consdered as
shown by the ta payer upon hs return.

(e) Ta abe Yf-arb to Whch ppcabe. The amendments made
by subsectons (a) sha be appcabe wth respect to ta abe
years begnnng after December 31, 1942. In the appcaton
of the amendments made by ths secton n the case of ta abe years
begnnng n 1943. secton 35 n the amendment made by subsecton
(a) sha be read as secton 35 and secton 466(e) .
( ) y strkng out a of the frst paragraph foowng the head-
ng and nsertng m eu thereof the foowng:
(a) Ta abe years begnnng pror to anuary 1, 19 . In defnng the term
defcency for ta abe years begnnng pror to anuary 1, 1943, the Interna
Revenue Code recognzes two casses of cases one, where the ta payer makes
a return showng some ta abty the other, where the ta payer makes a
return showng no ta abty, or where the ta payer fas to make a return.
ddtona ta shown on an amended return, so-caed, fed after the due date
of the return for the ta abe year, s a defcency wthn the meanng of the
Code.
(b) Ta abe years begnnng after December 31, 191/2. or ta abe years be-
gnnng after December 31, 1942, the term defcency means the e cess of
the ta mposed by Chapter 1 over the sum of the amount shown as the ta
by the ta payer upon hs return and the amounts prevousy assessed (or co-
ected wthout assessment) as a defcency but such sum sha frst be reduced
by the amount of rebates mnde. If no return s made, or f the return (e cept a
return on orm W-2 (Rev.) pursuant to secton 51(f)) does not show any ta ,
for the purposes of the defnton the amount shown as the ta by the ta -
payer upon hs return sha be consdered as zero. ccordngy, n any such
case, f no defcences have been assessed, or coected wthout assessment,
and no rebates have been made, the defcency Is the amount of the ta mposed
by Chapter 1. ddtona ta shown on an amended return, so-caed, fed
after the due date of the return for the ta abe year, s a defcency wthn the
meanng of the Code.
or the purposes of the defnton, the ta mposed by Chapter 1 and the ta
shown on the return sha both be determned wthout regard to the credt pro-
vded n secton 35 for ta wthhed at the source, and wthout regard to so
much of the credt provded n secton 32 for ta es wthhed at the source as
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253
29.271-1.
e ceeds 2 per cent of the Interest on bonds contanng a ta -free covenant Pay-
ments on account of estmated ta , ke other payments of ta by the ta payer,
sha kewse be dsregarded n the determnaton of a defcency. or ta abe
years begnnng In 1943, the credt provded In secton 466(e) for vctory ta
wthhed at the source sha aso be dsregarded for such purposes.
The computaton by the coector, pursuant to secton 51(f), of the ta mposed
by Chapter 1 sha be consdered as havng been made by the ta payer and the
ta so computed sha be consdered as the ta shown by the ta payer upon
hs return.
If so much of the credts camed on the return for ta es wthhed at the
source as e ceeds 2 per cent of the nterest on ta -free covenant bonds s greater
than the amount of such credts aowabe, the unpad porton of the ta attrb-
utabe to such dfference w be coected not as a defcency but as an underpay-
ment of the ta shown on the return.
The appcaton of these provsons may be ustrated by the foowng
e ampes:
ampe (1). The amount of ta shown by the ta payer upon hs return
for the caendar year 1044 was 1,500. The ta payer had no amounts prevousy
asessed (or coected wthout assessment) as a defcency. e camed a credt
n the amount of 2,000 for ta wthhed at source on wages, and a refund of
(not a rebate under secton 271) was made to hm as an overpayment of
t for the ta abe year. It s ater determned that the correct ta for the
ta abe year Is 1,750. defcency of 250 s determned, as foows:
Ta mposed by Chapter 1 1, 750
Ta shown on return 1, 500
Ta prevousy assessed (or coected wthout assessment) as
a defcency None
Tota 1,500
mount of rebates made None
aance : 1,500
Defcency 250
ampe (2). The ta payer made a return for the caendar year 1944 showng
a ta of 1,200 before any credts for ta wthhed at the source. e camed a
credt n the amount of 00 for ta wthhed at source on wages under secton
1622 and 60 for ta pad at source under secton 143 upon nterest on bonds
contanng a ta -free covenant. The ta payer had no amounts prevousy assessed
(or coected wthout assessment) as a defcency. The Commssoner deter-
mnes that the 2 per cent ta pad at the source on ta -free covenant bonds s 40
nstead of 60 as camed by the ta payer and that the ta mposed by Chapter 1
s 1,360 (tota ta 1,400 ess 40 ta pad at source on ta -free covenant bonds).
defcency n the amount of 170 s determned, as foows:
Ta mposed by Chapter 1 ( 1,400 mnus 40) 1,360
Ta shown on return ( 1,250 mnus 60) 1,190
Ta prevousy assessed (or coected wthout assessment) as a
defcency None
ampe (S). or the caendar year 1945, the ta payer, a nonresdent aen
ndvdua not engaged n trade or busness wthn the Unted States, receved
gross ncome from sources wthn the Unted States consstng of dvdends, and
nterest on bonds contanng a ta -free covenant under whch the ta abty
assumed by the obgor does not e ceed 2 per cent of the nterest. The ta payer
made a return showng a ta of 7, 00 before any credts for ta wthhed at the
source. e camed a credt of 6,000 under secton 32 for ta wthhed at the
source under secton 143, of whch amount 5,(00 was represented as ta wth-
hed and 400 was represented as the ta at 2 per cent pad by the obgor on
nterest on ta -free covenant bonds descrbed n secton 143(a). The Comms-
soner determnes that the 2 per cent ta pad by the obgor on nterest on ta -free
Tota
mount of rebates nade.
1,190
None
aance
1, ICO
Defcency
170
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23.271-1.
254
covenant bonds amounts to 200 nstead of 400 as camed by the ta payer, and
that the ta mposed by Chapter 1 s 11,320 (tota ta 11,520 ess 200 ta pad
by obgor on nterest on ta -free covenant bonds). The Commssoner aso
determnes that the ta wthhed at the source amounts to 7,750 n addton to
the 200 pad by the obgor of the bonds. defcency n the amount of 3, 60
s determned, as foows:
Ta mposed by Chapter 1 ( 11,520 mnus 200) 11,320
Ta shown on return ( 7, 00 mnus 400) 7,400
Ta prevousy assessed (or coected wthout assessment) as a
defcency None
Tota 7,460
mount of rebates made None
aance 7,460
Defcency 3, 60
s used n secton 271, the term rebate means so much of an abatement,
credt, refund, or other repayment as Is made on the ground that the ta mposed
by Chapter 1 s ess than the e cess of (1) the amount shown as the ta by the
ta payer upon hs return ncreased by the amount prevousy assessed (or co-
ected wthout assessment) as a defcency over (2) the amount of rebates pre-
vousy made. or e ampe, assume that the amount of the ta shown by the
ta payer upon hs return for the ta abe year s 600 and the amount camed as
a credt under secton 35 for ta wthhed at the source s 900. If the Com-
mssoner determnes that the ta mposed by Chapter 1 s 600 and makes a
refund of 300 no part of such refund consttutes a rebate snce the refund
Is not made on the ground that the ta mposed by Chapter 1 s ess than the ta
shown on the return. If, however, the Commssoner determnes that the ta
mposed by Chapter 1 s 500 and refunds 400, the amount of 100 of such refund
woud consttute a rebate snce t s made on the ground that the ta mposed by
Chapter 1 ( 500) s ess than the ta shown on the return ( 600). The amount
of such rebate ( 100) woud be taken nto account n arrvng at the amount of
any defcency subsequenty determned.
Par. 3. Secton 29.272-2 s amended by nsertng mmedatey pre-
cedng the words amount so assessed the words unpad porton
of the.
Par. 4. There s nserted mmedatey precedng secton 293 the fo-
owng:
S C. 14. T C NIC L M NDM NT OP D INITION O D I-
CI NCY. (INDI IDU L INCOM T CT O 1944.)

(c) Interest on Defcences. Secton 292(a) (reatng to nterest
on defcences) s amended by nsertng at the end thereof the foow-
ng: If any porton of the defcency assessed s not to be coected by
reason of a pror satsfacton, n whoe or n part, of the ta , proper
ad|ustment sha be made wth respect to the nterest on such porton.

(e) Ta abe Years to Whch ppcabe. The amendments made
by subsectons (c) sha be appcabe wth re-
spect to ta abe years begnnng after December 31, 1942.
foowng:
S C. 14. T C NIC L M NDM NT O D INITION O D I-
CI NCY. (INDI IDU L INCOM T CT O 1944.)

(d) Overpayment ound by Ta Court n Case of Defcency.
Secton 322(d) (reatng to overpayments found by Ta Court) Is
amended by nsertng after n respect of whch the Commssoner de-
termned the defcency, the foowng: or fnds that there Is a def-
cency but that the ta payer has made an overpayment of ta In respect
of such ta abe year, .
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255
29.271-1.
(e) Ta abe Years to Whch ppcabe. The amendments made
by subsectons (d) sha be appcabe wth respect to ta abe
years begnnng after December 31, 1942.
Par. 6. Secton 29.322-7 (d) s amended by strkng out of subdv-
son (1 the words there s no defcency but that.
Par. 7. There s nserted mmedatey precedng secton 29.3 01 (d) -1
the foowng:
S C. 14. T C NIC L M NDM NT OP D INITION O D I-
CI NCY. (INDI IDU L INCOM T . CT O 1944.)

(b) mendment of Sectons 3 01 and 3 06. The second sentence
of secton 3 01(d) (reatng to ascertanment of amount of ad|ustment
under secton 3 01), are respectvey amended to read as fo-
ows: The amount of the ta prevousy determned sha be the e cess
of-
(1) the sum of ( ) the amount shown as the ta by the ta -
payer upon hs return (determned as provded n secton 271(b) (1)
and (3)), f a return was made by the ta payer and an amount was
shown as the ta by the ta payer thereon, pus ( ) the amounts
prevousy assessed (or coected wthout assessment) as a def-
cency, over
(2) the amount of rebates, as denned In secton 271(b)(2),
made.

(e) Ta abe Years to Whch ppcabe. The amend-
ment made by subsecton (b) to secton 3 01(d) of the Interna Revenue
Code sha, for the purposes of such secton and sectons 124, 130, and
3 07 of such Code, be appcabe n the determnaton of a ta prevousy
determned ony f such ta s for a ta abe year begnnng after Decem-
ber 31,1942.
Par. . Secton 29.3 01 (d)- s amended by strkng out the matter
foowng the headng and precedng the paragraph begnnng Wth
the e cepton of the tems upon whch the ta and nsertng n eu
thereof the foowng:
a computng the amount of the ad|ustment under secton 3 01 there must frst
be ascertaned the amount of the ta prevousy determned for the ta payer as to
nom the error was made for the ta abe year wth respect to whch the error
was made. The ta prevousy determned for any ta abe year may be the
amount of ta shown on the ta payer s return, but f any changes n that
amount have been made they must be taken nto account. In such cases, the
ta prevousy determned w be ascertaned as foows:
(1) or ta abe years begnnng before anuary 1, 1943, the ta prevousy
determned w be the ta shown on the return, Increased by any amounts pre-
rousy assessed (or coected wthout assessment) as defcences, and decreased
b| any amounts prevousy abated, credted, refunded, or otherwse repad n
re|ect of such ta . If no amount was shown as the ta upon the return, or
f no return was made, the ta prevousy determned w be the sum of the
amounts prevousy assessed, or coected wthout assessment, as defcences,
decreased by any amounts prevousy abated, credted, refunded, or otherwse re-
ad n respect of such ta .
(2) or ta abe years begnnng after December 31, 1942, the ta prevousy
teermned w be te sum of the amount shown as the ta by the ta payer upon
Ms return and the amounts prevousy assessed (or coected wthout assessment)
as defcences, reduced by the amount of any rebates made. The amount shown
as the ta by the ta payer upon hs return and the amount of any rebates sha
re determned n accordance wth the provsons of secton 271 and secton
2)271-1 (ft).
The ta prevousy determned may consst of ta for any ta abe year be-
gnnng after December 31, 1931, mposed by Chapter 1 and Subchapters , , D,
and of Chapter 2 of the Interna Revenue Code, by the correspondng prov-
sons of pror evenue cts, or by any one or more of such provsons.
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29.294-1.
256
fter the ta prevousy, determned has been ascertaned, a recompntnton
must then be made to ascertan the ncrease or decrease In ta , f any, resutng
from the correcton of the error. The dfference between the ta prevousy
determned and the tu as recomputed after correcton of the error w be the
amount of the ad|ustment.
secton 14 of the Indvdua Income Ta ct of 1944 (Pubc Law 315,
Seventy-eghth Congress) and secton 62 of the Interna Revenue
Code (53 Stat,, 32 20 U. S. C, 62).)
oseph D. Nunan, r.,
D. W. e,
( ed wth the Dvson of the edera Regster March 22, 1915, 11.21 a. m.)
S CTION 272. PROC DUR IN G N R L.
Secton 29.272-2: Coecton of a defcency.
INT RN L R NU COD .
SUPPL M NT M. INT R ST ND DDITIONS TO T T .
S CTION 294. DDITIONS TO T T IN
C S O NONP YM NT.
Secton 29.294-1: ddtons to the ta . 1945-7-12011
T. D. 544
INCOM T T L T RS GINNING T R D C M R 31, 1941.
Treasury Decson 5420 C. . 1944, 355 , reatng to penates
n connecton wth estmated ta , amended to provde speca rue
for computaton of penates for ta abe years begnnng before
September 1, 1914.
Washngton, D. C.
Treasury Decson 5420, amendng secton 29.294-1 of Reguatons
111 Part. 29, Tte 26, Code of edera Reguatons, Cum. Sup. ,
approved December ,1944 C. . 1944, 355 , s amended by nsertng
mmedatey after paragraph 2 thereof the foowng:
Pab. 3. In the appcaton of secton 29.294-1, as amended, of Reguatons 111
to ta abe years begnnng before September 1, 1944, the addtons to the ta
for faure to fe a decaraton of estmated ta wthn the tme prescrbed,
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257 29.322-3.
or for underestmate of the estmated ta , sha be computed upon the bass
of the ta shown on the return or the ta as fnny determned, whchever s
the esser.
secton 62 of the Interna Revenue Code (53 Stat., 32 20 U. S. C, 62)
and secton 3791 of the Interna Revenue Code (53 Stat., 4(57 26
U.S. C.,3791).)
pproved March 2 , 1945.
. ctng Secretary of the Treasury.
SUPPL M NT O. O RP YM NTS.
S CTION 322. R UNDS ND CR DITS.
Secton 29.322-3: Cams for refund by ta - 1945-9-12035
payers. I. T. 3734
INT RN L R NU COD .
uthorty of rmy offcers to admnster oaths wth respect to
refund cams and other documents.
dvce s requested wth respect to the authorty of rmy offcers
to admnster oaths n connecton wth the e ecuton of refund cams
and other documents.
cam for the refund of ncome ta must set forth n deta and
under oath each ground upon whch a refund s camed. (See secton
29.322-3 of Reguatons 111.) Secton 3632(b) of the Interna Reve-
nue Code provdes that any oath or affrmaton requred or author-
zed by any nterna revenue aw or by any reguatons made under
authorty thereof may be admnstered by any person authorzed to
admnster oaths for genera purposes by the aw of the Unted States,
etc. The words authorzed to admnster oaths for genera pur-
poses sgnfy that the authorty of the person so descrbed s not
mted to specfc purposes or crcumstances, but s broad enough to
enabe hm to admnster oaths generay.
The authorty vested n rmy offcers to admnster oaths s derved
from artce 114 of the rtces of War ( ct of une 4, 1920, 41 Stat.,
759, 10), as amended by the ct of December 14,1942 (50 Stat., 1050).
Pror to December 14, 1942, the date of ts amendment, artce 114 of
the rtces of War provded that certan desgnated offcers sha have
power to admnster oaths for the purposes of admnstraton of m-
tary |ustce and for other purposes of mtary admnstraton, and
n foregn paces where the rmy may be servng sha have the gen-
era powers of a notary pubc or of a consu of the Unted States n
the admnstraton of oaths, the e ecuton and acknowedgment of
ega nstruments, the attestaton of documents, and a other forms of
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29.322.3.
25
notara acts to be e ecuted by persons sub|ect to mtary aw. Pur-
suant to artce of war 114 as t e sted pror to ts amendment, the
ureau hed that the desgnated offcers were authorzed to admnster
oaths n connecton wth ncome ta returns of such persons n foregn
paces as may be sub|ect to mtary aw as provded n artce 2(d) of
the rtces of War. (See I. T. 355 , C. . 1942-1, 92.) In an
earer rung, the ureau had hed that rmy offcers have no au-
thorty to admnster oaths to ta payers fng cams for refund.
(See I. T. 222 , C. . I -2,104 (1925).)
rtce 114 of the rtces of War, as amended by the ct of
December 14,1942, supra, provdes n part as foows:
uthorty to admnster oaths. ny offcer of any component of the rmy of
the Unted States on actve duty n edera servce commssoned n or assgned
or detaed to duty wth the udge dvocate Genera s Department, any staff
|udge advocate or actng staff |udge advocate, the presdent of a genera or
speca court-marta, any summary court-marta, the tra |udge advocate
or any assstant tra |udge advocate of a genera or speca court-marta, the
presdent or the recorder of a court of nqury or of a mtary board, any offcer
desgnated to take a deposton, any offcer detaed to conduct an nvestgaton,
and the ad|utant, assstant ad|utant or personne ad|utant of any command sha
have power to admnster oaths for the purposes of the admnstraton of m-
tary |ustce and for other purposes of mtary admnstraton and sha aso have
the genera powers of a notary pubc n the admnstraton of oaths, the e ecu-
ton and acknowedgment of ega nstruments, the attestaton of documents and
a other forms of notara acts to be e ecuted by persons sub|ect to mtary
aw Itacs supped.
rtce 2 of the rtces of War ( ct of une 4, 1920, 41 Stat., 759,
7 7) provdes that the term persons sub|ect to mtary aw sha
be understood to ncude the foowng persons:
(a) offcers, members of the rmy Nurse Corps, warrant offcers, rmy
fed cerks, fed cerks uartermaster Corps, and soders beongng to the
Reguar rmy of the Unted States a vounteers, from the dates of ther
muster or acceptance nto the mtary servce of the Unted States and a other
persons awfuy caed, drafted, or ordered nto, or to duty or for tranng n,
the sad servce, from the dates they are requred by the terms of the ca, draft
or order to obey the same
(6) Cadets
(c) Offcers and soders of the Marne Corps when detached for servce wth
the armes of the Unted States by order of the Presdent
(d) retaners to the camp and a persons accompanyng or servng wth
the armes of the Unted States wthout the terrtora |ursdcton of the Unted
States, and n tme of war a such retaners and persons accompanyng or servng
wth the armes of the Unted States n the fed, both wthn and wthout the
terrtora |ursdcton of the Unted States, thoug not otherwse sub|ect to
these artces
(e) persons under sentence ad|udged by courts-marta
f) persons admtted nto the Reguar rmy Soders ome at Washngton,
Dstrct of Coumba.
The cause persons accompanyng or servng wth the armes of
the Unted States n the fed ncudes cvan empoyees of the War
Department who are servng n the fed McCune v. upatrck, 53 ed.
Supp., 0) as we as cvans who are not empoyees of the War De-
partment but are empoyed by certan Government contractors In re
D artoo, 50 ed. Supp., 929). In order that an ndvdua may be
. consdered a part of the and forces under artce 2 of the rtces of
War, supra, and so may be sub|ected to mtary aw even though he
s not a member of the mtary forces of the Unted States, t s not
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259
29.400-1.
necessary that he be n unform. (See parte ochen, 257 ed., 200
Inre D artoo, supra Perstenv. Unted States, 57 ed. Supp., 123.)
The words n the fed, as used n artce 2 of the rtces of War,
have been hed to ncude servce n mobzaton, concentraton, n-
structon, or maneuver camps wthn the Unted States, as we as
servce n a campagn, smuated campagn, or on the march. (See
parte ochen, supra.) Such words have aso been hed to ncude
forces n cantonments or tranng camps wthn or wthout the Unted
States. (See nes v. Mke, 259 ed., 2 , certorar dened, 250 U. S.,
645.)
In vew of the foregong, t s hed that the rmy offcers referred
to n artce 114 of the rtces of War, as amended, are duy author-
zed, on and after December 14, 1942, to admnster oaths generay,
wthn or wthout the Unted States, wth respect to refund cams
and other documents requred to be e ecuted under oath by members
of the Reguar rmy, by vounteers, draftees, or seectees n the rmy
of the Unted States, by cvans accompanyng or servng wth the
nnes of the Unted States (wthout the terrtora |ursdcton of
te Unted States) n tme of peace, by cvans accompanyng or
servng wth the armes of the Unted States n the fed (both wthn
Md wthout the terrtora |ursdcton of the Unted States) n tme
of war, and by members of the other casses of ndvduas referred
to n artce 2 of the rtces of War, supra.
egttatons 103, Secton 19.322-7: Lmtatons
_ | |
UPPL M NT T -INDI IDU LS WIT GROSS INCOM ROM C RT IN SOURC S O
3,000 OR L SS.
ecton 29.400-1: Scope and appcaton of Suppement T.
ScnoN 29.322-7: Lmtatons upon the credtng
and refundng of ta es pad.
INT RN L R NU COD .
INT RN L R NU COD .
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29.504-2. 260
C PT R 2. DDITION L INCOM T S.
SU C PT R . P RSON L OLDING COMP NI S.
S CTION 504. UNDISTRI UT D SU C PT R
N T INCOM .
Secton 29.504-2: mounts used or rrevocaby 1945-13-12075
set asde to pay or to retre ndebtedness of T. D. 5460
any knd ncurred pror to anuary 1, 1934.
( so Secton 27(a), Sectons 29.27(a)-, 29.27
(a)-2, and 29.27(a)-3 Secton 19.27(a)-3,
Reguatons 103 Reguatons 103, 101, 94,
and 6.)
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RTS 9, 19,
ND 2 .
Defct credt and credt or deducton for amounts used or rrev-
ocaby set asde to pay or retre ndebtedness. Secton 29.27(a)-,
29.27(n)-2, 29.27(a)-3, and 29.504-2 of Reguatons 111 secton
19.27(a)-3 of Reguatons 103 and artce 27(a)-3 of Reguatons
101 amended.
Treast|rt Department,
Washngton, D. C.
Reguatons 111 Part 29. Tte 26, Code of edera Reguatons,
Cum. Sup. , Reguatons 103 Part 19, Tte 26, Code of edera Regu-
atons, 1940 Sup. , and Reguatons 101 Part 9, Tte 26, Code of
edera Reguatons, 193 Sup. are amended as foows:
reguatons n.
Paragraph 1. Paragraphs (3) and (4) of secton 27(a) of the
Interna Revenue Code, nserted mmedatey precedng secton
29.27(a)-, are strcken and there s nserted n eu thereof the
foowng:
Paragraphs (3) and (4) of secton 27(a) have no appcaton to ta abe years
begnnng after December 31, 1941.
Par. 2. Secton 29.27(a)- s amended to read as foows:
Sec. 29.27(a)-. Dvdends Pad Credt. The amount of the dvdends pad
credt provded by secton 27(a) s an amount equvaent to the sum of the
foowng:
(1) The basc surta credt for the ta abe year. or computaton of
the basc surta credt see secton 27(b).
(2) The dvdend carry-over to the ta abe year. or computaton of
the dvdend carry-over see secton 27(c).
The defct credt provded by secton 27(a) (3) and the credt for amounts used
or rrevocaby set asde to pay or to retre ndebtedness as provded In secton
27(a)(4) have no appcaton to ta abe years begnnng after December SI.
1941, covered by these reguatons.
Par. 3. Secton 29.27 (a)-2 and secton 29.27 (a)-3 are strcken n
ther entrety from these reguatons.
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261 29.504-2.

Pak. 4. Secton 29.504-2 s amended as foows:
( ) y strkng out the thrd sentence of the second paragraph
of subsecton (a) and nsertng n eu thereof the foowng:
In the case of refundng, renewa or other change n the form of an ndebtedness,
the gvng of a new promse to pay by the ta payer w not have the effect of
changng the date the ndebtedness was ncurred.
( ) y strkng out the thrd sentence of subsecton (b) and nsert-
ng h eu thereof the foowng:
In the case of refundng, renewa or other change n the form of an ndebtedness,
the mere gvng of a new promse to pay by the ta payer w not resut In an
aowabe deducton.
Pah. 5. The amendment to subsectons (a) and (b) of secton
29.504-2 of Reguatons 111 set forth n ths Treasury decson, whch
reguatons cover ta abe years begnnng after December 31, 1941,
are hereby made appcabe to ta abe years begnnng after December
31.1933, and pror to anuary 1, 1942, such years beng covered by
eguatons 103,101, 94, and 6.
R GUL TIONS 103 ND 101.
Par. 6. Secton 19.27(a)-3 of Reguatons 103 and artce 27(a)-3
of Reguatons 101, each as amended by Treasury Decson 5259, ap-
proved pr 14, 1943 C. . 1943, 1 2 , are further amended as
foows:
( ) y strkng out the second, thrd, fourth, and ffth sentences
of the frst paragraph of subsecton (a) and nsertng n eu thereof
the foowng:
If the ndebtedness was so evdenced at the cose of busness on December 31,
1 37, t s st an Indebtedness wthn the meanng of secton 27(a) (4) though,
pror to the tme payment Is made or amounts are rrevocaby set asde, t has
been renewed or refunded. Such renewa or refundng need not be evdenced
by one of the types of nstruments enumerated n secton 27(a)(4), provded
that the Indebtedness as e stng at the cose of busness on December 31, 1037,
was so evdenced. n Indebtedness once renewed or refunded may be agan
renewed or refunded wthout deprvng the corporaton of the benefts of sec-
ton 27(a) (4).
( ) y strkng out the thrd sentence of subsecton (6) and nsert-
ng n eu thereof the foowng:
The Issuance of a renewa or refundng obgaton w, therefore, not resut n
an aowabe credt.
(Ths Treasury decson s ssued under the authorty of sectons 27,
62, and 504 of the Interna Revenue Code and correspondng sectons
of pror nterna revenue aws (53 Stat., 19, 32, 107 26 U. S. C, 1940
ed.,27,62, 504).)
oseph D. Nunan, r.,
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710.
262
SU C PT R . C SS-PRO ITS T .
P RT L
Reguatons 112, Secton 35.710-1: Scope of 1945-19-12142
ta . T.D.547
( so Sectons 35.710-2 and 35.710-3, Regua-
tons 112 Secton 729, Reguatons 112
Secton 141, Reguatons 111.)
P RT 35.
Reguatons 111 and 112 amended to conform to secton 2, Ta
d|ustment ct of 1945.
Washngton, D. G.
edera Reguatons, Cum. Sup. and Reguatons 112 Part 35, Tte
2G, Code of edera Reguatons, Cum. Sup. to secton 2 of the Ta
d|ustment ct of 1945 (Pubc Law 172, Seventy-nnth Con-
gress), approved uy 31, 1945 page 532, ths uetn , such regua-
R GUL TIONS 111.
S C. 2. INCR S IN C SS -PRO ITS T SP CI IC MP-
TION. (T D USTM NT CT O 1945.)

(c) Consodated Returns. Secton 141(c) of the Interna Revenue
Code s amended by strkng out of 10,000 and nsertng n eu
thereof as .
(d) Ta abe Years to Whch ppcabe. The amendments made
by ths, secton sha be appcabe to ta abe years begnnng after
December 31, 1945, and to ta abe years begnnng n 1945 and endng
n 1916.
R GUL TIONS 112.
foowng:
S C. 2. INCR S IN C SS PRO ITS T SP CI IC -
MPTION. (T D USTM NT CT O 1915.)
(a) In Genera. Secton 710(b)(1) of the Interna Revenue Code
(1) Specfc e empton. specfc e empton of 25,000,
e cept that n the case of a ta abe year be|dnng n 1945 and endng
n 194(3, the specfc e empton sha be an amount equa to the sum
of ( ) an amount whch bears the same reaton to 10,000 whch the
number of days n such ta abe year pror to anuary 1, 1946, bears
to the tota number of days n such ta abe year and ( ) an amount
whch bears the same reaton to 25,000 whch the number of days
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263 no.
n such ta abe year after December 31, 1945, bears to the tota
number of days In such ta abe year and In the case of a mutua
Insurance company (other than fe or marne) whch s an nter-
Insurer or recproca underwrter, a specfc e empton of 50,000

(d) Ta abe Tears to Whch ppcabe. The amendments made by
ths secton sha be appcabe to ta abe years begnnng after Decem-
ber 31, 1945, and to ta abe years begnnng n 1945 and endng n 1946.
Par. 3. Secton 35.710-1, as amended by Treasury Decson 53 6,
approved uy 1,1944 C. . 1941, 374 , s further amended:
( ) y strkng out the thrd sentence and nsertng n eu there-
of the foowng:
n e cess profts ta return for a ta abe year need not be fed by a corporaton
whose e cess profts net ncome, computed as provded n secton 711(a) (2) and
(3), s not greater than
(a) 5,000 f such ta abe year s a ta abe year begnnng pror to anuary
1, 1944
(6) 10,000 If such ta abe year s a ta abe year begnnng after Decem-
ber 31, 1943, and endng pror to anuary 1,1946
(c) 25 00 f such ta abe year s a ta abe year begnnng after Decem-
ber 31, 1945
(d) In the case of a ta abe year begnnng n 1945 and endng n 1946,
the amount of the specfc e empton for such year, that s, an amount equa
to the sum of (1) an amount whch bears the same reaton to 10,000 whch
the number of days n such ta abe year pror to anuary 1, 1946, bears to
the tota number of dnys n such ta abe year and (2) an amount whch
bears the same reaton to 25,000 whch the number of days n such.ta abe
year after December 31, 1945, bears to the tota number of days n such
ta abe year or
(e) 50,000 n the case of a mutua nsurance company (other than fe
or marne) whch s an nternsurer or recproca underwrter.
The appcaton of (d) above may be ustrated by the foowng e ampe:
ampe. Corporaton s ta abe year begns on pr 1, 1945, and ends on
March 31, 1946. or such ta abe year ts specfc e empton s 13,69 .63, deter-
mned as foows:
275
||g 10,000 7, 534.25
90
|||g 25,000 6,164. 3S
Specfc e empton for year pr 1, 1945-March 31, 1940 13, 69 .63
( ) y nsertng mmedatey precedng the perod n the fourth
sentence thereof the foowng: and secton 2(b) of the Ta d|ust-
ment ct of 1945.
Pa . 4. Secton 35.710-2(a), as amended by Treasury Decson 53 6,
s further amended to read as foows:
(a) The specfc e empton appcabe to such ta abe year, as provded n
secton 710(b) (1). See secton 35.710-1.
Par. 5. Secton 35.710-3(5), as amended by Treasury Decson 53 6,
( ) y strkng out that porton of the ffth sentence whch fo-
ows the coon and nsertng n eu thereof the foowng:
The ad|usted e cess profts net Income s computed for each such ta abe year
wthout the specfc e empton aowed by secton 710(b) (1) and wthout credt
of any carry-over or carry-back from the ta abe year n whch such unused
e cess profts credt arose or from any ta abe year subsequent thereto.
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7o. 264
( ) y strkng out n that part of the e ampe desgnated as
(2) (v) the e presson 10,000 mmedatey precedng specfc
e emptons and substtutng n eu thereof 25,000.
(C) y strkng out n that part of the e ampe desgnated as
(3) (v) the e presson 10,000 mmedatey precedng specfc
e empton and substtutng n eu thereof 25,000.
(D) y strkng out 5,000 or 10,000 specfc e empton n the
ast sentence and substtutng n eu thereof 5,000, 10,000, or
25,000 specfc e emptons.
the foowng:
S C. 2. INCR S IN C SS PRO ITS T SP CI IC MP-
TION. (T D USTM NT CT O 1945.)

(b) Return Requrement. Secton 720(b)(2) of the Interna Rev-
enue Code Is amended by strkng out 10,000 or, n the ease of a
mutua nsurance company (other than fe or marne) whch s an
nternsurer or recproca underwrter, s not greater than 50,000
and Insertng n eu thereof the specfc e empton provded n sec-
ton 710(b) (1) .

(d) Ta abe Years to Whch ppcabe. The amendments made
by ths secton sha be appcabe to ta abe years begnnng after
December 31, 1945, and to ta abe years begnnng n 1945 and endng
n 1940.
secton G2 of the Interna Revenue Code as made appcabe by sec-
ton 729(a) of the Interna Revenue Code (53 Stat,. 32 54 Stat,, 9 9
26 U. S. C, 1940 ed., 62. 729(a)) and secton 2 of the Ta d|ustment
ct of 1945 (Pubc Law 172, Seventy-nnth Congress), approved
uy 31, 1945.)
oseph D. Nunan, r.,
Reguatons 112, Secton 35.710-2: Measure of ta .
INT RN L R NU COD .
Reguatons 112, Secton 35.710-3: Unused e cess
profts credt ad|ustment.
INT RN L R NU COD .
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265
713.
S CTION 712. C SS PRO ITS CR DIT-
LLOW NC .
egt|atons 112, Secton 35.712-1: cess 1945-3-11954
profts credt owance. I. T. 3714
INT RN L R NU COD .
Domestc corporatons whch were n e stence before anuary 1,
1940, ncudng such corporatons takng a credt for debt retrement,
must, under secton 712(a) of the Interna Revenue Code, as
amended, compute the e cess profts credt by usng the method (n-
come or nvested capta) whch produces the esser amount of e cess
profts ta . That ta s the ta mposed by secton 710(a) of the
Code, as amended, determned wthout reducton by the post-war
credt provsons of Subchapter of Chapter 2 of the Code.
dvce s requested whether domestc corporatons whch were n
e stence before anuary 1, 1940, are entted to compute the e cess
profts credt by usng whchever method (ncome or nvested capta)
produces (1) the esser amount of e cess profts ta or (2) the esser
amount of e cess profts credt. It s understood that certan corpora-
tons are desrous of usng the method of computaton whch produces
the smaer e cess profts credt n order to obtan a arger post-war
refund credt and a arger amount of post-war refund bonds.
Secton 712(a) of the Interna Revenue Code, as amended, provdes
n part as foows:
Domestc Corpohatons. In the case of a domestc corporaton whch was n
e stence before anuary 1, 1940, the e cess prots credt for any ta abe year
sha be an amount computed under secton 713 or secton 714, whchever amount
resuts n the esser ta under ths subchapter for the ta abe year for whch the
ta uuder ths subchapter s beng computed. Itacs supped.
In vew, of the specfc provsons of secton 712(a) of the Code, as
amended, supra, t s hed that domestc corporatons whch were n
e stence before anuary 1, 1940, ncudng such corporatons takng
a credt for debt retrement, must compute the e cess profts credt by
usng the method (ncome or nvested capta) whch produces the
esser amount of e cess profts ta . That ta s the ta mposed by sec-
ton 710(a) of the Code, as amended, determned wthout reducton
by the post-war credt provsons of Subchapter of Chapter 2 of the
Code. (See secton 35.712-1 of Reguatons 112.)
S CTION 713. C SS PRO ITS CR DIT-
S D ON INCOM .
Reguatons 112, Secton 35.713-2: cess 1945-5-11979
profts credt based on ncome d|ust- I. T. 3719
ments n e cess profts credt on account of
capta changes.
INT RN L R NU COD .
In the case of a ta payer whch keeps ts accounts and fes Its
edera ncome and e cess profts ta returns on the accrua bass,
the term earnngs and profts, as used n secton 713(g)(4) of
the Interna Revenue Code, reatng to the day capta reducton
on account of dstrbutons to sharehoders, means the earnngs
6 4354 46 1
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713.
26
and profts of the ta abe year reduced by the amount of ncome and
e cess profts ta es whch have accrued durng such year. In the
case of a ta payer whch keeps Its accounts and fes ts returns
on the cash recepts and dsbursements bass, the term means earn-
ngs and profts of the ta abe year reduced by the amount of ncome
and e cess profts ta es actuay pad durng such year, and the
earnngs and profts may be so reduced ony from the date of actua
payment.
dvce s requested whether the term earnngs and profts, as
used n secton 13(g) (4) of the Interna Revenue Code, reatng to
the day capta reducton on account of dstrbutons to sharehoders,
means the earnngs and profts of the ta abe year reduced by the
amount of edera ncome and e cess profts ta es attrbutabe to such
year.
Secton 713(g)(4) of the Interna Revenue Code provdes as
foows:
(g) d|ustments n cess Pkofts Credt on ccount or Capta Changes.
or the purposes of ths secton

(4) The day capta reducton for any day of the ta abe year sha be
the aggregate of the amounts of dstrbutons to sharehoders, not out of
earnngs and profts, after the begnnng of the ta payer s frst ta abe year
under ths subchapter and pror to such day.
Secton 72 of the Code provdes that the terms used n Subchapter
of Chapter 2 thereof, reatng to the e cess profts ta , sha have
the same meanng as when used n Chapter 1 of the Code, reatng
to the ncome ta , and secton 729(a) of the Code states that a pro-
vsons of aw appcabe to the ncome ta are appcabe to the e cess
profts ta n so far as they are not nconsstent therewth. Interpret-
ng the term earnngs and profts, as used n secton 713(g)(4)
of the Code, as havng the same meanng as that term, as used n
secton 115 of the Code, reatng to the ncome ta effect of corporate
dstrbutons, gves rse to no nconsstency wth e cess profts ta
provsons. ccordngy, n nterpretng secton 713(g)(4) of the
Code, the ureau has reed upon the reguatons and court decsons
wth respect to secton 115 of the Code. (See secton 35.71 -2 of
Reguatons 112.)
In the case of a ta payer whch keeps ts accounts and fes ts
edera ncome and e cess profts ta returns on the accrua bass,
t has been consstenty hed that n computng earnngs and profts for
a ta abe year for the purpose of secton 115 of the Code, a reducton
s aowed for ncome and e cess profts ta es whch have accrued
durng that year. (See Commssoner v. ames, 49 ed. (2d), 707,
and Rose v. Dobbs, 3G ed. (2d), 4G4.) In awcus Machne Co. v.
Unted States (2 2 U. S., 375 Ct. D. 27 , C. . -, 424 (1931)), the
Supreme Court of the Unted States stated: corporaton can not
cam to have accumuated any net ncome n any year unt provson
s made for ta es accrued, based on net ncome for the same year. In
the case of a ta payer whch keeps ts accounts and fes ts returns
on the cash recepts and dsbursements bass, earnngs and profts may
be reduced ony from the date of actua payment. See everng v.
M. . worh Trust et a, 136 ed. (2d), 12, Ct. D. 1592, C. .
1943,1033, certorar dened, 320 U. S., 7 4.)
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267
5 71 .
s ndcated above, the foregong genera rues are appcabe to
the determnaton of earnngs and profts for e cess profts ta
purposes, e cept to the e tent that the e cess profts ta provsons
of the Code are nconsstent therewth. Secton 71 (c)(3) of the
Code s an e cepton to the genera rue n so far as t provdes that
n determnng whether a dstrbuton s out of earnngs and profts
of any ta abe year, for certan mted purposes, such earnngs and
profts sha be computed as of the cose of the ta abe year wthout
dmnuton by reason of e cess profts ta or ncome ta for such ta -
abe year. owever, no such e cepton s made wth respect to secton
713(g)(4) of the Code, and, accordngy, the above-stated genera
rues must be foowed.
In vew of the foregong, t s hed that n the case of a ta payer
whch keeps ts accounts and fes ts edera ncome and e cess
profts ta returns on the accrua bass, the term earnngs and
profts, as used n secton 713(g) (4) of the Code, means the earnngs
and profts of the ta abe year reduced by the amount of ncome and
aces profts ta es whch have accrued durng such year. In the case
of a ta payer whch keeps ts accounts and fes ts returns on the cash
recepts and dsbursements bass, the term means earnngs and profts
of the ta abe year reduced by the amount of ncome and e cess profts
ta es actuay pad durng such year, and the earnngs and profts may
be so reduced ony from the date of actua payment.
S CTION 71 . UITY IN ST D C PIT L.
Reguatons 112, Secton 35.71 -2: Determ- 1945-5-119 0
naton of day equty nvested capta I. T. 3720
ccumuated earnngs and profts.
INT RN L R NU COD .
In the case of a ta payer keepng ts books and fng ts ncome
and e cess profts ta returns on the accrua bass, the amount of
the e cess profts ta to be subtracted n computng accumuated
earnngs and prftfts as of the begnnng of the ta abe year for
the purposes of secton 71 (a)(4) of the Interna Revenue Code s
the tota ta eved under Subchapter of Chapter 2 of the Code
for the precedng ta abe year, undmnshed by the amount of the
post-war credt under secton 7 0 of the Code. The post-war credt
accrues as of the date on whch the ta payer s payment of e cess
profts ta e ceeds the amount whch woud have been payabe
had the ta rate been 5 per cent ( 1 per cent for the years 1042
and 1943), and w be refected n accumuated earnngs and profts
for Invested capta purposes at the begnnng of the succeedng
ta abe year.
dvce s requested whether, n the determnaton of accumuated
earnngs and profts to be ncuded n nvested capta under secton
71 (a) (4) of the Interna Revenue Code, such earnngs and profts
at the begnnng of the ta abe year shoud be reduced by the gross
amount of the e cess profts ta for the precedng ta abe year or
whether they shoud be reduced by the amount of the e cess profts
ta for the precedng ta abe year ess the post-war credt provded n
secton 7 0 of the Code.
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71 .
26
Secton 71 of the Interna Revenue Code provdes n part as
foows:
S C. 71 . UITY IN ST D C PIT L.
(a) Defnton. The equty nvested capta for any day of any ta abe year
sha be determned as of the begnnng of such day and sha be the sum of the
foowng amounts, reduced as provded n subsecton (b)

(4) arnngs and profts at begnnng of yeab. The accumuated earn-
ngs and profts as of the begnnng of such ta abe year
Secton 35.71 -2 (a) of Reguatons 112, reatng to the compu-
taton of accumuated earnngs and profts n connecton wth the
determnaton of day equty nvested capta, provdes n part as
foows:
In computng accumuated earnngs and profts as of the begnnng
of the ta abe year, a ta payer keepng ts books and makng ts Income ta
returns on the accrua bass sha subtract the ncome and e cess profts ta es
for the precedng ta abe year.
The e cess profts ta mentoned n secton 35.71 -2(a) of Regua-
tons 112, supra, s that eved under the provsons of Subchapter
of Chapter 2 of the Code, as mposed specfcay by secton 710(a) (1)
of that subchapter. It foows that the ta eved by that subchapter
s the ta to be subtracted n computng accumuated earnngs and
profts to be ncuded n the determnaton of nvested capta. The
provsons of sectons 7 0 and 7 1 of the Code wth respect to the post-
war credt do not vary the amount of the e cess profts.ta mposed.
The concuson reached above does not, however, dspose of the ques-
ton whether the post-war credt provded by secton 7 0 of the Code
may be added to earnngs and profts as of the cose of the ta abe
year to whch t reates and thus, whether t may be ncuded n the
computaton of the accumuated earnngs and profts as of the begn-
nng of the succeedng ta abe year for the purposes of secton
71 (a) (4) of the Code. If the post-war credt can be sad to have
accrued to the ta payer as of the cose of the ta abe year to whch
t reates, the accumuated earnngs and profts as of the cose of such
ta abe year w refect a reducton of ony 90 per cent of the amount
of the e cess profts ta .
The rght to receve an amount accrues when such rght becomes
f ed. (See Sprng Cty oundry Co. v. Commssoner, 292 U. S., 1 2,
Ct. D. 29,.C. . III-1, 2 1 (1934), and Contnenta Te Ss Lumber
Co. v. Unted States, 2 6 U. S., 290, Ct. D. 494, C. . I-1,260 (1932).)
Secton 7 0(a) of the Code provdes for a post-war credt n an amount
equa to 10 per cent of the ta mposed by Subchapter of Chapter 2.
Secton 7 1(d) (1) of the Code, as amended by secton 250(f) of the
Revenue ct of 1943, provdes as foows:
(d) Lmtaton.
(1) Geneka mu . The credt under secton 7 0(a) for any ta abe
year sha not be greater than the e cess of the amount of the ta pad
under ths subchapter to the Unted States (and not credted or refunded
under the nterna revenue aws) n respect of such year over the amount
of ta whch woud be payabe to the Unted States f the e cess profts
ta rate were per centum, or, f the mtaton of secton 710(a) (1) (15)
s appcabe, f the amount determned under such secton were reduced by
10 per centum.
It foows that the ta payer has no rght to a post-war credt unt
t has made payment to the Unted States under Subchapter of
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269
f 71 .
Chapter 2 of the Code (and whch payment has not been credted or
refunded) of more than the amount whch woud have been payabe
had the ta rate been 5y2 per cent ( 1 per cent for the years 1942
and 1943). ccordngy, the accrua date for the post-war credt s
the date on whch the ta payer s payment of e cess profts ta e ceeds
the amount whch woud have been payabe had the rate been 5y2
per cent, or 1 per cent, as the case may be.
In vew of the foregong, t s hed that n the case of a ta payer
keepng ts books and fng ts ncome and e cess profts ta returns
on the accrua bass, the amount of the e cess profts ta to be sub-
tracted n computng accumuated earnngs and profts as of the
begnnng of the ta abe year for the purposes of secton 71 (a) (4)
of the Code s the tota ta eved under Subchapter of Chapter 2 of
the Code for the precedng ta abe year, undmnshed by the amount
of the post-war credt under secton 7 0 of the Code. The post-war
credt accrues as of the date on whch the ta payer s payment of
e cess profts ta e ceeds the amount whch woud have been payabe
Wthe ta rate been 51/g per cent ( 1 per cent for the years 1942
and 1943), and w be refected n accumuated earnngs and profts
for nvested capta purposes at the begnnng of the succeedng ta -
abe year.
Reguatons 112, Secton 35.71 -2: Determnaton
of day equty nvested capta ccumuated
earnngs and profts.
INT RN L R NU COD .
Treatment of ad|ustment requred by artce 34(c)(2) of Regua-
tons 7 for purpose of computng equty nvested capta. (See I. T.
375 , page 159.)
Reguatons 112, Secton 35.71 -2: Determnaton of
day equty nvested capta ccumuated earnngs
and profts.
INT RN L R NU COD .
mortzabe bond premum on whoy ta -e empt bonds. (See I. T.
3764, page 1 .)
Reguatons 112, Secton 35.71 -4: Determnaton 1945-15-1209
of day equty nvested capta New capta. I. T. 3751
INT RN L R NU COD .
In the case of a newy organzed corporaton not sub|ect to the
mtatons set forth n subparagraphs ( ), ( ), and (C) of secton
71 (a)(6) of the Interna Revenue Code, the Inta pad-n capta
shoud be treated as new capta for the purpose of computng the
25 per cent addton to capta provded for n that secton. The
equty nvested capta of a newy organzed corporaton as of the
frst day of ts frst ta abe year begnnng after December 31, MO,
s zero, and the mtaton n subparagraph ( ) of secton 71 (a) (t )
of the Code, reatng to ma mum new capta aowabe, s
nappcabe.
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71 .
270
dvce s requested whether a newy organzed corporaton s ent-
ted to treat ts nta pad-n capta as new capta for the purpose
of computng equty nvested capta under secton 71 of the Interna
Revenue Code, as amended.
Secton 71 (a) (6) of the Code, as amended, provdes for ncuson
n equty nvested capta of an amount equa to 25 per cent of the
new capta for any day of any ta abe year determned as of the
begnnng of such day. The term new capta for any day means
so much of the amounts of money or property ncudbe for such day
under paragraphs (1) and (2) of secton 71 (a) of the Code as was
prevousy pad n durng a ta abe year begnnng after December 31,
1940, and so much of the dstrbutons n stock ncudbe for such day
under paragraph (3) of secton 71 (a) of the Code as was prevousy
made durng a ta abe year begnnng after December 31,1940, sub|ect
to the mtatons set forth n subparagraphs ( ) to ( ) of secton
71 (a)(6) of the Code.
It s hed that n the case of a newy organzed corporaton not sub-
|ect to the mtatons set forth n subparagraphs ( ), ( ), and (C)
of secton 71 (a)(6) of the Code, the nta pad-n capta shoud
be treated as new capta for the purpose of computng the 25 per
cent addton to capta provded for n that secton. The equty
nvested capta of a newy organzed corporaton as of the frst day
of ts frst ta abe year begnnng after December 31, 1940, s zero,
and the mtaton n subparagraph ( ) of secton 71 (a) (6) of the
Code, reatng to ma mum new capta aowabe, s therefore nap-
pcabe wth respect to such a corporaton.
Reguatons 112, Secton 35.71 -5: Determna- 1945-21-12157
ton of day equty nvested capta Reduc- I. T. 3765
tons by dstrbutons.
INT RN L R NU COD .
Where a corporaton had a defct In accumuated earnngs and
profts on the frst day of each of the caendar years 1936 to 1943,
ncusve, and In each of such years dstrbutons were made In
amounts not e ceedng the earnngs and profts of the respectve
(current) years, no reducton In equty nvested capta s requred
by secton 71 (b) (1) of the Interna Revenue Code on account of
such dstrbutons.
dvce.s requested whether, n determnng the e cess profts credt
under the nvested capta method, equty nvested capta must be
reduced on account of dstrbutons made durng each of the caendar
years 1936 to 1943, ncusve, n amounts not n e cess of the earnngs
and profts of the respectve years, where the ta payer corporaton had
a defct n accumuated earnngs and profts at the begnnng of each
of such years.
Under secton 71 (b) (1) of the Interna Revenue Code, equty n-
vested capta n respect of each e cess profts ta ta abe year, com-
puted as otherwse provded n secton 71 of the Code, must be re-
duced by dstrbutons made pror to such ta abe year whch were
not out of accumuated earnngs and profts. The term accumuated
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271
71 .
earnngs and profts s not defned n the Code. owever, n genera,
the concept of accumuated earnngs and profts for the purpose of
the e cess profts ta s the same as for the purpose of the ncome ta .
(See secton 35.71 -2 of Reguatons 112.)
The determnaton of the ta abty of corporate dstrbutons s
dependent upon the status of the dstrbutons as dvdends. In that
connecton, secton 115(a) of the Interna Revenue Code provdes n
part as foows:
(a) Defnton of Dvdend. The terra dvdend when used n ths chap-
ter means any dstrbuton made by a corporaton to ts sharehoders,
whether n money or n other property, (1) out of ts earnngs or profts accumu-
ated after- ebruary 2 , 1913, or (2) out of the earnngs or profts of the ta abe
year (wnputed as of the cose of the ta abe year wthout dmnuton by reason
o|any dstrbutons made durng the ta abe year), wthout regard to the amount
of tse earnngs and profts at the tme the dstrbuton was made. r
Itacs supped.
The matter n tacs frst appeared n the Revenue ct of 1936. rt-
ce 115-1 of Reguatons 94, promugated thereunder, reads n part as
foows:
Tbe earnngs or profts of the ta nbe year sha be computed as of the cose
of such year, wthout dmnuton by reason of nny dstrbutons made durng
the ta abe year. or the purpose of determnng whether a dstrbuton const-
tutes a dvdend, t s unnecessary to ascertan the amount of the earnngs and
profts accumuated snce ebruary 2 , 1913, f the earnngs and profts of the
ta abe year are equa to or In e cess of the tota amount of the dstrbutons
made wthn such year.
(See correspondng provsons of subsequent reguatons, ncudng
secton 29.115-1 of Reguatons 111.)
The resut has been that wth respect to ta abe years begnnng
after December 31, 1935, dstrbutons by corporatons to stockhoders
from current earnngs and profts were ta abe to the stockhoders as
dvdends notwthstandng the e stence of a defct n accumuated
earnngs and profts at the begnnng of the ta abe year. To the
e tent that a corporaton had current earnngs and profts, dstrbu-
tons durng the ta abe ear, notwthstandng the e stence of a
defct n accumuated earnngs and profts, have not been consdered
as dstrbutons of capta.
Under the crcumstances, t seems evdent that n enactng secton
1 (b)(1) of the Code t was not contempated that reductons n
equty nvested capta shoud be effected uness dstrbutons were
made out of capta and, further, that t was not ntended to ta ds-
trbutons as beng out of a corporaton s earnngs or profts and, at
the same tme, provde for a reducton of equty nvested capta by
the amount of such dstrbutons as beng out of capta.
In vew of the foregong, t s hed that where a corporaton had a
defct n accumuated earnngs and profts on the frst day of each of
the caendar years 1936 to 1943, ncusve, and n each of such years
dstrbutons were made n amounts not e ceedng the earnngs and
profts of the respectve (current) years, no reducton n equty n-
vested capta s requred by secton 71 (b) (1) of the Interna Reve-
nue Code on account of such dstrbutons.
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722. 272
C PT R 2, SU C PT R . C SS PRO ITS T .
P RT I.
S CTION 722. G N R L R LI CONSTRUCTI
R G S P RIOD N T INCOM .
Reguatons 112. Secton 35.722-3: Determnaton 1945-2-11939
of e cessve and dscrmnatory ta ta payer Mm.5 06
entted to e cess profts credt based on ncome.
Determnatons under secton 722(b)(3)( ) of the Interna
Revenue Code.
Tbeasury Department,
Washngton 25, D. C, anuary 10, 1945.
urther study of the mnor ndustra groups not covered n the
tentatve determnatons contaned n Mmeograph 5747 (C. . 1944,
410), dated September 23, 1944, has ed to the foowng concusons:
1. No mnor ndustra gr6up (accordng to the cassfcaton used
by the ureau of Interna Revenue for statstca purposes n 1937)
as a whoe meets the requrements of secton 722(b)(3)( ) of the
Interna Revenue Code n the sense that a ndustres whch t n-
cudes were depressed durng the base perod because of a varant
profts cyce, . e., a profts cyce dfferng materay n ength and
amptude from the genera busness cyce.
2. poratory studes by the ureau ndcate that ndustres n
whch corporatons were characterstcay depressed n the base pe-
rod because of a varant profts cyce are key to be found chefy n
the budng and cosey reated feds.
3. It s mpractcabe to go further toward dentfyng varant
cyce ndustres by addtona studes, ndustry by ndustry, over the
entre fed of corporate busness. Such a procedure woud nvove
ntensve and tme-consumng studes of numerous ndustres, the
members of whch have offered no serous evdence of cycca de-
presson n suffcent degree to show that ther average base perod net
ncome s an nadequate standard of norma earnngs. ccordngy,
determnatons wth respect to the status of partcuar ndustres un-
der secton 722(b) (3) ( ) of the Interna Revenue Code w be made
ony for those ndustres, members of whch have submtted substan-
ta evdence that they woud quafy for reef under that provson
of the Code, n the event that such ndustres were hed to meet the
statutory requrements.1 These determnatons w be made on the
bass of evdence offered by ta payers, suppemented by ureau
nvestgatons.
Correspondence reatng to the provsons of ths mmeograph
shoud refer to ts number and the symbos IT: NDC.
oseph D. Nunan, r..
Commssoner.
1 or defnton of Industry for ths purpose and for the nature of the proof requred,
reference shoud he made to the uetn on Secton 722 of the Interna Revenue Code,
ssued by the ureau of Interna Revenue November 2, 1944, and obtanabe by the pubc
from the Superntendent of Documents, U. S. Government Prntng Offce, Washngton 25,
D. C, prce 25 cents.
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273
722.
eguatons 112, Secton 35.722-3: Determna- 1945-2-11940
ton of e cessve and dscrmnatory ta ta - Mn. 5 07
payer entted to e cess profts credt based
on ncome.
Statstcs as to corporate profts, years 191 -10. ), for use n con-
sderaton of appcatons under secton 722 of the Code.
Washngton 25, D. C, anuary 10, O o.
1. The accompanyng tabes and chart gve the best avaabe meas-
ures of corporate profts n the years 191 to 19:59, ncusve, for use n
consderaton of appcatons for reef under secton 722 of the Inter-
na Revenue Code.1 The underyng data have been ssued prevousy
by the ureau of Interna Revenue n ts annua pubcaton, Statstcs
of Income, Part 2. Many of these voumes are out of prnt, and the
data they contan are most usefu n connecton wth secton 722 prob-
ems ony after certan ad|ustments. Therefore, t seems desrabe, for
the convenence of a concerned, to make avaabe ths matera for as
ong a perod n the past as s possbe wth comparabe data.
2. Three seres of data are gven n tabe I, for a corporatons fng
returns: ( ) the tota comped net proft or oss (coumn 2) as
reported n Statstcs of Income, representng the ordnary concept of
net ncome from a sources before edera ncome ta es ( ) seres
ad|usted by the subtracton of certan ta -e empt ncome to appro -
mate e cess profts net ncome (coumn 4) and (C) seres wth the
addton of nterest pad to represent the earnngs of corporate busness
rrespectve of changes n the proportons between equty capta and
borrowed capta (coumn 6). Certan factors whch nterfere wth
precse comparabty wthn each seres are ndcated n the footnotes
to the tabe.
3. The accompanyng chart portrays the above-mentoned three
seres of corporate profts data n accordance wth the nde numbers
n coumns 3, 5, and 7 of tabe I. In computng these nde numbers
the average of the 1 -year perod 1922-1939 was taken to equa 100
per cent. Ths 1 -year perod was seected for reasons ndcated n
the uetn on Secton 722 of the Interna Revenue Code, Part I ( )
(referred to n footnote 1).
4. In tabe II are gven data comparabe to those n tabe I, for the
shorter perod for whch avaabe, for the corporatons whch sub-
mtted baance sheets wth ther returns. In addton, tabe II gves
the net worth, tota assets, and capta assets of these corporatons n
order to permt the comparsons suggested n the uetn on Secton
722 of the Interna Revenue Code (referred to n footnote 1).
5. Correspondence reatng to the provsons of ths mmeograph
shoud refer to ts number and the symbos IT: NDC.
oseph D. Nunan, r.,
Commssoner.
or tne appcaton of these data, reference shoud be made to the uetn on Secton
- of the Interna Revenue Code, ssued by the ureau of Interna Revenue November
. and obtanabe by the pubc from the Superntendent of Documents, U. S. Gov-
ernment Prntng Offce, Washngton 25, D. C prce 25 cents.
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722.
274
(Intoc sten. Mt-M kt. Z 100)
Z too
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1

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L G ND
Ceapod N t Proft or
) a a|ortaS.
3) u mv I oo
7

u I tor |t d.
1 1
1 1 1 1
1 I.I 1

mo me s
I 3o acoaq v tabu I end footnote .
Tabe I. Corporate earnngs n the Unted States, 191 -1939
( corporatons fng returns.)
Year.
191
1919
1920
1921
1922
1923.
1924
1925
192
1927
192
1929
1930
1931
1932
1933
1934
1935
1936
1937
193
1939
verage, 1922-39.
verage, 1936-39.
Num-
ber of
returns.
(1)
317. f.79
320.19
345. 595
356. 307
3 1 3
3S ,933
417,421
430,072
455,320
425,675
443,611
456,021
463,036
459, 704
451, 4
446, 42
469, 04
477,113
47 , 57
477. 3
471,032
469,617
443,2 6
474,336
Comped net proft (or oss) before edera ncome ta es.
( ) Tota as reported.
mount.
( 1,000,000)
(2)
S. tt
.970
6,625
1,156
5,967
7.634
6,795
9,316
9. 510
,669
10,667
11, 70
4,649
(777)
(3, 29)
(930)
2,970
5,423
7,771
7, 30
4,131
7,17
5, 25
6,72
Inde .
1922-39 100
(3)
141.4
154.0
113.
19.
102.5
131.1
116.7
160.0
163.3
14 .
1 3.2
203.
79.
(13. 3)
(65.7)
(16.0)
51.0
93.1
133.4
134.4
70.9
123.2
100.0
116.
( ) Tota ess ta -
e empt ncome.
mount.
(.noo.ouo)
(4)
7,672
,416
5, 73
45
4,770
6,30
5.363
7,621
7,504
6,510
.227
.740
1,552
(3.2 )
(5,643)
(2,547)
94
1,696
4,370
4,407
1,60
4, 509
3,434
3, 724
Inde .
1922-39 100
( )
223.4
245.1
171.0
13.3
13 .9
1 3.7
156.2
221.9
21 .5
1 9.6
239.6
254.5
45.2
(95.7)
(164.3)
(74. 2)
2.7
49.4
127.3
12 .3
46.
131.3
100.0
IS. 4
(C) Tota ess ta -
e empt ncome and
pus nterest pad.
mount.
( 1,000,000)
(6)
10,305
10,024
,70
3,599
7. 39
9.5 6
, 0
11.23
11.493
n. sM
12. 0
13.665
6,413
1.204
(1,600)
964
3.516
4.957
7.451
7,410
4,479
7.306
7,135
Inde .
1922-39-100
(7)
144.4
149.0
122.0
50.4
109.
134.3
123.4
157.4
161.0
152.5
179.4
191.4
9.
169
(22.4)
13.5
49.3
69.4
104.4
103.
62.
102.4
10
or footnotes, see page 275.
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275
722
Tabe II. Corporate earnngs n the Unted States and seected baance-sheet
tems, 1 16-1939.
(Corporatons submttng baance shoots wth returns.)
Number
of
Comped net proft (or oss) before
edera ncome ta es.
(C) Tota
ess a -
e empt n-
come and
pus nterest
pad.
Net worth
end of
year.
Tota assets
end of
year.
Capta
assets
( ) Tota
ess ta -
e empt n-
come.
end of
Year.
returns.
(1)
( ) Tota as
reported.
year.
( 1,000,000)
(2)
( 1,000,000)
( )
( 1,000,000)
( 1,000,000)
(5)
( 1,000,000)
(6)
( 1,000,000)
(7)
(4)
m
359.449
( )
( )
)
( )
119,260
2 2,179
97,523
m
379, 156
)
(
132,403
2 7, 542
104, 945
m
3 4. 54
( )
w
142,
307.21
109, 931
1 .
39 . 15
( )

160. 369
335. 77
110. 440
.
403, 173
( )
( )
( )
161,2 2
334.002
120, 994
WL
3 1.0
(4 7)
(2,925)
1,444
143, 363
206, 497
114.303
ML
3SI2,021
(3.511)
(5.263)
(I, 357)
133,569
2 0, C 3
10 ,553

3 .564
(639)
(2,1 3)
1,192
127,57
20 ,200
104. 96
m.
410, 020
3,037
25
3, 597
141, 5 5
301,307
102,751
MS...
415. 205
5,500
1, 4
5.044
13 . 931
303,150
100,4 0
n
415,054
7,61
4,332
7,263
133, 46
303.1 0
97, 73
41 .902
7, 777
4,440
7,372
133.966
303. 357
100, 320
193 . .
411,941
4,144
1,722
4,525
130,13(1
300,022
90,299
m.
412, 759
7,236
4,264
7,350
12 ,975
306, 01
100,226
ootnotes to tabes I and II.
ased on data In Statstcs of Income, Pnrt 2, comped from unaudted ncome fa
returns fed by a corporatons. Reference shoud be made to these reports for e act
defntons of terms and methods of compaton. or ta abe years begnnng after
December 31, 10.33, the prvege of fng consodated returns by affated groups, e cept
by raroads, was dscontnued. s a resut of ths change. Seres Is substantay over-
ted n 1034 and subsequent years In reaton to the earer years. Seres and C are
sghty overstated after 1933 for the same reason, the effects of the change to noncon-
odated returns beng greaty reduced by the emnaton of ntercorporate dvdends.
In addton to caendar year returns the tabuaton for a gven year Incudes returns
for fsca years endng after une 30 of the year but pror to uy 1 of the succeedng year,
and part-year returns wth the greater number of months In the gven caendar year.
In tabe I the number of returns Is sghty greater than the number of corporatons
reportng because of some dupcaton n case of part-year returns. In addton, begnnng
wth 1927 the number of returns represents actve corporatons, whe pror to that date
they ncude Inactve corporatons. Ths, of course, has no Infuence on the Income data,
but e pans the decne n number of returns from 1925 to 1927. In tabe II the number
of returns represents the number of actve corporatons that submtted baance sheets.
Ta -e empt ncome conssts of dvdends on stocks of domestc corporatons and ta -
e empt nterest (ncudng that sub|ect to decared vaue e cess-profts ta and to surta
ony) on edera, State, and muncpa bonds. though dvdends on stocks of domestc
corporatons became partay ta abe n 193C for ncome tu purposes, they reman non-
ta abe for e cess profts ta purposes. In any case, domestc dvdends must be e -
cuded throughout n order to make the data for 1930 and subsequent years comparabe
wth those for earer years. Comped net proft or oss ess ta -e empt ncome gves a
reasonaby cose appro maton to e cess profts net ncome appcabe to 1041 and
sub et|uent ta abe years. (Income ta es are deductbe for 1940 but not for subsequent
ta abe vears n computng e cess profts net ncome.) The prncpa dfference between
ths seres and e cess profts net ncome s the absence of ad|ustment for capta gans nnd
kwses, data for whch are not avaabe pror to 1929.
Interest pad on both short-term and ong-term borrowngs, whch nro not separatey
tabuated.
Revsed. See Statstcs of Income, 1930, page 2 , 239, and Statstcs of Income, 1935,
Part II, page 24.
Revsed. See Statstcs of Income, 1933, page 37.
Revsed. See Statstcs of Income. 1935, Part II. page 2 .
Incudes common stock, preferred stock, and surpus and undvded profts ess defct.
Does not ncude surpus reserves data for whch are avaabe begnnng n 1937. Sur-
pus reserves amounted to S57.607.000.000 n 1937. 7.301,000,000 n 193 , and 7, 9,-
MO.000 n 1939. Data for 1939 dffer from those pubshed In Statstcs of Income, 1939,
Part II, for the reason that 42,000,000 of surpus reserves of raw rayon manufacturers
e erroneousy tabuated and ncuded In pubshed data under preferred stock.
Capta assets consst of and and deprecabe and rtcpetnbc assets ess deprecaton
aw depeton. Pror to 1939, Incudes ntangbe assets other than copyrghts, formuas,
ro w, patents, and trade-marks. In 1939, a Intangbe assets are Incuded.
Not avaabe.
Revsed. ee Statstcs of Income, 192 , page 3 .
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722.
276
Reguatons 112, Secton 35.722-5: ppca- 1945-15-12099
ton for reef under secton 722. Mm. 5 95
Date on whch constructve average base perod net ncome
has been fnay determned wthn meanng of secton 3T).722-5(d)
Of Reguatons 112.
Washngton 25, D. C, uy 17, 1946.
Concerned:
1. Secton 35.722-5(d) of Reguatons 112 provdes n part that f
a constructve average base perod net ncome has been fnay deter-
mned under secton 722(a) wth respect to the ta payer ,
such ta payer may use the constructve average base perod net ncome
so determned, e cept as further ad|ustments may be requred by sec-
ton 711(b), n computng ts e cess profts credt based on ncome, ts
ad|usted e cess profts net ncome, and ts e cess profts ta n any
return requred to be fed thereafter. Inqury has been made as to
how the ta payer w have knowedge that the constructve average
base perod net ncome has been fnay determned under secton
722(a) so that t may be used by the ta payer n computng ts e cess
profts ta abty n returns subsequenty fed.
2. owance n part of reef camed. If the ta payer s cam for
reef under secton 722 of the Interna Revenue Code s aowed n
part, a statutory notce of dsaowance under secton 732 of the Code
w be ssued. Shoud the ta payer decde not to fe a petton wth
The Ta Court of tre Unted States wthn the 90-day perod pre-
scrbed n secton 732, the constructve average base perod net ncome
aowed by the ureau w be consdered as fnay determned under
secton 722(a), wthn the meanng of the reguaton cted, at the
e praton of the tme prescrbed for fng a petton. In the event
the ta payer fes a petton wth The Ta Court of the Unted States
for a redetermnaton of the reef aowed under secton 722(a), the
ta payer may use the constructve average base perod net ncome
aowed by that court n computng e cess profts ta abty n re-
turns fed after the decson of the court becomes fna.
3. owance n fu of reef camed. In any case n whch a statu-
tory notce under secton 732 s not ssued for the reason that the
ta payer s cam for reef under secton 722 s aowed n fu by the
nterna revenue agent n charge or by the head of a dvson of the
Technca Staff, the ta payer w be notfed by etter when the con-
structve average base perod net ncome has been fnay determned
under secton 722(a), wthn the meanng of the reguaton. Upon
recept of such a notce the ta payer may use the determned con-
structve average base perod net ncome n computng ts e cess profts
ta abty n returns subsequenty fed.
4. Correspondence n regard to ths mmeograph shoud refer to ts
number and the symbos IT: NDC.
oseph D. Nunan, r.,
Commssoner.
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277
722.
Reguatons 112, Secton 35.722-5: ppca- 1945-22-12173
ton for reef under secton 722. . T. D. 54 3
P RT 35 INCOM ND C SS PRO ITS T S.
Provsons of Reguatons 109 and 112 prescrbed under secton
722 of the Interna Revenue Code, reatng to the fng of appca-
tons for genera e cess profts ta reef, aneuded.
Washngton, D. C.
To Coectors of Interna Revenve and Others Concerned:
1941 Sup. and Reguatons 112 Part 35, Tte 26, Code of edera
eguatons, Cum. hup. are amended as foows:
R GUL TIONS 109.
Paragraph L Secton 30.722-5(a), as amended by Treasury De-
cson 5393, approved uy 31, 1944 C. . 1944, 415 , s further
amended as foows:
( ) y changng the ast sentence n the second paragraph to
read as foows:
If new grounds n addton to those set forth n such appcaton are reed upon
by the ta payer for reef under secton 722 wth respect to years begnnng n
1940 or 1941, an amendment to the appcaton aready fed for such years
sha be fed under oath on orm 991 (revsed anuary, 1943).
( ) y strkng out the second sentence n the thrd paragraph.
(C) y strkng out the ast sentence n the thrd paragraph and
nsertng n eu thereof the foowng:
Ony one appcaton for reef under secton 722 sha be fed for an e cess
profts ta ta abe year. New grounds or addtona facts not contaned n the
orgna appcaton sha be presented as an amendment to the orgna ap-
pcaton for the ta abe year. ny suppementa or addtona appcatons
fed after the fng of the orgna appcaton sha be consdered amendments
to the orgna appcaton prevousy fed. No new grounds presented by the
ta payer after the perod of tme for fng a cam for credt or refund prescrbed
by secton 322, and no new grounds or addtona facts presented after the ds-
aowance, n whoe or n part, of the appcaton for reef and the cam for
refund based thereon, w be consdered n determnng whether the ta payer
s entted to reef or the amount of the constructve average base perod net
Income to be used n computng such reef for the ta abe year.
Pror to fna acton by the Commssoner on the ta payer s appcaton for
reef, the ta payer w be gven a notce affordng t an opportunty to be heard
on ts appcaton and to submt any nformaton thereon whch t deems neces-
sary or desrabe. If n the opnon of the Commssoner there has been no
substanta nvestgatve acton on an appcaton for reef, the Commssoner
may on request of the ta payer permt the ta payer to wthdraw ts appcaton.
The request for wthdrawa of the appcaton for reef sha be n wrtng and
sha be e ecuted by at east two offcers empowered to sgn for the corporaton,
and the corporate sea sha be aff ed thereto. If the corporaton has no sea,
the request for wthdrawa sha be accompaned by a certfed copy of the
resouton of the board of drectors gvng such offcers authorty to sgn the
request for wthdrawa. If the Commssoner approves the ta payer s request
for wthdrawa of ts appcaton the case shaU be treated as though no appca-
ton had been fed.
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722.
27
R GUL TIONS 112.
Par. 2. Secton 35.722-5(a), as amended by Treasury Decson 5393,
approved uy 31,1944, s further amended as foows:
( ) y changng the ast sentence n the second paragraph to read
If new ground s In addton to those set forth In such appcaton are reed
upon by the ta payer for reef under secton 722, an amendment to the appca-
ton aready fed for such year sha be fed under oath on orm 991 (revsed
anuary, 1943).
S y strkng out the second sentence n the fourth paragraph.
C) y strkng out the ast sentence n the fourth paragraph and
nsertng n eu thereof the foowng:
Ony one appcaton for reef under secton 722 sha be fed for an e cess profts
ta ta abe year. New grounds or addtona facts not contaned n the orgna
appcaton sha be presented as an amendment to the orgna appcaton for
the ta abe year. ny suppementa or addtona appcatons fed after the
fng of the orgna appcaton sha be consdered amendments to the orgna
appcaton prevousy fed. No new grounds presented by the ta payer after
the perod of tme for fng a cam for credt or refund prescrbed by secton
322, and no new grounds or addtona facts presented after the dsaowance, n
whoe or n part, of the appcaton for reef and the cam for refund based
thereon, w be consdered n determnng whether the ta payer Is entted to
reef or the nmount of the constructve average base perod net ncome to be
used n computng such reef for the ta abe year.
Pror to fna acton by the Commssoner on the ta payers appcaton for
reef, the ta payer w be gven a notce affordng It an opportunty to be
heard on ts appcaton and to submt any Informaton thereon whch t deems
necessary or desrabe. If n the opnon of the Commssoner there has been
no substanta Investgatve acton on an appcaton for reef, the Commssoner
may on request of the ta payer permt the ta payer to wthdraw ts appcaton.
The request for wthdrawa of the appcaton for reef sha be In wrtng and
sha be e ecuted by at east two offcers empowered to sgn for the corporaton,
and the corporate sea sha be aff ed thereto. If the corporaton has no sea,
the request for wthdrawa sha be accompaned by a certfed copy of the reso-
uton of the board of drectors gvng such offcers authorty to sgn the request
for wthdrawa. If the Commssoner approves the ta payer s request for wth-
drawa of ts appcaton the case sha be treated as though no appcaton had
been fed.
secton 62 of the Interna evenue Code (53 Stat., 32 2G U. S. G,
62) as made appcabe by secton 729(a) .of the Interna Revenue
Code (54 Stat., 9 9 26 U. S. C, 729(a)).)
oseph D. Nunan, r.,
pproved November 5,1945.
( ed wth the Dvson of the edera Regster November 6, 1945, 1.55 p. m.)
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279
729.
S CTION 729. L WS PPLIC L .
INT RN L R NU COD .
Reguatons 112 amended. (See T. D. 547S, page 262.)
Reguatons 112, Secton 35.729-3: oregn 1945-17-12120
ta credt. T. D. 5473
TITL 26 INT RN L R NU C PT R L SU C PT R . P RT 30 ND
P RT 35.
Reguatons 109 and Reguatons 112 amended.
Washngton, D. C.
edera Reguatons, 1941 Sup. and secton 35.729-3 of Reguatons
112 Part 35, Tte 26, Code of edera Reguatons, Cum. Sup. are
amended as foows:
R GUL TIONS 109.
Paragraph 1. Secton 30.729-3 s amended by strkng out the sec-
ond sentence and nsertng n eu thereof the foowng:
ta payer Is aowed such a credt aganst the e cess profts ta for ta abe
years begnnng pror to anuary 1, 1941, f t cams such credt n ts edera
ncome ta return and kewse cams such credt n Its e cess profts ta return.
or ta abe years begnnng after December 31, 1940, the ta payer s aowed
such a credt aganst ts e cess profts ta f t chooses to have the benefts of
Such credt (or, havng chosen to the contrary, changes ts choce) at any tme
Pror to the e praton of the perod prescrbed by statute for the makng of
a cam for credt or refund for such ta abe year. In any case n whch a credt
woud not be avaabe e cept by reason of the provsons of secton 131(f) and
the ta payer has for a ta abe year egnnng pror to anuary 1, 1941, camed
n ts edera ncome ta return the benefts of secton 131, t sha be deemed,
tor the purpose of the credt, that such ta payer has kewse camed n ts
ecess profts ta return for such year the benefts of secton 729(c).
R GUL TIONS 112.
Par. 2. Secton 35.729-3 s amended by strkng out the second
sentence and nsertng n eu thereof the foowng:
If the ta payer so chooses (or, havng chosen to the contrary, changes ts choce)
at any tme pror to the e praton of the perod prescrbed by statute for the
makng of a cam for credt or refund for the ta abe year, t s aowed such a
wedt aganst the e cess profts ta .
(Ths Treasury decson s ssued under the authorty contaned
n secton 62 as made appcabe by secton 729(a), and secton 131(f)
of the Interna Revenue Code (53 Stat., 32 54 Stat., 9 9 56 Stat., 57
26 U. S. C, 62,79 (a)) and Sup. I, 131 (f).)
oseph D. unan, r.,
pproved ugust 21, 1945.
( ed wth the Dvson of the edera Regster ugust 22,1945,11.54 a. m.)
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5 732.
2 0
Reguatons 112, Secton 35.729-4: ppcaton of
credt to cases wthn reef provsons.
INT RN L R NU COD .
C PT R 1.
SU C PT R . C SS PRO ITS T .
S CTION 732. R I W O NORM LITI S Y O RD
O T PP LS NOW T T COURT
O T UNIT D ST T S .
Reguatons 112, Secton 35.732-1: Revew of 1945-17-12121
abnormates by The Ta Court of the Unted T. D. 5474
States.
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 30 ND
P RT 35.
cess Profts Ta Reguatons 109 and 112 amended to conform
to Pubc Law 105, approved une 30, 1945 page 531, ths uetn .
Washngton 25, D. G.
edera Reguatons, 1941 Sup. , and Reguatons 112 Part 35,
Tte 26, Code of edera Reguatons, Cum. Sup. to Pubc Law 105
(Seventy-nnth Congress, frst sesson), approved une 30, 1945
page 531, ths uetn , such reguatons are amended as foows:
R GUL TIONS 109.
OINT R SOLUTION. (PU LIC L W 105, S NTY NINT CON-
GR SS, PPRO D UN 30, 1945.)

Sec. 2. Secton 732(d) of the Interna Revenue Code s amended to
read as foows:
(d) Revew by Speca Dvson of oard. The determnatons
and redetermnatons by any dvson of the oard nvovng any ques-
ton arsng under secton 721(a) (2) (C) or secton 722 wth respect to
any ta abe year sha be revewed by a speca dvson of the oard
whch sha be consttuted by the Charman and consst of not ess than
three members of the oard. The decsons of such speca dvson
sha not be revewabe by the oard, and sha be deemed decsons of
the oard.
approved May , 1943 C. . 1943, 761 , s further amended by
changng the thrd sentence of the thrd paragraph to read as foows:
If the determnatons and redetermnatons by any dvson of The Ta Court
Invove any queston arsng under secton 721(a)(2)(C) or secton 722 wth
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2 1
732.
respect to any ta abe year, such determnatons and redetermnatons sha be
revewed by a speca dvson of The Ta Court whch sha be consttuted by the
Presdng udge and sha consst of not ess than three |udges of The Ta Court.
R GUL TIONS 112.
the foowng: t
OINT R SOLUTION. (PU LIC L W 105, S NTY-NINT CON-
GR SS, PPRO D UN 30, 1945.)

Sec. 2. Secton 732(d) of the Interna Revenue Code s amended to
read as foows: /
(d) Revew by Speca Dvson of oard. The determnatons and
redetermnatons by any dvson of the oard nvovng any queston
arsng under secton 721(a) (2) (C) or secton 722 wth respect to any
ta abe year sha be revewed by a speca dvson of the oard whch
sha be consttuted by the Charman and consst of not ess than three
members of the oard. The decsons of such speca dvson sha not
be revewabe by the oard, and sha be deemed decsons of the oard.
Par. 4. Secton 35.732-1 s amended by changng the thrd sentence
of the thrd paragraph to read as foows:
If the determnatons and redetermnatons by any dvson of The Ta Court
nvove any queston arsng under secton 721(a)(2)(C) or secton 722 wth
respect to any ta abe year, such determnatons and redetermnatons sha be
revewed by a speca dvson of The Ta Court whch sha be consttuted by
he Presdng udge and sha consst of not ess than three |udges of The Ta
Court.
secton 62 of the Interna Revenue Code (53 Stat., 32 2 6 U. S. C, 62)
as made appcabe by secton 729(a) of the Interna Revenue Code
(54 Stat.. 9 9 26 U. S. C. 729(a)) and Pubc Law 105, approved
une 30,1945.)
( ed wth the Dvson of the edera Regster ugust 22, 1045,11.54 a. m.)
Reguatons 109, Secton 30.732-1: Revew 1945-24-1219
of abnormates by The Ta Court of the Ct. D. 1654
Unted States.
INCOM ND C SS PRft ITS T S INT RN L R NU COD D CISION
O COURT.
1. ppcaton fob Geneba Reef Undkb Secton 722 Pro-
cedube ursdcton of Ta Coubt.
On May 5, 1942, the ta payer fed wth The Ta Court a petton
for revew of the Commssoner s determnaton of an ncome and
e cess profts ta defcency for the year 1940. fter the amendment
of secton 722 of the Interna Revenue Code by sectbn 222 of the
Revenue ct of 1942, the ta payer fed an amendment to ts pet-
ton, seekng reef under secton 722, and aso fed wth the Com-
mssoner an appcaton for the same reef sought before The Ta
Court. Whe the amended petton was pendng, secton 722 was
6 4354 46 19
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732.
2 2
agan amended by Pubc Law 201, Seventy-eghth Congress, frst
sesson, approved December 17, 1943 (C. . 1944, 13), omttng the
provson for appcaton to The Ta Court for genera reef from
e cess profts ta , such amendment beng appcabe to the ta abe
year here nvoved. ed: The Ta Court dd not err n dsmssng
the proceedng for ack of |ursdcton n so far as t reated to reef
under secton 722 of the Code. The court s order merey requred the
ta payer to submt ts cam for reef to the Commssoner before
makng appcaton to The Ta Court, eavng avaabe to ta payer
the rght to contest the acton of the Commssoner before the court
Such an order s not one revewabe by the crcut court of appeas.
ven f The Ta Court had |ursdcton of the amended petton at
the tme t was fed, there was no abuse of dscreton n requrng
the ta payer, n the Interest of a unform admnstraton of the
Revenue ct, to resort to the procedure open to t under secton 722
of the Code, as amended by the. ct of December 17, 1943.
2. Decsons or/W D.
Un-Tcrm Stevedorng Co. v. Commssoner (3 T. C, 917) and
Poneer Parachute Co. v. Commssoner (4 T. C, 25) foowed.
Unted States Crcut Court of ppeas fob the ghth Crcut.
Ceco Stee Products Corporaton, pettoner, v. Commssoner of Interna
Revenue, respondent.
150 ed. (2d), 69 .)
On petton to revew decson of The Ta Court of the Unted States.
efore Gardner, ohnben, and Rddck, Crcut udges.
uy 23, 1945.
opnon.
Rddck, Crcut udge, devered the opnon of the court.
On May 5, 1942, the ta payer fed wth The Ta Court a petton for a revew
of a defcency determned by the Commssoner n the ta payer s ncome ta and
e cess profts ta for the year 1940.
fter the Commssoner had answered the ta payer s petton, the Revenue
ct of 1942 was enacted and approved. Secton 222 of ths ct amended secton
722 of the Interna Revenue Code wth regard to procedure on cams for reef
from a dscrmnatory e cess profts ta due to abnormates n ncome.
In addton to the procedure theretofore provded on cams for reef under
secton 722 of the Interna Revenue Code, the amendment referred to aso author-
aed appcatons for reef on such cams by petton to The Ta Court n certan
e ceptona cases. (See Poneer Parachute Co. v. Commssoner, 4 T. C, 27.)
The ta payer, concevng that the provsons of secton 722 of the Interna
Revenue Code, as amended by secton 222 of the Revenue ct of 1942, permtted
t In the crcumstances of ths case to appea drecty to The Ta Court for
reef, or possby, as stated n Its bref, requred It to make ts appcaton for
the reef camed both to the Commssoner and by way of a petton before The
Ta Court, apped to The Ta Court for eave to amend ts pendng petton n
that court to seek reef under secton 722, and aso fed wth the Commssoner
ts appcaton for the same reef sought n ts petton before The Ta Court
Leave to amend was granted as requested, and on March 3, 1943, the ta payer
fed the amendment to Its petton. The Commssoner answered, denyng the
ta payer s rght to the reef camed. efore any acton by The Ta Court n
the proceedng before t whch, as amended, asked for a revew of the defcency
determned by the Commssoner n the ta payer s ncome ta and e cess profts
ta for the year 1940, and for reef under secton 722 of the Interna Revenue
Code, Congress agan amended secton 722 of the Interna Revenue Code by
omttng therefrom the provson for appcaton to The Ta Court for genera
reef from e cess profts ta . (Pubc Law 201, frst sesson, SeTenty-egbth
Congress, approved December 17, 1943, 57 Stat, 601, 26 U. S. C. Int Rev.
cts, 1944 Supp., page 311 C. . 1944, 13 .) Ths amendment to secton 722
was made appcabe n respect to the ta abe year here nvoved. oowng
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2 3
732.
the approva of the ct of December 17, 1943, the Commssoner moved to
dsmss the ta payer s amended petton n so far, as t reated to the appcaton
for reef under secton 722 of the Code, on the ground that t was prematurey
fed, the Commssoner not havng acted upon the cam for the same reef pend-
ng before hm, and The Ta Court, for that reason, beng wthout |ursdcton of
tapayer s cam for reef under secton 722.
The Commssoner s moton to dsmss was sustaned by The Ta Court and
an order entered on October 4, 1044, provdng: That the respondent s moton
s granted and the proceedng s dsmssed for ack of |ursdcton n so far as t
reates to reef camed under secton 722 of the Interna Revenue Code.
The ta payer seeks a revew of ths order of The Ta Court, and the Com-
mssoner moves to dsmss on the ground that the order s one not sub|ect to
revew by ths court, and, n the aternatve, contends that the order of The Ta
Court must be affrmed f t s such an order as ths court has |ursdcton to revew
under secton 1141(a) of the Interna Revenue Code.
The bass for the Commssoner s moton to dsmss s that the order of The
Ta Court s a mere ntermedate order governng ony the course of procedure
before The Ta Court, and not a fna or defnte determnaton by The Ta Court
of ta payer s rght to the reef camed. In the bref on behaf of the Com-
mssoner t s stated that the appcaton for reef under secton 722 of the Code,
whch the ta payer has presented to the Commssoner, was dened by the Com-
mssoner on October 2, 1944, and that on October 6, 1944, ta payer fed wth
TeTa Court a petton for revew of the Commssoner s acton n the premses.
s asserton n the Commssoner s bref s not dened by the ta payer, and,
Mcordngy, t s accepted. We thnk the Commssoner s nterpretaton of the
order of The Ta Court s correct and that the order s not effectve as a defntve
decson by the court of the ta payer s rght to the reef asserted n ts dsmssed
petton, but that ts effect s merey to determne the procedure under whch that
rght may be asserted and be brought to decson by The Ta Court. In vew of
the opnons of The Ta Court n n-Term Stevedorng Co. v. Commssoner
(3 T. C., 917) and In Poneer Parachute Co. v. Commssoner, supra, no other
concuson seems possbe. In the Poneer Parachute Co. case The Ta Court had
before t the dentca procedura queston presented to t n ths case. The
court sad:
The Code now dscoses a congressona ntenton that the new system (pro-
cedure on appcatons for reef under secton 722 of the Code provded by the
ct of December 17, 1943) sha be apped unversay to a cams for reef
arsng under secton 722, so that n no case sha the queston of possbe reef
under 722 be tred before ths court unt after the Commssoner hns acted ad-
versey upon the cam. Ths pettoner has a cam for reef pendng before the
Commssoner. The atter may grant a the reef whch the pettoner asks a
possbty whch ampy demonstrates the undesrabty of the procedure whch
the pettoner s advocatng here. The Commssoner must act upon that cam.
e has no aternatve. If he denes It, or If he gves ess reef than the pettoner
demands, t can then nsttute a proceedng before ths court to contest that
acton of the Commssoner. Therefore, n order to carry out the Intenton of
Congress, a reference to secton 722 w be strcken from ths petton.
In the present case a that has been done by The Tn Court n the order
whch we are asked to revew s to requre the ta payer, n accordance wth the
court s nterpretaton of secton 722, as amended by the ct of December 17,1943,
to submt Its cam for reef under secton 722 of the Interna Revenue Code to
the Commssoner for hs acton before makng appcaton to The Ta Court,
eavng avaabe to pettoner the rght to contest the acton of the Commssoner
before The Ta Court. The ta payer s petton to revew the Commssoner s
acton s st pendng before The Ta Court. The order of The Ta Court s not
one revewabe by ths court. (9 Mertens Law of edera Ta aton, secton
5U McCarthy v. Commssoner, 7 Cr., 139 ed. (2d), 20, 22 Mchae v. Com-
mssoner, 2d Cr., 56 ed. (2d), 23 Ovatt s v. Commssoner, 9 Cr., 12 ed.
(2d), 352 Ssto nanca Corporaton v. Commssoner, 2d Cr., 149 ed. (2d),
26 , 269.) Concedng, but not decdng, that The Ta Court had |ursdcton of
the ta payer s amended petton at the tme t was fed, we can not say that
there was any abuse of dscreton In requrng the ta payer, n the nterest of a
nnfonn admnstraton of the Revenue ct, to resort to the procedure open to t
under secton 722 of the Interna Revenue Code, as amended by the ct of
December IT, 1943.
The petton to revew s dsmssed.
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735.
2 4
S CTION 735. NONT L INCOM OM C RT IN
MINING ND TIM R OP R TIONS, ND
ROM N TUR L G S PROP RTI S.
Reguatons 112, Secton 35.735-2: Defntons. 1945-14-120 6
T. D. 5461
TITL 26 INT RN L R NU .- C PT R I, SU C PT R , P RTS 35. 0,
29, 19, 9, ND 3.
Reguatons 112 and 109, n so far as they reate to the computaton
of nonta abe ncome from e empt e cess output and of nonta abe
bonus ncome, and Reguatons 111, 103,101, 94, 6, and 77, n so far as
they reate to the computaton of depeton of certan natura de-
posts, amended.
Washngton, D. C.
To Coectors of Interna Revenue and Oters Concerned:
Cum. Sup. , Reguatons 109 Part 30, Tte 26, Code of edera Reg-
uatons, 1941 Sup. , Reguatons 111 Part 29, Tte 26, Code of ed-
era Reguatons, Cum. Sup. , Reguatons 103 Part 19, Tte 26, Code
of edera Reguatons, 1940 Sup. , Reguatons 101 Part 9, Tte
26, Code of edera Reguatons, 1939 Sup. , Reguatons 94 Part 3,
Tte 26, Code of edera Reguatons , Reguatons 6, and Regua-
tons 77 are amended as foows:
R GUL TIONS 112.
Paragraph L Secton 35.735-2() (2), as amended by Treasury De-
cson 5404, approved September 15,1944 C. . 1944, 430 , s further
amended as foows:
( ) y nsertng at the end of the second paragraph the foowng:
If the ta payer estabshes to the satsfacton of the Commssoner that another
method of computaton, other than the computaton of profts proportonate to
costs, ceary refects the gross ncome from the property, then such gross ncome
sha be computed by the use of such other method.
( ) y nsertng at the end of the fourth paragraph begnnng
wth the words. In case any of the ordnary treatment processes the
foowng:
Par. 2. Secton 35.735-2 (Z) (2), as amended by Treasury Decson
5404, s further amended as foows:
( ) y nsertng at the end of the frst paragraph the foowng:
costs, ceary refects the gross ncome from the tmber bock, then such gross
ncome sha be computed by the use of such other method.
( ) y nsertng at the end of the ffth paragraph the foowng:
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2 5
735.
rests, ceary refects the gross ncome from the natura gas property, then such
gross ncome sha be computed by the use of such other method.
Par. 3. Secton 35.735(a), as amended by Treasury Decson 540-4,
s further amended by strkng from e ampe (2) that porton m-
medatey precedng the headngs of the numbered coumnar com-
putaton and nsertng n eu thereof the foowng:
ampe (2). Corporaton , whch s on a caendar year bass, owns a
mnera property from whch t e tracts mneras contanng god and sver.
The output of sver for each of ts four base perod years was 2,500,000 ounces,
and of god was 12.500 ounces. The gross ncome from the property for each
base perod year was the sum of the net smeter returns of 1,500,000 receved
for sver and 437,500 for god, a tota of 1,037,500. owabe deductons,
e cudng the aowance for depeton, amounted to 1,000,000. Of the amount
of such deductons, 774,193.55 represented the amount aocabe to sver
(1 500 000
tmes . 1,000,000) and 225,S06.45 represented the amount
/ 437 100
aocabe to god producton ( tmes 1,000,000). The net ncome from
the mnera property (computed wthout the aowance for depeton) was
2.-, 06.45 attrbutabe to sver and 211,693.55 attrbutabe to god. The aow-
ance for percentage depeton computed wth respect to sver mnng was
25,000 (15 per cent of 1,500,000 but not n e cess of 50 per cent of 725, 06.45)
the aowance for such depeton computed wth respect to god mnng was
65,625 (15 per cent of 437,500 but not n e cess of 50 per cent of 211,693.55).
ur 1942 the tota output of sver was 4, 00,000 ounces and of god was .000
ounces. The gross ncome from the property for 1912 was the sum of the
net .smeter returns of 3,360,000 receved for sver and 2 0,000 receved for
god, a tota of 3,040,000. owabe deductons, e cudng the aowance for
depeton, amounted to 1,2 0,000. Of the amount of such deductons, 1,1 1,-
(3 300 000
, ., tmes
o,040,000
USO,000) and 9 ,461.54 represented the amount aocabe to god producton
(2S0 000
tmes 1,2 0,000). The net ncome from the mnera property (com-
o.(r4O,000 .
puted wthout the aowance for depeton) was 2,17 ,461.54 attrbutabe to
sver and 1 1,53 .46 attrbutabe to god. The aowance for percentage depe-
ton computed wth respect to sver mnng was 504,000 (15 per cent of 3,300,000
but not n e cess of 50 per cent of 2,17 ,461.54) : the aowance for such depe-
ton computed wth respect to god mnng was 42,000 (15 per cent of 0,000
but not n e cess of 50 per cent of 1 1,53 .46). It s estmated that as of Decem-
ber 31,1942, there were 19,200,000 unts of sver and 32,000 unts of god reman-
ng n the mnera property. There s no nonta abe ncome from e empt e cess
output of god, snce the norma output e ceeds the 1942 output of that meta.
The nonta abe Income from e empt e cess output of sver s 13 ,220. 0,
computed as foows:
( ) y addng mmedatey precedng the thrd sentence from
the end of the porton desgnated (a) the foowng:
method of computaton ceary refects the net ncome attrbutabe to the out-
put n e cess of the quota, the net ncome so attrbutabe sha be computed by
the use of such other method.
( ) y addng mmedatey at the end of the porton desgnated
(a) the foowng:
method of computaton ceary refects the net ncome attrbutabe to the output
n e cess of the quota estabshed for such type, then the net ncome so attrb-
utabe sha be computed by the use of such other method.
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735.
2 6
(C) y addng mmedatey precedng the ast sentence of the por-
ton desgnated ( ), whch sentence begns wth the words Net n-
come computed, the foowng:
n e cess of the quota, then the net ncome so attrbutabe sha be computed
by the use of such other method.
(D) y strkng from the e ampe that porton mmedatey pre-
cedng the numbered coumnar computaton and nsertng n eu
thereof the foowng:
ampe. Corporaton C, whch s on a caendar year bass, owns a mnera
property from whch It e tracts copper ore. The output of copper for each of
the four base perod years was 4,3S0,000 pounds. The 1942 output of copper was
5,500,000 pounds. Wth respect to Corporaton C, a 1942 quota of 4,000,000
pounds of copper was estabshed and a bonus of 0.05 per pound was pad for
above quota producton. The gross Income from the property for 1942 was
the sum of the net smeter returns, 660,000, and the bonus payments of 75,000, a
tota of 735,000. owabe deductons, e cudng the aowance for depeton,
amounted to 579,700. Net ncome from the property, wthout regard to the aow-
ance for depeton, was 155,300. Percentage depeton amounted to 77,650 (15
per cent of 735,000 but not n e cess of 50 per cent of 155,300). s of Decem-
ber 31, 1942, t was estmated that 35,000,000 pounds of copper remaned n the
mnera property. Snce the e cess output for 1942 dd not e ceed 5 per cent
of the estmated recoverabe unts for 1942, nonta abe ncome from e empt
e cess output s not authorzed by secton 735(b) (1). The amount of nonta -
abe bonus ncome for 1942 s 21,177, computed as foows:
Par. 5. Secton 35.735-7, as amended by Treasury Decson 5404, s
further amended by strkng out the frst paragraph of the e ampe
ampe. Corporaton P, whch s on a caendar year bass, owns a mnera
property from whch t e tracts mneras contanng ead and sver. or each of
the four ta abe years n the base perod the output of ead was 1,000,000 pounfs
and of sver was 100,000 ounces. The gross ncome from the property for
each year n the base perod was the sum of the net smeter returns of 50,01)0
receved for ead and 70,000 for sver, a tota of 120,000. owabe deductons
for each year, e cudng the aowance for depeton, amounted to 40,000. Of
the amount of such deductons, 16,666.67 represented the amount aocabe to
ead producton ( tmes 40,000) and 23,333.33 represented the amount
(70 000
120 000 t mes 40,000). The net ncome from the
mnera property (computed wthout the aowance for depeton) was 33,333.33
attrbutabe to ead and 46,666.07 attrbutabe to sver. The aowance for per-
centage depeton computed wth respect to ead mnng was 7,500 (15 per cent
of 50,000 but not n e cess of 50 per cent of 33,333.33) the aowance for such
depeton computed wth respect to sver mnng was 10,500 (15 per cent of
70,000 but not n e cess of 50 per cent of 46,066.67). or 1942, the output of
ead was 1,600,000 pounds and of sver was 160,000 ounces. quota of 900,000
pounds of ead was estabshed by the War Producton oard and the Offce of
Prce dmnstraton wth respect to the ta payer and a bonus of 0.02 per
pound was pad to the ta payer wth respect to producton n e cess of such
quota. The gross ncome from the property for the year 1942 was 235,250
consstng of 123,250 attrbutabe to ead (the sum of the net smeter returns
of 104,000 receved for ead and the bonus payment of 19,250 for above-quota
producton of ead) and 112,000 attrbutabe to sver. owabe deductons
for the year e cudng aowance for depeton amounted to 0,000. Of the
amount of such deductons, 41,912. 6 represented the amount aocabe to ead
producton (t t: tmes 0,000) and 3 ,0 7.14 represented the amount ao-
(11 000
tmes 0,000). The net ncome from the
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2 7
735.
mnera property (computed wthout the aowance for depeton) was 1,337.14
attrbutabe to ead and 73,912. 6 attrbutabe to sver. The aowance for per-
centage depeton computed wth respect to ead mnng was 1 ,4 7.50 (15 per cent
of 123,250 but not n e cess of 50 per cent of 1,337.14) the aowance for such
depeton computed wth respect to sver mnng was 10, 00 (15 per cent of
1112,000 but not In e cess of 50 per cent of 73,012. 0. It s estmated that as
of December 31, 1942, there were 0,500,000 pounds of oad and 510,000 ounces of
sver remanng In the mnera property. or 1042, the amount of nonta abe
ncome from e empt e cess output of ead was 3,099.00, the amount of nonta -
abe bonus ncome from ead was 19,250, and the amount of nonta abe ncome
from e empt e cess output of sver was 0,510.00.
R GUL TIONS 109.
Par. 6. Secton 30.735-2 () (2), as added by Treasury Decson 52 6,
approved uy 22, 1943 C. . 1943, 37 , s amended as foows:
( ) y strkng out the frst two paragraphs and nsertng n eu
thereof the foowng:
or the purposes of secton 735, the term gross ncome from the property for
any year n the base perod means the gross ncome from mnng. The term
mnng as used heren ncudes not ony the e tracton of ores or mneras
tnm the ground but aso the ordnary treatment processes whch are normay
apped by the mne owners or operators to the crude mnera product after
etracton In order to obtan the commercay marketabe mnera product or
products.
If the ta payer ses the crude mnera product of the property In the Imme-
date vcnty of the mne, gross ncome from the property means the amount
for whch such product was sod, but, f the product s transported or processed
(other than by the ordnary treatment processes descrbed beow) before sae,
gross ncome from the property means the representatve market or fed
prce (as of the date of sae) of a mnera product of ke knd and grade as
benefeated by the ordnary treatment processes actuay apped, before trans-
portaton of such product. If there Is no such representatve market or fed
prce (as of the date of sae), then there sha be used n eu thereof the
representatve market or fed prce of the frst marketabe product resutng from
any process or processes (or, f the product In ts crude mnera state s merey
transported, the prce for whch sod) mnus the costs and proportonate profts
attrbutabe to the transportaton and the processes beyond the ordnary treat-
ment processes. If the ta payer estabshes to the satsfacton of the Comms-
soner that another method of computaton, other than the computaton of profts
proportonate to costs, ceary refects the gross ncome from the property, then
suc gross ncome sha be computed by the use of such other method.
The term ordnary treatment processes, as used heren, sha ncude the
foowng:
(1) In the case of coa ceanng, breakng, szng, and oadng for shpment
(2) In the case of suphur pumpng to vats, coong, breakng, and oadng
for shpment
(3) In the case of ron ore and ores whch are customary sod In the form
of a crude mnera product sortng, concentratng, and snterng to brng to
shppng grade and form, and oadng for shpment
(4) In the case of ead, znc, copper, god, or sver ores, and ores whch are
not customary sod n the form of the crude mnera product crushng, grnd-
ng, and benefcaton by concentraton (gravty, fotaton, amagamaton,
eectrostatc, or magnetc), cyandatfon, eachng, crystazaton, precptaton,
or by substantay equvaent processes or combnaton of processes used n the
separaton or e tracton of the product or products from the ore. The furnacng
of qucksver ores s ncuded n the term ordnary treatment processes.
The foowng processes are not Incuded n the term ordnary treatment
processes : eectroytc deposton, roastng, therma or eectrc smetng, re-
fnng, or substantay equvaent processes.
In case any of the ordnary treatment processes are not apped In the mme-
date vcnty of the mnng dstrct n whch the mne Is ocated, costs ncurred
for transportaton to the processng ocaton and, f transported by the ta payer,
the proportonate profts attrbutabe to transportaton, shoud be subtracted
from the sae prce of the product to determne gross ncome from the prop-
erty. If the ta payer estabshes to the satsfacton of the Commssoner that
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735.
2
another method of computaton, other than the computaton of profts propor-
tonate to costs, ceary refects the gross ncome from the property, then swh
gross Income sha be computed by the use of such other method.
( ) y changng the ast sentence n the ast paragraph to read
as foows:
If the gross ncome from the property s determned by e cudng the costs and
proportonate profts attrbutabe to transportaton and to processes other than
the ordnary treatment processes sted above, or f such gross Income s an
amount dfferent from the gross proceeds receved from the sae of the mneras,
the gross ncome attrbutabe to each type of meta, coa, or nonnetac sub-
stance sha be an amount whch bears the same rato to the gross ncome from
the property whch the gross proceeds receved from the sae of such type of
meta, coa, or nonmetac substance n the mneras bears to the tota gross
proceeds receved from the saes of a such types.
approved December 14, 1943 C. . 1943, 6 7 , s farther amended
as foows:
( ) y addng mmedatey precedng the thrd sentence from the
end of the porton desgnated (a) the foowng:
( ) y addng mmedatey at the end of the porton desgnated
(a) the foowng:
n e cess of the quota estabshed for such type, then the net ncome so attrbut-
abe sha be computed by the use of such other method.
(C) y addng mmedatey precedng the ast sentence of the
porton desgnated (b) the foowng:
method of computaton ceary refects the net Income attrbutabe to the output
R GUL TIONS 111.
Pak. . Secton 29.23(m)-(/), as amended by Treasury Decson
6413, approved October 31,1944 C. . 1944,124 , s further amended
as foows:
( ) y nsertng at the end of the fourth paragraph, whch begns
wth the words If the ta payer the foowng:
( ) y nsertng at the end of the ne t to the ast paragraph the
foowng:
method of computaton, other than the computaton of profts propqrtonate to
R GUL TIONS 103, 101, 94, 6, ND 77.
Par. 9. Secton 19.23(m)-(/) of Reguatons 103, artce 23(m)-
1(/) of Reguatons 101, artce 23(m)-(g ) of Reguatons 94 and
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2 9
7 0.
6, and artce 221(/) of Reguatons 77. as amended by Treasury
Decson 5413, are further amended as foows:
( ) y nsertng mmedatey after the fourth paragraph, whch
begns wth the words If the ta payer the foowng:
method of computaton, other tfan the computaton of profts proportonate to
costs, deary refects the gross ncome from the property, then such gross ncome
( ) y nsertng at the end of the s th paragraph begnnng wth
the words In case any of the ordnary treatment processes the
foowng:
secton 62 of the Interna Revenue Code and of the Revenue cts of
193 , 1936, 1934, and 1932, respectvey (53 Stat., 32 52 Stat., 4S0
49 Stat., 1673 4 Stat., 70 47 Stat, 191 26 U. S. C, 62) and secton
Sof the Interna Revenue Code as made appcabe by secton 729(a)
of the Interna Revenue Code (54 Stat., 9 9 26 U. S. C, 729(a)).)
os r D. Nunan, r.,
pproved uy 9,1945.
( ed wth the Dvson of the edera Regster uy 11, 1945, 10.0 a. m.)
S CTION 7 0. POST-W R R UND O
C SS PRO ITS T .
Reguatons 112, Secton 35.7 0-1: Post-war 1945-6-11994
refund of e cess profts ta . T. D. 5442
( so Secton 35.7S0-2 Secton 7 1, Secton
35.7 1-1 Secton 7 3, Sectons 35.7 3-1,
35.7 3-2, and 35.7 3- 3 Sectons 30.7 0-1,
30.7 0-2, and 30.7 1-1, Reguatons 109.)
TITL 26 INT RN L R NU . C PT R L SU C PT R , P RT 30 ND
P RT 35.
Reguatons 100 and 112 amended to conform to secton 2.r0 of the
Revenue ct of 1943, reatng to post-war refund of e cess profts
ta and Reguatons 109 amended to conform to secton 2 .of the
ont Resouton approved March 31, 1943, reatng to the tme
wthn whch certan e cess profts ta refund bonds are requred
to be ssued.
Washngton, D. C.
R GUL TIONS 109.
edera Reguatons, 1941 Sup. to secton 2 of the ont Resouton
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I 7 0.
290
approved March 31, 1943 (Pubc Law 21, Seventy-eghth Congress),
and to secton 250 of the Revenue ct of 1943 (Pubc Law 235, Sev-
enty-eghth Congress), enacted ebruary 25, 1944, such reguatons
are amended as foows:
30.7 0-1, added by Treasury Decson 9254, approved pr 2, 1943
C. . 1943, 914 , the foowng:
S CTION 2 O T OINT R SOLUTION PPRO D M RC 1,
1043 (PU LIC L W 21, S NTY- IG T CONGR SS).
Secton 7 0(b) of the Interna Revenue Code (reatng to appcaton
of credt to purchase of bonds) s amended by nsertng mmedatey after
the word appes the foowng: (or, f such ta abe year begns or
ends n 1942, wthn one year after payment of the e cess-profts ta
shown on the return for such year) .
S a 250. POST-W R R UND O C SS PRO ITS T .
(R NU CT O 1 43.)
(a) Credt n Case of sca Year egnnng n 1941 and ndng
fter une 30, 1942. The ast sentence of secton 7 0(a) (provdng
for a post-war refund of e cess profts ta ) s amended to read as
foows: or the purposes of ths part, n the case of a ta payer
whose ta s determned under secton 710(a)(3), the term ta m-
posed under ths subchapter means the porton of the tentatve ta de-
termned under secton 710(a) (3) ( ).
(b) Transfers to Successoks of Ta payer. Secton 7 0(c) (re-
atng to terms and maturty of bonds) s amended by nsertng after
pedge, hypothecaton, or otherwse, the foowng: e cept to a suc-
cessor as defned n subsecton (g), .
(c) empton cf Pkocekds rom Ta . Secton 7 0(d) (reatng to
e empton of proceeds of bonds from ta upon redempton) s amended
by nsertng after such bond the foowng: pad to the ta payer .
(d) Rghts and Labtes of Successor. Secton 7 0 (reatng to
post-war refund of e cess profts ta ) s amended by nsertng at the end
therof the foowng:
(f) Rghts and Labtes of Successors of Ta payer. Sub|ect to,
and to the e tent provded n, reguatons prescrbed by the Secretary, a
successor of the ta payer sha succeed to a the rghts and abtes
of the ta payer under ths part.
(g) Defnton of Successor . or the purposes of ths part the
term successor means such person or persons who succeed, ether d-
recty or through one or more other persons, to ownershp of prop-
erty of the ta payer, as the Secretary may by reguatons prescrbe.

(g) Ta abe Years to Whch ppcabe. The amendments made
by subsectons (b), (c), and (d) sha be effectve as f
made by secton 250 of the Revenue ct of 1942. The amendment made
by subsecton (a) sha be appcabe wth respect to ta abe
years begnnng n 1941 and endng after une 30, 1942.
Par. 2. Secton 30.7 0-1, added by Treasury Decson 5254, s
amended as foows:
( ) y strkng out secton 30.7 0-1 (a) and nsertng n eu thereof
the foowng:
(a) In genera. Secton 7 0(a) authorzes and drects the Secretary to estab-
sh a post-war credt, for each ta abe year specfed n such secton, to the
account of each ta payer sub|ect to e cess profts ta . The ta abe years so
specfed are those endng after December 31, 1941, whch begn on or before
the date of cessaton of hosttes n the present war, as defned n secton
7 0(e). owever, any ta abe year whch began n 1941 and ended before uy
1, 1942, s e cuded.
These reguatons n so far as they reate to the post-war credt are appcabe
ony to such credt for ta abe years begnnng n 1941 and endng after une
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7 0.
30. 1942. or provsons reatng to the post-war credt for ta abe years begn-
nng after December 31,1941, see Reguatons 112.
The post-war credt accounts of ta payers sub|ect to e cess profts ta sha
be mantaned by the Commssoner of Interna Revenue.
Sub|ect to the mtatons prescrbed n secton 7 1(d) (2) (see secton 30.7 1-1
(6)), the post-war credt of a ta payer for a ta abe year s an amount tqua to
10 per cent of the e cess profts ta mposed upon the ta payer for such year.
owever, for such purpose the ta mposed for a ta abe year begnnng n
1941 and endng after une 30, 1942 (wth respect to whch secton 710(a) (3) s
appcabe), s the amount of the porton of the tentatve ta determned under
secton 710(a) (3) ( ) pror to (1) any credt under secton 131, as made appca-
be by secton 729, for ta pad or accrued to a foregn country or possesson of the
Unted States, and (2) any ad|ustment under secton 731 on account of poston
nconsstent wth pror Income ta abty. If t s determned, n the case of any
ta payer wth respect to such ta abe year, that constructve average base pe-
rod net ncome shoud be used pursuant to secton 722 n computng ts ta , the
ta mposed, for the purpose of the post-war credt for such year, s the amount
determned pursuant to the precedng sentence after the determnaton pursuant
to such secton. ut n such case, pendng the fna determnaton of the ta pur-
suant to secton 722, the ta mposed sha, for such purpose, be tentatvey con-
sdered as an amount determned wthout regard to the determnaton under
secton 722. or the purpose of the post-war credt, the ta mposed does not
toctode any nterest, penaty, addtona amount, or ndton to the ta .
or provsons reatng to reducton of the post-war credt on account of the
aowance of a credt for debt retrement, see secton 7 3(c) and secton 35.7S3-1
(c) of Reguatons 112 (whch reguatons superseded Reguatons 109 for a
ta abe years wth respect to whch a credt for debt retrement s aowabe).
( ) y nsertng mmedatey after the thrd sentence of secton
30.7 0-1(6) the foowng:
If the proof of successorshp n respect of a post-war credt requred under secton
30.7 O-2(c) (1) s submtted to the Commssoner pror to the certfcaton of the
statement of the amount of such post-war credt to the Secretary, such statement
w show the credt n the name of the successor entted thereto.
(C) y strkng out the ast sentence of secton 30.7 0-1(6) and n-
sertng n eu thereof the foowng:
or provsons reatng to reducton of the amount of bonds on account of the
aowance of a credt for debt retrement, see secton 7S3(c) and secton 35.7S3-1
(c) of Reguatons 112.
(D) y strkng out secton 30.7 0-1 (c) and nsertng n eu thereof
the foowng:
(c) empton of proceeds of bonds from tar. No ncome s reazed by reason
of the recept by a ta payer of the proceeds of any bond purchased wth the post-
war credt estabshed to the account of such ta payer whch are pad upon
redempton of such bond. Nor s any ncome reazed by a successor by reason of
hs recept of the proceeds of any bond acqured pursuant to secton 30.7 O-2
whch are pad upon redempton of the bond, f, under the provsons of secton
113, such bond had, for the purpose of determnng gan or oss from a sae or
e change, |the same bass n the hands of the successor as t woud have had n
the hands of the ta payer. Otherwse, Income may be reazed by the successor
upon the redempton of such bond.
Par. 3. There s nserted mmedatey after secton 30.7 0-1. added
by Treasury Decson 5254, the foowng new secton:
Sec. 30.7 0-2. Successor of Ta payer. (a) Rghts and abtes. cept as
otherwse e pressy provded n these reguatons, a successor as defned n para-
graph (6) who has acqured as such successor, ether drecty or ndrecty from
the ta payer, a post-war credt, or a bond under secton 7 0 pror to the tme
that the bond becomes negotabe, sha succeed to a the rghts of the ta payer
ouder sectons 7 0 and 7 1 and sectons 30.7 0-1 and 30.7 1-1 of these reguatons,
and to a the abtes of the ta payer under such sectons, secton 7 3(c),
and secton 35.7 3-(c) of Reguatons 112, n respect of the post-war credt or
bond so acqured.
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7 0.
292
(6) Defnton of successor. or the purposes of sectons 7 0, 7 1, and 7 3(c)
and the reguatons prescrbed thereunder, the term successor means
(1) a corporaton Into whch the ta payer has merged
(2) a corporaton resutng from the consodaton of the ta payer and
one or more other corporatons
(3) a corporaton resutng from a mere change In the Identty, form, or
pace of organzaton of the ta payer
(4) a corporaton whch s organzed or made use of by credtors or
sharehoders of the ta payer for the purpose of contnung the busness of
such ta payer and whch has acqured substantay a the propertes of
the ta payer
(5) a corporaton whch has acqured as a dstrbutee n the compete
qudaton of the ta payer substantay a the propertes of such ta payer
(6) a corporaton, partnershp, or ndvdua, whch has acqured as a
purchaser n connecton wth the qudaton of the ta payer substantay
a the propertes of such ta payer
(7) an assgnee for the beneft of credtors who has acqured substantay
n the propertes of the ta payer under a vountary assgnment made by such
ta payer, or a purchaser of a or a part of such propertes from such
assgnee
( ) a recever, trustee, or other fducary, who has acqured substan-
tay a the propertes of the ta payer In an nsovency, recevershp, fore-
cosure, or smar proceedng, or a purchaser of a or a part of such prop-
ertes from such recever, trustee, or other fducary
(9) a trustee, or other fducary, who has acqured substantay a the
propertes of the ta payer In a proceedng under the Natona ankruptcy
ct, as amended, or a purchaser of a or a part of such propertes from such
trustee or other fducary
(10) a purchaser of n or a part of the propertes of the ta payer at a
sae under wrt of dstrant, wrt of e ecuton, wrt of attachment, or
smar process, of substantay a the propertes of such ta payer
(11) a purchaser, dstrbutee, or other transferee, who has acqured a
or a part of the propertes of the ta payer n pursuance of an order of any
agency of the Unted States
(12) a dstrbutee, or other transferee, who has acqured a or a part of
the propertes of the ta payer by operaton of aw, or a purchaser of a or
a part of such propertes from a fducary who acqured such propertes by
operaton of aw
(13) a corporaton, or partnershp, organzed for the purpose of contnu-
ng the busness formery carred on by the ta payer, whch has acqured
from the former sharehoders of the ta payer, or from a trustee on ther be-
haf, substantay a the propertes receved by such sharehoders as ds-
trbutees, or by such trustee, n the compete qudaton of the ta payer
(14) the sharehoder or the severa sharehoders of the ta payer who have
acqured as dstrbutees substantay a the propertes of the ta payer In
the compete qudaton of such ta payer, or a trustee apponted to hod
for ther beneft a or a part of the propertes to whch such sharehoders
were entted as dstrbutees In the compete qudaton of the ta payer
(15) a sharehoder of the ta payer who has acqured from another share-
hoder of such ta payer a or a part of the propertes to whch the trans-
feror-sharehoder was entted as a dstrbutee n the compete qudaton
of the ta payer
(10) the person or persons who as transferees of the ta payer pad the
e cess profts ta of such ta payer, or a defcency In respect of such ta ,
for any ta abe year for whch a post-war credt s provded, to the e tent
that the post-war credt Is attrbutabe to the ta or defcency n ta pad
by such transferees, or a trustee apponted to hod for the beneft of such
transferees the post-war credt or bonds to whch such transferees were
entted by vrtue of such payment
(17) a transferee of the ta payer who has acqured from another trans-
feree of such ta payer the Interest n the post-war credt to whch such
other transferee was entted by vrtue of the payment of a part of the
e cess profts ta of such ta payer, or of a defcency In respect of such ta ,
for any ta abe year for whch a post-war credt s provded or
(1 ) any other person who, on appcaton settng forth the pertnent
facts under oath, may be deemed by the Secretary to consttute a successor
wthn the purpose and ntent of these reguatons.
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7 0.
or the purposes of the foregong defnton, the term ta payer ncudes a
successor as defned heren.
(e) Proof of successorshp and records to be. kept. (1) Proof. person who
has acqured as successor a post-war credt, ether drecty or ndrecty from the
tapayer, sha prompty submt to the Commssoner of Interna Revenue a
compete statement under oath of a facts necessary to estabsh hs status as
a successor n respect of such post-war credt, ncudng
() the name of the ta payer, the ta abe year for whch the e cess
profts ta was mposed wth respect to whch the post-war credt s attrb-
utabe, and the amount of the post-war credt camed
() a certfed copy of each resouton, order, certfcate, nstrument, docu-
ment, or other paper pertnent to the transacton n whch the post-war
credt was acqured, together wth a statement In deta showng a reevant
facts wth respect to such transacton and
() such other or addtona proof as the Commssoner may deem nec-
essary to estabsh the status of the partcuar person as a successor n
respect of the post-war credt.
If evdence has been fed wth the Commssoner of the Pubc Debt or the
Secretary In connecton wth the ressue of bonds whch were acqured by the
successor n the same transacton as that n whch the successor acqured the
post-war credt and reference s made to that fact n the statement fed wth
the Commssoner of Interna Revenue, such evdence need not be submtted to
e Commssoner of Interna Revenue e cept upon recept of a specfc request
teefor.
(2) Records. Permanent records n substanta form sha be kept by every
ta payer a party to a transacton pursuant to whch a post-war credt or bonds
under secton 7 0 are transferred, showng a pertnent facts wth respect to
the varous tems of property transferred n such transacton, ncudng the post-
war credt or bonds and any abtes assumed, n order to factate the deter-
mnaton of gan or oss from a subsequent dsposton of such post-war credt,
bonds, or other property. .
Par. 4. There s nserted mmedatey precedng secton 30.7 1-1,
added by Treasury Decson 5254, the foowng:
S C. 250. POST-W R R UND O C SS PRO ITS T . (R -
NU CT O 1943.)

(e) ffect of Refunds. Secton 7 1 (b) (reatng to effect of refunds)
(b) ffect of Refunds. In the case of an overpayment of the ta
mposed by ths subchapter for any ta abe year for whch a credt s
provded n secton 7 0(a), the credt, f any, provded n such secton
for such ta abe year e stng n favor of the ta payer sha be reduced
by an amount equa to 10 per centum of the e cess of the ta mposed
by ths subchapter on the bass of whch such ta (n respect of whch
the nterna revenue refund or credt s made) was prevousy computed
and pad, over the ta mposed by ths subchapter as determned n con-
necton wth the determnaton of the amount of the overpayment. In
such a case, f such credt provded n secton 7 0(a) for such ta abe
year s ess than the amount by whch t s requred to be reduced, r f
there s no such credt then e stng n favor of the ta payer, the e cess
of such amount over the amount of such credt, f any, sha consttute
a charge aganst the ta payer to be apped n reducton of the amount of
the bonds prevousy ssued to the ta payer under secton 7 0(b) wth
respect to such ta abe year. If the bonds ssued wth respect to such
ta abe year are not made avaabe for the purpose of such reducton or
the amount of such bonds so made avaabe s ess than the amount of
such charge, such charge or the e cess of such charge over the amount
of such bonds so made avaabe, as the case may be, sha be apped at
the tme of the credt or refund (or as of the tme of the maturty of
bonds ssued wth respect to such ta abe year, f that tme s earer)
In reducton of the amount of the credt or refund of the overpayment of
the ta .
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294
(f) Lmtaton on Post-War Credt. Secton 7 1(d) (reatng to the
mtaton on the post-war credt or refund of e cess profts ta ) s
(d) Lmtaton.
(1) Genera bub.
(2) Speca rue n case of fsca years begnnng n 1941 and
endno after |une 3o, 1942. In the case of a ta abe year begnnng
n 1941 and endng after une 30,1942, the credt under secton 7 0(a)
for such ta abe year sha not be greater than the e cess of the ta
pad under ths subchapter to the Unted States for such ta abe
year (and not credted or refunded under the nterna revenue aws)
over the amount of ta whch woud be payabe to the Unted States
under ths subchapter f the porton of the tentatve ta determned
under secton 710(a) (3) ( ) were reduced by 10 per centum.

(g) Ta abe Tears to Whch ppcabe. the amendments
made by subsecton (e) (e cept wth respect to credts or re-
funds made on or pror to the date of the enactment of ths ct) sha
be effectve as f made by secton 250 of the Revenue ct of 1942.
the amendment made by subsecton (f) nsertng a new para-
graph (2) of secton 7 1(d) of the Interna evenue Code, sha be
appcabe wth respect to ta abe years begnnng n 1941 and endng
after une 30, 1942.
Par. 5. Secton 30.7 1-1, added by Treasury Decson 5254, s
Sec. 30.7 1-1. Speca Rues for ppcaton of Secton 7 0. (a) Defcen-
ce refunds and credts of overpayments. In case a defcency Is pad by the
ta payer, or an overpayment s refunded or credted to the ta payer, for any
ta abe year to whch secton 7 0(a) appes, approprate ad|ustments w be
made n the post-war credt account of the ta payer. In such case, whenever
the amount of bonds shoud be ncreased or reduced, the Commssoner of Interna
Revenue sha certfy the status of the account to the Secretary n order that
approprate ad|ustments may be made n the amount of bonds. If the refund
or credt of an overpayment was made on or before ebruary 25, 1944 (the
date of the enactment of the Revenue ct of 1943), the ad|ustment of the post-
war credt or bonds of the ta payer sha be made n accordance wth secton
7 1(b) n force pror to such date. If the refund or credt of an overpayment
s made after ebruary 25, 1944, such ad|ustment, or n an approprate case
the reducton n the amount of the refund or credt of the overpayment of the
ta , sha be made n accordance wth secton 7 1(b), as amended by secton
250(e) of the Revenue ct of 1943. Coecton from a ta payer under secton
7 1(b) In force pror to ebruary 25, 1944, of the amount by whch charges
(arsng by reason of a refund or credt of an overpayment) e ceed the amount
of the post-war credt of the ta payer, and payment to a ta payer under secton
7 1(c) of amounts of any outstandng post-war credt aganst whch bonds have
not been ssued, sha be made by the Commssoner of Interna Revenue. No
ncome s reazed by reason of the recept by a ta payer of any such payment
under secton 7 1(c). Nor s any ncome reazed by a successor by reason of
hs recept of any such payment, f, under the provsons of secton 113, the
outstandng post-war credt wth respect to whch the payment s made had,
for the purpose of determnng gan or oss from a sae or e change, the same
bass n the hands of the successor as t woud have had n the hands of the
ta payer. Otherwse, ncome may be reazed by the successor from the recept
of such a payment.
(6) Lmtatons on amount of post-war credt. The post-war credt provded
for n secton 7 0(a) (see secton 30.7 0-(o)) s sub|ect to the mtatons set
forth n secton 7 1(d)(2). The mtatons operate n certan cases n whch
the ta payer takes a credt aganst e cess profts ta , pursuant to secton 131,
as made appcabe by secton 729, for ta pad or accrued to a foregn country or
Unted States possesson. They operate aso to emnate or reduce the post-war
credt n case the e cess profts ta s not pad, or s not pad n fu, and n cer-
tan cases n whch the e cess profts ta s reduced by an ad|ustment under
secton 734 on account of poston Inconsstent wth pror ncome ta abty (as,
for e ampe, f the amount of such reducton e ceeds the amount of e cess profts
ta whch woud be payabe f the porton of the tentatve ta determned under
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7 0.
secton 710(a)(3)( ) were reduced by 10 per cent). The mtatons are as
foows:
(1) The post-war credt s provded ony wth respect to e cess profts ta pad
(and not credted or refunded under the nterna revenue aws). (See e ampe
(11, beow.)
(2) In the case of any ta abe year to whch secton 710(a) (3) s appcabe
(that s, a ta abe year begnnng n 1041 and endng after une 30, 1942), the
post-war credt for such year sha not be greater than the e cess of the e cess
profts ta pad over the amount of e cess profts ta whch woud be payabe If
the porton of the tentatve ta determned under secton 710(a)(3)( ) were
reduced by 10 per cent. (See e ampe (2), beow.) Ths mtaton s appcabe
to any ta abe year begnnng n 1941 and endng after une 30, 1942, rrespectve
of whether secton 710(a)(1)( ) (reatng to the 0 per cent mtaton) s
appcabe n the computaton of the tentatve ta under secton 710(a) (3) ( ),
the provsons of secton 710(a)(1)( ) beng taken nto account n computng
the mtaton.
The appcaton of secton 7 1(d)(2) may be ustrated by the foowng
e ampes:
ampe (1). The Corporaton has for the ta abe year begnnng Decem-
ber 1, 1941. and endng November 30, 1942, an ad|usted e cess profts net ncome
of 1,000,000. The 0 per cent mtaton under secton 710(a)(1)( ) s not
appcabe n the computaton of the ta . The e cess profts ta of the corpora-
ton for that year determned under secton 710(a) (3) s 099,035.61, of whch
cr 090,000 s actuay pad. The post-war credt of the cortoraton for that
W s 2 ,690.42, computed as foows:
d|usted e cess profts net ncome 1, 000, 000. 00
Tentatve e cess pn fts ta computed under secton 710(a)(3)
( ) ( 254,000 pus 00 per cent of 500,000)-., 55-1,000. 00
Tentatve e cess profts ta computed under secton 710(a) (3)
( ) (90 per cent of 1,000,000) 900, 000. 00
Porton of tentatve e cess profts ta determned under secton
710(a) (3) ( ) (212/365 of 554,000) 321,775.34
710(a) (3) ( ) (153/305 of 900,000) 377, 260. 27
cess profts ta determned under secton 710(a)(3) 699,035.61
profts ta mposed, as defned n secton 7 0(a) (porton
of tentatve e cess profts ta determned under secton 710(a)
(3)( )) 377,260.27
Post-war credt computed under secton 7 0(a) wthout regard to
the mtaton ur.der secton 7 1 (d) (2) (10 per cent of 377,260.27
(ta mposed)) 37,726.03
Lmtaton under secton 1 1(d) (2).
cess profts ta pad 690, 000. 00
Less e cess profts ta whch woud be payabe f the porton of
the tentatve e cess profts ta determned under secton 710(a)
(3) ( ) were reduced by 10 per cent:
Porton of tentatve e cess profts ta deter-
mned under secton 710(a)(3)( ) 321,775.34
mned under secton 710(a) (3) ( ) reduced by
10 per cent ( 377,260.27 mnus 37.726.03) 339, 534. 24
661, 309. 5
Lmtaton under secton 7 1(d)(2) 2 ,690.42
Post-war credt aowabe 2 ,690. 42
Snce the post-war credt under secton 7 0(a) ( 37,720.03) computed wthout
regard to the mtaton under secton 7 1(d)(2) s greater than the amount
(S2 .690.42) determned under secton 7 1(d)(2), the amount determned under
secton 7 1(d) (2) s the amount of the post-war credt.
ampe (2). The Corporaton, a domestc corporaton, has for the ta abe
year begnnng December 1, 1941, and endng November 30, 1942, an ad|usted
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296
e cess profts net Income of 1,000,000. The 0 per cent mtaton under secton
710(a) (1) ( ) s not appcabe n the computaton of the ta . The corporatkm
pays to a foregn country wth respect to the ta abe year an ncome ta upon
ncome from sources wthn the foregn country. fter aowance of the credt
aganst norma ta and surta for foregn ta pad, the amount of 140,000 of
the foregn ta s avaabe as a credt aganst the e cess profts ta for the
ta abe year. Suc credt s mted by secton 729 to one-ffth of the corpora-
ton s e cess profts ta for the ta abe year snce ony one-ffth of ts entre e cess
profts net ncome s from sources wthn the foregn country. The corporaton
pays ts e cess profts ta for the ta abe year n fu. The post-war credt of
the corporaton for such year s 30,1 0. 3, computed as foows:
d|usted e cess profts net ncome 1,000,000.00
710(a)(3)( ) (see e ampe (1), above) 321,775.34
710(a)(3)( ) (see e ampe (1), above) 377,260.27
Sum of portons of tentatve e cess profts ta es determned under
secton 710(a)(3) 699,035.61
Less foregn ta credt (Ys of 699,035.61) 139, 07.12
cess profts ta determned under secton 710(a) (3) 559,22 .49
cess profts ta mposed (as defned n secton 7S0(a)) 377,260.27
Post-war credt computed under secton 7 0(a) wthout regard to
the mtaton under secton 7 1(d)(2) (10 per cent of 377,-
200.27 (ta mposed)) 7,726.03
cess profts ta pad 559,22 .49
Less e cess profts ta whch woud be payabe f the porton of
the tentatve e cess profts ta determned under secton
710(a) (3) ( ) were reduced by 10 per cent:
mned under secton 710(a)(3)( ) 321,775.34
mned under secton 710(a) (3) ( ) reduced by
10 per cent ( 377,260.27 mnus 37,726.03) 339, 534.24
cess profts ta payabe before foregn ta
credt 661,309. 5
Less foregn ta credt ( of 061,309.5S) 132,261.92
529,047.66
Lmtaton under secton 7 1(d) (2) 30.1 0. 3
Post-war credt aowabe 30,1 0. 3
Snce the post-war credt under secton 7 0(a) ( 37,726.03) computed wthout
( 30,1 0. 3) determned under secton 7 1(d) (2), the amount determned under
GOL TIONS 112.
In order to conform Reguatons 112 Part 35, Tte 26, Code of ed-
era Reguatons, Cum. Sup. to secton 250 of the Revenue ct of 1943
(Pubc Law 235, Seventy-eghth Congress), enacted ebruary 25,
1944, and for other purposes, such reguatons are amended as foows:
Par. 0. The ast sentence of secton 7 0(a), added by secton 250 of
the Revenue ct of 1942, precedng secton 35.7 0-1, s strcken out
and three astersks are nserted n eu thereof.
Par. 7. There s nserted mmedatey precedng secton 35.7 0-1
the foowng:
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7 0.
S C. 250. POST-W R R UND O C SS PRO ITS T .
(R NU CT O 1943.)

(b) Transfers to Successors of Ta payer. Secton 7 0(c) (reatng
to terms and maturty of bonds) s amended by nsertng after pedge,
hypothecaton, or otherwse, the foowng: e cept to a successor as
defned n subsecton (g), .
(c) empton of Proceeds rom Ta . Secton 7 0(d) (reatng to
e empton of proceeds of bonds from ta upon redempton) s amended
by nsertng after such bond the foowng: pad to the ta payer .
(d) Rqts and Labtes of Successor. Secton 7 0 (reatng to
post-war refund of e cess profts ta ) s amended by nsertng at the end
thereof the foowng:
(f) Rghts and Labtes of Successors of Ta payer. Sub|ect
to, and to the e tent provded n, reguatons prescrbed by the Secretary,
a successor of the ta payer sha succeed to a the rghts and abtes
of the ta payer under ths part.
(g) Defnton of Successor . or the purpose of ths part the
term successor means such person or persons who succeed, ether d-
recty or through one or more other persons, to ownershp of property of
the ta payer, as the Secretary may by reguatons prescrbe.

(g) Ta abe Years to Whch ppcabe. The amendments made
by subsectons (b), (c), and (d) sha be effectve as f made
by secton 250 of the Revenue ct of 1042.
Par. . Secton 35.7 0-1 s amended as foows:
( ) y addng after the second sentence of secton 35.7 0-1 (a) the
foowng:
or provsons reatng to the post-war credt for ta abe years begnnng n 1941
and endng after une 30, 1942, see Reguatons 10 ).
( ) y nsertng mmedatey after the thrd sentence of secton
25.7 0-1(6) the foowng:
If the proof of successorshp n respect of a post-war credt requred under secton
357 0-2(e) (1) s submtted to the Commssoner pror to the certfcaton of the
statement of the amount of such post-war credt to the Secretary, such statement
w show the credt n the name of the successor entted thereto.
(C) y strkng out secton 35.7 0-1 (c) and nsertng n eu
thereof the foowng:
(c) empton of proceeds of bonds from ta . No ncome Is reazed by reason
of the recept by a ta payer of the proceeds of any bond purchased wth the post-
war credt estabshed to the account of such ta payer whch are pad upon re-
dempton of such bond. Nor s any Income reazed by a successor by reason of
hs recept of the proceeds of any bond acqured pursuant to secton 35.7 0-2
whch are pad upon redempton of the bond, f, under the provsons of secton
113, such bond had, for the purpose of determnng gan or oss from a sae or
e change, the same bass n the hands of the successor as t woud have had n
the hands of the ta payer. Otherwse, ncome may be reazed by the successor
upon the redempton of such bond.
Par. 9. There s nserted mmedatey after secton 35.7 0-1 the
foowng new secton:
Sec 35.7 0-2. Successor, of Ta paykr. (a) Rghts and abtes. cept as
otherwse e pressy provded n these reguatons, a successor as defned n par-
agraph (6) who has acqured as such successor, ether drecty or ndrecty from
the ta payer, a post-war credt, or a bond under secton 7 0 pror to the tme
that the bond becomes negotabe, sha succeed to a the rghts of the ta payer
under sectons 7 0 and 7 1 and sectons 35.7 0-1 and 35.7 1-1, and to a the
abtes of the ta payer under such sectons, secton 7 3(c), and secton 35.7 3-1
(c), In respect of the post-war credt or bond so acqured.
6 4334 46 20
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29
(5) Defnton of successor. or the purposes of sectons 7 9, 7 1, and 7 3(c)
and the reguatons prescrbed thereunder, the terra successor means
(1) a corporaton nto whch the ta payer has merged
(2) a corporaton resutng from the consodaton of the ta payer and one
or more other corporatons
(3) a corporaton resutng from a mere change n the dentty, form, or
pace of organzaton of the ta payer
(4) a corporaton whch s organzed or made use of by credtors or share-
hoders of the ta payer for the purpose of contnung the busness of such
ta payer and whch has acqured substantay a the propertes of the
ta payer
(5) a corporaton whch has acqured as a dstrbutee n the compete
qudaton of the ta payer substantay a the propertes of such ta payer
(6) a corporaton, partnershp, or ndvdua, whch has acqured as a
purchaser n connecton wth the qudaton of the ta payer substantay a
the propertes of such ta payer
(7) an assgnee for the beneft of credtors who has acqured substantay
a the propertes of the ta payer under a vountary assgnment made by
such ta payer, or a purchaser of a or a part of such propertes from sueb
assgnee
( ) a recever, trustee, or other fducary, who has acqured substantay
a the propertes of the ta payer n an nsovency, recevershp, forecosure,
or smar proceedng, or a purchaser of a- or a part of such propertes
from such recever, trustee, or other fducary
(9) a trustee, or other fducary, who has acqured substantay a the
propertes of the ta payer n a proceedng under the Natona ankruptcy
ct, as amended, or a purchaser of a or a part of such propertes from such
trustee or. other fducary
(10) a purchaser of a or a part of the propertes of the ta payer at a
sae under wrt of dstrant, wrt of e ecuton, wrt of attachment, or smar
process, of substantay a the propertes of such ta payer
(11) a purchaser, dstrbutee, or other transferee, who has acqured a
or a part of the propertes of the ta payer n pursuance of an order of any
agency of the Unted States
(12) a dstrbutee, or other transferee, who has acqured a or a part
of the propertes of the ta payer by operaton of aw, or a purchaser of
a or a part of such propertes from a fducary who acqured such prop-
ertes by operaton of aw
(13) a corporaton, or partnershp, organzed for the purpose of contnu-
ng the busness formery carred on by the ta payer, whch has acqured
from the former sharehoders of the ta payer, or from a trustee on ther
behaf, substantay a the propertes receved by such sharehoders as
dstrbutees, or by such trustee, n the compete qudaton of the ta payer
(14) the sharehoder or the severa sharehoders of the ta payer who
have acqured as dstrbutees substantay a the propertes of the ta -
payer In the compete qudaton of such ta payer, or a trustee apponted
to hod for ther beneft a or a part of the propertes to whch such share-
hoders were entted as dstrbutees In the compete qudaton of the
ta payer
(15) a sharehoder of the ta payer who has acqured from another
sharehoder of such ta payer a or a part of the propertes to whch the
transferor-sharehoder was entted as a dstrbutee n the compete quda-
ton of the ta payer
(10) the person or persons who as transferees of the ta payer pad the
e cess profts ta of such ta payer, or a defcency n respect of such ta ,
for any ta abe year for whch a post-war credt s provded, to the e tent
that the post-war credt s attrbutabe to the ta or defcency n ta pad
by such transferees, or a trustee apponted to hod for the beneft of such
transferees the post-war credt or bonds to whch such transferees were en-
tted by vrtue of such payment
(17) a transferee of the ta payer who has acqured from another trans-
feree of such ta payer the Interest n the post-war credt to whch such
other transferee was entted by vrtue of the payment of a part of the
e cess profts ta of such ta payer, or of a defcency n respect of such ta ,
for any ta abe year for whch a post-war credt s provded or
(1 ) any other person who, on appcaton settng forth the pertnent
facts under oath, may be deemed by the Secretary to consttute a successor
wthn the purpose and ntent of these reguatons.
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7 0.
or the purposes of the foregong defnton, the term ta payer ncudes
a sneceasor as defned heren.
(e) Proof of successorshp and records to be kept. (1) Proof. person who
has acqured as successor a post-war credt, ether drecty or ndrecty from
the .ta payer, sha prompty submt to the Commssoner of Interna Revenue
a compete statement under oath of a facts necessary to estabsh hs status
as a successor n respect of such post-war credt, ncudng
() the name of the ta payer, the ta abe year for whch the e cess
profts ta was mposed wth respect to whch the post-war credt s at-
trbutabe, and the amount of the post-war credt camed
() a certfed copy of each resouton, order, certfcate, nstrument,
document, or other paper pertnent to the transacton n whch the post-war
credt was acqured, together wth a statement In deta showng a reevant
facts wth respect to such transacton and
(111) such other or addtona proof as the Commssoner may deem
necessary to estabsh the status of the partcuar person as a successor In
respect of the post-war credt.
If evdence has been fed wth the Commssoner of the Pubc Debt or the
Secretary n connecton wth the ressue of bonds whch were acqured by the
successor In the same transacton as that n whch the successor acqured the
pcst-war credt and reference s made to that fact n the statement fed wth
Commssoner of Interna Revenue, such evdence need not be submtted to the
Gffmssoner of Interna Revenue e cept upon recept of a specfc request
therefor.
- Records. Permanent records n substanta form sha be kept by every
tapayer a party to a transacton pursuant to whch a post-war credt or bonds
under secton 7 0 are transferred, showng a pertnent facts wth respect to
the tarous Items of property transferred n such transacton, Incudng the post-
war credt or bonds and any abtes assumed, n order to factate the de-
termnaton of gan or oss from a subsequent dsposton of such post-war credt,
bonds, or other property.
Pae. 10. There s nserted mmedatey precedng secton 35.7 1-1
the foowng:
S :. 250. POST-W R R UND O C SS PRO ITS T .
(R NU CT O 1943, TITL II.)

(e) ffect of Refunds. Secton 7 1(b) (reatng to effect of re-
funds) s amended to read as foows:
(b) ffect of Refunds. In the case of an overpayment of the ta
mposed by ths subchapter for any ta abe year for whch a credt s
provded n secton 7 0(a), the credt, f any, provded n such secton
for such ta abe year e stng n favor of the ta payer sha be reduced
by an amount equa to 10 per centum of the e cess of the ta mposed
by ths subchapter on the bass of whch such ta (n respect of whch
the nterna revenue refund or credt s made) was prevousy computed
and pad, over the ta mposed by ths subchapter as determned n
connecton wth the determnaton of the amount of the overpayment.
In such a case, f such credt provded n secton 7 0(a) for such ta -
abe year s ess than the amount by whch t Is requred to be reduced,
or f there s no such credt then e stng n favor of the ta payer, the
e cess of such amount over the amount of such credt, f any, sha con-
sttute a charge aganst the ta payer to be apped n reducton of the
amount of the bonds prevousy ssued to the ta payer under secton
7 0(b) wth respect to such ta abe year. If the bonds ssued wth
respect to such ta abe year are not made avaabe for the purpose of
such reducton or the amount of such bonds so made avaabe Is ess
than the amount of such charge, such charge or the e cess of such
charge over the amount of such bonds so made avaabe, as the case
may be, sha be apped at the tme of the credt or refund (or as of
the tme of the maturty of bonds ssued wth respect to such ta abe
year, f that tme s earer) n reducton of the amount of the credt or
refund of the overpayment of the ta .
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300
(f) Lmtaton on ost-War Credt. Secton 7 1(d) (reatng to
the mtaton on the post-war credt or refund of e cess profts ta )
s amended to rend as foows:
(d) Lmtaton.
(1) Genera rue. The credt under secton 7 0(a) for any
ta abe year sha not be greater than the e cess of the amount of the
ta pad under ths subchapter to the Unted States (and not
credted or refunded under the nterna revenue aws) In respect of
such year over the amount of ta whch woud be payabe to the
Unted States f the e cess profts tn rate were 5 per centum,
or, f the mtaton of secton 710(a)(1) ( ) s appcabe, f the
amount determned under such secton were reduced by 10 per
centum.

(3) Speca rue n case of ceutan fsca years begnnng n
m4 . In the case of a ta abe year begnnng n 1943 and endng n
1914, the credt under secton 7 0(a) for such ta abe year sha
not be greater than the e cess of the ta pad under ths sub-
chapter to the Unted States for such ta abe year (and not credted
or refunded under the nterna revenue aws) over the amount
whch woud be payabe to the Unted States f
( ) n the computaton under secton 710(a)(6)( ) the
e cess profts ta rate were 1 per centum, or, n case the mta-
ton of secton 710(a) (1) ( ) s appcabe n such computaton,
f the amount determned under such secton 710(a)(1)( )
were reduced by 10 per centum, and
( ) n the computaton under secton 710(a)(6)( ) the
e cess profts ta rate were 5 per centum, or, n case the
mtaton of secton 710(a) (1) ( ) s appcabe n such com-
putaton, f the amount determned under secton 710(a) (1) ( )
were reduced by 10 per centum.
(g) Ta abe Years to Whch ppcabe. the amend-
ments made by subsecton (e) (e cept wth respect to credts or refunds
made on or pror to the date of the enactment of ths ct) sha be ef-
fectve as f made by secton 250 of the Revenue ct of 1942.
The amendment made by subsecton (f) nsertng a new paragraph (3) of
secton 7 1(d) of the Interna Revenue Code sha be appcabe wth
respect to ta abe years begnnng n 1943 and endng n 1944.
tte sha be appcabe ony wth respect to ta abe years begnnng after
December 31, 1043.
Par. 11. Secton 35.7 1-1 s amended to read as foows:
Sec. 35.7 1-1. Spkca Rues for ppcaton of Secton 7S0. (a) Dtp
cenccs refunds and credts of overpayments. In case a defcency s pad by the
ta payer, or an overpayment s refunded or credted to the ta payer, for any
ta abe year to whch secton 7 0(a) appes, approprate ad|ustments w 1
made In the post-war credt account of the ta payer. In such case, whenever
the amount of bonds shoud be ncreased or reduced, the Commssoner of Interna
Revenue sha certfy the status of the account to the Secretary n order that
approprate ad|ustments may be made n the amount of bonds. If the refund
or credt of nn overpayment was made on or before ebruary 25, 1944 (the date
of the enactment of the Revenue ct of 1943), the ad|ustment of the post-war
credt or bonds of the ta payer sha be made n accordance wth secton 7S(b)
In force pror to such date. If the refund or credt of an overpayment s made
after ebruary 25, 1944, such ad|ustment, or In an approprate case the reducton
n the amount of the refund or credt of the overpayment of the ta , sha be
made n accordance wth secton 7 1(b), as amended by secton 250(e) of the
Revenue ct of 1943. Coecton from a ta payer under secton 7 1(b) n force
pror to ebruary 25, 1944, of the amount by whch charges (arsng by reason
of a refund or credt of an overpayment) e ceed the amount of the post-war
credt of the ta payer, and payment to a ta payer under secton 7 1(c) of
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301
57 0.
amounts of any outstandng post-war credt aganst whch bonds have not been
ssued, sha be made by the Commssoner of Interna Revenue. No Income Is
rtnzed by reason of the recept by a ta payer of any such payment under
ecton 7S(c). Nor s any ncome reazed by a successor by reason of hs
recept of any such payment, f, uuder the provsons of secton 113, the outstand-
ng post-war credt wth respect to whch the payment s made had, for the pur-
pose of determnng gan or oss from a sae or e change, the same bass n the
bands of the successor as t woud have had n the hands of the ta payer. Other-
wse, ncome may be reazed by the successor from the recept of such a payment.
(b| Lmtatons on amount of post-tear credt. The post-war credt provded
for In secton 7 0(a) (see secton 35.7 0-1 (a)) s sub|ect to the mtatons set
forth n secton 7 1(d). The mtatons operate n certan eases n whch the
taspayer takes a credt aganst e cess profts ta , pursuant to secton 131, as
nude appcabe by secton 720, for ta pad or accrued to a foregn country or
Unted States possesson. They operate aso to emnate or reduce the post-war
credt n case the e cess profts ta s not pad, or s not pad n fu, and fn cer-
tan cases n whch the e cess profts ta s reduced by an ad|ustment under
secton 734 on account of poston nconsstent wth pror ncome ta abty
(as, for e ampe. If the amount of such reducton e ceeds the amonnt of e cess
(routs t whch woud be payabe f the e cess profts ta rate were 1 per cent
per cent, whchever s appcabe). The mtatons are as foows:
(1) The post-war credt for any ta abe year s provded ony wth respect to
acts profts ta pad (and not credted or refunded under the nterna revenue
u s). (See e ampe (1), beow.)
( 2) In the case of a ta abe year begnnng after December 31, 1941, and end-
Sbefore anuary , 1944, the post-war credt for such year sha not be greater
taan the e cess of the e cess profts ta pad over
(1) the amount whch woud be payabe f the e cess profts ta rate were
1 per cent (see e ampes (1) and (2), beow), or
() f secton 710(a)(1)( ) (reatng to the SO per cent mtaton) s
appcabe n the computaton of the ta , the amount whch woud be payabe
If the amo-nnt determned under secton 710(a) (1) ( ) were reduced by 10
percent (see e ampe (3), beow).
(3) In the case of a ta abe year begnnng n 1043 and endng n 1044 (wth
respect to whch secton 710(a)(6) s appcabe), the post-war credt for such
rear sha not be greater than the e cess of the e cess profts ta pad over the
|mount whch woud be payabe f
(t) m the computaton under secton 710(a)(6)( ), the e cess profts
ta rate were 1 per cent, or. In case the mtaton of secton 710(a) (1) ( )
Is appcabe n such computaton, f the amount determned under secton
710(a) (1) ( ) were reduced by 10 percent, and
() n the computaton under secton 710(a)(6)( ), the e cess profts
ta rate were 5 4 per cent, or, n case the mtaton of secton 710(a) (1) ( )
Is appcabe n such computaton, f the amount determned under secton
710(a) (1) ( ) were reduced by 10 per cent (See e ampe (4), beow.)
(4) In the case of a ta abe year begnnng after December 31, 1043, and not
sfter the date of cessaton of hosttes n the present war, as defned n sec-
on 7 0(e), the post-war credt for such year sha not be greater than the e cess
of the e cess profts ta pad over
() the amount whch woud be paynbe f the e cess profts ta rate were
5 2 percent (see e ampe ( ), beow), or
() f the mtaton of secton 710(a)(1)( ) s appcabe n the com-
putaton of the ta , the amount whch woud be payabe f the amount de-
termned under secton 710(a)(1)( ) were reduced by 10 per cent (see
e ampe (6), beow).
or the purpose of the mtatons prescrbed n secton 7 1(d), the amount of
credt for debt retrement aowed under secton 7 3, f any, sha be consdered as
an. amount of ta pad and for such purpose, n determnng amounts of ta
heh woud be payabe under the condtons prescrbed In secton 7 1(d), such
amounts sha be determned wthout regard to any credt for debt retrement
The appcaton of secton 7 1(d) may be ustrated by the foowng e ampes:
ampe (1), The Corporaton has for the caendar year 1042 an ad|usted
acesg profts net ncome of 1,000,000, whch s sub|ect to the e cess profts ta
rate of 90 per cent The e cess profts ta mposed s 9CO,000 (00 per cent of
11,000,000), of whch ony S50,000 s actuay pad. The post-war credt of the
corporaton for such year under secton 7 0(a) computed wthout regard to the
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7 0. |
302
mtaton provded n secton 7 1(d) woud be 00,000 (10 per cent of 000,000).
owever, sue credt s mted by secton 7 1(d) to 40,000, computed as foows:
cess profts ta pad 50,000
Less e cess profts ta wbch woud be payabe f rate were 1 per cent
( 1 per cent of 1,000,000) 10.000
Post-war credt aowabe 40, COO
ampe (2). The norma-ta net ncome, surta net ncome, and e cess profts
net ncome of the Corporaton, a domestc corporaton, for the caendar year
1043 s 1,000,000, of wbch 200,000 s from sources wthn a foregn country an
00,000 from sources wthn the Unted States. (Lkewse, the net ncome from
sources wthn the foregn country s 200,000 and from sources wthn the Unted
States s 00,000.) The amount of the norma-ta net ncome and of the surta
net ncome s stated herenbefore wthout regard to the credt for ncome sub|ect to
e cess profts ta provded n secton 20(e). The corporaton pays to the foregn
country wth respect to the caendar year 1943 ncome ta n the amount of
160,000 upon ncome from sources theren. fter aowance of the credt aganst
norma ta and surta for foregn ta pad, the amount of 136,000 of the foregn
ta s avaabe as a credt aganst the e cess profts ta for 1943. Such credt
s mted by secton 729 to one-ffth of the corporaton s e cess profts ta for that
year snce ony one-ffth of ts entre e cess profts net ncome Is from sources
wthn the foregn country. The e cess profts credt of the corporaton for 1 M3
under secton 712 s 295,000, and ts specfc e empton under secton 710(b) s
5,000. The corporaton pays ts e cess profts ta for 1943 n fu. The post-
war credt of the corporaton for that year s 50,400, computed as foows:
cess profts net ncome 1,000,000
Less:
Specfc e empton 5. 000
cess profts credt 295, 000
300,000
d|usted e cess profts net ncome 700,000
cess profts ta mposed (90 per cent of 700,000) 630,000
Less foregn ta credt (1/5 of 030,000) 126,003
cess profts ta determned under secton 710 504,000
Post-war credt under secton 7 0(a), computed wthout regard to the
mtaton under secton 7 1(d) (10 per cent of 030,000 (ta m-
posed)) 63,000
Lmtaton under secton 7S/ (d).
cess profts ta pad 504,000
Less e cess profts ta whch woud be payabe f rate were
1 per cent:
Ta at 1 per cent rate ( 1 per cent of 700,000) 507, 000
Less foregn ta credt (1/5 of 567,000) 113, 400
453,600
Lmtaton under secton 7 1(d) 50.400
Post-war credt aowabe 50,400
Snce the post-war credt under secton 7S0(a) ( 03,000) computed wthout re-
gard to the mtaton under secton 7 1(d) s greater than the amount ( 50,400)
determned under secton 7 1(d), the amount determned under secton 7 1(d) Is
the amount of the post-war credt.
ampe (3). The facts are the same as n e ampe (2) e cept that the e cess
profts credt of the Corporaton under secton 712 s 95,000 nstead of 295,000
and the amount of the foregn ta avaabe as a credt aganst the corporatons
e cess profts ta , after aowance of the credt aganst norma ta and surta f |r
foregn ta pad, s 152,000, nstead of 136,000. The post-war credt of the
Corporaton for the caendar year 1943 s 60, 00, computed as foows:
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cess profts net ncome 1, 000, 000
Less:
Specfc e empton 5, OCO
cess profts credt 95,000
100,000
d|usted e cess profts net Income 900, 000
cess profts ta determned under secton 710(a) (1) ( ) (90 per
cent of 00,000) 910, 000
orma-ta net ncome before credt for ad|usted e cess profts net
ncome 1, 000, 000
Less credt for ad|usted e cess profts net ncome ._ 900, 000
Norma-ta net ncome 100,000
-Norma ta (24 per cent of 100,000) 24,000
Surta net ncome before credt for ad|usted e cess profts net ncome- 1, 000, 000
Less credt for ad|usted e cess profts net ncome 990, 000
Surta net ncome - 100,000
Surta (16 per cent of 100,000) 16, 000
Lmraton under secton 710(a) (1) ( ) : 0 per cent of surta net
/wnne before credt for ad|usted e cess profts net Income ( 0 per
cent of 1,000,000) 00,000
Norma ta 24,000
Surta 10,000
40,000
cess profts ta mposed (as defned n secton 35.7 0- a) )_ 760, 000
Less foregn ta credt ( of 760,000) 152, 000
cess profts tn determned under secton 710(a) (1) ( ) 60 ,000
Post-war credt under secton 7 0(a), computed wthout regard to the
mtaton under secton 7 1(d) (10 per cent of 760,000 (ta
mposed)) 76,000
Lmtaton under secton 7 1(d).
cess profts ta pa d 60 ,000
Less e cess profts ta whch woud be payabe f amount determned
ander secton 710(a) (1) ( ) were reduced by 10 per cent ( 60 ,000
mnus 60, 00) 547, 200
Lmtaton under secton 7 1(d) 60, P00
Post-war credt aowabe 60, 00
Snce the post-war credt under secton 7 0(a) ( 76,000), computed wthout
eprd to the mtaton under secton 7 1(d), Is greater than the amount
G0.SO0) determned under secton 7 1(d), the amount determned under secton
SI (d s the amount of the post-war credt.
ampe (4). The norma-ta net Income, surta net ncome, and e cess
Profts net ncome of the Corporaton, a domestc corporaton, for the ta abe
year begnnng uy 1, 1943, and endng une 30, 1944, s 1,000,000, of whch
S200.000 s from sources wthn a foregn country and 00,000 from sources
wthn the Unted States. (Lkewse, the net ncome from sources wthn the
foregn country s 200,000 and from sources wthn the Unted States s 00,000.)
The amount of the norma-ta net ncome and of the snrta net ncome Is stated
herenbefore wthout regard to the credt for ncome sub|ect to e cess profts tn
Provded n secton 26(e). The corporaton pays to the foregn country wth
respect to the ta abe year begnnng uy 1, 1943, and endng une 30, 1944,
ncome ta n the amount of 155,000 upon Income from sources theren. fter
aowance of the credt aganst norma ta and surta for foregn ta pad, the
amount of 130, 01.09 of the foregn ta s avaabe as a credt aganst the e cess
profts ta for the ta abe year. Such credt s mted by secton 729 to one-ffth
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304
of the corporaton s e cess profts ta for that year snce ony one-ffth of ts
entre e cess profts net ncome s from sources wthn the foregn country. The
e cess profts credt of the corporaton for the ta abe year under secton 712 Is
25)5,000. In the computaton of the tentatve e cess profts ta under secton
710(a) (C) ( ) specfc e empton under secton 710(b) s 5,000 and n the com-
putaton of the tentatve e cess profts ta under secton 710(a)(6)( ) the
specfc e empton under secton 710(b) s 10,000. The 0 per cent mtaton
under secton 710(a)(1)( ) s not appcabe n the computaton of the ta .
The corporaton pays Its e cess profts ta for the ta abe year In fu. The post-
war credt of the corporaton for such year Is 51,003.39, computed as foows:
Tentatve e cess profts ta computed under secton 110(a) (6) ( ).
cess profts net ncome 1,000,0O0. CO
Specfc e empton 5,000.00
cess profts credt 295, 000 . 00
300,000.00
d|usted e cess profts net ncome 700,000.00
Tentatve e cess profts ta computed under secton 710(a) (G) ( )
(90 per cent of 700,000) _. 630,000.00
Tentatve e cess profts ta computed under secton 710(a) (G) ( ).
cess profts net ncome 1,000, COO. 00
Specfc e empton 10,000.00
cess profts credt 2S)5, 000. 00
305,000.0)
d|usted e cess profts net ncome 693,000.00
Tentatve e cess profts ta computed under secton 710(a) (G) ( )
(95 per cent of G 5,000) .. 660,250.00
cess profts ta determned under secton 110(a) (G).
710(a)(0)( ) (1 4/306 of 630,000) 316,721.31
710 (a) (6) ( ) (1 2/306 of 060,250) 32S, 321.04
cess profts ta mposed (as defned In secton 35.7 0-(o)) 645,042.35
Less foregn ta credt (1/5 of 645.042.35) 120,003.4
cess profts ta determned under secton 710(a) (6) 516,033. S
Post-tear credt und er secton ISO (a) computed cthout regard to the mtaton
under secton 1 1(d) (3).
cess profts ta mposed (as defned n secton 35.7S0-1 (a)) 645,042.35
Post-war credt under secton 7 0(a), computed wthout regard to
the mtaton under secton 7 1(d)(3) (10 per cent of
645,042.35 (ta mposed)) _ 64,504.24
cess profts ta pad 516,033.63
Less e cess profts ta whch woud be payabe f ()
n the computaton under secton 710(a) (6) ( ) the
e cess profts ta rate were 1 per cent, and ()
n the computaton under secton 710(a)(6)( )
the e cess profts ta rate were SS per cent:
Tentatve e cess profts ta com-
puted under secton 710(a)(0)
( ) at 1 per cent rate ( 1 per
cent of 700,000) 567, 000. 00
Porton of tentatve e cess profts ta computed
under secton 710(a) (6) ( ) at 1 per cent rate
(1 4/366 of 567,000) 2 5,049.1
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7 0.
Less e cess profts ta , etc. Contnued.
Tentatve e cess profts ta com-
puted under secton 710(a) (6)
( ) at 5 per cent rate ( 5
per cent of 696,000) 594,225. 00
Porton of tentatve e cess profts ta computed
under secton 710(a) (0) ( ) at 5 per cent
rate (1 2/366 of 594,225) 295,4 . 93
Ta payabe before foregn ta credt 5 0, 53 .11
Less foregn ta credt (1/5 of 5 0,53 .11) 116,107. 62
404, 430.49
Lmtaton under secton 7 1 (d) (3) 51, 003. 39
Post-war credt aowabe 51,603. 39
Snoe the post-war credt under secton 7 0(a) ( 64,504.24) computet wthout
I 31,603.39) determned under secton 7 1(d)(3), the amount determned under
tampc (5). The norma-ta net ncome, surta net ncome, and e cess
pwfts net ncome of the Corporaton, a domestc corporaton, for the caendar
y ar944 s 1,000,000, of whch 200,000 s from sources wthn a foregn country
tad 00,000 from sources wthn the Unted States. (Lkewse, the net ncome
from sources wthn the foregn country s 200,000 and from sources wthn the
Carted States s 00,0CO.) The amount of the norma-ta net ncome and of the
rtn net ncome s stated herenbefore wthout regard to the credt for ncome
sub|ect to e cess profts ta provded n secton 20(e). The corporaton pays to
the foregn country wth respect to the caendar year 1944 ncome ta n the
amount of 160,000 upon Income from sources theren. fter aowance of the
credt aganst norma ta and surta for foregn ta pad, the amount of 130,000
of the foregn ta s avaabe as a credt aganst the e cess profts ta for 1944.
uch credt s mted by secton 729 to one-ffth of the corporaton s e cess profts
ta for that year snce ony one-ffth of ts entre e cess profts net ncome s
from sources wthn the foregn country. The e cess profts credt of the corpo-
raton for 1944 under secton 712 s 290,000, and ts specfc e empton under
secton 710(b) s 10,000. The corporaton pays ts e cess profts ta for 1944
n fu. The post-war credt of the corporaton for that year s 53,200, computed
as foows:
cess profts net ncome 1, 000, 000
Less:
Specfc e empton 10, 000
cess profts credt 290,000
300,000
d|usted e cess profts net ncome 700, 000
cess profts ta mposed (G5 per cent of 700,000) 6G5, 000
Less foregn ta credt ( of 665,000) 133, 000
cess profts ta es determned under secton 710 5, 2,000
Post-war credt under secton 7 0(a) computed wthout regard to the
mtaton under secton 7 1(d)(1) (10 per cent of 605,000 (ta
mposed)) 66,500
cess profts ta pad 532.000
Lens e cess profts ta whch woud be payabe f rate were
5 per cent:
Ta at 5 per cent rate ( 5 per cent of 700,000)- 59 , 500
Less foregn ta credt ( of 50 ,500) 119, 700
47 , 00
Lmtaton under secton 7 1(d) (1) 53, 200
Post-war credt aowabe 53,200
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306
Snce the post-war credt under secton 7 0(a) ( 06,500) computed wthout
(553,200) determned under secton 7 1(d)(1), the amount determned under
ampe (6). The facts are the same as n e ampe (5) e cept that the e cess
profts credt of the Corporaton under secton 712 s 90,000 nstead of 290,000
fnd the amount of the foregn ta avaabe as a credt aganst the corporaton s
e cess profts ta , after aowance of the credt aganst norma ta and surta
tor foregn ta pad, s 152,000 nstead of 136,000. The post-war credt of the
Corporaton for the caendar year 1944 Is 60, 00, confputed as foows:
cess profts net Income 1,000,000
Less:
Specfc e empton 10, 000
cess profts credt 90, 000
100,000
d|usted e cess profts net ncome 900,000
cess profts ta determned under secton 710(a)(1)( ) (95 per
cent of 900,000). 55,000
Norma ta net ncome before credt for ad|usted e cess profts net
ncome 1, 000,000
Less credt for ad|usted e cess profts net ncome 900,000
Norma ta net Income 100,000
Norma ta (24 per cent of 100,000) 24,000
Surta net ncome before credt for ad|usted e cess profts net ncome- 1, 000,000
Less credt for ad|usted e cess profts net ncome 900,000
Surta net ncome 100,000
Surta (16 per cent of 100,000) 16,000
Lmtaton under secton 710(a) (1) ( ):
0 per cent of surta net Income before credt for ad|usted e cess
profts net ncome ( 0 per cent of 1,000,000) 00,000
Norma ta 24,000.
Surta 10, 000
40,000
cess profts ta mposed (as defned n secton 35.7 0-1 (o)) 760,000
Less foregn ta credt ( of 760,000) 152,000
cess profts ta determned under secton 710(a) (1) ( ) 60 ,000
Post-war credt under secton 7 0(a) confputed wthout regard to the
mtaton under secton 7 1(d)(1) (10 per cent of 700,000 (ta
mposed)) 76,000
cess profts ta pad 60 ,000
Less e cess profts ta whch woud be payabe f amount determned
under secton 710(a) (1) ( ) were reduced by 10 per cent ( 60 ,000
mnus 60,S00) 547,21 1
Lmtaton under secton 7 1(d)(1) 60, 00
Post-war credt aowabe 60, 00
Snce the post-war credt under secton 7 0(a) ( 76,000) computed wthout
regard to the mtaton under secton 7 1(d) (1) s greater than the amount
( 60, 00) determned under secton 7 1(d)(1), the amount determned under
secton 7 1(d)(1) s the amount of the post-war credt.
Par. 12. Secton .35.7 3-1 (a), as amended by Treasury Decson
5362, approved pr 25, 1944 C. . 1944, 442 , s further amended,
s further amended by nsertng at the end thereof the foowng:
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7 0.
or speca provsons reatng to the eecton to take the credt, n certan cases
n whch the ndebtedness of the ta payer 1b assumed by a successor, In any
amount to whch the successor-ta payer woud not be entted were t not for
secton 33.7 3-3, see secton 35.7 3-3.(f).
Pab. 13. The ast sentence of the second paragraph of secton
35.7 3-2(a), added by Treasury Decson 5362, s amended by nsert-
ng before the perod a comma and the foowng: e cept as provded
nserton 35.7 3-3(/).
Pab. 14. There s nserted mmedatey after secton 35.7 3-2, added
by Treasury Decson 5362, the foowng new secton:
Sec. 35.7 3-3. Credt foe Debt Retbement n Case or Certan Successons.
(0) In genera. Ths secton appes ony to those cases n whch ndebtedness
(as denned n secton 7 3(d) and secton 35.7 3-(d) s assumed by a successor
n a successon referred to n secton 35.7 0-2(6) (1) to (5), both ncusve, whch
occurs after ugust 31, 1942. The provsons of ths secton sha not affect any
credt for debt retrement for any ta abe year pror to that n whch such
successon occurs. cept as otherwse e pressy provded n ths secton, any
credt for debt retrement aowabe to the successor or to the predecessor sha
te computed as n the case of any other ta payer. s used n ths secton, the
tens predecessor means a predecessor as defned n paragraph (e).
M Rghts and abtes of successor. Sub|ect to the speca rues set forth
paragraph (c)(2), a successor as defned n subparagraphs (1) to (5), both
Wosve, of secton 35.7 0-2( ) sha succeed to a the rghts and abtes of
the ta payer under secton 7 3 and secton 35.7 3-1 wth respect to the ndebted-
ness of the ta payer assumed by such successor n the successon.
(e) Speca rues. (1) Predecessor. If ndebtedness of the predecessor Is
assumed by the successor n the successon (thus becomng ndebtedness of such
accessor), t thereby censes to be ndebtedness of the predecessor. The amount
of the ndebtedness of the predecessor as of the begnnng of September 1, 1942,
and as of the cose of each ta abe year of the predecessor endng after Sep-
tember 1, 1942, and pror to the successon sha be deemed to be the e cess of
(1) the amount of the ndebtedness of the predecessor as of the appcabe tme
(determned -wthout regard to such successon) over () the amount of the
ndebtedness of the predecessor assumed by the successor n the successon but
not to e ceed the smaest amount of the ndebtedness of the predecessor as of
the begnnng of September 1, 1942, or as of the cose of any ta abe year of the
predecessor endng after September 1, 1942, and pror to the successon (deter-
mned wthout regard to such successon).
(2) Successor. The amount of the ndebtedness of the successor as of the be-
gnnng of September 1, 1942, and as of the, cose of each ta abe year of the
successor endng after September 1, 1942, and pror to the successon (whether
or not n e stence at the appcabe tme) sha be deemed to be the sum of ()
the amount of the ndebtedness of the successor as of the appcabe tme (deter-
mned wthout regard to such successon) and () the aggregate of the amount
of the ndebtedness of the severa predecessors assumed by the successor n the
successon (or, n the case of ony one predecessor, the amount of the ndebtedness
of such predecessor assumed by the successor n the successon), not ncudng
wth repect to any predecessor an amount n e cess of the smaest amount of
the ndebtedness of such predecessor as of the begnnng of September 1, 1942, or
as of the cose of any ta abe year of such predecessor endng after September 1,
1W2, and pror to the successon (determned wthout regard to such successon).
or e ampe, f and were consodated nto C on une 30, 1943, and as a part
of the consodaton C assumed ndebtedness of 400,000, consstng of ndebtedness
of of 250,000 and of of 150,000 f the ndebtedness as of the begnnng of
September 1,1942, of was 200,000 and of was 200,000 and f the ndebtedness
as of the cose of the ta abe year endng December 31, 1942, of was 250,000
and of was 200,000, the aggregate amount of the ndebtedness of the severa
predecessors taken nto account under subdvson (), above woud be 350,000,
computed as foows: 200,000 (Indebtedness of assumed after appcaton of the
mtaton) pus 150,000 (Indebtedness of assumed snce t s ess than the
amount of the mtaton). or the purposes of these provsons, the, cose of any
ta abe year of the successor durng whch the successor was not n e stence
sha be deemed to be such moment as woud have consttuted the cose of such
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30
ta abe year of the successor had t then been n e stence and reportng ts ncom
on the bass of a ta abe year endng on a date correspondng to the cose of t:
frst ta abe year. or e ampe, f a corporaton s organzed on September 3C
1944, and reports ts ncome on the bass of a ta abe year endng December 31
194 4, the cose of any precedng ta abe year sha be deemed to be December 31
or the purposes of ths secton, an assumpton of ndebtedness ncudes the Issu
ance by the successor of ts bonds, promssory notes, debentures, or other ev
dences of Indebtedness n e change for, and satsfacton of. Indebtedness of tut
predecessor n connecton wth the acquston of propertes of such predecesso
n a successon to whch ths secton s appcabe, but n such case the amoum
of the ndebtedness assumed by the successor as the resut of suc e change sha
not e ceed the amount of such ndebtedness of the predecessor or the amount o
such ndebtedness of the successor, whchever amount s the esser.
(3) ampes of compuaton of credt. The appcaton of ths secton ma|
e ustrated by the foowng e ampes (a ndebtedness referred to theren beng
ndebtedness as defned n secton 7 3(d) and secton 35.7 3-( 7)):
ampe ( ). On September 30, 1044, the Corporaton merged nto the
Corporaton, and the Y Corporaton as a part of the merger assumed the outstand-
ng ndebtedness of the Corporaton n the amount of 100,000. The e cess
profts ta mposed upon the Corporaton for the ta abe perod of nne
months endng September 30, 1944, s 400.000. The amounts pad by the
Corporaton n repayment of ndebtedness n 1944 tota 90,000. The outstand-
ng ndebtedness of the Cor raton, was as foows:
rad.
orrowed.
Tota
ndebt-
edness.
anuary 1. 1943.
September I
December 5
December 31
anuary 1
March IS...
December 31
25,000
S2W.C
175.0
175,0
1913.
15,000
anuary 1, 1044. _
une 30
September 30 (before merger).
September 30 (after merger)...
90.000
(0
Tota ad.
90,000
100,000 assumed by Y Corporaton n the merger ceases to be ndebtedness of Corporaton.
The outstandng ndebtedness of the Corporaton, as reconstructed n at-
cordance wth paragraph (c) (1) for purposes of the computaton of the credt for
debt retrement of such corporaton for 1944, s as foows:
Tota
Indebtedness-
September 1, 1942, 200,000 (Indebtedness of Corporaton September
1, 1942), mnus 100,000 (ndebtedness of ( orporaton assumed
by Y Corporaton n the merger, 100,000, but not to e ceed smaest
amonnt of ndebtedness of Corporaton September 1, 1642, or at
cose of any ta abe year of Corporaton endng after Septem-
ber 1, 1942. and pror to the merger (September 1, 1942, 200,000
December 31,1942, 175,000 December 31,1943, 190,000), 175,000) 100,000
December 31, 1942, 175,( (ndebtedness of Corporaton December
31, 1942), mnus 100,0 (ndebtedness of Corporaton assumed by
Y Corporaton n the merger, after appcaton of the mtaton as
shown above) 75,000
December 31, 1943, 190,000 (ndebtedness of Corporaton December
31. 1943), mnus 100,000 (ndebtedness of Corporaton assumed by
shown above) 90.000
The cre dt for debt retrement aowabe to the Corporaton for 10U Is
30,000, computed as foows:
40 per cent of 90,000, the tota repad n 1944 (see secton 7 3(a) and
secton 35.7 3-(n)) m
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309
7 0.
ut the credt for debt retrement aowabe to the Corporaton for 1044
may not e ceed whchever of the foowng amounts s the esser (see secton
7S3(b) (1) and .(2) and sectons 35.7 3-1(6) (3) and 35.7 3 3(c) (1)):
10 per cent of 400,000 (amount of ta mposed) 40,000
40 per cent of 75,000 (amount by whch amount of ndebtedness Septem-
ber 1,1942, as reconstructed, 100,000, or smaest amount of Indebted-
ness, as reconstructed, at cose of any precedng ta abe year endng
after September 1, 1042 (December 31, 1942. 75,000 December 31,
1943, 90,000), 75,000, whchever amount ( 100,000 or 75,000) s the
esser, 75.000, e ceeds amount of ndebtedness at cose of ta abe
year (September 30, 1944), zero) 30. 000
The e cess profts ta mposed upon the Y Corporaton for the caendar year
1944 s 500,000 and for the caendar year 1945 s 600,000. The amounts pad
by the T Corporaton n repayment of ndebtedness throughout the year 1944
tota 100,000 and throughout the year 1945 tota 150,000. The outstandng
ndebtedness of the Y Corporaton was as foows:
Pad.
orrowed.
Tota
Indebt-
edness.
hanrv 1, 1942..
150,000
150.000
150.000
November 1
wo, 666
150,000
100.000
100,000
mnary 1,1944..
100.000
50,000
50,000
150.000
100.000
100,000
uy
50,000
September 30 (before merger)
September 30 (ater merger)
December 1
50,000
December 31
Tota pad.
100,000
. uraary 1,1945
100,000
150,000
pr 15:
50,000
October 1
100,000
50.000
6a ooo
December 31
150,000
1 Iacndcs 100,000 assumed n the merger.-
The outstandng Indebtedness of the Y Corporaton, as reconstructed In accord-
ance wth paragraph (c)(2) for purposes of the computaton of the credt for
debt retrement of such corporaton for 1944 and subsequent years, Is as foows:
Tota
Indebtedness.
September 1, 1942, 150,000 (Indebtedness of Y Corporaton September
1, 1942), pus 100,000 (Indebtedness of Corporaton assumed by
I Corporaton n the merger, 100,000. but not to e ceed smaest
amount of ndebtedness of Corporaton September 1, 1942, or at
cose of any ta abe year of Corporaton endng after September
1,1912. and pror to the merger (September 1,1942, 200,000 Decem-
ber 31, 1942, 175,000: December 31, 1943, 190,000), 175,000 250,000
December 31, 1942, 150,000 (ndebtedness of Y Corporaton December
31,1942), pus 100,000 (Indebtedness of Corporaton assumed by
shown above) 250, 000
December 31, 1943, 100,000 (Indebtedness of Y Corporaton December
31, 1943), pus 100,000 (ndebtedness of Corporaton assumed by
I Corporaton n the merger, after appcaton of the mtaton as
shown above) 200,000
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5 7 0.
310
The credt for debt retrement aowabe to the Y Corporaton for 1044 s
40 per cent of 100,000, the tota repad n 1 M4 (see secton 7 3(a) and
secton 35.7 3-1 (a)) 40,000
ut the credt for debt retrement aowabe to the Y Corporaton for 1944
7 3(b) (1) and (2) and sectons 35.7 3-1(6) (3) and 35.7S3-3(c) (2)):
40 per cent of 100,000 (amount by whch amount of ndebtedness Sep-
tember 1, 1942, as reconstructed, 250,000, or smaest amount of
ndebtedness, as reconstructed, at cose of any precedng ta abe year
endng after September 1, 1942 (December 31,1942, 250,000 Decem-
ber 31, 1943, 200,000), 200,000, whchever amount ( 250,000 or
200,000) Is the esser, 200,000, e ceeds amount of ndebtedness at
cose of ta abe year (December 31, 1944), 100,000) 40,000
The credt for debt retrement aowabe to the Y Corporaton for 1945 s
40 per cent of 150,000, the tota repad n 19-45 (see secton 7 3(a) and
secton 35.7 3-1 (n)) 60,000
ut the credt for debt retrement aowabe to the Y Corporaton for IMS
7 3(b) (1) and (2) and sectons 35.7 3-1(6) (3) and 35.7 3-3(c) (2) ):
tember 1, 1942, as reconstructed, 250,000, or smaest amount of
ndebtedness (as reconstructed for 1942 and 1943) at cose of any
precedng ta abe year endng after September 1, 1942 (December
31, 1942, 250,000: December 31, 1943, 200,000 December 31, 1944,
100,000). 100,000, whchever amount ( 250,000 or 100,000) s the
esser, 100,000, e ceeds amount of ndebtedness at cose of ta abe
year (December 31, 1945), zero) 40,000
ampe (2). On September 30, 1944, the Corporaton and the Y Corpora-
ton were consodated nto the Z Corporaton, and the Z Corporaton as a part
of the consodaton assumed the outstandng ndebtedness of the Corporaton
n the amount of 100,000 and of the Y Corporaton n the amount of 150,000.
The e cess profts ta mposed upon the Corporaton for the ta abe perod of
nne months endng September 30, 1944, s 400,000. The amounts pad by the
Corporaton n repayment of Indebtedness n 1944 tota 90,000. The out-
standng ndebtedness of the Corporaton durng the years 1942, 1943, and 1944
s the same as n e ampe (1) : and the credt for debt retrement aowabe to
the Corporaton for 1944 s 30,000, computed as n e ampe (1).
The e cess profts ta mposed upon the Y Corporaton for the ta abe perod
of nne months endng September 30, 1944, s 400,000. The amounts pad by
the Y Corporaton n repayment of ndebtedness n 1944 tota 50,000. The out-
standng ndebtedness of the Y Corporaton was as foows:
Pad.
orrowed.
Tota
ndebt-
edness.
anuary 1, 1942.
September 1
December 31
anuary 1, 1943.
November 1
December 31
50,000
, 1944-
anuary 1,
uy 1
uy 15
September 30 (Wore consodaton).
September 30 (after consodaton)...
100.0W
Tota pad..
5a 000 I
150,000
ISO, 000
saooo
150.000
naw
100.000
I007(M
200,000
150,000
150.000
M
1 150,000 assumed by Z Corporaton n the consodaton ren|os to be ndebtedness of Y Corporaton.
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311
7 0.
The outstandng ndebtedness of the Y Corporaton, as reconstructed n accord-
ance wth paragraph (c) (1) for purposes of the computaton of the credt for
debt retrement of such corporaton for 1944, s as foows:
September 1, 1942, 150,000 (ndebtedness of Y Corporaton September
1. 1942) mnus 100,000 (ndebtedness of Y Corporaton assumed by
Z Corporaton n the consodaton, 150,000, but not to e ceed smaest
amount of ndebtedness of Y Corporaton September 1, 1042, or at cose
of any ta abe year of Y Corporaton endng after September 1, 1942,
and pror to the consodaton (September 1, 1942, 150,000 December
31. 1942, 150,000 December 31, 1943, 100,000), 100,000) , 50,000
31,1042), mnus 100,000 (ndebtedness of Y Corporaton assnmed by
Z Corporaton n the consodaton, after appcaton of the mtaton
as shown above) 50, 000
31.1943) , mnus 100,000 (ndebtedness of Y Corporaton assumed by
Z Corporaton n the consodaton, after appcaton of the mtaton
as shown above) zero
The credt for debt retrement aowabe to the Y Corporaton for 1944 s zero,
computed as foows:
per cent of 50,000, the tota repad n 1044 (see secton 7 3(a) and
secton 35.7 3-1 (a)) 20,000
ut the credt for debt retrement aowabe to the Y Corporaton for 1944 may
not e ceed whchever of the foowng amounts s the esser (see secton 7 3(b)
U) and (2) and sectons 35.7 3-1(6) (3) and 35.7 3-3(c) (1)):
10per cent of 400,000 (amount of ta mposed) 40,000
40per cent of zero (amount by whch amount of ndebtedness September
, 1942, as reconstructed, 50,000, or smaest amount of ndebtedness,
as reconstructed, at cose of any precedng ta abe year endng after
September 1, 1942 (December 31. 1942, 50,000 December 31, 1943,
zero), zero, whchever amount ( 50,000 or zero) s the esser, zero,
e ceeds amount of ndebtedness at cose of ta abe year (September
30.1944) , zero) zero
The Z Corporaton was organzed on September 30,1944. The e cess profts ta
mposed upon the Z Corporaton for that porton of the caendar year 1944 durng
vrhch t was n e stence s 100,000, and for the caendar year 1945 s 900,000.
The amounts pad by the Z Corporaton n repayment of ndebtedness n 1944
tota 100,000, and throughout the year 1945 tota 200,000. The outstandng
ndebtedness of the Z Corporaton was as foows:
Tota
Indebt-
edness.
Pad.
orrowed.
September 30.1944
250,000
300,000
200,000
200.000
October 15
50,000
December 1
100,000
Tota pad
100,000
_
anuary 1, IMS
200.000
100,000
|h 3o.. I.:.::.::::::::::::.:::::::::::::
100. 000
100,000
November 15 -
200,000
1 mount
In the consodaton.
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7 0.
312
The outstandng ndebtedness of the Z Corporaton, as reconstructed n accord-
ance wth paragraph (c)(2) for purposes of the computaton of the credt fur
debt retrement of such corporaton for 1944 and subsequent years, s as foows:
Tota
Indebtedness.
September 1, 1942, zero (Indebtedness of Z Corporaton September 1,
1942), pus 200,000 ( 100,000 (ndebtedness of Corporaton as-
sumed by Z Corporaton n the consodaton, 100,000, but not to e -
ceed smaest amount of ndebtedness of Corporaton September 1,
1942, or at cose of any ta abe year of Corporaton endng after
September 1, 1942, and pror to the consodaton (September 1, 1942,
200,000 December 31, 1942, 175,000 December 31, 1943, 190,000),
175,000), pus 100,000 (ndebtedness of T Corporaton assumed by
Z Corporaton In the consodaton, 150,000, but not to e ceed smaest
amount of ndebtedness of Y Corporaton September 1, 1942, or at
cose of any ta abe year of Y Corporaton endng after September 1, ,
1942, and pror to the consodaton (September 1, 1942, 150,000
December 31,1942, 150,000 December 31,1943, 100,000), 100,000)) - 200. 000
December 31, 1942, zero (ndebtedness of Z Corporaton December 31,
1942) , pus 200,000 (aggregate ndebtedness of Corporaton and
Y Corporaton assumed by Z Corporaton n the consodaton, after
appcaton of the mtaton as shown above) 200,000
December 31, 1943, zero (ndebtedness of Z Corporaton December 31,
1943) , phs 200,000 (aggregate ndebtedness of Corporaton and Y
Corporaton assumed by Z Corporaton n the consodaton, after ap-
pcaton of the mtaton as shown above) 200,000
The credt for debt retrement aowabe to the Z Corporaton for 1914 s zero,
computed as foows:
secton 35.7 :3-1 (a)) 40,000
ut the credt for debt retrement aowabe to the Z Corporaton for 1944 mav
not e ceed whchever of the foowng amounts s the esser (see secton 7 3(b) (1)
and (2) and sectons 35.7 3-1(6) (3) and 35.7S3-3(c) (2)):
40 ppr cent of zero (amount by whch amount of ndebtedness Sept ember
1, 3942, as reconstructed, 200,000, or smaest amount of ndebtedness,
as reconstructed, at cose of any precedng ta abe year endng after
September 1, 1942 (December 31, 1942, 200,000 December 31, 1943,
200,000). 200,000, whchever amount ( 200,000 or 200,000) s the
year (December 31, 1944), 200,000) zero
The credt for debt retrement aowabe to the Z Corporaton for 1945 s 0,000,
computed as foows:
secton 35.7 3-1 (a)) 0,000
ut the credt for debt retrement aowabe to the Z Corporaton for 1945 may
not e ceed whchever of the foowng amounts s the esser (see secton 7 3(b) (1)
and (2) and sectons 35.7 3-1 (6) (3) and 35.7S3-3(c) (2)):
10 per cent of 900,000 (amount of ta Imposed) 90,000
tember 1, 1942, as reconstructed, 200,000, or smaest amount of n-
debtedness (as reconstructed for 1942 and 1943) at cose of any pre-
cedng ta abe year endng after September 1, 1942 (December 31,
1942, 200,000 December 31, 1943, 200,000 December 31, 1944,
200,000), 200,000, whchever amount ( 200,000 or 200,000) s the
year (December 31, 1945), zero) 0,000
(d) Proof of credt and records to be kept. (1) Proof. The credt under ths
secton wth respect to amounts pad by the successor durng the ta abe year n
repayment of the prncpa of ndebtedness assumed by the successor In a succes-
son to whch ths secton s appcabe sha not be aowed uness there 1 sub-
mtted to the Commssoner of Interna Revenue, or the coector of nterna ret-
G
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e
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313
7 0.
enne, a compete statement under oath of a facts necessary to estabsh the
rght of the successor to such credt, ncudng
(1) the names of the severa predecessors, the amount of the ndebtedness
of each predecessor assumed by the successor In the successon, the amount
of the ndebtedness of each predecessor as of the begnnng of September 1,
1942 (determned wthout regard to such successon), and a compete sched-
ue of the Indebtedness of each predecessor for each ta abe year of the
respectve predecessor endng after September 1, 1942, to and ncudng the
ta abe year n whch the successon occurs (determned wthout regard to
such successon for ta abe years endng pror to the successon)
01) the amount of the ndebtedness of the successor as of the begnnng
of September 1, 1942 (determned wthout regard to such successon), and
a compete schedue of the ndebtedness of the successor for each ta abe year
of such successor endng after September 1, 1942, to and Incudng the ta -
abe year wth respect to whch the credt s camed (determned wthout
regard to such successon for ta abe years endng pror to the successon)
() a certfed copy of each resouton, order, certfcate, nstrument,
document, or other paper pertnent to the transacton resutng n the suc-
cesson, together wth a statement n deta showng a reevant facts wth
respect to such transacton and
(v) such other or addtona proof as the Commssoner may deem neces-
sary to estabsh the rght to the credt under ths secton.
(1) Records. The successor sha keep such records as w enabe t to es-
fssh ts rght to the credt under ths secton.
( ) Defnton of predecessor. or the purposes of ths secton, the term
predecessor means
(1) n the case of a merger referred to n secton 35.7 0-2(6) (1), the
severa corporatons merged, e cept the corporaton nto whch the other
corporatons have merged
(2) n the case of a consodaton referred to n secton 35.7 0-2(6) (2),
the severa corporatons consodated, e cept the corporaton resutng from
the consodaton
(3) n the case of a corporaton resutng from a mere change n the
Identty, form, or pace of organzaton, of another corporaton referred to In
secton-35.7 0-2(6) (3), the corporaton other than that resutng from such
change
(4) n the case of a successon referred to n secton 35.7 0-2(6) (4), the
corporaton the property of whch was acqured or
(5) n the case of a qudaton referred to In secton 35.7 0-2(6) (5), the
corporaton the property of whch was dstrbuted.
(/) Speca eecton. Ths paragraph appes ony to those cases n whch,
by reason of the provsons of ths secton, a successor woud be entted, had
te eecton provded for n secton 7 3(a) (see secton 35.7 3-1 (a)) been duy
ade, to take any credt for debt retrement In any e cess profts ta return fed
pror to May 31, 1945, the nneteth day after the approva of Treasury Decson
42, n any amount to whch such successor woud not be entted were t not
for ths secton. In those cases the eecton of the successor to take such credt
to snch amount may be made n an amended e cess profts ta return, for the
ta abe year wth respect to whch such credt s aowabe, fed by the suc-
R . or (1) on or before such nneteth day or (2) on or before the ast day on
whch the successor s e cess profts ta return for such year s requred to be
ffed (ncudng any e tenson of tme for fng the return granted pursuant to
secton 53), whchever s the ater. The eecton to take the credt n any other
amount n a case to whch ths paragraph s appcabe and the eecton to take
e credt n any amount n a case to whch ths paragraph s not appcabe sha
t made n accordance wth secton 7 3(a) and secton 35.7 3-(a). If the
Secton under ths paragraph s made n an amended return, such return sha
fuy and accuratey set forth a the nformaton requred by the return form and
by these reguatons wth respect to the computaton of the ta , ncudng the
- computaton of the credt for debt retrement, the e cess profts ta due, and the
post-war credt under secton 7 0(a). The recomputaton of the credt for
debt retrement sha ncude (1) any aowabe credt for debt retrement for
the ta abe year duy camed by the successor n Its return prevousy fed and
wth respect to whch the eecton under secton 35.7S3-(o) or 35.7 3-2 has
become rrevocabe and (2) any aowabe credt for debt retrement for the
ta abe year whch the successor eects to take pursuant to ths paragraph.
6 4334 M 21
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7 3.
314
If the eecton under secton 33.7 3-1 (a) has not become Irrevocabe, the re-
computaton shoud ncude, n eu of the credt mentoned In cause (1) of the
precedng sentence wth respect to whch the eecton under secton 35.7 3-1 (o)
has not become rrevocabe, any aowabe credt for debt retrement for the
ta abe year whch the successor desres to take pursuant to an eecton under
such secton. The amended return sha not consttute a cam for credt or re-
fund of an overpayment of the ta . If the appcaton of the credt for debt
retrement, as recomputed, resuts n an overpayment of the e cess profts ta
for the ta abe year, a tmey cam for credt or refund shoud be fed n the
usua manner. No nterest w be aowed or pad upon any such overpayment.
or mtatons upon credts and refunds generay, see secton 322.
n secton 62 of the Interna Revenue Code (53 Stat., 32 26 U. S. C,
1940 ed., 62), as made appcabe by secton 729(a) of the Interna
Revenue Code (54 Stat., 9 9 26 U. S. C, 1940 ed., 729(a)), n secton
2 of the- ont Resouton approved March 31, 1943 (Pubc Law 21,
Seventy-eghth Congress), and n secton 250 of the Revenue ct o
1943 (Pubc Law 235, Seventy-eghth Congress).)
Geo. . Schoeneman,
pproved March 2, 1945.
Reguatons 112, Secton 35.7 0-2: Successor of ta payer.
( so Secton 30.7 0-2, Reguatons 109.)
INT RN L R NU COD .
Reguatons 109 and 112 amended. (See T. D. 5442, page 2 9.)
S CTION 7 1. SP CI L RUL S OR PPLIC TION
O S CTION 7 0.
Reguatons 112, Secton 35.7 1-1: Speca rues for
appcaton of secton 750.
( so Secton 30.7 1-1, Reguatons 109.)
Reguatons 109 and 112 amended. (See T. D. 5442, page 2 9.)
S CTION 7 3. CR DIT OR D T R TIR M NT.
Reguatons 112, Secton 35.7 3-1: Credt for 1945-4-1196
debt retrement. I. T. 371
Computaton of the credt for debt retrement under secton 7 3
of the Interna Revenue Code, as amended, In the case of an
affated group of corporatons whch fes a consodated e cess
profts ta return.
dvce s requested reatve to the computaton of the credt for debt
retrement under secton 7 3 of the Interna Revenue Code, as amended,
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315
7 3.
n the case of an affated group of corporatons whch fes a conso-
dated e cess profts ta return.
Secton 7 3(a) of the Interna Revenue Code, sub|ect to the mta-
tons prescrbed by secton 7 3(b) of the Code, as amended by secton
251(a) of the Revenue ct of 1943 (appcabe to ta abe years begn-
nng after September 1,1942), provdes that an amount equa to 40 per
cent of the amounts pad by the ta payer durng the ta abe year n
repayment of the prncpa of ndebtedness (as defned n secton
7 3(d) of the Code) sha, f the ta payer so eects n ts return for
that year, be aowed as a credt aganst the e cess profts ta for such
year. In the case of ta abe years begnnng after September 1, 1942,
secton 7 3(b) of the Code mts the credt under secton 7 3(a) to
the esser of the foowng amounts:
(1) n amount equa to 10 per centum of the ta mposed under ths
subchapter for the ta abe year.
(2) n amount equa to 40 per centum of the amount by whch ( )
the amount of ndebtedness as of September 1,1942, or () the sma-
est amount of ndebtedness as of the cose of any precedng ta abe year
endng after September 1,1942, whchever amount s the esser, e ceeds
tk amount of ndebtedness as of the cose of the ta abe year.
In connecton wth the computaton of the credt for debt retre-
ment, the foowng questons are presented:
1. Whether, n the case of a consodated e cess profts ta return
to be fed for an affated group of corporatons, the affated group
s to be consdered as the ta payer under secton 7 3 of the Code.
2. If so, whether the 10 per cent mtaton appes to the conso-
dated e cess profts ta of the affated group or whether, where ony
one member of the group has a net reducton n ndebtedness pursuant
to secton 7 3 of the Code, the mtaton appes to an amount whch
woud consttute the e cess profts ta of that member upon a separate
return.
In answer to the frst queston, t s hed that where an affated
group of corporatons makes or s requred to make consodated n-
come and e cess profts ta returns, the credt for debt retrement
under secton 7 3fa) s to be computed as f the affated group were
the ta payer wthn the meanng of secton 7 3 of the Code, sub|ect
to the foowng rues:
(I) In computng the aggregate of the amounts pad by the severa
affated corporatons durng the ta abe year n repayment of the
prncpa of ndebtedness, there sha be e cuded any amounts pad
on ndebtedness of a corporaton, whch s a member of the affated
group, owng to another member of the affated group.
(II) In makng the computaton of the aggregate ndebtedness, as
of the dates set forth n subparagraph (2) above, of the severa corpo-
ratons whch were affated for the ta abe year, there sha be n-
cuded the ndebtedness of a such corporatons, e cept ndebtedness of
a corporaton owng to another corporaton whch s a member of the
affated group, regardess of whether the corporatons are affated
on the date on whch the determnaton s beng made and regardess
of whether consodated returns were fed for the ta abe year wthn
whch such date or dates fa.
In answer to the second queston, the 10 per cent mtaton provded
by secton 7 3(b)(1) of the Code, supra (10 per cent of the e cess
profts ta mposed upon the ta payer for the ta abe year), n the
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1141.
316
case of a consodated return, s to be based upon the consodated e -
cess profts ta . s e paned above, the aggregate ndebtedness of
the group, e cudng amounts owng to other members of the group,
must be taken nto consderaton n determnng whether there has
been a reducton n ndebtedness wthn the meanng of secton
7 3(b) (2) of the Code, supra. or e ampe, f the M Corporaton
and the N Corporaton fe a consodated return for 1944, and f, as
computed under secton 7 3(b) (2) of the Code, supra, the M Corpora-
ton has a reducton n ts ndebtedness (owng outsde the affated
group) but the N Corporaton ncreases ts ndebtedness (owng out-
sde the affated group) by the same or a greater amount, the
affated group has not reduced ts ndebtedness and, consequenty, no
credt for debt retrement s aowabe for such year.
Reguatons 112, Secton 35.7 3-1: Credt for debt
retrement.
INT RN L R NU COD .
Reguatons 112, Secton 35.7 3-2: ecton to take
certan credt for debt retrement for ta abe years
begnnng after September 1,1942, and endng be-
fore ebruary 25,1944.
Reguatons 112, Secton 35.7 3-3: Credt for debt
retrement n case of certan successons.
C PT R 5. O RD O T PP LS.
SU C PT R . COURT R I W O O RD D CISIONS.
S CTION 1141. COURTS O R I W.
1945-2-11941
a. D. 1623
ncome ta nterna revenue code decson op supreme couet.
1. enue ursdcton Tmeness and Lega ffect of Stpu-
aton Desgnatng Court to Revew Ta Court Decson.
Pettoner fed a petton for revew wth the Crcut Court of
ppeas for the S th Crcut wthn the tme aowed for that pur-
pose under secton 1142 of the Interna Revenue Code, athough the
Court of peas for the Dstrct of Coumba was the court of proper
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317
1141.
venue tnder secton 1141(b) (1) of the Code Inasmuch as pettoner
had fed no returns for the ta abe years Invoved. fter the e p-
raton of the 3-month perod In whch a petton for revew coud be
fed, a stpuaton was entered nto desgnatng the S th Crcut as
the court to revew the decson of The Ta Court, reservng to the
Commssoner the rght to chaenge the tmeness and ega effect
of such stpuaton. On the Commssoner s moton the petton was
dsmssed for want of ursdcton. ed: The Crcut Court of
ppeas for the S th Crcut acqured |ursdcton of the cause
under the statute by the tmey fng of the petton, and the partes
were authorzed by secton 1141(b) (2) of the Code to stpuate that
the revew shoud be had n that court. Secton 1141(b)(2) does
not by ts terms nor by mpcaton pace any tme mtaton upon
the fng of the stpuaton. On fng such stpuaton the cause was
then pendng n the court havng venue, as we as |ursdcton, and
the case was mpropery dsmssed.
2. Case Dstngushed.
Nash- reyer Motor Co. v. urnet (2 3 U. S., 4 3 Ct. D. 343, C. .
-, 292 (1931) ) dstngushed.
3. Decson Revebsed.
Decson of the Unted States Crcut Court of ppeas, S th Cr-
cut (141 ed. (2d), 636), reversed.
Industra ddton ssocaton, pettoner, v. Commssoner of Interna Revenue.
323 U. S., 310.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut.
anuary 2, 1945.
OPINION.
Mr. Chef ustce Stone devered the opnon of the Court.
In ths case pettoner, deemng tsef e empt from ncome and e cess profts
ta es, faed to fe any ta returns for the years 1932 to 1936 Incusve. The
Commssoner assessed pettoner for the ta es for those years, wth penates,
and The Ta Court has sustaned the assessment as to the ncome ta es and
attendant penates. Pettoner, wthn the three months aowed for that pur-
pose by secton 1142 of the Interna Revenue Code, sought revew of The Ta
Court s decson by a petton for revew fed wth the Court of ppeas for the
S th Crcut.
y secton 1141(a) of the Interna Revenue Code, entted ursdcton,
the Crcut Courts of ppeas and the Court of ppeas for the Dstrct of
Coumba are gven e cusve ursdcton to revew the decsons of The Ta
Court. Subsecton (b) (1), entted enue, provdes that such decsons may
be revewed by the crcut court of appeas for the crcut n whch s ocated
the coector s offce to whch was made the return of the ta n respect to whch
the abty arses or, If no return was made, then by the Unted States Court of
ppeas for the Dstrct of Coumba. Snce pettoner fed no return, the
Court of ppeas for the Dstrct of Coumba was the court of proper venue
under ths subsecton. If pettoner had made a return, t woud have been
requred to fe t wth a coector whose offce was wthn the s th crcut, that
of the court beow n that event, that court woud have been the court of proper
venue. The Code provdes further, In subsecton (b)(2): Notwthstandng
the provsons of paragraph 1, such decsons may be revewed by any Crcut
Court of ppeas whch may be desgnated by the Commssoner and
the ta payer by stpuaton In wrtng.
The Commssoner suggested to pettoner that as t had fed no returns for
the years In queston and no wrtten stpuaton had been entered nto as per-
mtted by subsecton (b) (2), the Crcut Court of ppeas for the S th Crcut
was wthout |ursdcton. In response to ths suggeston, pettoner and the
Commssoner, after the e praton of the three months perod n whch a petton
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1141.
31
for revew coud be fed, entered nto such a wrtten stpuaton, desgnatng
the Court of ppeas for the S th Crcut as the court to revew the decson of
The Ta Court. The stpuaton reserved to the Commssoner the rght to
chaenge ts tmeness and ega effect.
The Court of ppeas for the S th Crcut, on the Commssoner s moton, ds-
mssed the petton for revew for want of |ursdcton. (141 ed. (2d), 636.)
We granted certorar (323 U. S., ), to resove an asserted confct of the
decson beow, wth that of the Court of ppeas for the fth Crcut n
Wegener v. Commssoner (119 ed. (2d), 49). The queston presented s
whether the court beow had |ursdcton of the petton for revew of the
decson of The Ta Court, notwthstandng pettoner s faure to fe the stpua-
ton durng the three months perod, wthn whch revew of The Ta Court s
decson coud be sought.
The use n |u taposton, n the statute, of the terms |ursdcton and
venue marks a sgnfcant dstncton. On the one hand, the statute confers
power on the crcut courts of appeas generay, to act udcay on pettons
for revew presented to them whch s |ursdcton. On the other, such of
those courts as are specfed by the statute, or the stpuaton whch t authorzes,
are desgnated as the pace where, for convenence of the courts or partes or
both, the petton w be heard whch s venue. 1 Want of |ursdcton, unke
want of venue, may not be cured by consent of the partes but when the court
has |ursdcton, t has power to decde the case brought before t, even though
the court havng venue s one sttng n another crcut. (Genera Investment
Co. v. Lake Shore, Rv.. 200 T . S., 261, 272-273 urnrte Coa Co. v. Rggs, 274
T . S., 20 , 211-212 Genera ectrc Co. v. Marve Co., 2 7 D. S., 430, 434-435
Nerbo Co. v. ethehem Corporaton. 30 U. S., 165, 167-16 reeman v. ee
Machne Co., 319 U. S., 44 , 453.) The rght to have a cause heard n the court
of the proper venue may be ost uness seasonaby asserted and n that event,
the court of tra havng |ursdcton but not the proper venue may render a
|udgment bndng on the partes. (Genera Investment Co. v. Lake Shore Ry-:
supra, 272 Commerca Ins. Co. v. Consodated Stone Co., 27 U. S., 177, 179
reeman v. ee Machne Co., supra, 453.) The Government may wave ob|ec-
tons to venue, |ust as any other tgant may (Unted States v. vo ef, 237
U. S., 1, 12 Thames Mersey In . Co. v. Unted States, 237 U. S., 19, 24-25
Peora Raway Co. v. Unted States, 263 T . S., 52 , 535-536), and here such
waver, by stpuaton, s contempated by secton 1141(b) (2). n
We have no reason to suppose that the terms |ursdcton and venue
were used n the statute In other than ther usuay accepted meanng, and no
convncng reason has been advanced why that meanng shoud not be accepted
here. Uness these pan terms are to be dsregarded, a the crcut courts of
appeas are gven |ursdcton to revew decsons of The Ta Court upon a
petton for revew, that s, power to act |udcay upon the petton. (Peora
Raway Co. v. Unted States, supra, 535-536.) Consequenty when n ths case
pettoner fed ts petton wth the Court of ppeas for the S th Crcut,
that court dd not ack power to proceed wth the cause, athough the court of
proper venue was the Court of ppeas for the Dstrct of Coumba, as pre-
scrbed by secton 1141(b)(1). The partes were free to wave ths defect of
venue, by fng the stpuaton n compance wth subsecton (b) (2), desgnatng
the court beow as the one to act upon the petton, whch was aready before
t and of whch t then had |ursdcton.
The Government urges that the stpuaton here dd not compy wth secton
1141(b)(2), snce t was not fed wthn three months of the decson of The
Ta Court. ut secton 1141(b) (2) does not by ts terms pace any tme mta-
ton upon the fng of the stpuaton. The Government rees on the three
months mtaton n secton 1142, whch s n terms appcabe ony to the fng
of the petton for revew. The petton here was ted wthn three months n a
court havng |ursdcton, and we see no renson to mport nto the stpuaton
provson, secton 1141(b) (2), a tme mtaton whch t does not contan.
It s true, as the Government argues, that dsmssa for want of the proper
venue, of a petton for revew pendng n a court of appeas, contros the |urs-
dcton of the court. ut n such a case |ursdcton s controed ony by term-
natng t. ere the case was not dsmssed before want of venue was supped
by stpuaton n the manner authorzed by the statute. Ths mposed on the
court the duty to e ercse ts |ursdcton n decdng the case.
See Peora Raway Co. v. Unted States (263 U. S., 52 , 535-536), where ths Court
e paned the same dstncton made n the Urgent Defcences ct (3 Stat., 219,
T . S. O, sectons 41(2 ), 43).
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319
1621(a).
The Government rees, as dd the court beow, on our decson n Nash- rcyer
Motor Co. v. urnet (2 3 U. S., 4 3 Ct. D. 343, C. . -, 292 (1931) ). When
that case arose, the provson n the appcabe Revenue ct for choce of venue
by stpuaton of the partes, dd not permt them to stpuate for revew n any
crcut, but mted ther choce to two specfed crcuts. The partes n that case
stpuated for revew of a decson of the oard of Ta ppeas n a crcut not
authorzed by the statute, and thus dd not conform to the statutory venue requre-
ment We sustaned the acton of the court of appeas n dsmssng the petton
for revew on the ground that the court was not bound to e ercse ts |ursdcton
where the proper venue was n another court, sayng (page 4 7) : The restrcton
on the power of the partes to stpuate as to venue woud be meanngess f they
coud wave t wthout the consent of the court. In ths case the stpuaton
conforms to the statute, and s wthout the nfrmty found to be fata n the Nash-
reyer case.
ere the court acqured |ursdcton of the cause under the statute by the tmey
fng of the petton for revew, and the partes were authorzed by secton
1141(b) (2) to stpuate that the revew shoud be had n that court. On fng
the stpuaton the cause was then pendng n the court havng venue, as we as
ursdcton, and the case was mpropery dsmssed.
Reversed.
C PT R 9. MPLOYM NT T S.
SU C PT R D. COLL CTION O INCOM T T SOURC ON
W G S.
S CTION 1621(a). D INITIONS: W G S.
Reguatons 116, Secton 405.101: Wages. 1945-10-12046
( so Secton 1622 Secton 405.201, Regua- I. T. 3737
tons 116.)
INT RN L R NU COD .
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 com-
pensaton for servces rendered by the decedent, are not wages sub|ect
to wthhodng of Income ta at the source under secton 1022 of the
Interna Revenue Code, as amended.
dvce s requested whether (1) death beneft payments made to
the benefcares or to the estates of deceased empoyees, and (2) pay-
ments made to the benefcares or to the estates of deceased empoyees
whch represent unpad compensaton for servces rendered by the
decedent, consttute wages sub|ect to wthhodng of ncome ta at the
source under secton 1622 of the Interna Revenue Code, as amended.
Secton 1621(a) of the Interna Revenue Code provdes n part that
the term wages means a remuneraton for servces performed by
an empoyee for hs empoyer, and secton 1622(a) of the Code pro-
vdes n part for the deducton and wthhodng of specfed amounts
of ncome ta by every empoyer makng payment of wages.
Wthhodng of ncome ta wth respect to the payments here under
consderaton s not beeved to be wthn the ntendment of the gen-
era scheme of coecton of ncome ta at the source on wages. Under
secton 1625 of the Code, an empoyer s requred to furnsh to each
empoyee a recept for ta es wthhed. If, n nstances of the char-
acter heren nvoved, t were hed that amounts pad to the benefc-
ares or to the estates of deceased empoyees are sub|ect to wthhodng
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1621(a).
320
of ncome ta under secton 1622(a) of the Code, the empoyees per-
sona representatves woud receve the wthhodng recepts but the
benefcares or the estates woud be entted, under secton 35 of the
Code, as amended, to part of the credt for the ta wthhed. urther-
more, wthhodng e empton certfcates are fed by the empoyees
wth ther empoyers, and the amounts of ta requred to be wthhed
from wages pad are determned by the e empton certfcates so fed.
The amounts of ta so determned and wthhed wth respect to wages
pad to the benefcares or to the estates of deceased empoyees woud
bear no reaton to the e emptons to whch the benefcares or the
estates are entted. There s no authorty for requrng e empton
certfcates from benefcares or from estates of deceased empoyees,
snce such certfcates, under secton 1622(h)(2) of the Code, as
amended, are requred to be fed ony by empoyees.
In vew of the foregong, t s hed that 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 em-
poyees 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 1622 of the Interna Revenue Code, as amended.
Reguatons 116, Secton 405.101: Wages.
INT RN L R NU COD .
Contrbutons of empoyers to a heath nsurance fund. (See I. T.
373 , page 90.)
I. T. 3742
Retroactve wages and overtme compensaton pad by an empoyer
to hs empoyees pursuant to secton 16(b) of the ar Labor Stand-
ards ct of 193 ( 52 Stat., 1060) consttute wages under secton
1621(a) of the Interna Revenue Code and are sub|ect to wthhodng
of Income ta at the source, rrespectve of whether such amounts
are pad as the resut of a |udgment of a court or n accordance wth
a stpuaton or settement reached by the partes nvoved. Pay-
ments representng qudated damages made by an empoyer to hs
empoyees pursuant to secton 16(b), supra, do not consttute wages
and are not sub|ect to wthhodng of ncome ta at the source.
dvce s requested whether retroactve wages, overtme compensa-
ton, or payments representng qudated damages pad by an em-
oyer to hs empoyees pursuant to secton 16(b) of the ar Labor
tandards ct of 193 (52 Stat., 1060) consttute wages under secton
1621(a) of the Interna Revenue Code and are sub|ect to wthhodng
of ncome ta at the source.
s a resut of an order ssued by the Unted States Department of
Labor, the empoyer has determned that he owes back wages to a
number of hs present and former empoyees for the perod uy, 1942,
through November, 1943. It s assumed that the amounts determned
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321
1021(a).
to be owng to such empoyees were pad on or after anuary 1, 1945.
Secton 16(b) of the ar Labor Standards ct of 193 provdes as
foows:
ny empoyer who voates the provsons of secton 6. secton 6 reates to
mnmum wages or secton 7 secton 7 reates to ma mum hours of ths ct
sha be abe to the empoyee or empoyees affected n the amount of ther
nnpad mnmum wages, or ther unpad overtme compensaton, as the case
may be, and n an addtona equa amount as qudated damages. cton to
recover such abty may be mantaned n any court of competent |ursdcton
by any one or more empoyees for and n behaf of hmsef or themseves and
other empoyees smary stuated, or such empoyee or empoyees may desg-
nate an agent or representatve to mantan such acton for and n behaf of a
empoyees smary stuated. The court In such acton sha, In addton to
any |udgment awarded to the pantff or pantffs, aow a reasonabe attor-
ney s fee to be pad by the defendant, and costs of the acton.
Secton 405.1 of Reguatons 116 provdes n part as foows:
These reguatons appy to a wages (as defned In secton 1021)
pad on or after anuary 1, 1945, regardess of when such wages were
amed.
The term wages, as defned n secton 1621(a) of the Code, means
a remuneraton for servces performed by an empoyee for hs em-
poyer, wth certan e ceptons not here matera. Remuneraton for
servces, uness such remuneraton s specfcay e cepted by the
statute, consttutes wages even though at the tme pad the reaton-
shp of empoyer and empoyee no onger e sts between the person n
whose empoy the servces were performed and the ndvdua who
performed them. (Secton 405.101 of Reguatons 116.)
It s hed that payments of retroactve wages and overtme com-
pensaton pad by an empoyer to hs empoyees pursuant to secton
16(b) of the ar Labor Standards ct o 193 , supra, consttute
wages under secton 1621(a) of the Code and are sub|ect to wth-
hodng of ncome ta at the source, rrespectve of whether such
amounts are pad as the resut of a |udgment of a court or n ac-
cordance wth a stpuaton or settement reached by the partes
nvoved. It s further hed that payments representng qudated
damages made by an empoyer to hs empoyees pursuant to secton
16(b) of the ar Labor Standards ct of 193 , supra, do not con-
sttute wages and are not sub|ect to wthhodng of ncome ta at the
source.
( so Secton 51, Secton 29.51-2 Secton 1625, I. T. 3755
Secton 405.501, Reguatons 116.)
INT RN L R NU COD .
Treatment of occupatona e penses n the case of coa mners for
the purpose of wthhodng of ncome ta and the fng of ncome
ta returns.
dvce s requested whether that part of the remuneraton of coa
mners whch represents occupatona e penses s sub|ect to wthhod-
ng of ncome ta at the source. dvce s aso requested wth respect
to the amounts an empoyer shoud show as tota wages on wthhodng
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1621(a).
322
recepts ( orm W-2) for 1945 and subsequent ta abe years n the
case of coa mners, and whether such mners may use ther wthhodng
recepts as edera ncome ta returns.
Secton 1621(a) of the Interna Revenue Code provdes n part as
foows:
s used n ths subchapter
(a) Wages. The term wages means a remuneraton for serv-
ces performed by an empoyee for hs empoyer, ncudng the cash vaue of a
remuneraton pad n any medum other than cash
Secton 405.101(c) of Reguatons 116 provdes as foows:
(c) Tbavenq and Othek penses. mounts pad specfcay ether as ad-
vances or rembursements for traveng or other bona fde ordnary and neces-
sary e penses ncurred or reasonaby e pected to be ncurred n the busness
of the empoyer are not wages and ate not sub|ect to wthhodng. Traveng
and other rembursed e penses must be dentfed ether by makng a separate
payment or by specfcay ndcatng the separate amounts where both wages
and e pense aowances are combned n a snge payment.
Secton 1625(a) of the Interna Revenue Code provdes n part as
foows:
(a) Requrement. very empoyer requred to deduct and wthhod a ta n
respect of the wages of an empoyee sha furnsh to each such empoyee n respect
of hs empoyment durng the caendar year, on or before anuary 31 of the
succeedng year a wrtten statement showng the wages pad by the
empoyer to such empoyee durng such caendar year, and the amount of the ta
deducted and wthhed under ths subchapter n respect of such wages.
It s hed that amounts representng charges or e pendtures for
e posves, fuses, cartrdge paper, detonatng caps, amps (and bat-
teres and bets for use m connecton therewth), smthng servce,
toos, mners checks, sef-rescuers, and safety cothng, whch tems are
used n mnng operatons, do not consttute wages sub|ect to wth-
hodng of ncome ta at the source. Such amounts shoud be deducted
from the tota remuneraton, and the remander shoud be entered as
wages on wthhodng recepts for 1945 and subsequent ta abe years.
owever, amounts deducted from the empoyees wages for payment
of unon dues and saares of check weghmen shoud be ncuded n
the computaton of wages.
It s aso hed that coa mners whose occupatona e penses do not
consttute wages sub|ect to wthhodng of ncome ta at the source
may not use ther wthhodng recepts as edera ncome ta returns.
To aow them to do so woud, n effect, permt a doube deducton wth
respect to ther occupatona e penses, snce the amount shown on
the wthhodng recepts woud not refect the amount of such e penses
nor the correct ncome ta abty n cases n whch such recepts
- are used as returns and the ta s determned by use of the ta tabe
n Suppement T, secton 400, whch makes aowances for deductons,
ncudng such e penses. Such ta payers shoud fe ther ncome ta
returns on orm 1040. Where the gross ncome of a coa mner s
ess than 5,000 and he eects to make a short-form return on orm
1040, he shoud ncude theren the gross amount of hs earnngs,
ncusve of the. amount of occupatona e penses, and determne the
ta by use of the ta tabe, but f he eects to make a ong-form return
on orm 1040, he shoud ncude the gross amount of hs earnngs and
temze and deduct hs occupatona e penses.
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1622.
S CTION 1622. INCOM T COLL CT D
T SOURC .
Reguatons 116, Secton 405.201: Requre- 1945-24-12194
ment of wthhodng. Mn. 5952
panded use of the day or msceaneous wthhodng ta tabe
under the Revenue ct of 1945 Mmeograph 5764 (C. . 1944,
450) cted.
Washngton 5, D. C, December 3,1945.
Coectors of Interna Revenue and Others Concerned:
1. The evenue ct of 1945 provdes for certan reductons n the
amount of ncome ta to be wthhed at the source on wages. The
tabes contaned n secton 1622(c) (1) of the Interna Revenue Code,
as amended, have been further amended by secton 104(b) of the 1945
ct. Changes affectng the wthhodng ta tabes for payro perods
endng weeky, bweeky, semmonthy, and monthy and for day or
msceaneous payro perods, and the percentage method of wth-
hodng are fuy e paned n Crcuar WT Revsed 1945, entted
Wthhodng of Income Ta from Wages.
2. The purpose of ths mmeograph s to furnsh e panded ms-
ceaneous tabes based on the tabe for a day or msceaneous payro
perod prescrbed by the Revenue ct of 1945. The nstructons con-
taned n Mm. 5764 (C. . 1944, 450) are appcabe to such e panded
tabes pubshed herewth. These tabes may be reproduced by co-
ectors for dstrbuton to empoyers who have payro perods of
ether 10 or 2 days and who desre wthhodng ta tabes for those
payro perods. Coectors shoud e ercse care to avod error n re-
producng the tabes. The e panded tabes are effectve ony for wages
pad on or after anuary 1, 1946, n accordance wth secton 104(e)
of the Revenue ct of 1945.
3. Correspondence reatve to ths mmeograph shoud refer to ts
number and to the symbos C: Co.
oseph D. Nunan, r.,
Commssoner.
G
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3

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7
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3
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5
0
7
6
0
3
1
6
4
3
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,

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1G22.
324
Wthhodng Ta Tabe ased on the Revenue ct of 1SM5 and ffectve for
Wages Pad on and fteb anuaby 1,1946.
If the payro perod wth respect to an empoyee s a 10-day perod
nd the wages arc
nd the number of wthhodng e emptons camed Is
0
1
2
3
4
5
6
7
9
10 or
t east
ut ess
than
The amount of ta to be wthhed sha he
more
0
15.00....
177. of
wa es
0
0
0
0
0
0
0
0
0
0
15.00
17.50....
3.U0
0
0
0
0
0
0
0
0
0
0
17.50 ....
20.00... -
3.00
. 0
0
0
1
0
0
0
0
0
0
20.00
22.50.-..
3.50
.oo
0
0
0
0
0
0
0
0
0
22.60 .
25.C0....
4.00
1.60
0
0
0
0
0
0
0
0
0
25.00
27.50....
4.50
2.00
0
0
0
0
0
0
0
0
0
27.50 ..
30.00....
6.00
2.50
0
0
0
0
0
0
0
0
0
30.00 ...
32.50....
5.50
2.50
0
0
0
0
0
0
0
0
0
32.50
35.00
6.00
3.00
.50
0
0
0
0
0
0
0
0
35.00 ....
37.50....
6.00
3.50
1.00
0
0
0
0
0
0
0
0
37.50
40.00 ...
6.50
4.00
1.60
0
0
0
0
0
0
0
0
40.00
42.50....
7.00
4.50
200
0
0
0
0
0
0
0
0
42.50
45.00
7. 50
6.00
2. 50
0
0
0
0
0
0
0
0
45.00
47.50
.00
5.50
260
0
0
0
0
0
0
0
0
47.50
50.00
.50
5.50
3.00
.50
0
0
0
0
0
0
0
50.00
52.50
9.00
6.00
3.60
1.00
0
0
0
0
0
0
0
52.50
55.00
9.00
6.50
4.00
1.60
0
0
0
0
0
0
0
55.00
57.50
9.50
7.00
4.60
2.00
0
0
0
0
0
0
0
57.50
00.00....
10.00
7.50
5.00
2.00
0
0
0
0
0
0
0
60.00
62.50
10.50
.00
5.50
2.50
0
0
0
0
0
0
0
62.50
65.00
11.00
.60
5.50
3.00
.50
0
0
0
0
0
0
65.00
67.50
11.50
.50
6.00
3.50
1.00
0
0
0
0
0
0
67.50
70.00
12.00
9.00
6.50
4.00
1.50
0
0
0
0
0
0
70.00
12. 50
9.50
7.00
4.50
2.00
0
0
0
0
0
0
72.50
75.00....
13.00
10.00
7.50
5.00
2.00
0
0
0
0
0
0
75.00
77.50
13.50
10.50
.00
5.00
2.50
0
0
0
0
0
0
77.50
0.00
14.00
11.00
.50
5.50
3.00
.50
0
0
0
0
0
0.00
2.50
14.00
11.50
.50
6.00
3.50
1.00
0
0
0
0
0
2.50
5.00
14.50
12.00
9.00
6.50
4.00
1.50
0
0
0
0
0
5.00
7.50
15.00
12. 50
9.50
7.00
4.50
1.50
0
0
0
0
0
7.50
90.00
15.50
13.00
10.00
7.50
5.00
2.00
0
0
0
0
0
00.00 ..
92.50
16.00
13.50
10.50
.00
6.00
2.50
0
0
0
0
0
92.50
95.00
16.50
13.50
11.00
.00
5.50
3.00
.50
0
0
0
0
05.00
97.50
17.00
14.00
11.50
.50
600
3.50
1.00
0
0
0
0
97.50
100.00...
17.60
14.50
12.00
9.00
6.50
4.00
1.50
0
0
0
0
100.00..-.
105.00...
1 .00
15.50
12.50
9.60
7.00
4.50
2.00
0
0
0
0
105.00
110.00...
19.00
16. 50
13.50
10.50
.00
5.50
3.00
0
0
0
0
110.00 ...
115.00.-.
20.00
17.50
14.50
11.60
9.00
6.00
3.50
1.00
0
0
0
115.00
120.00...
21.00
1 .00
15.50
12.50
9.50
7.00
4.50
2.00
0
0
0
120.00
125.00- - -
22.00
19.00
16.50
13. 50
10.50
.00
5.50
2.50
0
0
0
125.00....
130.00...
23.00
20.00
17.00
14.60
11.50
9.00
6.00
3.50
1.00
0
0
130.00...-
135.00...
24.00
21.00
1 .00
15.50
12.50
9.60
7.00
4.50
2.00
0
0
135.00
140.00...
25.00
22.00
19.00
16.00
13.50
16.60
.00
5.50
2.50
0
0
140.00.-..
145.00...
26.00
23.00
20.00
17.00
14.50
11.50
9.00
6.00
3.50
1.00
0
145.00
150.00...
26.50
24.00
21.00
1 .00
15.00
12.50
9.50
7.00
4. 50
2.00
0
150.00
155.00...
27. 50
2.5. 00
22.00
19.00
16.00
13.50
10.50
.00
5. 50
2.60
(
155.00----
160.00...
2 . CO
25.50
23.00
20.00
17.00
14.50
11.50
.60
6.00
3.50
1.00
160.00....
105.00...
29.50
26.50
24.00
21.00
1 .00
15.00
12.50
9.50
7.00
4.50
2.00
165.00....
170.00...
30. 50
27.50
24.50
22.00
19.00
16.00
13.50
10.50
.00
5.00
2.50
170.00.---
175.00...
31.50
2 .50
25.50
23.00
20.00
17.00
14.00
11.60
.50
6.00
3.50
175.00 ....
1 0.00...
32.50
29.50
26.50
24.00
21.00
IS. ( )
15.00
12.60
9.S0
7.00
4. SO
1 0.00-...
1 5.00...
33.50
30.50
27.50
24.50
22.00
19.00
16.00
13.00
10.50
.00
5.00
1 5.00.--.
190.00...
34.00
31.50
2 .50
25. 50
23.00
20.00
17.00
14.00
11. 50
.50
600
190.00..--
195.00...
35.00
32.50
29.50
26.50
23.50
21.00
1 .00
15.00
12.50
9.60
7.00
195.00
200.CO...
36.00
33.00
30.50
27.50
24.50
22.00
19.00
16.00
13.00
10.50
7. 0
200.00
210.00...
37.50
34.50
32.00
29.00
26.00
23.00
20.50
17.60
14.50
12 00
9.00
210.00----
220.00...
39.50
36. 50
33.50
31.00
IN. I
25.00
22.00
19.50
16.50
13.50
11.00
220.00
230.0(1...
41.50
3 . 50
35.50
32.50
30.00
27.00
24.00
21.00
1 .50
15.50
12. SO
230.00
240.00...
43.00
40. 50
37.50
34.50
31.50
29.00
26.00
23.00
2tt 50
17.50
14.50
240.00.--.
250.00...
45.00
42.00
39.50
36.50
33.50
30.50
2 .00
25.00
22.00
19.60
1660
250.00.-..
260.00...
47.00
44.00
41.00
3 .50
35.50
32.50
29. 50
27.00
24.00
21.00
1 - 50
260.00..-.
270.00...
49. 00
46.00
43.00
40.00
37.50
34.50
31.50
29.00
26.00
23.00
20-00
270.00.-.-
2 0.00...
50.50
4 .00
45.00
42.00
39.00
36.50
33.50
30.50
2 .00
26.00
22.00
2 C.00.._.
290.00...
52.60
49.50
47.00
44.00
41.00
3 .00
35.50
32.50
29.50
27.00
24.00
290.00-
300.00...
64.50
51.50
4 .60
46.00
43.00
40.00
37.60
34.50
31.50
2 .50
26.00
300.00 and over
19 per cent of the
eccss
ver 3C
0 pus-
65.50
52.50
49.50
47.00
44.00
41.00
3 .00
35.60
3Z50
29.50
27.00
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1
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2
2

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4
4

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5
0
7
6
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3
1
6
4
3
P
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D
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w
w
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h
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#
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325
1622.
Wthhodng Ta Tabe ased on the Revenue ct of 1945 and ffectve fob
Wages Pad on and fteb anuaey 1,1946.
It the payro perod wth respect to an empoyee u a 2 -day perod
nd the wages are
nd the number of wthhodng e emptons camed
0
1
2
3
t
6
a
7
9
10 or
more
The amount of ta to be wthhed sha be
17 of
wmCM
to
0
0
to
0
to
0
0
to
0
.40
0
0
0
0
0
0
0
0
0
0
.40
1.40
0
0
0
0
0
0
0
0
0
9. 0
2. 0
0
0
0
0
0
0
0
0
0
11.20
4.20
0
0
0
0
0
0
0
0
0
12.60
5.60
0
0
0
0
0
0
0
0
0
14.00
7.00
0
0
0
0
0
0
0
0
0
15.40
7.00
0
0
0
0
0
0
0
0
0
16. 0
.40
1.40
0
0
0
0
0
0
0
0
16. 0
9. 0
2. 0
0
0
0
0
0
0
0
0
1 .20
11.20
4.20
0
0
0
0
0
0
0
0
19.60
12.60
6.60
0
0
0
0
0
0
0
0
21.00
14.00
7.00
0
0
0
0
0
0
0
0
22.40
15.40
7.00
0
0
0
0
0
0
0
0
23. 0
15.40
.40
1.40
0
0
0
0
0
0
0
25.20
16. 0
9. 0
2. 0
0
0
0
0
0
0
0
25.20
1 .20
11.20
4.20
0
0
0
0
0
0
0
26.60
19.60
12.60
5.60
0
0
0
0
0
0
0
2 .00
21.00
14.00
5.60
0
0
0
0
0
0
0
29.40
22.40
15.40
7.00
0
0
0
0
0
0
0
30. 0
23. 0
15.40
.40
1.40
0
0
0
0
0
0
32.20
23. 0
16. 0
9. 0
2. 0
0
0
0
0
0
0
33.60
25.20
1 .20
11.20
4.20
0
0
0
0
0
0
35.00
26.60
19.60
12.60
6.60
0
0
0
0
0
0
36.40
2 .00
21.00
14.00
5.60
0
0
0
0
0
0
37. 0
29.40
22.40
14.00
7.00
0
0
0
0
0
0
39.20
30. 0
23. 0
16.40
.40
1.40
0
0
0
0
0
39. 20
32.20
23. 0
16. 0
9. 0
2. 0
0
0
0
0
0
40.60
33.60
25.20
1 .20
11.20
4.20
0
0
0
0
0
42.00
35.00
26.60
19.60
12.60
4.20
0
0
0
0
0
43.40
36.40
2 .00
21.00
14.00
5.60
0
0
0
0
0
44. 0
37. 0
29.40
22.40
14.00
7.00
0
0
0
0
0
46.20
37. 0
30. 0
22.40
15.40
.40
1.40
0
0
0
0
47.60
39.20
32.20
23. 0
16. 0
9. 0
2. 0
0
0
0
0
49.00
40.60
33.60
25.20
1 .20
11.20
4.20
0
0
0
0
50.40
43.40
35.00
26.00
19.60
12.60
6.60
0
0
0
0
53.20
46.20
37. 0
29.40
22.40
15.40
.40
0
0
0
0
56.00
49.00
40.60
32.20
25.20
16. 0
9 . U
2. 0
0
0
(I
5 . 0
50.40
43.40
35.00
26.60
19.60
12.60
5.00
0
0
0
61.60
53.20
46.20
37. 0
29.40
22.40
15.40
7.00
0
0
0
64.40
56.00
47.60
40.60
32.20
25.20
10. 0
9. 0
2. 0
0
0
07.20
5 . 0
50.40
43.40
35.00
26.60
19.60
12.60
5.60
0
0
70.00
1.60
53.20
44. 0
37. 0
29.40
22.40
15.40
7.00
0
0
72. 0
64.40
56.00
47.60
40.60
32.20
25.20
16. 0
9. 0
2. 0
0
74.20
67.20
5 . 0
50.40
42.00
35.00
26.60
19.60
12.60
5.60
0
77.00
70.00
61.60
53.20
44. 0
37. 0
29.40
22.40
15.40
7.00
0
79. 0
71.40
64.40
56.00
47.60
40.60
32.20
23. 0
16. 0
9. 0
2. 0
2.60
74.20
67.20
6 . 0
60.40
42.00
36.00
26.60
19.60
12.60
5.60
5.40
77.00
6 . 0
61.60
63.20
44. 0
37. 0
29.40
22.40
14.00
7.00
.20
79. 0
71.40
64.40
5 .00
47.60
39.20
32.20
23. 0
16. 0
9. 0
91.00
2.60
74.20
67.20
6 . 0
50.40
42.00
35.00
26.60
19.60
12.60
93. 0
5.40
77.00
6 .60
61.60
53.20
44. 0
36. 40
29. 40
22.40
14.00
95. 2U
.20
79. 0
71.40
64.40
56.00
47.60
39.20
32.20
23. 0
16. 0
9 .00
91.00
2.60
74.20
65. 0
6 . 0
50. 40
42.00
35.00
2 .60
19.60
100. 0
92.40
5.40
77.00
6 .60
61.60
53.20
44. 0
36.40
29.40
21.00
105.00
96.60
9.60
1.20
72. 0
64.40
57.40
49.00
40. 6U
33.60
25.20
110.60
102.20
93. 0
6. 0
7 .40
70.00
61.60
54.60
46.20
37. 0
30. 0
116.20
107. 0
99.40
91.00
4.00
75.60
67.20
5 . 0
51. 0
43.40
35.00
120.40
113. 40
105.00
96.60
.20
1.20
72. 0
64.40
57.40
49.00
40.60
126.00
117.00
110. CO
102.20
93. 0
5.40
7 .40
0.00
61.60
54.60
46.20
131. 0
123.20
114. 0
107. 0
99.40
91.00
2.60
75.60
67.20
5 . 0
51.SO
137.20
12 . 0
120.40
112.00
105. 00
96.60
.20
61.20
72. 0
64.40
56.00
141.40
134.40
126.00
117.60
109. 20
102.20
93. 0
5.40
7 . 40
70.00
61.60
147.00
13 .60
131.60
123.20
114. 0
106.40
99.40
91.00
2.60
76.60
67.20
162.60
144.20
135. 0
12 . 0
120.40
112.00
105.00
96.60
.20
79. 0
72. u
19 per cent of the e cess over 40 pus-
155.40
147.00
13 .60
131.60
123.20
114. 0
100. 40
99.40
91.00
2.60
75.60
ut ess
than
0
42.00
4100
49.00
19.00
56.00
56.00
63.00
93.00
70.00
70.00
77.00
77.00
4.00
94.00
91.00
91.00
9 .00
99.00
105.00.-.
105.00--.-
112.00. --
11100.-..
119.00..-
119.00....
126.00...
125.00....
133.00...
133.00 .
140.00...
140.00....
S.47.O0...
147.00....
1M.U0-.
1M.00....
161.00...
1 1.00
16 .00...
16 .00
175.00--
175.00
1 2.00. - -
1 2.00....
1 9.00 ..
1 9.00....
19 .00...
196.00....
203.00...
1203.00....
210.00...
210.00....
217.00 . .
17.00....
224.00...
224.00....
231.00...
231.00-..
23 .00-..
23 .00....
245.00.--
245.00....
252.00--
252.00... _
259.00.--
259.00....
266.00. --
365.00....
273.00. - -
273.00....
2 0.00.--
2 0.00....
294.00...
294.00....
30 .00-.-
30 .00....
322 00--
322.00....
33 .00.--
336.00....
S35O.00._-
1360.00....
364.00...
354.00....
37 .00...
37 .00....
392.00...
39100....
406.00...
409.00....
420.00..-
420.00....
434.00.- -
434.00....
44 .00.--
44 .00....
462.00...
46100....
47 .00.-.
6.0O
490.00. --
490.00....
504.00. --
5OU/0....
51 .00--
51 .00....
532.00--
532.00....
546.00.--
546.00
660.00-.
560.00....
5 .00..-
56 .00 .
61 .00-.
616.00...
644.0U. -.
44.00....
72.00.--
67100.
700.00...
700.00. .
72 .00--
72 .00....
756.00...
756.00....
7 4.00.--
S4.O0....
12.00...
12.00....
40.00...
40 and over..
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1622(). 326
Reguatons 116, Secton 405.201: Requrement of
wthhodng.
INT RN L R NU COD .
mounts dstrbuted to empoyees of a cub from a Chrstmas fund
made up of contrbutons by cub members. (See I. T. 3726, page 63.)
wthhodng.
Payments made to benefcares or to estates of deceased empoyees.
(See. T. 3737, page 319.)
wthhodng.
Tuton and mantenance stpends pad under Tte of the Soca
Securty ct. (See I. T. 3756, page 64.)
Reguatons 116, Secton 405.205: Rght to cam
wthhodng e emptons.
Number of wthhodng e emptons aowabe to a servceman s wfe
who receves a monthy famy aowance for hersef and two chdren.
(See I. T. 3723, page 122.)
S CTION 1622(). INCOM T COLL CT D T SOURC :
O RL PPING P Y P RIODS, ND SO ORT .
Reguatons 116, Secton 405.209: Suppe- 1945-3-11955
menta wage payments. T. D. 5431
TITL 20 INT RN L R NU . C PT R I, SU C PT R D, P RT 405.
COLL CTION OP INCOM T T SOURC ON W G S.
mendng secton 405.209 of Reguatons 110, reatng to suppe-
menta wage payments.
Washngton 26, D. C.
Secton 405.209 of Reguatons 116 Part 405, Tte 26, Code of
edera Reguatons, 1944 Sup. s amended by addng at the end
thereof the foowng:
(c) acaton aowances. mounts of so-caed vacaton aowances sha
be sub|ect to wthhodng as though they were reguar wage payments made for
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327
1625.
the perod covered by the vacaton. If the vacaton aowance Is pad In addton
to the reguar wage payment for such perod, the rues appcabe wth respect
to suppementa wage payments sha appy to such vacaton aowance.
1940 ed., Sup. I, 1622) and secton 3791 of the Interna Revenue
Code (53 Stat., 467 26 U. S. C, 3791).)
oseph D. Nunan, r.,
(Ped wth the Dvson of the edera Regster anuary 20, 1945, 3.44. p. m.)
S CTION 1625. R C IPTS.
eguatons 116, Secton 405.501: Recepts 1945-11-12053
for ta wthhed at source on wages. Crcuar 179
Reproducton of orm W-2, Wthhodng Recept 1945
( mendment to Crcuar 173 C. . 1944, 461 .)
Ofece of Commssoner of Interna Revenue,
Washngton 25, D. C, May 15, 194-5.
To Coectors of Interna Revenue and Others Concerned
Reference s made to the ne t to the ast paragraph of Crcuar 173
C. . 1944, 461 , dated November 17, 1944, whch states t s essenta
that a orms W-2 for the year 1945 bear sera numbers n back
nk n the approprate space n order to factate the handng and
matchng of documents.
It has Deen concuded that the sera number s no onger needed on
the 1945 wthhodng ta recepts, and Crcuar 173 s, therefore,
hereby amended by emnatng the penutmate paragraph thereof.
Correspondence reatve to the contents of ths crcuar shoud refer
to ts number and to the cymbos C: Co.
oseph D. Nunan, r.,
Commssoner.
Reguaton 116, Secton 405.501: Recepts for
ta wthhed at source on wages.
Coa mners whose occupatona e penses do not consttute wages
sub|ect to wthhodng of ncome ta at the source. (See I. T. 3755,
page 321.)
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1625.
32
Reguatons 116, Secton 405.501: Recepts 1945-15-12100
for ta wthhed at source on wages. Crcuar 1 16
Revson of Wthhodng Recept, 1945, orm W-2. Crcuars
1715 unpubshed and 173 C. . 1944, 401 revoked n part.
Washngton 25, D. C, uy 17,1945.
1. Wthhodng Recept, orm W-2, has been revsed, the prncpa
changes beng these:
(a) the ocaton of the spaces for the name and address of the
empoyer and the empoyee have been nterchanged to factate
the sortng and handng of forms, t beng fet that the benefts
of ths arrangement outwegh the possbe beneft of pacng the
empoyee s name n a poston permttng the use of wndow
enveopes
(b) the optona form for the empoyee s ncome ta return s
entrey on one page, the back of the orgna
(c) the nstructons have been ampfed and paced on the
back of the dupcate and
(d) a speca dentfyng mark has been paced on orm W-2a.
2. sma suppy of the revsed form s beng furnshed to permt
coectors empoyees to become famar wth the form and for use as
sampes by prnters and others who wsh to reproduce the form. It s
e pected that the new forms requred for genera dstrbuton w be
avaabe to coectors about October 1,1945.
3. orm W-2 may be reproduced, but ts reproducton must have
offca approva. Requests for such approva shoud be addressed to
the Commssoner of Interna Revenue, ttenton: C:Co:0,
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 buff
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 rearrangement
of the face of the form w be permtted, but the name of the empoyee
must appear at the top of the form and the space for the coector s
use must be of the same sze and n the same reatve poston as on
the offca form. separate showng of the od age beneft ta deduc-
ton w be permtted f ceary ndcated as such. owever, ony
one amount of wages w be permtted to be shown, the gross wages
before any pay-ro deductons of any nature have been made. No
rearrangement of the matera on the backs of the orgna or dupcate
w be permtted.
(c) Dmensons: The offca sze of the form s nches wde by
nches n depth, but the depth may be vared from Sy2 to 3
nches.
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329
1625.
(d) Carbonsed forms or spot carbons are not permssbe. In-
tereaved carbon, f used, must be of good quaty to precude
smudgng.
(e) The Government Prntng Offce symbo must be omtted from
reproduced forms.
(/) 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 the form. dd-
tona approva w not be requred for a form prevousy approved
f the ony change s n the prntng of the empoyer s name, address,
and, f desred, the empoyer s dentfcaton number.
4. oth the revsed form and the one t repaces w be acceptabe
for a purposes for the year 1945, and empoyers and others who have
reproduced the od stye form may contnue to use t. Commerca
prnters who reproduce the form n quantty for sae to ther customers
are urged to adopt the revsed form as prompty as possbe. On and
after ugust 1, 1945, authorzatons w be for the reproducton of
the revsed form uness t can be shown that work on the od styo
fonn. to be submtted as a sampe wth the request, has progressed to
te stage a defnte oss woud be sustaned through ts abandonment.
5. The provsons of Crcuars 1715 unpubshed and 173 C. .
1944,461 and any other nstructons nconsstent wth the provsons
of ths crcuar are hereby revoked.
6. Correspondence reatve to the contents of ths crcuar shoud
refer to ts number and to the symbos C: Co.
oseph D. Nunan, r.,
C ommssoner.
Reguatons 116, Secton 405.501: Recepts 1945-23-121 0
for ta wthhed at source on wages. Crcuar 1 37
orm W-2, Wthhodng Statement for 1946. Rues for repro-
ducton.
Washngton 25, D. C, November IS, 191,5.
1. orm W-2 for the year 1946 s changed sghty from the revson
of une, 1945. To conform to the Revenue ct of 1945, recenty
enacted, the new revson of orm W-2 s necessary. The prncpa
changes are n the tte of the form and n the nstructons to the
empoyer on the trpcate copy. The 1946 prntng w be made on
whtepaper.
2. orm W-2 for 1946 may be reproduced, but ts reproducton must
have offca approva. Requests for such approva shoud 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 auaty of paper: The forms must be prnted on whte
pa.per 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.
6 4354 46 22
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3670.
330
(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 rearrangement
of the face of the form w be permtted, but the name of the empoyee
must appear at the top of the form. The space provded for the coec-
tor s use may not be reduced n sze uness, proved necessary, and n no
event may the heght of such space be reduced more than one-haf nch.
It must be n the same reatve poston as on the offca form. sepa-
rate showng of the od-age benefts ta deducton w be permtted f
ceary ndcated as such. owever, ony one amount of wages w be
permtted to be shown, the gross wages before any payro deductons
of any nature have been made. No rearrangement of the matera on
the backs of the orgna or dupcate w be permtted.
(o) Dmensons: The offca sze of the form s nches wde by 3
nches n depth, but the depth may be vared from 3 to 3 nches.
(d) Carbonzed forms or spot carbons are not permssbe. In-
tereaved carbon, f used, must be of good quaty to precude
smudgng.
(e) The Government Prntng Offce symbo must be omtted from
reproduced forms.
(/) uthorzed reproducton: n approved form must bear the
notaton pp. . L R. and the date of ts approva n sma type on
the bottom margn, eft-hand sde of the face of the form.
3. Correspondence reatve to the contents of ths crcuar shoud
refer to ts number and to the symbos C: Co.
oseph D. Nunan, r.,
Commssoner.
S CTION 3670. PROP RTY SU CT TO LI N.
1945-23-121 1
Ct. D. 1651
federa ta es nterna revenue code decson of sutreme court.
1. Len foe edera Ta es Prorty fter- cqured Phopertt.
In 1041 pettoner bank obtaned a |udgment n a Pennsyvana
State court aganst an ndvdua aganst whom the Unted States
had -unpad, udcay estabshed, ncome ta cams for the years
1920, 1921, and 1922. The trustee of a brewng company, now In
bankruptcy, owes the ndvdua a debt for past servces as a State
court recever of the bankrupt. The bank seeks to recover on the
debt under a en aeged to have been created by an attachment-
e ecuton Issued on ts State court |udgment and served on the
trustee n bankruptcy ebruary 21, 1941. The Unted States cams
prorty by vrtue of a ta en under sectons 3070 and 3671 of the
Interna Revenue Code, whch both partes admt arose n 1935,
ve years pror to the ta payer s servces as recever. ed: The
ta en of the Unted States under sectons 3670 and 3671 of the
Interna Revenue Code Is not mted to property owned by the
denquent when the en arose, but ncudes the debt n queston
whch was an obgaton for servces rendered aready e stng when
the pettoner bank fed the sut resutng In the |udgment. The
en appes to property owned by the denquent at any tme durng
the fe of the en, and thus Incudes after-acqured property.
2. Decson ffrmed.
v Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (146 ed. (2d), 31), affrmng |udgment of the Unted States
Dstrct Court, W. D. Pa. (54 ed. Supp., 11), affrmed.
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331
3670.
Supbeme Court of the Unted States.
Gass Cty ank of eanette, Pa., pettoner, v. The Unted States of merca.
66 S. Ct. 10 .
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut.
November 13,1945.
OPINION.
In 1 41 the pettoner bank obtaned a |udgment In a Pennsyvana State court
aganst one rank . Maddas, for about 19,000. The Unted States had unpad,
|udcay estabshed, ncome ta cams aganst Maddas for the years T.920, 1921,
and 1922,1 whch e ceed 1,000,000. (40 . T. ., 572 114 ed. (2d), 54 .)
ecause of Maddas past servces as a State court recever of a brewng company,
the trustee of that company, now In bankruptcy, owes Maddas 3,22 .53. The
ssue here s whether the bank or the Government may recover on the debt owed
to Maddas. The bank cams under a en aeged to have been created by an
attachment-e ecuton ssued on Its State court udgment and served on the trustee
n bandnptcy ebruary 21, 1941. The Unted States camed prorty, by vrtue
4 a ta en under 20 U. S. C, sectons 3670, 3671,2 whch both partes admt
arose n 1935, fve years pror to the ta payer s servces as recever. The conten-
ton of the bank n the dstrct court was that the statutory ta en, whch
became effectve In 1935, dd not cover Maddas cam snce It dd not e st when
the en arose but ony thereafter, and that the Government, therefore, coud
reach the debt ony by garnshment or dstrant as provded by other sectons of
the Interna Revenue Code. The crcut court of appeas concuded that the
statutory ta en dd cover after-acqured property and accordngy affrmed
the dstrct court s |udgment for the Unted States. (146 ed. (2d), 31.) We
granted certorar because of statements made n the opnons of other courts
whch seemed to confct wth the concuson beow. Unted States v. Long
Isand Drug Co., 115 ed. (2d), 9 3 Unted States v. Pacfc Raroad, 1 ed., 97.)
y secton 3670, 26 U. S. C, Congress Impressed a en upon a property and
rghts to property, whether rea or persona, beongng to a ta denquent.
Stronger anguage coud hardy have been seected to revea a purpose to assure
the coecton of ta es. Not content wth ths anguage, however, Congress aso
provded that the en shoud contnue unt the abty for such amount s
satsfed or becomes unenforceabe by reason of apse of tme. (26 U. S. C,
secton 3671.) These two sectons read together ndcate that a contnung en
covers property or rghts to property In the denquent s hands at any tme pror
to e praton. Ths s confrmed by secton 367 , whch provdes that whether
dstrant proceedngs have been commenced or not, acton to enforce the en
may be nsttuted aganst any property and rghts to property, whether rea or
persona, or to sub|ect any such property and rghts to property owned by e
denquent, or n whch he has any rght, tte or nterest, to the payment of suc
ta (Itacs supped.) or here Is a pan ntent to sub|ect to the en prop-
erty owned by the denquent when sut Is fed, rather than ony that owned
when the en arose. Indeed, the meanng of these sectons s so pan as to render
There s aso a cam for 1936 ta es whch rases dfferent questons that need not be
consdered here.
1 S C. 670. PROP RTY SU CT TO LI N.
If any person abe to pay any ta negects or refuses to pay the snme after demand,
the amount (Incudng any Interest, penaty, addtona amount, or addton to such ta ,
together wth any costs that may accrue In addton thereto) sha bo a en n favor of the
Lnted States upon a property and rghts to property, whether rea or persona, beongng
to each person.
S C. 3671. P RIOD O LI N.
Uness another date Is specfcay f ed by aw. the en sha arse at the tme the assess-
ment st was receved by the coector and sha contnue unt the abty for such
amount s satsfed or becomes unenforceabe by reason of apse of tme.
Secton 3672 provdes that the en sha not be vad aganst any mortgagee, pcdsee,
purchaser, or |udgment credtor unt notce s fed n an offce desgnated by State aw or
n the offce of the cerk of the Unted States dstrct court. ere such notce wa duy
fed.
The dstrct court acqured |ursdcton because the Indebtedness to Maddas was due
from the trustee. The procedure by whch that ursdcton was acqured s suffcenty set
torth In the opnons beow and need not be repeated here. (54 ed. Supp., 11 146 ed.
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29.3797-2.
332
superfuous a detaed dscusson of the egsatve hstory whch s consstent wth
our Interpretaton.
urthermore the agences admnsterng the statute have construed t n the
same way. Thus, n 192 Genera Counse Memorandum No. 4715 (C. . II-2, 94
192 ), decared that a denquent ta payer may at any tme pror to the
e praton of the statutory perod of mtaton become possessed of property
aganst whch the en may attach, thus makng the ta abty enforceabe
through the en. gan n Treasury Decson 4275 (C. . II-2, 1C7 192 ),
coectors were admonshed to keep on the aert where notce of ens had been
fed, so as to e tend the perod of ther effectveness whenever t s reasonaby
possbe that the ta payer may, n the future, acqure property or property rghts
from whch the ta abty may be satsfed. nd n Oravesv. Commssoner
(12 . T. ., 124,133), the Ta oard sad that the en apped, of course, to a
the property that the ta debtor subsequenty acqured.
The bank s arguments on behaf of a statutory constructon supportng Its
cams are wthout mert. We are tod that to ncrease unduy the scope of the
Government s en Is unwse. ut most of the ob|ectons rased woud appy not
merey to ens that cover after-acqured property, but aso wth equa force to
most other types of ens. t any rate the wsdom of egsaton s a queston for
Congress. We are further tod that the ta en can not attach to Maddas cam
because the aw of Pennsyvana, where ths obgaton arose, does not treat
future earnng capacty as property or rghts to property. ut the queston
of whether the ta en covers future earnng capacty Is not before us. or the
Government here seeks to reach an aready e stng obgaton for servces ren-
dered, whch ceary fas wthn the statutory anguage. (Cf. Matter of Rosen-
berg, 269 N. Y., 247 Ct. D. 1060, C. . -1, 25S (1036) .) Moreover, the Con-
gressona meanng s not to be determned by resortng to the oca aw of Pennsy-
vana. (Unted States v. Snyder, 140 U. S., 210 everng v. Stuart, 317 U. S.,
154, 161-162 Ct. D. 1566, C. . 1042-2, 19 .)
Our concuson Is that the en appes to property owned by the denquent at
any tme durng the fe of the en. Ths Is In accord wth a the cases that
have drecty passed upon ths queston. s prevousy noted, there are two cases
whch contan anguage whch mght ead to another concuson. ut nothng
there sad offers any persuasve reason for restrctng the scope of the en.
ffrmed.
Mr. ustce ackson took no part n the consderaton or decson of ths case.
Dssentng opnon by Mr. ustce Rt|tedge, In whch Mr. ustce bahkfubtes
and Mr. ustce Dougas |on.
C PT R 3 . MISC LL N OUS PRO ISIONS.
S CTION 3797. D INITIONS.
Secton 29.3797-2: ssocaton. 1945-16-12111
( so Secton 19.3797-2, Reguatons 103.) T. D. 546
TITL 26 INT RN L R NU . C PT R I. SU C PT R , P RTS 1
ND 29.
mendng secton 19.3707-2 of Reguatons 103, and secton
20.3707-2 of Reguatons 111, reatng to the defnton of assoca-
ton.
14 Stat., 9 , 107 15 Stat., 125, 167 37 Stat., 1016 45 Stat., 791, 75.
Ctzens Nat. Trust d . ank of Los ngees v. Unted States (135 ed. (2d), 527
(C. C. . 9)) Neson v. Unted States (139 ed. (2d). 162 (C. C. . 9)) Investment
Securtes Co. v. Unted States (140 ed. (2d), 94 (C. C. . 9)) Unted States v. Workv
(S. D. Ind.), decded March , 1940 Mnnesota Uut. Lfe Ins. Co. v. Unted States (47 ed.
(2d), 942, 944 (N. D. Te .).) See aso Unted States v. Warren . Co. (127 ed. (2a),
134) Matter of Rosenberg, supra.
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333
3 04.
Washngton 25, D. C.
edera Reguatons, 1940 Sup. , and secton 29.3797-2 of Regua-
tons 111 art 29, Tte 26, Code of edera Reguatons, Cum. Sup.
are each amended as foows:
( ) y strkng from the fourth sentence of each such secton
the foowng: an nvestment trust (whether of the f ed or the
management type), .
( ) y nsertng after the fourth sentence of each such secton
the foowng:
n nvestment trust of the type commony known as a management trust s
an assocaton, and n trust of the type commony known as a f ed nvest-
ment trust s an assocaton f there s power under the trust agreement to
vary the nvestment of the certfcate hoders. (See Commssoner v. North
mercan ond Trust. 122 ed. (2d), 545, certorar dened, 314 U. S., 701.)
(Ths Treasury decson s ssued under authorty contaned n
m ed., 62).)
oseph D. Nunan, r.,
( ed wth the Dvson of the edera Regster ugust 10, 1945, 11.36 a. m.)
S CTION 3 01(d). MITIG TION O CT O LIMIT -
TION ND OT R PRO ISIONS IN INCOM T C S S:
SC RT INM NT O MOUNT O D USTM NT.
Secton 29.3 01 (d)-: scertanment of amount of
ad|ustment.
INT RN L R NU COD .
S CTION 3 04. TIM OR P R ORMING C RT IN
CTS POSTPON D Y R SON O W R.
1945-12-12063
T. D. 5456
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 472. TIM
OR P R ORMING C RT IN CTS POSTPON D Y R SON O W R.
Treasury Decson 5279 C. . 1943, 952 , reatng to perod of tme
to be dsregarded under secton 3 04 of the Interna Revenue Code n
determnng whether certan acts are tmey performed, amended
to provde an Increase n the perod of tme to be dsregarded In
the case of certan members of the armed forces of the Unted
States.
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3 04. 334
Washngton 25, D. C.
Treasury Decson 5279 Part 472, Tte 26, Code of edera Regua-
tons, 1943 Sup. , approved uy 10, 1943 C. . 1943, 952 , as
amended by Treasury .Decson 5444, approved March 5, 1945 page
474, ths uetn , s further amended as foows:
Paragraph 1. Secton 472.202(6) s amended as foows:
( ) y nsertng mmedatey precedng the parenthetca e pres-
son n that part desgnated (2) the foowng: , f such ast day
occurred pror to anuary 1, 1945.
( ) y redesgnatng that part now desgnated (3) as (4).
(C) y nsertng mmedatey after that part desgnated (2) the
foowng:
(3) the date on whch the return or payment woud otherwse become
due fas pror to the 15th day of the s th month foowng the month n
whch fas the Inst day of a perod of 91 days or more of contnuous servce
by the ndvdua on sea duty or outsde the contnenta Unted States, f
such ast day occurs after December 31, 1944 or
Par. 2. Secton 472.202(c) s amended by addng at the end thereof
the foowng sentence:
In the appcaton of ths paragraph, If the ndvdua ceases (e cept by reason ,
of death or ncompetency) to be a member of the mtary or nava forces ot
the Unted States servng on sea duty or outsde the contnenta Unted State3
after December 31, 1944, the 15th day of the s th month sha be substtuted
for the 15th day of the fourth month n (1) hereof.
Par. 3. Secton 472.203(c) s amended by nsertng mmedatey
after that part desgnated (3) the foowng sentence:
In the appcaton of ths paragraph, If the ndvdua ceases (e cept by reason
of death or ncompetency) to be a member of the mtary or nava forces of the
Unted States servng on sea duty or outsde the contnenta Unted States after
December 31, 1944, the 15th day. of the s th month sha be substtuted for the
15th day of the fourth month n (1) hereof.
n sectons 3791 and 3 04 of the Interna Revenue Code (53 Stat.,
467, 56 Stat., 961 26 U. S. C, 1940 ed., 3791,26 U. S. C, 1940 ed., Sup.
I, 3 04).)
oseph D. Nunan, r.,
pproved une 9, 1945.
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335 22(b), rt. 22(b)(4 -1.
. R NU CT O 193 .
SU TITL . G N R L PRO ISIONS.
P RT n. COMPUT TION O N T INCOM .
S CTION 22(a). GROSS INCOM : G N R L
D INITION.
rtce 22(a)-: What ncuded n gross ncome.
R NU CT O 103 .
ercse of opton to purchase stock receved by empoyee from em-
poyer as compensaton for servces. (See Ct. D. 1633, page 49.)
R NU CT O 193 .
Modfcaton of orgna opnon n Commssoner v. ohn . Smth
(Ct. D. 1633, page 49, ths uetn). (See Ct. D. 1633 (modfed),
page 52.)
R NU CT O 193 .
ercse of opton to purchase stock receved by empoyee from
empoyer as compensaton for servces. Petton for rehearng n
Commssoner v. ohn . Smth (Ct. D. 1633, page 49, ths uetn)
dened. (See Ct. D. 1639, page 52.)
ROM GROSS INCOM .
rtce 22(b) (4)-: Interest upon State obgatons.
R NU CT O 193 .
Interest on bonds of the Trborough rdge uthorty. (See Ct. D.
1647, page 65.)
rtce 22(b) (4)-: Interest upon State obga- 1945-22-12169
tons. Ct. D. 164
ncome ta revenue acts of 193 and 193 decson of court.
1. Gross Income cusons Interest upon Obgatons of a
State or Potca Subdvson Thereof.
Income derved by the ta payer n the years 1937 and 103 from
bonds of the Port of New York uthorty was e empt from ta aton
because t was Interest upon obgatons of a potca subdvson
of a State wthn the meanng of sectons 22(b) (4) of the Revenue
cts of 1036 and 193 and upon obgatons ssued on behaf of
a State wthn the meanng of artce 22(b) (4)- of Reguatons 94
and 10L
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22(b), rt. 22(b)(4)- . 336
2. Decson ffrmed.
Decson of The Ta Court of the Unted States (3 T. C, 131)
affrmed.
3. Certorar Dened.
Petton for certorar dened on anuary 2, 1945.
Unted States Crcut Court of ppeas for the Second Crcut.
Commssoner of Interna Revenue, pettoner, v. state of e ander .
Shamberg, Deceased, Isdor W. Shamberg, as dmnstrator, respondent.
144 ed. (2d), 99 .
efore ugustus N. and, Chase, and rank, Crcut udges.
Petton by the Commssoner of Interna Revenue to revew a decson of
The Ta Court of the Unted States determnng that there are no defcences n
ncome ta es of the estate of e ander . Shamberg, deceased, for the years 1937
and 193 . ffrmed.
ugust 24, 1944.
OPINION.
ugustus N. and, Crcut udge: Ths proceedng Invoves defcences In
Income ta es assessed aganst e ander . Shanberg by the Commssoner of
Interna Revenue for the years 1937 and 193 . Shamberg ded durng the
pendency of a proceedng n The Ta Court to revew the assessment and bs
admnstrator was substtuted as a party. The Ta Court determned that
there were no defcences and the Commssoner fed ths petton to revew ts
decson whch a ma|orty of ths court hods shoud be affrmed.
The queston presented s whether the nterest receved by Shamberg n the
years 1037 and 193 on bonds of the Port of New York uthorty (herenafter
caed the uthorty ) known as Interstate rdge and Tunne onds Seres
, and Genera and Refundng onds rst Seres, s sub|ect to ncome ta es.
ccordng to the vew we take, the ncome from the above bonds, Issued n 1931
and 1935 respectvey, was e empt from ta aton under the provsons of secton
22(b) (4) ( ) of the Revenue ct of 193G and the correspondng secton, dent-
ca n form, of the Revenue ct of 103 . These statutory provsons and the
Treasury reguatons Interpretng them are as foows:
S C. 22. GROSS INCOM .
(a) Genera Defnton. Gross ncome ncudes gans, profts, and In-
come derved from saares, wages, or compensaton for persona servce, of
whatever knd and In whatever form pad, or from professons, vocatons, trades,
busness, commerce, or saes, or deangs n property, whether rea or persona,
growng out of the ownershp or use of or nterest n such property aso from
nterest, rent, dvdends, securtes, or the transacton of any busness carred on
for gan or proft, or gans or profts and ncome derved from any source what-
ever.
(b) cusons from Gross Income. The foowng Items sha not be In-
cuded In gross ncome and sha be e empt from ta aton under ths tte:

(4) Ta -free nterest. Interest upon ( ) the obgatons of a State,
Terrtory, or any potca subdvson thereof, or the Dstrct of Coumba
Treasury Reguatons 91. promugated under the Revenue ct of 1936:
rt. 22(b) (4)-. Interest Upon State Obgatons. Interest upon the ob-
gatons of a State, Terrtory, or any potca subdvson thereof, or the Dstrct
of Coumba Is-e empt from the ncome ta . Obgatons ssued by or on behaf
of the State or Terrtory or a duy organzed potca subdvson actng by
consttuted authortes empowered to ssue such obgatons, are the obgatons
of a State or Terrtory or a potca subdvson thereof. Speca ta bs ssued
for speca benefts to property, f such ta bs are egay coectbe ony from
owners of the property benefted, are not the obgatons of a State, Terrtory, or
potca subdvson. The term potca subdvson, wthn the meanng of
the e empton, denotes any dvson of the State or Terrtory whch s a muncpa
corporaton, or to whch has been deegated the rght to e ercse part of the
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337 22(b), rt. 22(b)(4)- .
soveregn power of the State or Terrtory. s thus defned, a potca subd-
vson of a State or Terrtory may, for the purpose of e empton, Incude speca
assessment dstrcts so created, such as road, water, sewer, gas, ght, recama-
ton, dranage, rrgaton, evee, schoo, harbor, port Improvement, and smar
dstrcts and dvsons of a State or Terrtory.
The provsons of the foregong artce of Reguatons 0-1 were amended n
Treasury Reguatons 101, promugated under the Revenue ct of 193 so that
the words or may not foow the word may n the ast sentence.
The appcabty of the statutory e empton from ncome ta es whch we have
referred to depends upon the nature nnd actvtes of the uthorty whch are
set forth n a stpuaton by the partes.
The uthorty s a body pote and corporate created by a compact made be-
tween the States of New York and New ersey on pr 30, 1921, nnd approved
by Congress on ugust 23, 1921. It s fuy owned by the two States and ts
pro|ects are a operated n the nterest of the pubc wthout proft to prvate
persons. The compact was nduced by the necessty for |ont State acton n
the deveopment of the port of New York whch es party wthn the |ursdcton
of each Sate. It created a dstrct to be known as the Port of New York Ds-
trct comprsed of areas n both States and the waters between them, n whch
were ncuded about 200 separate muncpates and a popuaton of over
10,000,000.
rtce I of the compact vested the uthorty wth
power and authorty to purchase, construct, ease and/or operate any
termna or transportaton facty wthn sad dstrct and to make chnrges for
the use thereof and for any of such purposes to own, hod, ease and/or operate
rea or persona property, to borrow money and secure the same by bonds or by
mortgages upon any property hed or to be hed by t
e cept that property hed by ether State or by any of ther muncpates shoud
not be taken wthout the consent of the State or muncpaty affected. The
uthorty was to make pans for the deveopment of the dstrct. It was empow-
ered to make recommendatons to the States, to ntervene n proceedngs affect-
ng the commerce of the port and to petton such bodes as the Interstate Com-
merce Commsson as to matters wthn ts ursdcton.
rtce III authorzed the uthorty, sub|ect to the e ercse of the power of
Congress, to make rues and reguatons reatng to navgaton and commerce,
whch rues, however, were to be effectve ony when concurred n by the egsa-
tures of both States. The States agreed by rtce I to provde penates and
means of enforcement of the orders and reguatons of the uthorty. The uthor-
ty has made reguatons wth respect to ts brdges and tunnes whch have been
concurred In by the egsatures of the States, penates for ther voaton havng
been provded by State aw and the nferor crmna courts of the States havng
been gven |ursdcton to enforce these penates.
The powers of the uthorty are vested n a board of 12 commssoners 6 from
each State, who take an oath of offce and may be removed ony upon chnrges and
after a hearng. Ther actons are bndng ony after approva by a ma|orty of
the commssoners from each State and the Governor of each State has a veto power
over the acts of the commssoners from hs State.
The pan adopted by the two States, and consented to by Congress n 1922, sets
forth the prncpes upon whch the deveopment of the port shoud proceed, nnd
provdes that (secton ):
The Port of New York uthorty s hereby authorzed nnd drected to proceed
wth the deveopment of the Port of New York n accordance wth sad compre-
hensve pan as rapdy as may be economcay practcabe and s hereby vested
wth a necessary and approprate powers not nconsstent wth the Consttuton
of the Unted States or of ether State, to .effectuate the same, e cept the power
to evy ta es or assessments. The port authorty sha be regarded as
the muncpa corporate nstrumentaty of the two States for the purpose of
deveopng the port and effectuatng the pedge of the States n the sad compact,
bat t sha have no power to pedge the credt of ether State or to mpose any
obgaton upon ether State or upon any muncpaty, e cept as and when such
power Is e pressy granted by statute, or the consent by any such muncpaty s
gven.
Up to te present tme the uthorty has not apped for any grant of power
to pedge the credt of ether of the States and has never apped to any
muncpaty for the power to mpose any obgaton upon t. The uthorty s
not sub|ect to the debt mtng provsons of the consttuton of the two States
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22(b), rt. 22(b)(4)- . 33
It wns created n order to estabsh an agency wth operatng power Independent
of State and muncpa debt mtatons.
The uthorty has constructed varous vehcuar crossngs. They have been
the rthur brdges, the George Washngton rdge, the ayonne rdge,
the oand Tunne and the Lncon Tunne.
RT UR ILL RIDG S.
The two States authorzed the uthorty to bud, operate and mantan
these two brdges wth the necessary approaches across the rthur , the
frst between Perth mtoy, N. ., and Tottenve, N. T., and the second between
zabeth, N. ., and owand ook, N. Y. ach State approprated 100,000
for premnary work, but provded that these sums shoud be returned to the
States after the brdges had been fuy pad for and the debts ncurred therefor
amortzed out of revenue. The cost of these brdges e ceeded 17,000,000, whch
was fnanced by the sae of bonds of the uthorty to the e tent of 14,000,000
and 4,000,000 advanced n equa portons by the two States under an agreement
that the State advances shoud be repad when the cost of constructon of the
brdges was pad for and a other debts were amortzed. The War Department
approved the constructon of these brdges n 1925 and they were opened to
traffc on une 29, 192 .
G ORG W S INGTON RIDG .
In 1925 the uthorty was authorzed by the two States to construct, operate,
mantan and own a brdge across the udson between Manhattan and ort Lee,
each State appropratng 150,000 for premnary studes and provdng for the
repayment as n the case of the rthur brdges. Constructon of ths brdge
was approved by the War Department n 1926 and t wns opened to traffc ou
October 25, 1931. The uthorty aso constructed the system of approaches
to both termn of the brdge. The termn are mantaned by the cty of
New York and the State of New ersey respectvey and are open to oca
traffc as we as to brdge traffc wthout charge. The cost of the brdge was
fnanced by the sae of bonds of the uthorty n the amount of 50,000,000, a
grant by the Pubc Works dmnstraton of the edera Works gency In
amount of 1,490,455, and advances by the two States of 9, 00,000, provsons
beng made, as n the case of the rthur brdges, for the repayment of the
advances by the States.
YONN RIDG .
The States aso authorzed the uthorty to construct, mantan, operate and
own a brdge across the van u between ayonne, N. ., and Staten
Isand, each State appropratng 50,000 for premnary studes wth provson
for repayment of these advances. Constructon was approved by the War De-
partment n 1927 and the brdge was competed n 1031 at a cost of over 13,-
000,000, whch wns fnanced by the sae of bonds of the uthorty to the e tent
of 12,000,000 and by advances by the two States n the amount of 4,100,000
wth provson for repayment of the advances as n the case of the other brdges.
Congress granted ts consent to the constructon of the four brdges above
mentoned.
OLL ND TUNN L.
The oand Tunne was constructed by the two States and operated by them
unt 1930 through commssons. In that year by concurrent egsaton the
two States provded that the oand Tunne shoud be conducted and contnued
as part of the operatons of the uthorty whch are thereby vested wth ts
contro, operaton and mantenance, the States, however, retanng tte. The
revenues were to be hed by the uthorty as agent of the States. The statutes
provded that a obgatons made or assumed by the uthorty In connecton
wth the tunne shoud be assumed In ts own name and shoud create no
abty of the two States, or ether of them. The uthorty was authorzed to
rase funds through the sae of ts own bonds, pursuant to whch authorzaton
Interstate rdge and Tunne onds Seres (one of the two bonds ssued n-
voved n ths case) were ssued n amount of 50,0(30,000. The proceeds from the
sae of these bonds were to repay the States for outays n connecton wth the
tunne. The bonds were secured by the tos from the tunne.
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339 22(b), rt. 22(b)(4)- .
LINCOLN TUNN L.
y egsaton adopted In 1930 the two States authorzed the uthorty to
report as to an addtona tunne under the udson and each State approprated
200,000 for ths purpose. Repayment of thesa appropratons was not requred.
The southery tube of ths tunne was open to traffc n December 1937, and the
northery tube was Intended to be competed and opened to traffc n 1943.
system of approaches to the tunne n New York were but at a cost of 9,-
174,000, and n New ersey at a cost of :S20,034,000. The cost of the Lncon
Tunne through December 31, 1941, e ceeded 72,750,000. The nta cost of
constructng the frst unt of the tunne was fnanced by a oan to the uthorty
of 12,300,000 made by the Unted States through the edera mergency
dmnstraton of Pubc Works. The oan agreement of September 1, 1933,
contaned the provson nserted at the request of the Unted States that the
offcers of the dmnstraton of Pubc Works shoud be furnshed wth opnons
both of bond counse, satsfactory to the Government, and of port authorty s
genera counse, to the effect that the notes to bo ssued to the Government
were e empt under the Consttuton of the Unted States from a ta aton
(e cept nhertance, estate and gft ta es) then or hereafter mposed by the
Unted States or the States of New York and New ersey. Such opnons were
furnshed. In 1935 the uthorty sod ts Genera and Refundng onds rst
Seres (whch s the second of the two bond ssues nvoved heren) n the
amount of 16,500,000 from the proceeds of whch t repad the oan from the
Unted States. The baance of the cost of the Lncon Tunne has been fnanced
by the sae of varous ssues of genera and refundng bonds, from accumuated
uthorty earnngs hed n ts genera reserve fund and from a grant of the
Unted States of 5,391,573.50.
Tos are charged for the use by vehces of the brdges and tunnes descrbed
above.
OT CTI ITI S. INL TO T MIN L RDILDINO.
The uthorty constructed an Inand Termna udng between fteenth
and S teenth Streets and ghth and Nnth venues In the orough of Man-
hattan, at a cost of 16,000,000, whch s used as an offce for the uthorty and
a termna staton for varous trunk ne raroads and aso (because t woud
not otherwse be sef-supportng) to rent out for manufacturng and commerca
uses.
Snce 1931, the uthorty has operated a bus servce over one of the rthur
brdges.
The two States have adopted egsaton reguatng the use by the uthorty
of ts revenues whch have been e pended as so drected soey for the operatng
and admnstraton e penses of the uthorty and for nterest upon and retre-
ment of outstandng debts.
In the compact pursuant to whch the uthorty was created the States agreed
to make annua appropratons (not n e cess of 100,000 for each State) for
e penses of the uthorty unt revenues from ts operatons were suffcent to
meet ts e penses. These annua appropratons were dscontnued n 1934 be-
cause the revenues from the brdges, the oand Tunne and Inand Termna
had become suffcent.
The States have vested n the uthorty the power to make nnd enforce such
rues and reguatons as It may deem convenent or necessary for the operaton
and mantenance of the varous brdges nnd tunnes wthn ts |ursdcton.
Penates were provded for ther voaton, and the nferor crmna courts of
the States were gven |ursdcton to enforce such penates.
The State of New York has enacted egsaton gvng the uthorty |urs-
dcton over a New York resdents, corporatons and property owners for the
purpose of ts nvestgatons or hearngs n connecton wth ts pannng for
port mprovement, and aso for the purpose of a such other acton or powers
as t may be empowered to e ercse. Such egsaton further provded that t
shoud have the power to subpena such persons or corporatons, faure to repy
beng punshed n contempt proceedngs upon ts appcaton to the Supreme Court
of New York.
The State of New York has further enacted that the uthorty have power
to ssue orders after hearngs requrng obedence of persons sub|ected to the
ursdcton of the uthorty by the statute. The statute further provded that
the uthorty shoud have power to enforce Its orders by commencng mandamus,
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22(b), rt, 22(b)(4)- .
340
n|uncton, or other approprate roceedugs In tbe supreme court of the State
aganst voators.
In the operaton of ts brdges and tunnes the uthorty mantans a un-
formed poce force, the members of whch are desgnated by statute as reguar
poce and peace offcers of both States. Tbe property of the uthorty and the
bonds and other securtes ssued by t are e empt from State ta aton n both
States. It has the power of condemnaton, ts empoyees may |on the New
York State Retrement System and the uthorty has been hed to be mmune
from sut No ta or assessment s eved wthn the port dstrct by or on
behaf of the uthorty.
The decedent Shamberg, f ave, woud have testfed at the hearng that he
acqured bs bonds upon ega advce that the ncome was mmune from edera
ncome ta under the Consttuton and that t was further e empt from such
ta es under e stng statutes and reguatons.
The fna summary appearng n the stpuaton shows that the uthorty s
factes have been fnanced through ssues of ts own bonds and notes to the
e tent of 205,551,5 2. 2, and that appropratons by the States amounted to
2, 50,663.11, edera grants to 6,450, 93.65, and advances by the States to
1 ,650,000. The uthorty s revenues have been derved prncpay from the
operaton of ts factes and propertes, and of these the man sources are the
vehcuar crossngs.
The Commssoner frst argues that the nterest on the bonds of the uthorty
s ta abe under the rung n cverng v. Gerhardt (304 U. S., 405 Ct D. 1343,
C. . 193 -1, 246 ). It Is reay enough to answer ths argument to say that
ustce Stone, who wrote the opnon of the ma|orty of the Supreme Court, sad
n the very ast paragraph: pressng no opnon whether a edera ta may
be mposed upon the port authorty tsef wth respect to ts recept of ncome
or ts other actvtes, we decde ony that the present ta nether precudes nor
threatens unreasonaby to obstruct any functon essenta to the contnued e st-
ence of the State government. The ma|orty of The Ta Court was, therefore,
ceary rght n concudng that when ustce Stone sad, at page 423:
we thnk t pan that empoyees of the port authorty are not empoyees of the
State or a potca subdvson of t wthn the meanng of the reguaton as
orgnay promugated , he was referrng to the reguaton whch e -
empted from ncome ta the compensaton of State offcers and empoyees for
servces rendered n connecton wth the e ercse of an essenta governmenta
functon of the State, and n effect sayng no more than that the uthorty was
not e ercsng an essenta governmenta functon. We can not see that the
decson n everng v. Gerhardt has any bearng upon the ssues before us.
It s ne t argued by the Commssoner that n enactng secton 22(b)(4)( )
e emptng Interest upon the obgatons of a State
or any potca subdvson thereof , Congress was ony e -
cudng from ncome ta such nterest as coud not under consttutona doctrnes
prevang In 1913, when the e empton ct was orgnay passed, be awfuy
ta ed. In support of ths the Commssoner quotes the statement of on. Cor-
de u, who sponsored the measure n the ouse, In whch he sad the e emp-
ton was nserted not desrng to rase any consttutona queston or to arouse
the antagonsm of any .of the States. Ths quotaton s reed upon as nd-
catng that Congress ntended to mt the scope of the e empton to ncome
thought at the tme to be beyond the ta ng power. It s argued n ths connec-
ton that no such nsttutons as the port authorty were then n contempaton
of Congress, snce the port authorty (estabshed n 1921) was the frst of such
bodes to e st. Doubtess t s true that Congress had no such specfc form
of State organzaton n mnd, but that adds nothng to the souton of the
probem. The ony queston s whether Congress woud have ntended the e -
empton to appy f these new forms of State actvty had e sted n other words,
what, n vew of the genera settng. Is the reasonabe nterpretaton of the words
used. That there was no ntenton strcty to mt the e empton to what was
thought to be beyond the ta ng power s shown by the statement of Mr. u
that t was the purpose of the enactment not ony to avod rasng any con-
sttutona questons but aso to avod arousng the antagonsm of any of the
States. We thnk ths statement nvoved a much broader purpe than to
crystaze the consttutona doctrne of that partcuar tme n the statute.
Indeed, the e stence of any such purpose s negatved by the fact that the m-
tatons of consttutona power were by no means certan or thought to be certan
at the tme the ct was passed. It seems to us entrey unrea to mt what we
beeve was the broad purpose to e empt the bonds of States and ther agences
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341
22(b), rt. 22(b)(4)- .
when engaged n customary governmenta actvty, partcuary when one of the
man purposes of the e empton provson was to factate the passage of the
s teenth amendment.
The vews we have e pressed seem qute n accord wth the opnon gven by
. ttorney Genera McReynods to the Secretary of the Treasury on anuary 30,
1914, foowng the adopton of the 1913 e empton (30 Op. tty. Gen. (1914),
page 252), n whch the queston was rased as to whether certan speca ds-
trcts are potca subdvsons of the State wthn the meanng of the
provso. The ttorney Genera sad:
The term potca subdvson s broad and comprehensve and denotes
any dvson of the State made by the proper authortes thereof, actng wthn
ther consttutona powers, for the purpose of carryng out a porton of those
functons of the State whch by ong usage and the nherent necesstes of gov-
ernment have aways been regarded as pubc. The words potca and pub-
c are synonymous n ths connecton. (Don Muncpa Corporatons, 5th ed.,
secton 34.) It s not necessary that such egay consttuted dvson shoud
e ercse a the functons of the State of ths character. It s suffcent f t be
authorzed to e ercse a porton of them .
The purposes to whch you refer, namey, the mprovement of streets and
pubc hghways, the provson of sewerage, gas, and ghts, the recamaton,
dranage, and rrgaton of consderabe dstrcts of and, are ceary pubc and
ave aways been so treated.
It s contended that the foregong opnon s not pertnent to the case at bar
because t was drected to the ta abty of Interest on bonds of assessment ds-
trcts whch possessed the power of ta aton, whch was sad to be perhaps
the most mportant power possessed by the State. ut the rea crteron
adopted by the ttorney Genera seems to have been whether the actvtes of
the subdvson were for a pubc purpose. In ths connecton he remarked:
ta can ony be ad for a pubc purpose , and therefore, where the
power to evy a ta s gven a dstrct by the State, presumptvey that dstrct
s created for a pubc use and s e ercsng a pubc functon and he cosed
by sayng: I desre carefuy to refran from e pressng any opnon whether
assessment dstrcts mght not be created for a purey prvate purpose so as to
brng them wthn the prncpes ad down n the South Carona Dspensary
case (199 U. S., 437) rather than wthn those whch governed Unted States v.
Raroad Co. (17 Wa., 322). Later, n 1937, Secretary Morgentau asked
for an opnon of the ttorney Genera as to whether an rrgaton dstrct n
the State of Caforna was a potca subdvson of the State wthn the
meanng of an e empton provson contaned n the Revenue ct of 1932, as
amended by the Revenue ct of 1945, reevng persons who sod artces for
the e cusve use of the Unted States, any State, or any potca
subdvson of the foregong , from e cse ta es. e aso requested
a reconsderaton of the opnon of ttorney Genera McReynods of anuary
30, 1914. ttorney Genera Cummngs advsed the Secretary n favor of the
e empton (3 Op. tty. Gen., 563) sayng that the queston apparenty turned
upon whether the rrgaton dstrct s a potca subdvson of the State
wthn the meanng of secton 020(3), Tte I , of the Revenue ct of 1932, as
amended. e adverted to the fact that the Treasury Department had foowed
the opnon of ttorney Genera McReynods In the admnstraton of the ncome
ta aw snce 1914, and sad:
The term potca subdvson may be used n statutes In more than one
sense. It may desgnate a true governmenta subdvson such as a county,
townshp, etc., or, as hed n the ttorney Genera s opnon under consd-
eraton, t may have a broader meanng, denotng any subdvson of the State
created for a pubc purpose athough authorzed to e ercse a porton of the
soveregn power of the State ony to a mted degree. e concuded as fo-
ows: To attrbute at ths tme to the term potca subdvson, as used
n the Revenue ct of 1913 and n secton 620(3), a meanng dfferent from
that stated n the former opnon of the ttorney Genera woud dsturb the
above-mentoned practce n the admnstraton of the ncome ta aw fo-
owed for over 22 years. The reasonabe vew s that the Congress, whch must
be presumed to have had knowedge of ths admnstratve practce under
the former ct, ntended that the term as used n secton 620(3) shoud
receve a smar constructon.
I do not fee, therefore, that the ttorney Genera s former opnon shoud
be dsturbed upon the authorty of the State decsons to whch you refer, and
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22(b), rt. 22(b)(4)- .
342
I suggest that any change n pocy shoud be made ony In accordance wth
egsatve drecton or |udca decson.
The Commssoner aso rees on South Carona v. Unted States (199 U. S.,
437) as ndcatng that the e empton shoud not be apped to State actvtes
whch are not whoy essenta to ts soveregnty. The argument Is based ou
the cam that the e empton provson must be nterpreted n the ght of that
decson, whch t s sad governed the e tent of the consttutona power to
ta at the tme when the e empton statute was enacted. We have aready
sad that, n our opnon, the e empton provson was not mted to cases
where edera ta aton was consttutonay possbe n 1913, but covered a
broader fed where ta aton of obgatons was doubtfu and sub|ect to con-
tenton by the States. ut even assumng the Government s nterpretaton
of the e empton provson as merey enactng the consttutona doctrne as
of 1913, we do not thnk that the South Carona case woud permt ta aton
of such a State agency as the port authorty. That decson reated ony to
the power of the Government to Impose the usua cense ta es upon ds-
pensares estabshed by the State for the whoesae and reta sae of quor.
It hed that such a State agency was sub|ect to the ta , and that the const-
tutona mtaton dd not e tend to nstrumentates used by the State n
carryng on an ordnary prvate busness. Ths was pany a commerca
busness whch resuted n one year of a proft of about 500,000 whch was
dvded between the State and oca muncpates. Such a hodng seems to
us far from ndcatng that t was ever appcabe to agences havng cus-
tomary governmenta actvtes, such as deveopment of roads, brdges and
waterways entered upon wth no proft motve.
Wth respect to the anaogy drawn by rewer, ., In the opnon n the
above case, to the abty of muncpa corporatons n tort when they are
engaged n prvate as dstngushed from pubc busness, t was merey one of
the arguments n support of the resut whch has snce been abandoned as a
crteron by the Supreme Court n rush v. Commssoner (300 U. S., 352, 362,
373 Ct. D. 1212, C. . 1937-1, 217 ). Indeed, n Murray v. Wson Dstng
Co. (213 U. S., 151, 173), decded n 1909, the South Carona decson was
e paned upon the ground that a State had no power by egsaton n regard
to the sae and consumpton of quor to destroy a pree stng rght of ta -
aton of the edera Government. ny cam that the South Carona decson
governs the present case proves too much, for, f t be read as permttng
ta aton of amost every governmenta actvty, t woud certany fy n the
face of the practce of the Treasury Department for the ast 40 years and
the opnons of the two ttorney Generas acted upon by the Treasury, snce
t has never been hed, nor s t here contended, that ncome from such State
agences as rrgaton and evee dstrcts s not e empt, athough nether of
these actvtes, nor even the e stence of the dstrcts, s essenta to the
State. ere the actvtes, even though some of them mght have been e er-
csed by prvate corporatons under approprate egsaton, are e ercsed for
a pubc purpose by an agency set up by the States and gven many pubc
powers, though not of ta aton or contro through the suffrages of ctzens.
It mnmzes ts pubc and potca character to treat such an agency as a
prvate corporaton merey because of the ack of ta ng power whch s ony
one of the attrbutes of soveregnty.
ut the reguaton we have quoted makes our poston st cearer. It
defnes potca subdvson as one to whch has been deegated the rght to
e ercse part of the soveregn power of the State, and whe t says t may
for the purpose of e empton ncude speca assessment dstrcts
such as road, water, sewer, gas, ght, recamaton, dranage, rrgaton, evee,
schoo, harbor, port Improvement, and smar dstrcts and dvsons of the
State, t does not precude potca subdvsons whch do not possess the
power of ta aton but generay e empts nterest on: Obgatons ssued by
or on behaf of the State or Terrtory or a duy organzed potca subdvson
actng by consttuted authortes empowered to ssue such obgatons.
We thnk that ths reguaton covered bonds of such a pubc body as the
uthorty, and was wthn the scope of the statute. When It gave mmunty
to bonds ssued on behaf of the State as we as those ssued by the State
Itsef, those words certany meant somethng n addton to the words ssued
by, and what can the added words refer to e cept bonds ssued by a State
agency to carry out a pubc purpose where the atter s not named as obgor
on the bonds. We need not cam that ths pubc purpose may be a com-
merca enterprse for mere proft, as dstngushed from a pubc actvty of
the tradtona sort In whch the uthorty s engaged. It has many tmes
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343
23(m), rt. 23(m)-.
been hed that bonds ssued by muncpates are wthn the e empton of
secton 22(b) (4) ( ) even though payment s to be made ouy out of speca
funds and the credt of the muncpates was not pedged. ( ryant v. Com-
mssoner, 111 ed. (2d), 9 (C. C. . 9) Ct. D. 1513, C. . 1941-1, 330
Commssoner v. Carey-Reed Co., 101 ed. (2d), 002 (C. 0. . 6) Commssoner
v. Pontare, 97 ed. (2d), 793 (C. C. . 7). Cf. rush v. Commssoner, 300
. ., 352, 371-373.)
Repeated reenactment by Congress of the e empton cause n varous rev-
sons of the revenue aws gves further support to the reguaton as defnng
the scope of the statute.
In addton to ths, we are deang wth a cass of pubc securtes whch
have n the case of the bonds of the port authorty and bonds of numerous
other State agences of ke character for years been hed e empt under rungs
of the ureau of Interna Revenue. Such rungs were made as to the bonds
of the State ghway Commsson of entucky, the Thousand Isand rdge
uthorty, the uffao and ort re Pubc rdge uthorty, the Trborough
rdge uthorty, the Genera State uthorty of Pennsyvana, and many
others, as we as the port authorty tsef. Ths shoud bar the Comms-
soner s cam. ( everng v. Grffths, 31 U. S., 371, 402 Ct. D. 1579, C. .
1943, 353 .)
The argument that the e empton does not appy to the uthorty because
two States, rather than one, created the agency s far from persuasve, and
we re|ect t on the grounds stated by The Ta Court n the ma|orty opnon.
or the foregong reasons we hod the ncome derved from the ta payer s
bonds ta -free because t was nterest upon obgatons of a potca sub-
dvson of a State wthn the meanng of secton 22(b)(4) of the Revenue
cts of 1936 and 193 and upon obgatons ssued on behaf of a State
wthn the meanng of artce 22(b) (4)- of the Treasury reguatons.
Order affrmed.
Dssentng opnon by rank, Crcut udge.
S CTION 2.3(c). D DUCTIONS ROM GROSS
INCOM : T S G N R LLY.
rtce 23(c)-2: edera dutes and e cse ta es.
R NU CT O 193 .
1942-2,103) modfed. (See G. C. M. 24461, page 111.)
S CTION 23 (m). D DUCTIONS ROM GROSS
INCOM : D PL TION.
rtce 23(m)-: Depeton of mnes, o 1945-4 11969
and gas wes, other natura deposts, and Ct. D. 162G
tmber deprecaton of mprovements.
INCOM T R NU CT O 103 D CISION O SUPR M COURT
1. Transfer of O and Gas Property Subease or Sa-e ow-
ance for Unrecovered Cost of qupment naty of Ta
Court s ndng.
The transfer, for a cash consderaton, of a rght, tte, and n-
terest n an o and gas ease together wth equpment, wth retenton
of a royaty Interest, consttutes an absoute sae of the equpment,
and the transferor s entted to an aowance for the unrecovered
cost of the equpment transferred. The fndng of The Ta Court
that the partes Intended a cash sae of the equpment s not open
for redetermnaton under Dobson v. Commssoner (320 U. S., 4 9
Ct. D. 1597, C. . 1944, 56 ) and Wmngton Trust Co. v. everng
(316 U. S., 164,167-1G Ct. D. 1555, C. . 1042-1, 225 ).
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23(m), rt. 22(m)-.
344
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Tenth
CU-cut ( I ed. (2d), 641), reversed.
W. O. Choate, pettoner, v. Commssoner of Interna Revenue.
324 U. S., 1.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut
anuary 20, 1945.
OPINION.
Mr. ustce Dougas devered the opnon of the Court.
In 1930 Choate and ogan, a partnershp of whch the pettoner was a member,
acqured an o and gas ease. They dred s producng wes on the eased and
and operated the property unt ugust, 193 . t that tme they sod to Syva
O Co. for a cash consderaton of 110,000 a ther rght, tte and Interest n
the ease together wth a wes and the equpment thereof, ncudng pumps,
casng, ppng, tanks, ease house, and a other persona property oh or used u
connecton wth the premses. ut they e pressy reserved to themseves
s of the / ths of a o and gas and casnghead gas whch may be produced
and saved from the and. Thereafter Syva O Co. dred addtona wes
and operated the ease. Choate and ogan n ther partnershp return for 193
reported the transacton as a sae. Respondent n hs defcency notce rued that
the transacton consttuted a subease. The Ta Court took the same vew,
hodng that the partners must ook to depeton for the return of ther capta.
It hed that the prncpe of recovery by depeton was appcabe where a royaty
Interest was retaned and that a cash bonus was to be regarded as n the nature
of an advance royaty. It hed, however, that there had been an absoute sae
of the equpment, that ts cost was not recoverabe by depeton, and that the
partners were entted to an aowance for the unrecovered cost of the equp-
ment transferred. The Commssoner chaenged the atter rung n the Cr-
cut Court of ppeas for the Tenth Crcut as respects Choate, n the Crcut
Court of ppeas for the fth Crcut as respects ogan. The Commssoner
won n the Tenth Crcut (141 ed. (2d), 641) and ost In the fth. ( ogan v.
Commssoner, 141 ed. (2d), 92.) It was to resove that confct that we granted
the petton n the present case mted to that snge queston.
The Commssoner makes an eaborate argument based on the assumpton that
there was no sae of the equpment. The assumpton s that after the partnershp
transferred ts nterest n the ease ts Investment was no onger In the easehod
and equpment as such but was an economc nterest u an o producng enter-
prse an nterest whch s depetabe snce t s measured by the producton of
o. ut there are two dffcutes wt that argument. In the frst pace, we
fnd nothng n the Revenue ct of 193S (52 Stat., 447), or n the Treasury regua-
tons whch provdes for depeton of equpment used n the operaton of o and
gas wes. deducton s aowed for deprecaton by secton 23(1) whch
permts a reasonabe aowance for the e hauston, wear and tear of property
used n the trade or busness. nd see Treasury Reguatons 101, artce
23(m)-1 . Secton 23(m) provdes that n the case of mnes, o and gas wes,
other natura deposts, and tmber, a reasonabe aowance for depeton and for
deprecaton of mprovements, accordng to the pecuar condtons n each case
may be taken as a deducton. nd see Treasury Reguatons 101, artce 23( m)-10.
Depeton s appcabe to wastng assets to the e hauston of natura resources,
not of property used n a busness. See 4 Mortens, Law of edera Income Ta a-
ton (1942), secton 24.02. That dstncton between depeton and deprecaton
runs through the bass provsons of the ct. See secton 111(a), secton 113 (a)
and (b), secton 114 (a) and (b). nd the hstory of the depeton provsons
ndeed makes cear that ony ntangbe drng and deveopment costs, not costs
represented by physcn property, are returnabe by way of depeton. (See
Unted States v. Dakota-Montana O Co., 2 U. S., 459 4 Mertens, op. ct.,
secton 24.4 Treasury Reguatons 101, artce 23(m)-16(a).) In the second
pace The Ta Court found that the partes ntended a cash sae of the equpment.
That queston s argued here as f t were open for redetermnaton by us. It s
not. It s the knd of ssue reserved for The Ta Court under Dobson v. Com-
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345
42, rt. 42-1.
mssoner (320 U. S., 4 0 Ct. D. 1597, C. . 1944, 50 and Wmngton Co. v.
Uevcrng (316 U. S., 164 167-16 Ct. D. 1555, C. . 1942-1, 225 ). Once a
sae of the equpment s conceded, t s not dened that pettoner s entted
to an aowance for the unrecovered cost of the equpment transferred. (Secton
111(a), secton 113 (a) and (b).) No queston s presented concernng the ao-
caton of a porton of the purchase prce to the equpment.
Reversed.
S CTION 27(a). CORPOR TION DI ID NDS P ID
CR DIT: D INITION IN G N R L.
rtce 27(a)-3: mounts used or rrevocaby set
asde to pay or to retre ndebtedness.
R NU CT O 103 .
Reguatons 101 amended. (See T. D. 54C0, page 2C0.)
P RT I . CCOUNTING P RIODS ND M T ODS O CCOUNTING.
rtce 42-1: When ncuded n gross ncome.
R NU CT O 193 .
mount payabe, pursuant to empoyment contract, to empoyee s
benefcares upon death of empoyee. I. T. 3315 (C. . 1939-2, 164)
revoked. (See I. T. 370 , page 129.)
rtce 42-1: When ncuded n gross ncome. 1945- -12022
( so Secton 115, rtce 115-1.) Ct. D. 1G3
INCOM T R NU CT O 103 D CISION O SUPR M COURT.
1. Income Dvdends Decared Pror to, but Payabe Subsequent
to. Decedent s Death Not Ta abe as Income to Decedent
edera Law Controng as to Meanng of ccrued.
Dvdends decared pror to the death of a decedent on the cash
recepts bass whch by the corporate resoutons were payabe and
pad to stockhoders of record on dates subsequent to the decedent s
death do not accrue as ncome, under secton 42 of the Revenue ct
of 193 , on the date of ther decaraton. The stockhoder can
acqure no nterest n a dvdend amountng to an accrua under that
secton before the amount of the dvdend and the dstrbutee are
determned. edera aw rather than State aw governs as to the
meanng of the word accrued n secton 42 of such ct.
2. Decson Reversed.
Crcut (144 ed. (2d), 750), reversng decson of the Unted States
oard of Ta ppeas (45 . T. ., 517), reversed.
0 4354 46 23
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42, rt. 42-1.
346
state of enry W. Putnam Guaranty Trust Co. of New York, ecutor,
pettoner, v. Commssoner of Interna Revenue.
324 U. S., 393.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Second Crcut.
March 26, 1945.
OPINION.
Mr. ustce Reed devered the opnon of the Court.
Ths case brngs here for revew a |udgment whch appes secton 42, Revenue
ct of 193S,1 so as to accrue corporate dvdends on the date of ther decara-
ton rather than the ater record or payment dates. The resut s that the
dvdends are ta abe as ncome to a decedent ta payer nstead of to hs estate.
Certorar was granted3 because of a confct n concuson between Tar
Products v. Commssoner (130 ed. (2d), 66) and ths case as to the date of
accrua of corporate dvdends. The resouton of ths confct s compcated
by further confcts between the decson beow and those n other crcuts as to
whether the governng rue s to be drawn from edera or State aw. ( ever-
ng v. Medae s state, 119 ed. (2d), 167, 171 Commssoner v. Cohen, 121 ed.
(2d), 34 , 349.)
The decedent, enry W. Putnam, ded on March 30. 193 . ror to hs death
severa corporatons n whch he owned stock decared dvdends whch by the
resoutons were payabe and were pad to stockhoders of record on dates whh
were subsequent to hs death. ach of these dvdends, aggregatng n a
24,051.75, was hed by the Commssoner to consttute ncome to the decedent
under the provsons of secton 42. The oard of Ta ppeas decded that the
tme of accrua depends upon the varyng State decsons as to when a corporate
debt arses upon a decaraton of dvdend wth a provson for ts payment to
stockhoders of record on some future date. (45 . T. ., 517.) Ths resuted
n an agreement n part wth the Commssoner s determnaton.
The Crcut Court of ppeas was of the vew that edera aw controed the
dsposton of the controversy and that the dvdend accrued on ts decaraton.
(Commssoner v. Guaranty Trust Co., etc., 144 ed. (2d), 756.)
We thnk the edera aw contros. edera Revenue ct appcabe through-
out the Naton f es abty on the decedent ta payer under secton 42 f the
dvdend s accrued. The meanng of that word n ths secton shoud be
unform uness Congress has shown an ntenton to permt ts meanng to be
vared by State aw. ( urnet v. arme. 2 7 IT. S., 103, 110 Ct. D. 611. C. .
I-2, 210 (1032) Pamer v. ender, 2 7 U. S., 551, 555 Ct. D. 641. C. . II-1,
235 (1933) Unted States v. Pc:er, 312 U. S., 390, 402-403 Ct. D. 1495, C. .
1941-1, 441 .) Secton 42 ays down the test of accrua for the ta aton of a
decedent s ncome and the defnton of the meanng and e tent of that test s a
edera responsbty. The present probem s cosey akn to that resoved n
Lyeth v. oey (305 U. S., 1S , 193 Ct. D. 1370, C. . 193S-2. 20 ). In that case
an her receved a sum n settement of tgaton over a w. Its ta abty as
ncome under the edera statute depended upon the meanng of the statutory
e empton acqured by nhertance. The aw of the testator s domce hed
sums pad as w compromses were not nhertances. ctng on the prncpe
that n the nterest of unformty e emptons under edera statutes shoud be
determned by edera courts, we reached a contrary edera rue. The same
prncpe eads to our concuson n ths case.
1 52 Stat., 447, 473, secton 42:
The amount of a tems of gross ncome sha be ncuded n the gross ncome for the
ta abe yenr n whch receved by the ta payer, uness, under methods of accountng
permtted under secton 41, any such amounts are to be propery accounted for as of a
dfferent perod. In the case of the denth of a ta payer there sha be Incuded n comput-
ng net ncome for the ta abe perod n whch fas the date of hs death, amounts accrued
up to the date of hs death f not otherwse propery ncudbe n respect of such perod
or a pror perod.
1 323 U. S., . ( udca Code, secton 240(a), as amended.)
The Government cas attenton to the confct n State decsons as to the event whch
vests tte accordng to State awT to a corporate dvdend. Some specfy the decaraton
and some compance wth the requrement of beng n stockhoder of record on a subsequent
date.
Decaraton date: ord v. Shoo (205 pp. Dv 194, 19(1. affrmed 240 N. Y.. 624):
Seatte v. Oednev (99 N. .T. q.. 207) : rntern er. Co. v. Sver ng Con. .Wn. Co. (5
Utah, , 113) 27 Georgetown L. ,T.. 74 : 3 arv. I.. Ttev.. 245.
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347 42, rt. 42-1.
We recenty e amned the Congressona purpose n the enactment of secton
42. Weterng v. nrght, 312 U. S., 630 Ct. D. 1500, C. . 1041-1, 353 .) That
purpose was to cover nto ncome the accruas theretofore unreported as
ncome of a decedent ta payer who reported on a cash bass. y accrua
the ncome so accrued became sub|ect to ncome ta as decedent s ncome. These
accruas had theretofore escaped ta aton as the ncome of decedent, because
no cash was receved durng decedent s fe. Moreover, such payments were
ed not to be the ncome of decedent s estate on the theory that the accrua
was a part of the corpus of the estate at death and therefore the estate s sub-
sequent recept of the accruas as cash was not ncome to the estate. (Ue-
rurtg v. nrght, supra, page 639.) In the nstant case there s no avodance of.
ncome ta es such as secton 42 was desgned to prevent. If the dvdend does
not accrue to decedent on the date of decaraton so as to be ta abe as
ncome to hm, t w appear as an tem of ncome n the ncome ta return of
the estate or of the stockhoder who owns the stock on the record date.4 Ta -
wse, t may be mportant upon whom the ta fas as the sum assessed may vary
accordng to the ta bracket of the ta payer. Ths resut, however, s apart
from the purpose of Congress n enactng secton 42 and s not sgnfcant n the
nterpretaton of the secton.1
We assume that decedent was a ta payer on the cash recepts bass. (Com-
pare 144 ed. (2d), 756, 757 ) Our nqury eads us ony to a decson as to
whether a dvdend accrues as ncome on ts decaraton wth a subsequent
word date, not to whether t accrues on ts record date or ts payment date.
edaraton of a dvdend to stockhoders of record on the date of the resouton
hut payabe n the future s not Invoved. Ths Court has suggested that a ta
I deemed to accrue as a charge aganst a ta payer when events occur
whch f the amount of the ta and determne the abty of the ta payer to
Record date: Smth v. Taeccer (133 O. pp., 351) Rchter Co. . Lght (97 Conn.,
2W) ord v. ord Manu|acturng Co. (222 111. pp., 70, 4) Sutter v. ndrews (240
Mass.. 224).
ccrua under secton 42. however, s not dependent upon these varyng concepts of when
dvdends vest. Despte possbe dfference between State and edera ncome ta aton of
dvdend tems, the presumed Congressona purpose to have the Natona Revenue cts
unformy admnstered eads to a edera nterpretaton of accruas under secton 42.
Such nconsstency woud not occur If the edera accrua date under secton 42 Is
hed eventuay to e the same for ta payers on the accrued and cash bass. (Cf. very
v. Commssoner. 292 U S.. 210 Ct. D. 2 , C. . III-1, 131 (1934) Tar Products v.
Commssoner (130 ed. (2d). t.)
4 Respondent argues for the |udgment beow on the ground that the dvdends coud not
Propery be treated as Income of the estate when receved, snce the recept of the (v-
tends n cash by the estate was merey a converson nto money of one of the assets of
the estate, ctng Yandcrbt v. Commssoner (11 . T. ., 291) Nchos v. Unted States
151 Ct. CI., 241) Treasury Reguatons 0, artce 13. The truth or error of ths pos-
ton depends upon whether those dvdends are ncome, by vrtue of the accrua provson
f secton 42, to the decedent. If they are ncome to the decedent, they can not be ncome
aso to the estate. If they are not ncome to the decedent, they are Income to the estate.
The Yandcrbt and Nchos cases were apparenty decded on the theory that the tems
In controversy consttuted ncome to the decedent and assets of the estate for estate ta
purposes and therefore coud not ater be ncome to the estate. The reguaton does not
purport to drect the return as corpus of the estate of dvdends decared but wth a record
date subsequent to the stockhoder s death. Nether do the present reguatons. (Treasury
Reguatons or,, secton 1.13 cf. Unted States . Phcs, 257 U. S., 150, 171 Ct. D.
19. T. I). 3270. C. . 5. 37 (1921) .)
Congress has modfed secton 42 by an amendment whch s nappcabe to ts case.
(Revenue ct of 1942. secton 134. 50 Stat., 79 , 30 . ent. No. 2333, Seventy-seventh
Congress, second sesson, secton 125, page 3 C. . 1942-2, 372 S. Rept. 1031, Seventy-
seventh Congress, second sesson, secton 135, page 100 C. . 1942-2, 504 .)
reference to dvdends appears n the egsatve hstory but casts no ght on the
probem of the event whch accrues a corporate dvdend. (See . U. 7 35. Seventy-thrd
C n ress. second sesson, prnted wth Senate amendments, March 2 (caendar dnv, pr
1934 (C. . 1939-1 (Tart 2), page G29). amendment 27 secton 43, Revenue ct, 1934,
4 Stat., 094 eeton 43, Revenue ct of 193 , 52 Stat., 473.)
Therefore the constructon of accrued accordng to the ta payer s method of account-
ng, whch s drected n secton 4 (c) (52 Stat., 4701. s not of use. (Icrrrng v. nrght,
312 U. S., 030, 044 Ct. D. 1500, C. . 1941-1, 353 .) ccra v. Commssoner (292 U. S.,
210) Ct. D, 2 . C. . III-1, 131 (1934) hods that dvdends of a vng ta payer
on the cash bass woud not become hs ncome on mere decaraton but ony when receved,
that s, unquafedy made sub|ect to the stockhoder s demand ns by check. Receved
n the secton there under consderaton was the word desgnatng ta abty as Income
of sums actuay or constructvey coected, Incudng dvdends, as It s In the secton
of the statute here nvoved. Ths rue has been contnuousy apped.
(See Mason v. Routzahn, 275 U. S., 175, 17 T. I). 4131, C. . II-1, 194 (192 )
Treasury Reguatons C5, artce 1541 Treasury Reguatons 101, artce 42-3 Treasury -
Reguatons 111, secton 29.42-3 53 arv. h. Rev., 53 2 Mertens, edera Income Ta a-
ton, 17.)
See Tar Products v. Commssoner (130 ed. (2d), 00) for an nstance of the appcaton
of ths rue to a ta payer on the accrua bass. Compare Treasury Reguatons 94, artces
116-1 and 22(a)(1) for apprasa of poston of those reguatons as to date when dv-
dends are receved by a ta payer. ( mercan Lght d Tracton Co., T. C, 104 .)
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43, n. 43-2.
34
pay t (Unted States v. nderson, 269 U. S., 422, 441 T. D. 3 39, C. .
-, 179 (1926) .) It has sad aso that accrua mports that t s the rght
to receve and not the actua recept that determnes the ncuson of the
amount n gross ncome. Sprng Cty Co. v. Commssoner, 292 U. S., 1 2,
1 4 Ct. D. 29, C. . III-1, 2 1 (1934) .) The decaraton of the dvdends
here n queston f es ther amount but does not determne the dstrbutee. e
can not be known wth certanty unt the record date. Nor does the stock-
hoder have the rght to receve payment upon the decaraton. The words of
the corporate resouton whch arranges for the payment from the stock record
of a certan day determnes the earest tme for possbe recept.
Under the ncome ta cts no stockhoder has a separate and dvsbe ta abe
nterest n the assets of a corporaton even thoug those assets have been
ncreased by earnngs. arnngs, before decaraton of dvdends, whe ncreas-
ng the vaue of hs stock, have never been treated as an event to mark ta abe
ncome to the stockhoder. Mere decaraton of a dvdend does not ater the
stockhoder s nterest n the corporate assets. If no other factors were nvoved
n vaue e cept earnngs and dvdends, the vaue of the stock woud advance
par passu wth earnngs and the decaraton of a dvdend wth a subsequent
record date for payment woud not affect the stock s vaue. (Unted States v.
Phes, 257 U. S., 156, 171 Ct. D. 19, T. D. 3270, C. . 5, 37 (1921) . See
Schabacker, Stock Market, 353.) The stockhoder can acqure no nterest n a
dvdend, amountng to an accrua under secton 42, before the amount of the
dvdend and the dstrbutee s determned.
In appyng to the present dvdends our descrpton of accruas under secton
42 as assets of decedents, earned durng ther fe and unreported as ncome,
whch on a cash return, woud appear In the estate returns. 7 the court of ap-
peas may have treated the words earned durng the decedent s fe as though
they ncuded, pror to a decaraton of dvdends, the proportonate part of cor-
porate earnngs attrbutabe to decedent s stock. If so, t s a more e tended
meanng than was ntended snce stock does not earn an dentfabe separate
ta abe share of corporate profts for ts owner before the corporaton makes those
profts avaabe to the stockhoder. It s not the earnngs of a corporaton but
the separaton of those earnngs by a competed dvdend whch assgns a part
of those earnngs to a stockhoder. The prce a stockhoder woud receve on a
stock sae after decaraton and before the record date woud refect corporate
earnngs but woud not refect the decaraton or nondecaraton of a dvdend.
s the same vaue woud be n the stock wth or wthout the decaraton, the prce
woud be the same. Ony an e -dvdend sae woud affect prce.
or the earnngs of a corporaton to pass nto the earnngs of ts stockhoder, so
as to be sub|ect to accrua to the stockhoder under secton 42, somethng more
than a decaraton of dvdends wth a subsequent record date to dentfy the
dstrbutee s requred. Such a decaraton eaves the dentty of the recpent
at arge. Such uncertanty destroys any concepton of accrued as nvovng a
rght to receve or an obgaton to pay, eements whch we thnk are essenta for
accruas under our decsons.
Reversed.
S CTION 43. P RIOD OR W IC D DUCTIONS
ND CR DITS T N.
rtce 43-2: When charges deductbe.
R NU CT O 193t .
mounts pad under the ar Labor Standards ct of 193 as rest-
tuton for defcences n wages for pror years. I. T. 3563 (C. .
1942-2,115) modfed. (See I. T. 374G, page 141.)
312 U. S., at 644-645 144 ed. (2d), at 75 .
Ths accords wth the orgna hodng of the oard of Ta ppeas on ths queston In
state of G. Percy Mc uc (41 . T. .. 11 0. 11 3). fter that case -was reversed on
the aw of New York, cvcrng v. McGuc (119 ed. (2d), 167). the oard foowed tc
crcut court decsons. ( state of Lews Cass Lrthmrd, r.. 44 . T. ., 1056, Of|O
Recenty The Ta Court has hed that a ta payer on the accrua bass shoud account for
a dvdend when receved. ( mercan Lght d Tracton Co. v. Commssoner, 3 T. (..,
104 .)
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349
115, rt. 115-3.
rtce 43-2: When charges deductbe.
R NU CT O 193 .
1942-2,103) modfed. (See G. C. M. 244G1, page 111.)
SU TITL C SUPPL M NT L PRO ISIONS.
S CTION -2(h). R COGNITION O G IN OR LOSS:
C NG S SOL LY IN IND.
rtce 112(b) (7)-4: Treatment of gan.
R NU CT O 103 .
ass for determnng earnngs and profts avaabe for dstrbu-
ton as qudatng dvdends by a corporaton whch had acqured
securtes n e change for ts stock n a ta -free transacton. (See
Ct. D. 1637, beow.)
S CTION 115. DISTRI UTIONS Y CORPOR TIONS.
rtce 115-1: Dvdends.
R NU CT O 193 .
Dvdends decared pror to death but not payabe unt after death.
(See Ct. D. 163 , page 345.)
rtce 115-3: arnngs or profts. 1945- -12023
( so Secton 112(b), rtce 112(b) (7)-4.) Ct. D. 1637
INCOM T R NU CT O 193 S COND R NU CT O 1940
decson of supreme court.
1. Dstrbutons by Corporatons Lqudatng Dvdends arn-
ngs and Profts Recognton of Gan or Loss Dass.
In computng the amount of earnngs and profts dstrbuted In
December, 103 , as qudatng dvdends by n corporaton wbch had
acqured securtes n e change for ts stock n a ta -free transac-
ton, the bass of such property for the purposes of secton 112(b)
(7) ( ) of the Revenue ct of 1 )3 s ts cost to the transferors rather
than ts market vaue at the tme of acquston.
2. Reguatons Sustaned.
The provsons of artce 115-3 of Reguatons 101 that gans and
osses are to be brought Into earnngs and profts at the tme and to
the e tent that they are recognzed under secton 112 are reasonabe
and a vad e ercse of the rue-makng power, and are decsve of ths
ssue. Secton 501(a) of the Second Revenue ct of MO, enacted to
carfy the aw by enactng the substance of the reguaton, has no
retroactve effect on the abty of these ta payers, and the concu-
son of the crcut court that t s unconsttutona.s not warranted.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Nnth
Crcut (143 ed. (2d), 102), reversng decson of The Ta Court of
the Unted States (1 T. C, 6M0), reversed.
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115, rt. 115-3.
350
SUPR M COURT O T UNIT D ST T S.
Commssoner of Interna Revenue, pettoner, v. ott . Whrccr et ah,
ecutors of the state of ohn . Wheeer, Deceased, ct a.
324 U. S., 542.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Nnth Crcut.
March 26, 1945.
OPINION.
Mr. ustce ackson devered the opnon of the Court.
The Crcut Court of ppeas for the Nnth Crcut as hed secton 501(a)
of the Second Revenue ct of 11 40 to be unconsttutona.1 Ths of course caed
for grant of certorar.1
Snce our probem s not computaton of a ta , the facts reevant to the ssues
n te fve cases, consodated on appea, may be.shorty stated. In 1925, ohn
. Wheeer and hs wfe, rances, organzed under the aws of Caforna the
ohn . Wheeer Co. Then and thereafter they transferred an assortment of
securtes to t n e change for shares of ts common stock. The securtes ha
cost them 301,(5 3.49 and at transfer had a far market vaue of 191, 00. In
e change the Wheeers receved 4,91 shares wth a par vaue of 10:) each. No
gan by them was recognzed for ncome-ta purposes by reason of the e change.
(Cf. Interna Revenue Code secton 112(b) (5).)
or purposes of determnng ts ncome-ta abty on subsequent dsposton
of the securtes, the corporaton was obged to and dd use as a cost base the
cost of the securtes to the transferors, 304,6 4.49. (Cf. Interna Revenue Code
secton 113(a) ( ).) ut for ts corporate accountng the corporaton set up a
cost of 491, 00, market vaue nt the tme of acquston n e change for com-
mon stock of equa par vaue. The whoe queston u ths case s whch of these
bases s to be used to compute, pursuant to secton 112(b) (7) ( ) of the Revenue
ct of 193 (52 Stat., 447, 4 S), the amount of earnngs and profts dstrbuted
as qudatng dvdends. The ct of 193 , to nduce corporate qudatons, per-
mtted a quafed stockhoder to eect postponement of a porton of the gau
reazed on a December, 193 , qudaton and to be ta ed, as for a dvdend, on
so much of the gan as s not n e cess of hs ratabe share of the earnngs and
profts of the corporaton . If the market-vaue bass s used for the
securtes acqured from the Wheeers and ater sod, the operatons of the com-
pany showed a dect on November 30, 193 , when the books were cosed. If
the cost-to-transferors bass s used, earnngs and profts were dstrbuted to
respondents, the stockhoders, n the amount of 132, 13.4 , as computed by the
Commssoner.
fter consderng the appcabty of secton 112(b) (7), the stockhoders duy
dssoved the corporaton and dstrbuted ts assets durng December, 193 .
They eected to be ta ed on the gans on ther shares pursuant to secton
112(b) (7), and they reported, of course, accordng to the hgher or market-vaue
bass for the securtes acqured and dsposed of by the company. The Com-
mssoner asserted a defcency bused on the ower cost to the transferors. In
e panng hs determnaton he reed on secton 501(a) of the Second Revenue
ct of 1940 (54 Stat.. 074, 1004), whch provdes that earnngs and profts on
the sae or other dsposton of property sha be determned by usng the ad|usted
bass for determnng gans and by recognzng such gans to the e tent tunt
they are recognzed for computng net ncome, and on secton 501(c), whch
makes the provsons of secton 501(a) appcabe to pror years.
The Ta Court sustaned the Commssoner. It hed secton 501(a) of the
ct of 1940 a compete answer to ta payers contenton, and t overrued
ther cam that f the secton was appcabe to ncrease ther 193 abty t
was retroactve n contraventon of the ffth amendment to the Consttuton.
The Crcut Court of ppeas agreed that the secton was appcabe, but hed
that such retroactvty rendered t unconsttutona.
14. ed. (2(1), 162.
U. S.. .
Ths ws sghty modfed by The Ta Court In an aspect not matera here.
IT. C, 640.
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351
115, rt. 115-3.
though the term earnngs and profts has ong been In the Revenue cts,
n cmnecton wth the defnton of dvdends. It has never been defned by the
statutes (e cept n so far as secton 001(a) of the Second ct of 10-10 has now
done so). Cut under the Revenue ct of 1934 and succeedng cts, the Com-
mssoner deat by reguaton wth that porton of the probem of defnton ree-
vant here. rtce 115-3 of Treasury Reguatons 101, promugated undT the
1L 3 ct, provded n part as foows: Gans and osses wthn the purvew of
secton 112 or correspondng provsons of pror cts are brought nto the earn-
ngs and profts at the tme and to the e tent such pans and osses are recog-
nzed under that secton. Ths reguaton, f vad, dsposes of the controversy,
for when the corporaton sod ts securtes acqured from the Wheeers t reazed
gan, based on transferor s cost, whch was fuy recognzed under secton 112.
The ony reason to doubt the vadty of the reguaton s found In certan
decsons of the oard of Ta ppeas and ower courts, mentoned n The Ta
Court s opnon. Despte these adverse decsons, however, the Commssoner
perssted n appyng the reguaton. The ueston was never revewed here.
efore t was fnay |udcay consdered, Congress enacted secton 501 of the
Second Revenue ct of 1040, as the commttee reports show, to carfy the
aw by enactng the substance of the reguaton. Iut f the reguaton tsef
was vad and effectve, the carfyng amendment of 1040 added nothng to the
abty of these ta payers, and even though The Ta Court reed on t rather
than on the reguaton, no queston of retroactvty s presented.
We thnk the reguaton s reasonabe and a vad e ercse of the rue-makng
power. The ta payers are nsstng on usng as a base for ta purposes a fgure
that n tsef had no reaton to ta aton. It was no doubt permssbe and
perhaps the correct accountng, for determnng earned surpus for dvdends
and such corporate purposes, for the corporaton to set up ts books m the market
vaue of ts property at the tme of acquston, whch determned the vaue
of the stock t Issued. ut earnngs and profts n the ta sense, athough
t does not correspond e acty to ta abe ncome, does not necessary foow
corporate accountng concepts, ether. Congress has determned that n certan
types of transacton the economc changes are not defntve enough to be gven
ta consequences, and has ceary provded that gans and osses on such trans-
actons sha not be recognzed for ncome-ta abty but sha ba taken account
of ater. (Sectons 112, 113.) It Is sensbe to carry through the theory n
determnng the ta effect of such transactons on earnngs and profts. (Com-
pare Commssoner v. Sansomc, 00 ed. (2d), 031 Ct. . 607, C. . I-2, 175
111132) , and see S. Rept. No. 2150, Seventy-fourth Congress, second sesson,
pge 19 (C. . 1039-1 ( art 1), 07 . . Rept. No. 2394, Seventy-s th Congress,
thrd sesson, page 41 C. . 1040-2, 49 .) Indeed, Congress appears to have
provded for ths resut n the statute tsef (secton 111(c) of the 103 ct),
whch decares: In the case of a sae or e change, the e tent to whch the gan
or oss determned under ths secton sha be recognzed for the purposes of
th tte, sha be determned under the provsons of secton 112. In ths
fase, to be sure, there was no queston of recognton of gan or oss to the cor-
poraton at the tme of the e change wth the Wheeers, because t was ssung
ts own stock and so reazed no gan or oss. ut to recognze the ncrement
n vaue as affectng earnngs and profts woud no more harmonze wth the
ta ess character of the transacton than to treat a reazed gan as dong so.
The same pocy whch carres over the transferor s bass for purposes of the
corporaton s ncome ta (secton 113(a)( )) requres carryng t over for de-
termnng the ta abty of ts dstrbutons, as the Commssoner s reguaton
drects: gans and osses are to be brought Into earnngs and profts at the tme
and to the e tent that they are recognzed under secton 112. nay, no
doubt of the reasonabeness of the rue can nger n the presence of secton
501(a), by whch Congress has ndcated ts e press approva of the prncpe
See Pau. Seected Studes In edera Ta aton (Second Seres, 193S), 149, 155 ct srq.
The provson appears In Reguatons 94. artce 115-Tt, under the ct of 1 36 Regua-
ton s , artce 115-1, under the ct of 1934 and In Reguatons 103, secton 19.115-3,
am Reguatons 111. secton 29.115-3, under the Intcrnn Revenue Code.
See . . Rept No. 2 94. Scventv-s th Congress, thrd sesson, page 41 C. . 1040-
2. 9 S. Rept. No. 2114, Seventy-s th Congress, thrd sesson, page 22 C. . 1940-2,
0. .
See 1 Mertens. Law of edera Income Ta aton (1942), secton 0.33.
Itacs supped. See au, Seected Studes u edera Ta aton (Second edton),
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S 162, rt. 162-1.
352
that the bass for determnng earnngs and profts sha be the bass for deter-
mnng gan.
We therefore thnk that on prncpes often reterated14 the reguaton Is
vad and decsve of ths ssue. There s no necessty to predcate the deter-
mnaton of defcency on the 1940 amendment. The 1940 amendment conse-
quenty has no retroactve effect on the abty of these ta payers and the
concuson of the court of appeas that t s unconsttutona s not warranted.
The |udgment of the court of appeas s reversed and that of The Ta Court s
affrmed.
Reversed.
Mr. ustce Roberts s of opnon the |udgment shoud be affrmed for the
reasons stated by the crcut court of appeas (143 ed. (2d), 162).
S CTION 117. C PIT L G INS ND LOSS S.
rtce 117-4: Determnaton of perod for whch
capta assets are hed.
R NU CT O 193 .
ffect upon hodng perod of nterventon of hodays or ess than
fu busness days between date of purchase or sae of a securty and
date of payment and devery. I. T. 32 7 (C. . 1939-1 (Part 1), 13 )
ampfed. (See I. T. 3705, page 174.)
SUPPL M NT . ST T S ND TRUSTS.
S CTION 162. N T INCOM .
rtce 162-1: Income of estates and trusts.
R NU CT O 193 .
Dstrbutons of estate ncome to resduary egatees durng the
perod of admnstraton or settement of the estate. G. C. M. 22034
(C. . 1940-1, 90) modfed. (See G. C. M. 24749, page 237.)
otke v. Comngore (177 U. S., 459. 470) rewster . Gage (2 0 U. S., 327, 336
Ct. D. 14 , C. . I -1, 274 (1930) Unted States v. rby Lumber Co. (2 4 U. S.,
1, 3 Ct. U. 420, C. . -2, 350 (1931)1) atecus Machne Co. . Unted State (2 2
U. S., 375, 37 Ct. I). 27 , C. . -, 424 (1931) ). It may aso be noted that the
reguaton has the support of the doctrne that rcenactment of the statute wthout
dsapprova of the reguatons thereunder gves them added sancton. nted Statet
v. Dakota-Montana O Co., 2 U. S., 459, 466 Ct. D. 655, C. . II-1, 243 (1933) :
ertrng v. Wnm, 305 U. S., 79. 3 Ct. D. 1365, C. . 193 -2, 212 cvcrng v.
Orffths, 31 U. S., 371, 395, 397 Ct. D. 1579, C. . 1943, 353 .)
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353
23(e), rt. 23(e)-4.
INCOM T RULINGS. P RT II.
R NU CTS O 1937 ND 1936.
ROM GROSS INCOM .
btce 22(b) (4)-: Interest upon State obgatons.
R NU CT O 103G.
Interest on bonds of the Port of New York uthorty. (See
Ct. D. 164 , page 335.)
S CTION 23(e). D DUCTIONS ROM GROSS INCOM :
LOSS S Y INDI IDU LS.
btce 23(e)-4: Shrnkage n vaue of stocks. 1945-23-121 2
Ct. D. 1G52
INCOM T R NU CT O 193G D CISION O SUPR M COURT.
1. Gross Income Deducton Stock Losses Recevebshp Test
fob Determnng Year n WnC Stock ecamk Worthess
Reversa of udgment of Ta Court Not Requred.
The stpuaton before The Ta Court dscosed the foowng
facts: The corporaton had serous osses over a perod of years,
ts abtes greaty e ceeded ts assets, recevers were apponted
n 1932, t termnated operatons and a the assets of ts prncpa
subsdary were sod at bankruptcy sae In 1033, and a stockhod-
ers dervatve sut, nsttuted by ta payer and other stockhoders
n 1932 aganst the corporaton and some of ts offcers and stock-
hoders, was setted n 1937 by payment of an amount n fu sette-
ment of pantffs cams and the cause of acton. The ta payer
camed a deducton n 1937 n the amount of the dfference be-
tween the purchase prce of the stock and the amount receved
pursuant to the settement, whch cam was dened on the ground
that the stock had not become worthess durng 1937. ed: In
determnng the year n whch stock becomes worthess, wthn the
meanng of secton 23(e) of the Revenue ct of 1930, the standard
s a fe be, practca one, varyng accordng to the crcumstances
of each case, and the ta payer s atttude and conduct are not the
decsve factor. The Ta Court, usng such practca test n ths
case, found the stpuated facts nsuffcent to estabsh that the
stock had any vaue at the begnnng of 1937 and became worthess
durng that year, that the sut, whe consttutng an asset of the
corporaton unt setted n 1937, had not been shown to have any
substanta vaue, and that the evdence showed that the stock
was worthess pror to that year. The Ta Court s nferences and
concusons on ths factua matter are not so unreasonabe from
an evdentary standpont as to requre reversa of ts |udgment.
2. Decson ffrmed.
Crcut (146 ed. (2d), 553), affrmng memorandum opnon of
The Ta Court, affrmed.
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23(e), rt. 23(e)-4.
354
Lan oehm, pettoner, v. Commssoner of Interna Revenue.
66 S. Ct, 120.
November 13, 1945.
OPINION.
Mr. ustce Murphy devered the opnon of the Court.
We are met here wth the probem of whether The Ta Court propery found
that certan corporate stock dd not become worthess n 1937, thereby precudng
the pettonng ta payer from camng a deductbe oss n that year under
secton 23(e) of the Revenue ct of 1930.
The facts, whch are stpuated, show that the ta payer n 1929 bought 1,100
shares of cass stock of the artman Corporaton for 32,440. Ths corpora-
ton had been formed to acqure the capta stock of an Inos corporaton, and
ts affates, engaged n the busness of seng furnture, carpets and househod
goods.
In pr, 1932, the artman Corporaton sent ts stockhoders a etter report-
ng that the current busness depresson had caused shrnkage of saes, decne
In worth of assets and unprecedented credt and corporate osses. nother
etter sent the foowng month Informed them that busness had not shown any
mprovement athough counteractng measures were beng taken. Then on une
16, 11)32, a edera court n Inos apponted equty recevers upon the aega-
tons of a credtor, whch were admtted to be true by the artman Corporaton,
that the company had sustaned arge qudatng and operatng osses from
1930 to 1932.
Subsequenty, on December 10, 1932, a stockhoders dervatve acton, the so-
caed Graham sut, was nsttuted n a New York court aganst the artman
Corporaton and nne members of ts board of drectors, some of whom were aso
offcers. Ths sut was brought by the ta payer and eght others on behaf of
themseves as stockhoders and on behaf of the corporaton and a other stock-
hoders who mght |on wth them n the sut. The defendants were charged
wth waste, e travagance, msmanagement, negect and frauduent voaton of
ther dutes as offcers and drectors, to the great damage, oss and pre|udce
of the corporaton and ts stockhoders. The pantffs sought (1) to compe
the defendants to account to the corporaton for ther offca conduct, (2) to
compe the defendants to pay to the corporaton s treasury the amount of oss
resutng from ther aeged wrongfu acts, (3) to secure from the corporaton
sutabe aowance for counse fees and other costs ncurred n the sut and
(4) to secure such other reef as mght be |ust, equtabe and proper.
The artman Corporaton censed operatons under the recevers on May 26,
1933, when a new company, artman s Inc., bought at a bankruptcy sae a of
the assets of artman Corporaton s subsdary company for 501,000. The
stock of the new company was ssued to the subsdary s credtors. Stockhoders
of artman Corporaton were aso gven the rght to subscrbe to the stock and
debentures of the new company, but the ta payer dd not e ercse that rght.
The recevers fed ther frst report n the edera court on ugust 10, 1934,
In whch t appeared that artman Corporaton had outstandng cams of
707,430.07 and assets of ony 39,593.13 n cash and the pendng Graham sut.
It does not appear whether the sut was sted as havng any vaue. The Identca
stuaton was apparent n the second report, fed on uy 11, 1935, e cept that
the cash assets had faen to 27,192.51. 4 per cent dvdend to credtors was
aso approved at that tme. On Sffptember 30, 1937, the fna report was made.
1 49 Stat., 164 . 1650 : 26 . S. C. secton 2R e).
The baance sheet as of December 1, 1931. whch accompaned ths etter, showed
assets and abtes of 15.401.097.97 and n tota net worth of 9,410,659 50
The credtors h of compant stated that nrtman Corporaton and Its subsdares
In 1931 sustaned osses of 761,64 fron cosng store and osses of 1,150 000 from neces-
sary qudaton. It was further aeged that the corporaton sustaned operatng osses
n 1930 n the amount of 1, 30,000 n 1931, 2,076,266 from anuary. 1932. to une 16,
1932, 400,000. fter statng that the company was beng operated at a great fnanca oss
and that It was unabe to meet and pay Its obgatons, the b concuded bv aegng
that the assets and propertes were of great vaue and that f they were admnstered
through a recevershp they woud be suffcent to pay a of the corporaton s abtes,
eavng a surpus for the stockhoders.
These nne pantffs represented 4.407 of the appro matey 60.000 cass shares
outstandng and 115 /, of the more than 335.000 cass shares outstandng.
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355
23(e), rt. 23(e)-4.
Outstandng cams of 630,574.57 were then reported the soe assets was cash
n the amount of 1,009.94, whch was then dstrbuted to credtors after deduc-
ton of recevershp costs.
In the meantme the Graham sut was sowy progressng. rom 1933 to 1936,
ncusve, e tensve e amnatons were made of certan defendants, the pantffs
e pendng some 2, 00 n connecton therewth e cusve of counse fees. ut
the case never reached tra. On ebruary 27, 1937, a settement was consum-
mated whereby the defendants pad the ta payer and her eght co-pantffs the
sum of 50,000 n fu settement and dscharge of ther cams and the cause of
acton. The ta payer s share of the settement, after payment of e penses,
amounted to 12,500.
The ta payer had tred unsuccessfuy n her 1934 Income ta return to cam a
deducton from gross ncome n the amount of 32,302 as a oss due to the worth-
essness of her 1,100 shares of stock. The Commssoner dened the deducton on
the ground that the stock had not become worthess durng 1934 apparenty no
sppeu was taken from ths determnaton. Then In 1937 the ta payer camed
deducton from gross ncome n the amount of 19,940, beng the dfference be-
tween the 32,440 purchase prce of the stock and the 12,500 receved pursuant
to the settement. The Commssoner agan dened the deducton, ths tme on
the ground that the stock had not become worthess durng 1937. The Ta Court
mstaned hs acton and the court beow affrmed as to ths pont (140 ed.
2d), 533.) We granted certorar because of an aeged nconsstency wth
Smth. v. everng (141 ed. (2d), 529) ( pp. D. C), as to the proper test to
be used n determnng the year n whch a deductbe oss s sustaned.
Secton 23(e) of the Revenue ct of 1936, ke ts dentca counterparts n
many precedng Revenue cts, provdes that n computng net ncome for ncome
ta purposes there sha be aowed as deductons osses sustaned durng the
ta abe year and not compensated for by nsurance or otherwse. Treasury
reguatons, n effect pror to and at the tme of the adopton of the 1936 ct and
repeated thereafter, have consstenty nterpreted secton 23(e) to mean that
deductbe osses must be evdenced by cosed and competed transactons,
f ed by dentfabe events, bona fde and actuay sustaned durng the ta abe
perod for whch aowed. Such reguatons, beng ong contnued wthout
substanta change, appyng to unamended or substantay reenacted statutes,
are deemed to have receved Congressona approva and have the effect of aw.
(Uehernn v. Wnm, 305 . S., 79, 3 Ct. D. 1365, C. . 103S-2, 212 .)
rst. The ta payer cams that a sub|ectve rather than an ob|ectve test s to
be empoyed n determnng whether corporate stock became worthess durng a
partcuar year wthn the meanng of secton 23(e). Ths sub|ectve test s sad
depend upon the ta payer s reasonabe and honest beef as to worthessness,
supported by the ta payer s overt acts and conduct n connecton therewth.
ut the pan anguage of the statute and of the Treasury Interpretatons
havng the force of aw repes the use of such a sub|ectve factor as the con-
trong or soe crteron. Secton 23(e) Itsef speaks of osses sustaned
durng the ta abe year. The reguatons n turn refer to osses actuay
sustaned durng the ta abe perod, as f ed by dentfabe events. Such
unmstakabe phraseoogy compes the concuson that a oss, to be deductbe
ander secton 23(e), must have been sustaned n fact durng the ta abe year.
nd a determnaton of whether a oss was n fact sustaned In a partcuar
|ear can not fary be made by confnng the trer of facts to an e amnaton
of the ta payer s beefs and actons. Such an ssue of necessty requres a
practca approach, a pertnent facts and crcumstances beng open to nspec-
ton and consderaton regardess of ther ob|ectve or sub|ectve nature. s
ths Court sad n Lucas v. mercan Code Co. (2 0 U. S., 445, 449 Ct. D. 16 , C. .
I -1, 314 (1930) ), no defnte ega test s provded by the statute for the
1 The Commssoner aso Incuded In the ta payer s 1937 gross Income the 12,500 receved
In the settement and The Ta Conrt sustaned hs acton. ut the court beow reversed,
hodng that the 12,500 must be regarded as a capta Item n reducton of oss rather
than as ncome. Ths pont Is not now before us.
Treasury Reguatons 94, artce 23(e)-, under the Revenue ct of 1936. Identca
anuage s contaned In Reguatons 6, artce 23(e)-, under the Revenue ct of 1034
ecuatons 101. artce 23(e)-, under the Revenue ct of 193 Reguatons 103, secton
.23(e)-, under the Interna Revenue Code and Reguatons 111, secton 29.23(e)-,
nnder the Interna Revenue Code.
Treasury Reguatons 94, artce 23(e) 4, further makes cear that ony osses n fact
sre deductbe. Losses on stock due to shrnkage of vaue are aowabe ony to the e tent
actuay suffered when the stock Is dsposed of. nd f, before beng dsposed of, the
tc k become worthess. Its cost or other bu Is deductbe by the owner for the ta abe
Tear n whch the stock became worthess, provded a satsfactory showng Is made of ts
worthes nesa.
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23(e), rt. 23(e)-4.
356
determnaton of the year In whch the oss Is to be deducted. The genera
requrement that osses be deducted In the year n whch they are sustaned
cas for a practca, not a ega, test.
The standard for determnng the year for deducton of a oss s thus a
fe be, practca one, varyng accordng to the crcumstances of each case.
The ta payer s atttude and conduct are not to be gnored, but to codfy them
as the decsve factor n every case s to surround the cear anguage of secton
23(e) and the Treasury nterpretatons wth an atmosphere of unreaty and
to mpose grave obstaces to effcent ta admnstraton.
Second. The ta payer contends that even under the practca, reastc test
the stpuated facts demonstrate as a matter of aw that the stock of the art-
man Corporaton dd not become worthess unt 1937, when the stockhoders
sut was setted. ence t s camed that The Ta Court erred n concudng
that there was not a deductbe oss n 1937 wthn the meanng of secton 23(e).
ut the queston of whether partcuar corporate stock dd or dd not become
worthess durng a gven ta abe year s purey a queston of fact to be deter-
mned n the frst Instance by The Ta Court, the basc fact-fndng and nfer-
ence-makng body. The crcumstance that the facts In a partcuar case may
be stpuated or undsputed does not make ths ssue any ess factua n nature.
The Ta . Court s entted to draw whatever nferences and concusons t
deems reasonabe from such facts. nd an appeate court Is mted, under
famar doctrnes, to a consderaton of whether the decson of The Ta Court
Is n accordance wth aw. (26 U. S. C, secton 1141(c)(1).) If t s n
accordance, t s mmatera that dfferent nferences and concusons mght
fary be drawn from the undsputed facts. (Commssoner v. Scottsh mercan
Co., 323 U. S., 119 Ct. D. 1619, C. . 1944, 340 .)
ere t was the burden of the ta payer to estabsh the fact that there was
a deductbe oss n 1937. ( urnet v. ouston, 2S3 U. S., 223, 227 Ct. D. 32 ,
O. . -, 343 (1931) ) Ths burden was sought to be carred by means of
the stpuaton of facts. ut The Ta Court, usng the practca test prevousy
dscussed, found the stpuated facts nsuffcent to estabsh that the stock had
any vaue at the begnnng of 1937 and became worthess durng that year. It
fet that such evdence ceary shows that the stock was worthess pror to
that year.
We are unabe to say that The Ta Court s nferences and concusons on ths
factua matter are so unreasonabe from an evdentary standpont as to requre
a reversa of ts |udgment. The stpuaton shows a successon of Identfabe
events, occurrng ong before 1937, to |ustfy the concuson that the stock was
worthess pror to the ta abe year. The serous osses over a perod of years,
the recevershp, the recevers reports, the e cess of abtes over assets, the
termnaton of operatons and the bankruptcy sae of the assets of the prncpa
subsdary a end credence to The Ta Court s |udgment. Whe the stock-
hoders sut was prosecuted aganst defendants of admtted fnanca respons-
bty and consttuted an asset of the corporaton unt setted n 1937, The
Ta Court fet that no substanta vaue to the sut had been shown. There
was no evdence n the stpuaton of the merts of the sut, the probabty of
recovery or any nssurance of coecton of an amount suffcent to pay the
credtors cams of more than 630,000 and to provde a suffcent surpus for
stockhoders so as to gve any rea vaue to ther stock. The mere fact that the
defendants were fnancay responsbe does not necessary n|ect any recog-
nzabe vaue nto the sut from the stockhoders vewpont. ence t was
reasonabe to concude that a vaue had departed from the stock pror to 1937
and that there was nothng eft e cept a cam for damages aganst thrd partes
for destructon of that vaue.
The ta payer ponts to the consequences of error and other dffcutes con-
frontng one who n good fath tres to choose the proper year n whch to cam
a deducton. ut these dffcutes are nherent under the statute as now framed.
ny desred remedy for such a stuaton, of course, es wth Conpress rather
than wth the courts. It s beyond the |udca power to dstort facts or to ds-
regard egsatve ntent n order to provde equtabe reef n a partcuar
stuaton.
ffrmed.
See, n genera. 5 Mertens, Law of edera Income Ta aton, sectons 2 .65 to 2 .M
Lynch, Losses Resutng rom Stock ecomng Worthess Deductbty Under eera
Income Ta Laws ( ordam L. Rev., 199).
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357 112(c), rt. 112(c)-.
P RT I .- CCOUNTING P RIODS ND M T ODS O CCOUNTING.
rtce 42-1: When ncuded n gross ncome. 1945-13-12076
I. T. 3747
R NU CT O 1 36.
ccrua under the provsons of secton 602 of the Revenue ct of
1030 of rembursements of ta es wth respect to oor stocks hed on
auuarv (, 193 .
I. T. I 057 (C. . 1937-1, 03) modfed.
In Dumar Te te Co., Inc., v. Commssoner (47 . T. ., 030,
affrmed, 142 ed. (2d), 07), t was hed that a payment made under
secton 002 of the Revenue ct of 1036, representng rembursement of
processng ta burden borne by the ta payer, accrued on une 22,1030,
the date on whch the statute was enacted, rather than n 103S , the
Year n whch a cam for rembursement was aowed and pad. In
L T. 3057 (C. . 1037-1, 03) t was hed, wth respect to such a pay-
ment, that f the ta payer s returns were ed on the accrua bass, the
amount of the payment shoud not be accrued unt aowance of the
cam.
In vew of the wthdrawa of nonncquescence (C. . 1042-2, 21) n
the decson of the oard of Ta ppeas (now The Ta Court) n
the Dumar case and substtuton of acquescence (page 3, ths ue-
tn), and n vew of the fact that I. T. 3057, supra, s n confct wth
that decson, I. T. 3057 s modfed to the e tent of such confct.
S CTION 112(c). R COGNITION O G IN OR LOSS:
G IN ROM C NG S NOT SOL LY IN IND.
rtce 112(c)-: Recept of other property 1045-11-1205
or money n ta -free e change not connected Ct. D. 1041
wth corporate reorganzaton.
( so Secton 112(g), rtce 112(g)-4.)
INCOM T R NU CT O 193G D CISION O SUPR M COURT.
1. Procedure Statutory Perod for ng Petton fob Wht of
Certorar Order for Mandate May be Deemed udg-
ment.
The Order for Mandate n the Crcut Court of ppeas for the
Second Crcut may propery be deemed the udgment for the
purpose of determnng the statutory perod n whch petton for
certorar may be fed under secton (a) of the udcary ct of
ebruary 13, 1925 ( 43 Stat., 030, 040, 2 U. S. C, secton 350).
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35
2. Recaptazaton Dstrbtton of Cash Ta abe as Dv-
dend and Not as Capta Gan.
Pursuant to a pan of recaptazaton of a corporaton, the ta -
payer e changed hs preferred stock n the corporaton for other
preferred stock and common stock of the same corporaton and cash,
wth a resutng gan n e cess of the cash receved. The recap-
tazaton had been proposed because the corporaton, after charg-
ng aganst ts surpus account nonta abe stock dvdends ds-
trbuted n earer years, whch under State aw prevented t from
payng dvdends, had ncurred a book defct n that account. or
corporate ta purposes at east, earnngs and profts e ceedng
the dstrbuted cash had been earned at the tme of the recaptaza-
ton. ed: The dstrbuton of cash was from earnngs and profts,
has the effect of the dstrbuton of a ta abe dvdend under
secton 112(c) (2) of the Revenue ct of 1936, and s ta abe as a
dvdend and not as a capta gan. The dstrbuton docs not have
the effect of a parta qudaton under secton 115(1) of that
ct. The defnton of a parta qudaton under secton 115(1)
s specfcay mted to use n secton 115.
3. Stock Dvdends ffect on arnngs and Profts.
The earnngs and profts of a corporaton for edera ncome ta
purposes are not reduced by the dstrbuton of nonta abe stock
dvdends. The corporaton s treatment of such dvdends or the
consequences under State aw do not ater the character of the
transactons whch brng them wthn the edera ncome ta .
4. Decson Reversed.
of the Unted States (1 T. C, 47 ), reversed.
Commssoner of Interna Revenue, pettoner, v. state of dward T. edford,
Tte Guarantee t Trust Co., e ecutor.
325 U. S., 2 3.
May 21, 1945.
opnon.
Mr. ustce rankfurter devered the opnon of the Court.
t the threshod, the ursdcton of the Court s chaenged on the ground
that the petton for the wrt of certorar was not fed wthn three months after
entry of the |udgment beow as requred by the udcary ct of ebruary
13, 1025.1
The steps by whch the case came here are these. On ugust ,1944, the Crcut
Court of ppeas for the Second Crcut fed a document entted Opnon
on the same day the cerk made a docket entry readng, Order reversed, . N.
and, C. . on ugust 29, 1914, a document entted Order for Mandate was
fed, and the mandate ssued that day on November 29, 1944, the petton for
wrt of certorar was fed. The petton was fed too ate f the Opnon, as
respondent contends, consttutes the |udgment. It was fed n tme, f the
Order for Mandate may propery be deemed the |udgment. The ssue was
aby pressed before us, and, snce t concerns our power to revew cases comng
from what Is perhaps the busest crcut, t cas for more than summary
treatment.
ven ong contnued practce can not ater the mts wthn whch Congress
has bound the appeate |ursdcton of ths Court. (See Dept. of ankng v.
Pnk, 317 U. S., 264.) ut such practce may be decsve n nterpretng procedura
S . . (a) That no wrt of error, appea, or wrt of certorar, ntended to brng any
udgment or decree before the Supreme Court for revew sha be aowed or entertaned
uness appcaton therefor be duy mnde wthn three months nffer the entrv of such
udgment or decree, e ceptng that wrts of certorar to the Supreme Court of the Php-
pne Isands may be granted where appcaton therefor s made wthn s months: Pro-
vded, That for good cause shown ether of such perods for a wrt of certorar mar be
e tended not e ceedng 60 days by a ustce of the Supreme Court. (43 Stat., 936, 940
2 U. S. C, secton 350.)
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359
112(c), rt. 112(c)- .
rays whch, as a matter of daectc or abstract anayss, may appear dubous.
We are naturay mpressed by the common understandng that In the Crcut
Court of ppeas for the Second Crcut the so-caed Order for Mandate Is
deemed the |udgment. (Robertson and rkham, ursdcton of the Supremo
Court of the Unted States (103G), secton 3S4.) We have taken and decded as a
matter of course a consderabe number of cases In whch certorar was sought
wthn three months after entry of the Order for Mandate, but not wthn
three months after the Opnon. 1 Ths practca understandng of the contro-
ng sgnfcance, for appeate purposes, of the Order for Mandate s supported
and certany not contradcted by a that s conveyed by the Opnon and
Order fon Mandate and the rues of the ower court.
It does not detract from the Opnon as an opnon that In ts headng It
gves as dates rgued anuary 6, 1944 Decded ugust , 1044, and that t
concudes wth The order of The Ta Court s reversed. The same or smar
phrases are commony empoyed n opnons of ths Court wthout changng ther
character as opnons. Nor do ke phrases n the opnons of the other crcut
courts of appeas turn them Into |udgments, snce In a other crcuts |udgment
orders are separatey fed. In spte of ts tte, the Order for Mandate on Its
face fufs the functon of such a |udgment order. It rectes that t s now
hereby ordered, ad|udged, and decreed that the order of sad The Ta Court of
the Unted States be and t hereby s reversed.
It s further ordered that a Mandate ssue to the sad The Ta Court of the
Unted States In accordance wth ths decree.
e ander M. e.
Cerk.
y . Dane usa o,
Deputy Cerk.
Ths anguage pany mports that ths s the |udgment and that It s then beng
rendered. Nor does the fact that the order was prepared by the cerk and bears
hs sgnature detract from ts quaty as a |udgment. udgment s the act
of the court ( parte Morgan, 114 U. S., 174, 175), even though a cerk does
a of the mnstera acts, as here, n conformty wth hs court s standng
nst ructons.
The rues of the court beow governng opnons, rehenrugs, ssuance of man-
date and s ay of mandate are nvoked to show that the Opnon s the appea-
abe |udgment. These rues, ke other rues, are not phrased wth such
fastdous precson as to make of a the parts a perfect harmony. ut whe
substanta debatng ponts may be taken,3 nothng In these rues contradcts
the natura meanng yeded by the terms of the Opnon and the Order of
Mandate, as refected n the practce of the Second Crcut and n our own,
whch treats not the Opnon but the Order for Mandate as the order
of |udgment. The rues woud have to be far ess artstc than they are to
warrant us n hodng that the crcut court of appeas has consstenty msnter-
preted some of ts own rues. Whether the announcement of an opnon and Its
entry n the docket amounts to a udgment for purposes of appea or whether
that must awat some ater forma act, ought not to be decded on nce-spun
argumentaton n dsregard of the |udca habts of the court whose |udgment
s caed nto queston, of the bar practcng before t, of the cerk who embodes
ts procedura tradtons, as we as In confct wth the assumpton of the
revewng court.
:Darng the 1941, 1042. and 1943 terms, ths Court entertaned revews and affrmed
udgments of the Crcut Court of ppeas for the Second Crcut n not ess than 10 such
cases: Commerca Corporaton v. cu York arge Corporaton (314 U. S., 104) New York
. Unted States (315 U. S., 510) Mother Lode Co. v. Commssoner (317 U. S., 222)
Smth v. Shaughne y (31 U. S., 176) evcrng v. Grffths (31 U. S., 371) : m v.
uney (31 I . S., 515) : sher Co. v. Wtmark d Sons (31 U. S.. 043) qutabe Socety
v. Commssoner (321 U. S., 560) Uedo Corporaton v. Labor oard (321 U. S., 67 )
Unted States e Te. rensbcr v. ausch d Lomb Optca Co. (320 U. S., 711) (equay
dvded court).
Respondent argues that the rues of the court beow, wth respect to the opnons of
the court, rchearngs, ssuance of mandate, and stay of mandate, show that the opnon
s meant to consttute the court s |udgment. ut these rues compute tme, wth respect
to fng of pettons for rehearng and for ssuance of mandate, not from entry of a
|udgment hut from the fng of the opnon of ths court. Some dffcuty s rased
because rue 27 refuses a rehearng uness a |udge who concurred n the |udgment desres
It. so respondent fnds t parado ca to stay the court s mandate under rue 30
ben the mandate s customary ssued on the same day the Order for Mandate s fed.
nd respondent argues that the court coud not have meant to confer upon Its cerk ds-
creton to hod up. for varyng engths of tme, the renderng of a |udgment unt feea have
wen pad by the prevang party. In ths case the Order for Mandate and ssuance of
the mandate were deayed for 21 days, and were not entered wthn 15 dnys from the fng
of the opnon whch rue 30 requres the tme has cen varousy e tended n other cases.
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112(c), rt. 112(c)- .
360
ut now that the e stng practce has reveaed abstract dsharmones, f not
dffcutes, the crcut court of appeas w doubtess estabsh a more tdy system
for meetng the technca requrements for revew here. The norma tme for
enterng a |udgment, as the startng pont for determnng whether revew w
be sought or whether there has been acquescence n a |udgment, shoud be f ed.
The uncertantes Inherent n tgaton shoud not be needessy proonged.
The entry of the Order for Mandate, whch n the Second Crcut begns the
runnng of the perod for appea, s apparenty varabe and vagrant. In these
days of rapd communcaton, the statutory aowance of three months s more
than ampe for an unsuccessfu tgant to determne whether to seek further
revew. So ong a perod ought not to be e tended by deay n enterng a |udgment
nor shoud the burden of securng such entry be put upon the successfu tgant.
There are bound to be dverstes n the modes of renderng and recordng |udg-
ments of the 4 systems of State courts. Unformty In the entry of |udgment
among the 11 crcuts formng the snge edera |udcature ought to be capabe
of achevement wthout oss to the geographc fe bty of the system.
Ths brngs us to the merts, whch nvove the vadty of an ncome ta
defcency assessment for 1937. The case s ths. The estate of dward T.
edford, who ded May 21, 1931, ncuded 3,000 shares of cumuatve preferred
stock (par vaue 100) of bercrombe tch Co. Pursuant to a pan of
recaptazaton respondent, as e ecutor of the estate, n 1937 e changed those
shares for 3,500 shares of cumuatve preferred stock (par vaue 75), 1,500 shares
of common stock (par vaue 1), and 45,240 n cash (on the bass of 15.0 for
each of the od preferred shares). The recaptazaton had been proposed
because the company, after chargng aganst ts surpus account stock dvdends
totang 44,100, dstrbuted n 1920, 192 , and 1930, had ncurred a book defct
n that account of 399,771. 7. ecause of ths defct, the company, under app-
cabe State aw, was unabe to pay dvdends athough for the fsca year endng
anuary 31, 1937, t had net earnngs of 309,073.70.
y comparng the far market vaue of the od preferred shares at the date of
edford s death wth the market vaue of the new stock and cash receved the
gan to hs estate was 139,740. dmttedy the recaptazaton was a reorganza-
ton (secton 112(g) (1) (D) of the Revenue ct of 1930, 49 Stat., 164 , 16 1, 26
U. S. C, secton 112(g) (1) ( )), so that ony the cash receved, but none of the
stock, s ta abe. (Sectons 112(b)(3), 112(c)(1), 49 Stat., 164 , 1679, 1GS0.
26 U. S. S., sectons 112(b) (3), 112(c) (1).) The soe ssue s whether the cash
45,240, s ta abe as a dvdend, or merey as a capta gan to the e tent of
40 per cent. The Ta Court sustaned the determnaton of the Commssoner
that the cash was ta abe as a dvdend (1 T. C. , 47 ), but was reversed by the
crcut court of appeas. (144 ed. (2d), 272.) On a showng of mportance
to the admnstraton of the Revenue cts, we granted certorar. ( U. S., .)
The precse queston s whether the dstrbuton of cash n ths recaptazaton
has the effect of the dstrbuton of a ta abe dvdend under secton 112(c) (2)
of the Revenue ct of 1036 and as such s fuy ta abe, or s ta abe ony at
the rate of 40 per cent as a capta gan under secton 112(c) (1) of that ct
The reevant provsons read:
(c) Gan fbom changes not Soey n nd. (1) If an e change woud
be wthn the provsons of subsecton (b), (1), (2), (3), or (5) of ths secton
f t were not for the fact that the property receved n e change conssts not
ony of property permtted by such paragraph to be receved wthout the recog-
nton of gan, but aso of other property or money, then the gan, f any, to the
recpent sha be recognzed, but n an amount not n e cess of the sum of such
money and the far market vaue of such other property. (2) If a dstrbuton
made n pursuance of n pan of reorganzaton Is wthn the provsons of para-
graph (1) of ths subsecton but has the effect of the dstrbuton of a ta abe
dvdend, then there sha be ta ed as a dvdend to each dstrbutee such an
amount of the gan recognzed under paragraph (1) as s not n e cess of hs
ratabe share of the undstrbuted earnngs and profts of the corporaton accu-
muated after ebruary 2 , 1913. The remander, f any, of the gan recognzed
under paragraph (1) sha be ta ed as a gan from the e change of property.
The hstory of ths egsaton s not umnatng. Secton 112(c) (2) orgnated
In secton 203(d) (2) of the Revenue ct of 1024 (43 Stat., 253, 257). ut the
reports of the Congressona commttees merey use the anguage of the secton
to e pan t. ( . Rept. No. 179, S ty-eghth Congress, frst sesson, pages
14-15 C. . 1939-1 (Part 2), 241 S. Rept. No. 39 , S ty-eghth Congress, frst
sesson, pages 15-16 C. . 1939-1 (Part 2), 266 .) Nor does the appcabe
Treasury reguaton add anythng t repeats substantay the commttee reports.
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361
112(c), rt. 112(c)- .
(Treasury Reguatons 94, artce 112(g)-4.) We are thrown back upon the
egsatve anguage for ascertanng the meanng whch w best accord wth
the ams of the anguage, the practca admnstraton of the aw and reevant
|udca constructon.
though bererombe tch showed a book defct n the surpus account
because the earer stock dvdends had been charged aganst t, the partes agree
that for corporate ta purposes at east earnngs and profts e ceedng the
dstrbuted cash had been earned at the tme of the recaptazaton. That
cash therefore came out of earnngs and profts and such a dstrbuton woud
normay be consdered a ta abe dvdend (see secton 115(a)), and has so been
treated by the courts n seemngy smar stuatons. It has been rued n a
seres of cases that where the stock of one corporaton was e changed for the stock
of another and cash and then dstrbuted, such dstrbutons out of earnngs and
profts had the effect of a dstrbuton of a ta abe dvdend under secton
112(c) (2). (Commssoner v. Owens, 69 ed. (2d), 597 Commssoner v. orhan
Reaty Corporaton, 75 ed. (2d), 20 Rose v. Ltte nv. Co., (5 ed. (2d), 50
Love v. Commssoner, 113 ed. (2d), 236 Campbe v. Unted States, 144 ed.
(2d), 177.) The Ta Court has reached the same resut, that s, has treated the
dstrbuton as a ta abe dvdend, n the case of the recaptazaton of a snge
corporaton. (McCord v. Commssoner, 31 . T. ., 342, 344 . Wcngarten, Inc.,
v. Commssoner, 44 . T. ., 79 , 0 -S09 napp Monarch Co. v. Commssoner,
I T. C, 59, 69-70, affrmed on other grounds, 139 ed. (2d), 63.) We can not
dstngush the two stuatons and fnd no mpcaton n the statute restrctng
secton 112(c)(2) to ta aton as a dvdend ony n the case of an e change of
stock and assets of two corporatons.
Respondent, however, cams that ths dstrbuton more neary has the effect
of a parta qudaton as defned n secton 115().s ut the cassfcatons of
secton 115, whch governs Dstrbutons of Corporatons apart from reorganza-
tons, were adopted for another purpose. They do not appy to a stuaton arsng
wthn secton 112. The defnton of a parta qudaton n secton 115(1) s
specfcay mted to use In secton 115. To attempt to carry t over to secton
112 woud dstort Its purpose. That mtaton s not true of secton 115(a)
whch defnes dvdend for the purpose of the whoe tte. ccordngy, ths
defnton s nfused nto secton 112(c) (2). Under secton 115(a) a dstrbuton
oat of accumuated earnngs and profts s a dvdend, thus confrmng the con-
cuson that a dstrbuton of earnngs and profts has the effect of the dstrbu-
ton of a ta abe dvdend under secton 112(c) (2).
Recaptazaton does not nter the effect. though the capta of a company
s reduced, the cash receved Is a dstrbuton of earnngs and profts and as such
fas wthn the edera ta . That the company s treatment of ts stock dvdends
may brng consequences under State aw requrng a capta reducton docs not
ater the character of the transactons whch brng them wthn the edera
ncome ta . Recaptazaton s one of the forms of reorganzaton under secton
112(g) (1) (D). It can not therefore be urged as a reason for takng the trans-
acton out of the requrements of secton 112 and forcng t nto the mod of
secton 115. The reducton of capta brngs secton 112 Into operaton and does
not gve mmunty from the requrements of secton 112(c) (2).
Treatng the matter as a probem of statutory constructon for our ndependent
udgment, we hod that a dstrbuton, pursuant to a reorganzaton, of earnngs
and profts has the effect of a dstrbuton of a ta abe dvdend wthn secton
112(c) (2). s s true of other teasng questons of constructon rased by techn-
ca provsons of Revenue cts the matter s not whoy free from doubt. ut
these doubts woud have to be stronger than they are to dspace the nformed
news of The Ta Court. nd f the case can be reduced to ts own partcuar
crcumstances rnther than turn on a generazng prncpe we shoud fee bound
to appy Dobson v. Commssoner (320 U. S., 4 9 Ct D. 1597, C. . 1944, 56 ),
and sustan The Ta Court.
Reversed.
(a) Defnton or Dvdend. The term dvdend when used n ths tte (e cept
In secton 203(a)(3) and secton 207(c)(1), reatng to nsurance companes) means any
dstrbuton made by a corporaton to Its sharehoders, whether In money or In other
property, (1) out of ts earnngs or profts accumuated after ebruary 2 . 1913, or (2) out
of the earnngs or profts of the ta abe year (computed as of the cose of the ta abe year
wthout dmnuton by reason of any dstrbutons made durng the ta abe year), wthout
regard to the amount of the earnngs and profts at the tme the dstrbuton was made.
(1) Defnton of Parta Lq daton.- s used In ths secton the term amounts
dstrbuted In parta qudaton means a dstrbuton by a corporaton In compete can-
ceaton or redempton of a part of ts stock, or one of a seres of dstrbutons Id compete
canceaton or redempton of a or a porton of ts stock.
6 4354 40 24
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112(f), rt. 112(f)-2.
362
S CTION 112(f). R COGNITION O G IN OR LOSS:
IN OLUNT RY CON RSION.
rtce 112(f )-2: Repacement funds. 194.5-24-12199
Ct. D. 1655
INCOM T R NU CTS O 1032, 1934, ND 1930 D CISION O COURT.
1. Recognton of Gan oe Loss Condemnaton ward Repace-
ment und.
n award granted to the ta payer upon condemnaton of rea
property n 1931 was pad n nstaments n 1032, 1935, and 1936.
The ta payer set up as a abty on ts books an account entted
Repacement fund, to whch t credted the fu amount of the
award receved n each year, and n 1932 and 1937 apped to the
Commssoner for permsson to estabsh such a fund, n accord-
ance wth artce 5 0, Reguatons 77, nether of whch appcatons
was acted upon by the Commssoner. Out of the payments receved
(he ta payer purchased smar property and rea estate mort-
gages. ed: rtce 5S0 of Reguatons 77, requrng the ta payer
to obtan permsson to estabsh a repacement fund, s wthn the
power conferred by secton 112(f) of the Revenue cts of 1932,
1934, and 1930. Snce the ta payer dd not receve such permsson,
t s entted to e empton ony so far as t n fact e pended the
money n buyng smar property. The purchase of rea estate mort-
gages does not of tsef serve the purpose of the statute and regua-
tons, as money ent on mortgages s not the equvaent of rea prop-
erty.
2. Gan or Loss Recovery of ass ward Spread Over More
Than One Tear,
No part of the award receved n 1930 for property condemned n
1931 s e empt under secton 112(f) of the Revenue ct of 1936,
where the tota amount nvested n smar property n 1936 and
pror years was ess than the bass of the property and the bass
had been entrey recovered n a pror year.
3. Decson ffrmed n Part and Reversed n Part.
Decson of The Ta Court of the Unted States (2 T. C, 3 ) af-
frmed upon ta payer s appea and reversed upon Commssoner s
appea.
4. Certorar Dened.
Petton for certorar dened October 15, 1945.
Unted States Crcut Court of ppeas fob the Second Crcut.
Wnter Reaty Constructon Co., pettoner, v. Commssoner of Interna
Revenue, respondent.
Commssoner of Interna Revenue, pettoner, v. Wnter Reaty Constructon
Co., respondent.
149 ed. (2d), 507.
On cross pettons to revew an order of The Ta Court of the Unted States, assessng a
defcency In ncome ta aganst the ta payer for the years 1932, 1935, and 1936, and a
defcency In e cess profts ta for the years 193D and 1930.
efore L. and, Shaw, and Chase, Crcut udges.
May 7, 1945.
on ON.
L. and, Crcut udge: oth partes appea from an order of The Ta Court
whch assessed a defcency aganst the ta payer n ts ncome ta for the years
1932, 1035 and 1036 and an addtona defcency n e cess profts ta for the
years, 1935 and 1930. The queston nvoves the proper constructon of secton.
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363
112(f), rt. 112(0-2.
112(f) of the Revenue cts of 1932,1034 and 1936. The frst queston Is as to how
much of an award granted to the ta payer upon condemnaton of certan rea
property was e pended n the acquston of other property smar
to the property condemned, or n the estabshment of a repacement fund.
The second queston s whether, when an award s pad u nstaments, spread
over more than one year, a ta payer s entted to e empton as to a of any
Instament e pended n any gven year n acqurng smar property,
regardess of what he may have so e pended n the past. The ta payer owned
rea property n ushng, N. Y., whch the cty condemned on November 4, 1931,
and the bass of whch was 136,5 4.S3. The net amount of the award, pad
n nstaments and after consderabe tgaton, was as foows: In 1932
1100.292. 1 n 1935 125,735.57 and n 1936 101,110.2. ). The frst of these
snms the ta payer deposted n Its bank account when pad an account on whch
It drew for ts genera needs, and n whch t deposted ts current recepts. Out
of the frst payment t nvested .r ,000 In 1932 n the purchase of a mortgage on
rea estate, and 45,713.94 In buyng smar property. The Commssoner
ta ed as gan n 1932, the dfference 23,527.9 between the amount so
receved n that year, and the bass. In 1935 the ta payer nvested the whoe
of the nstament of that year n mortgages on rea property a of whch the
Commssoner ta ed as gan, because the bass had beeu fuy restored
by the frst Instament. In 1936 the ta payer Invested out of the award of that
year, 50,000 n mortgages, and the baance 51,110.25 n smar property.
The Commssoner assessed the whoe payment of 1936 as gan because
the tota of a the sums nvested In smar property 45,713.94 pus
51,110.25 had not equaed the bass 136,564. 4.
In cosng ts books for the year 1932, the ta payer set np on the abty sde
of ts edger an account, entted Repacement fund, to whch It credted the
fu amount of the award receved In that year. In 1935 It added to ths tem
upon ts edger the award receved n that year and so It dd n 1930. In 1932
ts vce presdent and manager, after readng the reguaton regardng the estab-
shment of repacement funds, quoted In the margn.1 went to the offce of the
coector, procured the prescrbed form In trpcate, fed It out and maed t to
the offca n the rookyn offce to whom he had been tod to send t. Later,
the ta payer made severa Inqures at the same offce about ths appcaton,
bot coud earn nothng apparenty, athough receved, It had been ost, and t
neyer has been found. In makng ts return for the year 1932 on March 15, 1933,
the ta payer encosed a etter cang attenton to the fact that there has been
set up a gure headed repacement fund. Ths fgure represents 00 per cent of the
cty s apprasa t Is the ntenton upon recept of the bn-
ance of the award to repace same n property n smar or reated
n servce, or use of the property so converted. The Commssoner never took
any acton upon ths etter. On ebruary 3,1937, the ta payer fed a second app-
caton, upon the form prescrbed for the purpose, for permsson to estab-
sh a repacement fund but the Commssoner never acted upon ths app-
caton ether. The Ta Court hed that the attempt to set up a repacement
fund faed that the mortgages were not smar property or property reated
n servce or use but t aowed the sum of 51,116.25 nvested n rea estate
n 1936 as an e empton because t had been Invested n that year In smar
property or property reated n servce or use. Ths ast rung s the bass of
the Commssoner s appea the ta payer appeas from the rungs aganst t
veryone agrees as to the purpose of secton 112(f) ndeed, t woud be
Impossbe to mstake t. n owner, whose property s taken nvountary, hut
bt. 5 0. Repacement unds. In any cane where the ta payer eects to repace or
store the converted property but It Is not practcabe to do so Immedatey, he may obtan
permsson to estabsh a repacement fund In hs accounts n whch part or a of the com-
pensaton so receved sha be hed, wthout deducton for the payment of any mortgage,
aunch a case the ta payer shoud make appcaton to the Commssoner on orm 1114 for
permsson to estabsh such a repacement fund, and In hs appcaton shoud recte a the
acts reatng to the transacton and decare that he w proceed as e pedtousy as possbe
to repace or restore such property. The ta payer w be requred to furnsh a bond wth
such surety as the Commssoner may requre In an amount not n e cess of doube the
estmated addtona Income ta es whch woud be payabe f no repacement fund were
entaMnhed. (See secton 1120 of the Revenue ct of 1926.) The estmated addtona
ta es, for the amount of whch the camant s requred to furnsh securty, shoud be com-
puted at the rates at whch the camant woud have been obged to pay, takng nto con-
sderaton the remander of hs net ncome and resovng aganst hm a matters In dspute
Weetns the amount of the ta . Ony surety companes hodng certfcates of authorty
from the Secretary of the Treasury as acceptabe suretes on edera bonds w be approved
s suretes. The appcaton shoud be e ecuted n trpcate, so that the Commssoner.
u e appcant, and the surety or depostary may each have a copy.
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112(f), rt. 112(f)-2.
364
who has become entted to compensaton, shoud not be treated as havng rea-
zed a ta abe gan, provded he at once puts the proceeds to a smar use.
Such an owner w often tnd hmsef n a dffcut predcament n cases where
the property s of a knd not easy repaced, and where he can not therefore
mmedatey purchase a substtute. Ths the statute recognzes by provdng
that n sue a case e may estabsh a repacement fund, an opton whch
s however sub|ect to reguaton by the Commssoner who n fact reguated
t by artce 5 0 of Reguatons 77, aready quoted. y ths he requres an
owner who wshes to estabsh such a fund to get permsson whch he
s to obtan by fng an appcaton n whch he decares that he w repace
the property as soon as possbe the prescrbed form requres a date to be f ed
and, when that has been approved, by postng a bond to secure the ta whch
woud be payabe f no repacement fund were estabshed. The form o the
fund s not prescrbed, and, arguendo, we may assume that entres upon the
owner s books, such as the ta payer here carred, f supported by bank deposts,
or mortgages, woud be permssbe. or e ampe, the reguaton reads: he
may obtan permsson to estabsh a repacement fund In hs accounts n
whch the compensaton sha be hed. The ta payer
chaenges the vadty of ths reguaton, but t appears to us to be wthn the
power conferred by the statute. The purpose of the prvege was to avod forcng
an owner to a hasty, perhaps an mpossbe, nvestment, but t dd not gve hm
an ndefnte tme. ven though hs faure to fnd smar property were not
due to any faut of hs, there must come an end and at the end he woud be ta ed
as though the property had been vountary converted. We can not see how
the reguaton coud have reazed ths wth greater freedom to the owner and
yet wth that mnmum of securty to the Treasury, whch was certany de-
manded t aows the owner to keep hs fund n whatever form he fnds most
convenent and proftabe, and ony demands of hm adequate assurance of hs
good fath and eventua performance. We do not mean that another reguaton
mght not have been equay awfu: the Commssoner mght have secured the
ta by a rgd contro over the form of the fund, or by requrng that he shoud
consent to any wthdrawas. ut t was hs functon, not ous, to decde what
was on the whoe the most desrabe method and the form whch he dd choose
has survved many recensons of the statute. e have no doubt that t s vad.
Snce the ta payer at bar dd not get permsson, t became entted to the
e empton ony so far as t n fact e pended the money n buyng smar
property for the Commssoner s nacton, however neggent, was certany
not a performance of the condton, and the Commssoner coud not be estop ed.
ta payer who has to dea wth a suggsh and nert offca s aways n a tryng
poston and has |ust ground for compant but that does not dscharge hm of
whatever dutes are awfuy mposed upon hm as a condton of hs prveges
and, ndeed, n the case at bar the ta payer tsef was not a mode of dgence
and care. That the mortgages of themseves woud not serve wthout the Com-
mssoner s permsson s pan: Congress meant to suspend the ta ony when an
owner, forced out of one nvestment, found an equvaent nvestment, and money
ent on mortgage s not the equvaent of rea property, ether as to ts manage-
ment, as to the securty whch t affords, or as to the return obtaned from t.
We affrm the order upon the ta payer s appea.
Upon the Commssoner s appea the queston s whether the sum nvested
n 1930 n smar property, sha e e empted from the ta abe gan n that
year and that n turn depends upon the meanng of te concudng words of
secton 112(f) : If any part of the money s not so e pended, the gan, f any,
sha be recognzed, but n an amount not n e cess of the money whch s not
so e pended. The ta payer argues, and The Ta Court agreed, that snce the
sum mentoned was e pended n buyng smar property, the gan whch
coud be recognzed must not be n e cess of what was eft of the nsta-
ment of 1036 50,000. The Commssoner repes that the e empton begns
ony after a those parts of the award whch have been e pended n the pur-
chase of smar property have been marshaed aganst the bass and t
seems to us that ths s an Inescapabe concuson. Obvousy, an owner who
receves a snge award, of whch he e pends a part n the purchase of
smar property, may not e empt any part of the gan by aocatng aganst
the bass that part whch he does not so e pend, and aganst gan that
whch he does. To do so woud defeat the whoe purpose of the e empton, whch,
as we have sad, was to e empt an owner from ta es upon Increases n the vaue
of hs property whch he s forced to reaze as gans. It s a coroary that
he must do what he can to restore hs poston to what t was orgnay and.
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365
112(f), rt. 112(f)-2.
so far as he does not, he w be regarded as content wth the reazaton of
the ncrease. If an award be made n severa Instaments pad n the same
year, the resut Is the same. n owner who does not e pend the frst Insta-
ment n the purchase of smar property, but ddes so e pend a ater one,
may not marsha the frst aganst hs bass and assert that he had e pended
a the gan n the purchase of smar property.
The dstncton taken by The Ta Court was that the nstaments spread over
dfferent ta abe years must be separatey computed, because the ta for each
year stands aone. ence, a money e pended upon smar property n
any year, f t be a gan, s entted to the e empton and t makes no dffer-
ence that n earer years the owner has not e pended upon smar prop-
erty an amount equa to the bass. We agree of course, that the ta for
every year must be separatey assessed but that does not mean that n com-
putng the ta we may not ook to what has happened n earer years. or
e ampe, If the prce of property s pad n successve yeary nstaments, the
earer nstaments are frst taken to amortze the bass, and t s ony after
that has been done, that any gan arses. (Secton 111(d) and secton 44(b)
of Tte 26. T . S. C.) If The Ta Court s rght, by a smpe e pedent an owner
can e empt hs gans up to the amount of the bass, and yet ava h msef
of that amount of the award for any purpose he may wsh. he need do s
to use as he wshes the frst nstament up to the amount of the bass, and
nvest the ater nstaments n smar property. It seems to us to need no
argument to prove that that e tends the prvege beyond ts purpose.
The practca dffcutes n appcaton whch the ta payer suggests, do not
e st. We take as the e ampe the stuaton whch t puts n ts repy bref: the
condemnaton of property whose bass was 35,000, for an award of 150,000,
pad 50,000 n each of three years. ow t asks sha the gan be ta ed
Let us assume that no part of the frst nstament s nvested n smar prop-
erty, but that the whoe of the second nstament s so nvested. The owner
w be ta ed n the frst year upon hs gan 15,000 and n the second year
npon 3 ,00O. the nstament for that year s gan, and must be ta ed
uness e empted and t w not a be e empted, because out of the frst Insta-
ment an amount equa to the bass was not Invested n smar property.
To aow the owner to nvoke the e empton before that has been done, has, as
we have shown, the effect of freeng the gan up to the amount of the bass
from the condton whch s the presupposton of the prvege. In the ease |ust
put, the e tent to whch the thrd nstament sha be ta ed w depend upon
how far t s nvested n smar property the whoe bass havng been
amortzed for the purposes of e empton, no deducton w be necessary. Wo
need hardy abor the mprobabty that Congress shoud have meant to make
the e empton depend upon whether an award, payabe n nstaments, happens
to be spread over more than a snge year.
It s qute true that n Wmore . S. Co. v. Commssoner (7 ed. (2d), 067)
a ma|orty of ths court decded the opposte. The owner s steamer had been
torpedoed n 1917 t recovered 1,750,000 of nsurance money, whch was about
400,000 above the bass and upon the gan so reazed t then pad
the ta . The vaue of the steamer had been 2,400,000, and n 192 the M ed
Cams Commsson awarded an added 650,000, upon 312,157.20 of whch the
Commssoner ta ed t as a recognzabe gan. The owner asserted that t
had n 192 e pended ths part of the award upon other vesses whch were
smar property, and that secton 112(f) protected t but the Commssoner
and a ma|orty of the oard of Ta ppeas hed that the gan was not
e empt. In ths court, however, athough the oard had passed upon the pont
now at ssue, the bref of the Commssoner dd not press t. It s true that we
spoke of the Commssoner s rung as erroneous n dsaowng the e empton
because the owner had estabshed no repacement fund, but we were mak-
ng use of that rung ony as evdence that he had thought that the award of 102
had been n fact e pended upon the new vesses one of the ssues before
us and that upon whch we spt. though we can not deny that the decson
1 The ony three ponts t contaned were headed as foows:
I. The money receved under the award was not receved drecty from the casuaty n
1917 as a matter of rght but came to the ta payer as damages, whch were coected by ts
Government and remtted to t.
II. The casuaty was compete and fna n 1917 and there was no converson of the
shp Into ths fund In the ta year 192 .
III. The money receved from the award was not used In the manner specfed hy .he
statute and hence can not be ta free thereunder.
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112(g), rt. 112(g)- .
3G6
dd embrace a rung contrary to that whch we are now makng, we do not regard
It as havng the same force as though It had deberatey overrued an ob|ecton
pressed upon us at the tme.
Order affrmed upon the ta payer s appea.
Order reversed upon the Commssoner s appea.
S CTION 112(g). R COGNITION O G IN OR LOSS:
D INITION O R ORG NIZ TION.
rtce 112(g)-4: changes n reorganzaton for stock or
securtes and other property or money.
R NU CT O 1936.
Dstrbuton of cash pursuant to a recaptazaton whch was a
reorganzaton. (See Ct. D. 1641, page 357.)
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3G7
23(a), rt. 23(a)-.
INCOM T RULINGS. P RT III.
R NU CTS O 1935 ND 1934 OR PRIOR CTS.
S CTION 22(b) GROSS INCOM : CLUSIONS
ROM GROSS INCOM .
rtce 22(b) (4)-: Interest upon State 1045-24-12191
obgatons. I. T. 3772
R NU CTS O 1D26 ND 192 .
Revocaton of I. T. 3572 (C. . 1942-2,1ST).
In I. T. 2666 (C. . I-2, 69 (1932)) t was hed that nterest on
bonds ssued by corporatons formed under the act of the Legsature
of Indana whch was approved on March 10, 1927, for the purpose
of fnancng the acquston of schoo stes and the erecton of schoo
budngs n the case of a specfed cass of prvate schoo corporatons
of the State, was e empt from edera ncome ta . That rung was
revoked by I. T. 3572 (C. . 1942-2, 1 7) for the reason that t was
thought to be contrary n prncpe to the decson n eve rng v.
Mountan Producers Corporaton (303 U. S., 376, Ct. D. 1321, C. .
193 -1, 343).
Upon reconsderaton of the queston and n vew of the decsons n
state of e ander . Shamberg v. Commssoner (3 T. O, 131,
acquescence, page 6, ths uetn, affrmed, 144 ed. (2d), 99 , Ct. D.
164 . page 335, ths uetn, certorar dened, 323 U. S., 792) and
state of Carone Whte v. Comm aoner (3 T. O, 156, acquescence,
page , ths uetn, affrmed, 144 ed. (2d), 1019, Ct. D. 1647, page
65, ths uetn, certorar dened, 323 U. S., 792), t has been decded
to foow the prncpe of those cases wth respect to nterest on bonds
of the type referred to n I. T. 2666 and I. T. 3572, supra. It s hed,
therefore, that such nterest s e empt from edera ncome ta .
In vew of the foregong, I. T. 3572, supra, s revoked and I. T.
2GGG, supra, s renstated.
S CTION 23(a). D DUCTIONS ROM GROSS
INCOM : P NS S.
rtce 23(a)-: usness e penses.
R NU CT O 1921.
Contrbutons to the M Cvc ederaton whch suppes a ta nfor-
maton servce. I. T. 12 1 (C. . 1-1, 11 (1922)) modfed. (See
L T. 3735, page 9.)
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142, rt. 142-1. 36
P RT . R TURNS ND P YM NT O T .
S CTION 52. CORPOR TION R TURNS.
rtce 52-1: Corporaton returns. 1945-1-11923
I. T. 3704
R NU CTS O 101 ND 1924.
I. T. 2299 (C. . -2,121 (192G)) s modfed to renstate the pos-
ton taken n O. D. 476 (C. . 2, 222 (1920)), n conformty wth
the recommendaton contaned n G. C. M. 24423 (page 145, ths
uetn).
S CTION 112(f). R COGNITION O G IN OR LOSS:
IN OLUNT RY CON RSIONS.
ktce 112(f)-2: Repacement funds.
R NU CTS O 1C32 ND 1934.
Repacement fund account created wth respect to a condemnaton
award wthout obtanng permsson of Commssoner. (See Ct. D.
1655, page 362.)
SUPPL M NT D. R TURNS ND P YM NT O T .
S CTION 142. IDUCI RY R TURNS.
rtce 142-1: ducary returns. 1945- -12024
I. T.3730
R NU CT O 1921.
I. T. 1540 (C. . 1-2,17 (1922)) s modfed pursuant to the recom-
mendaton n G. C. M. 24617 (page 235, ths uetn).
rtce 142-1: ducary returns.
R NU CT O 1920.
ankrupt partnershp estates. G. C. M. 4 (C. . -, 270
(1931)) modfed. (See G. C. M. 24617, page 235.)
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MPLOYM NT T RULINGS.
INT RN L R NU COD .
C PT R 9, SU C PT R . D R L INSUR NC CONTRI UTIONS
CT.
Secton 1400: Rate of ta . 1945-3-11956
Reguatons 106, Secton 402.302: Rates and compu- T. D. 5430
taton of empoyees ta .
( so Secton 1400 Reguatons 106, Secton 402.402.)
TITL 26 INT RN L R NU C PT R I, SU C PT R D, P RT 402.
MPLOY S T ND T MPLOY RS T UND R T D R L INSUR-
NC CONTRI UTIONS CT.
Reguatons 100 amended to conform to Pubc Law 495 (Seventy-
eghth Congress), postponng unt anuary 1, 1040, the ncrease n
rates of the ta es under the edera Insurance Contrbutons ct.
Washngton, D. C.
edera Reguatons, Cum. Sup. , reatng to the empoyees ta and
the empoyers ta under the edera Insurance Contrbutons ct
Subchapter , Chapter 9, Interna Revenue Code), to Pubc Law 495
Seventy-eghth Congress), approved December 16, 1944, such regu-
Paragraph 1. Immedatey precedng secton 402.301, reatng to
measure of empoyees ta , the foowng s nserted:
PU LIC L .W 495 (S NTY- IG T CONGR SS), PPRO D
D C M R 16, 1944.
e t enacted by the enate and ouse of Representatves of the Unted
States of merca n Congress assembed, That (a) causes (1), (2),
(3), and (4) of secton 1400 of the edera Insurance Contrbutons ct
(secton 1400 of the Interna Revenue Code, reatng to the rate of ta
on empoyees) are amended to read as foows:
(1) Wth respect to wages receved durng the caendar years
1939, 1940, 1941, 1942, 1943, 1944, and 1945, the rate sha be 1 per
centum.
(2) Wth respect to wages receved durng the caendar years
1946,1947, and 194 , the rate sha be 2 per centum.
(3) Wth respect to wages receved after December 31, 191 , the
rate sha be 3 per centum.

Par. 2. Secton 402.302, as amended by Treasury Decson 5345,
approved March 14, 1944 C. . 1944, 543 , reatng to rates and
computaton of empoyees ta , s further amended to read as foows:
Sec. 402.302. Rates and Computaton of mpoyees Ta . The rates of em-
poyees ta appcabe for the respectve caendar years are as foows:
Per cent.
or the caendar years 1940, 1941. 1942, 1943, 1944, and 1945 1
or the caendar years 1946. 1947, and 194 2
or the caendar year 1949 and subsequent caendar years 3
(369)
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Regs. 106, 402.302.
370
The empoyees ta Is computed by appyng to the wages receved by the
empoyee the rate n effect at the tme such wages are receved.
ampe. Durng 1945 s an empoyee of and s engaged n the per-
formance of servces whch consttute empoyment (see secton 402.203). In
the foowng year, 104G, receves from 1,000 as remuneraton for servces
performed by n the precedng year. The ta s payabe at the 2 | per cent
rate n effect for the caendar year 1946 (the year In whch the wages are re-
ceved), and not at the 1 per cent rate whch s n effect for the caendar year
1945 (the year n whch the servces were performed).
Pah. 3. Immedatey precedng secton 402.401, reatng to measure
of empoyers ta , the foowng s nserted:
PU LIC L W 495 (S NTY- IG T CONGR SS), PPRO D
D C M R 10, 1944.
Unted States of merca n Congress assembed, That

(b) Causes (1), (2), (3), and (4) of secton 1410 of the edera
Insurance Contrbutons ct (secton 1410 of the Interna Revenue
Code, reatng to the rate of ta on empoyers) are amended to read
as foows:
(1) Wth respect to wages pad durng the caendar years 1939,
1940, 1941, 1942, 1943, 1944, and 1945, the rate sha be 1 per centum.
(- ) Wth respect to wages pad durng the caendar years 1946,
1947, and 194 , the rate sha be 2 , per centum.
(3) Wth respect to wages pad after December 31, 194 , the
rate sha be 3 per centum.
Pak. 4. Secton 402.402, as amended by Treasury Decson 5345, re-
atng to rates and computaton of empoyers ta , s further amended
to read as foows:
Sec. 402.402. Rates and Computaton of mpoyers Ta . The rates of em-
poyers ta appcabe for the respectve caendar years are as foows:
Per cent.
or the caendar years 1940. 1941, 1942, 1943,.1944, and 1945 1
or the caendar years 1946, 1947, and 194 2
or the caendar year 1949 and subsequent caendar years 3
The empoyers ta s computed by appyng to the wages pad by the empoyer
the rate n effect at the tme such wages are pad.
Par. 5. The ast paragraph of secton 402.705, as amended by Treas-
ury Decson 5345, reatng to speca refunds of empoyees ta on
wages over 3,000, s further amended to read as foows:
ampe. mpoyee receves ta abe wages n the amount of 2,000 from
each of hs empoyers, , Y, and Z, for servces performed (urng the caendar
year 1945, or a tota of 6,000 for such year. The frst 2,000 of such wages s
pad durng the caendar year 1945 by empoyer , who deducts empoyees ta
n the amount of 20 from s wages and pays such ta to the coector. The
second 2,000 of such wages s pad durng the caendar year 1945 by empoyer
Y, who pays empoyees ta n the amount of 20 to the coector wthout deduct-
ng such ta from s wages. mpoyer Z pays 1,000 of such wages to durng
the caendar year 1945 and 1,000 durng the caendar year 1940. The rate of
such ta for the year 1945 s 1 per cent and the rate for 1946 s 2 z per ct nt.
mpoyer Z deducts empoyees ta n the amount of 35 from such wages ( 10
durng 1945 and 25 durng 1946) and pays such ta to the coector. Thus,
empoyees ta n the tota amount of 55 s deducted from s wages and pad
to a coector. The amount of empoyees ta wth respect to the frst 3,000
of such wag s s 30. may fe a cam for refund of 25.
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371
Regs. 106, 402.204.
1940 ed., 1429) and Pubc Law 495 (Seventy-eghth Congress), ap-
proved December 16, 1944.)
oseph D. Nunan. r.,
os .ru . O Conne, r.,
( ed wth the Dvson of the edera Regster anuary 1 , 1945, 11.39 a. m.)
Secton 1400: ate of ta .
Reguatons 106, Secton 402.402: Rates and compu-
taton of empoyers ta .
Increase n rates of ta es postponed unt anuary 1, 1946, regua-
tons amended. (See T. D. 5430, page 369.)
Secton 1410: Rate of ta .
Reguatons 106, Skcton 402.403: When empoyers ta
attaches.
Treatment of wages for pay perod ended wthn caendar quarter
or vear, when pad after cose of such quarter or year. (See Mn.
5796. page 379.)
Secton 1420: Defntons. 1945-19-12143
Reguatons 106, Secton 402.204: Who are Mm. 5925
empoyees.
( so Subchapter C ( edera Unempoyment Ta ct),
Secton 1607 Reguatons 107, Secton 403.204.)
Status, for empoyment ta purposes, of commsson agents who
operate buk pants for o companes.
Oftce of Commssoner of Interna Revenue,
Washngton 2o, D. C, September 14, 1945.
1. In the cases of The Te as Co. v. ggns (C C. . 2 (1941). 11
ed. (2d), 636) and Indan Refnng Co. v. Daman (C. C. . 7
(1941), 119 ed. (2d), 417), two buk pant agents were hed not to
be empoyees of such companes wth respect to servces performed
by them n the operaton of buk pants of the companes.
2. Smar decsons were made n the cases of mercan O Co. v.
y (C. C. . 5 (1943), 135 ed. (2d), 491) and Orange State OU Co.
v- ahs (C. C. . 5 (1943), 13 ed. (2d), 743), Genn v. Standard
O Co. (C. C. . 6 (1945), 14 ed. (2d), 51) and Guf O Corpora-
ton v. Unted States (U. S. D. C. W. Pa. (1944), 57 ed. Supp.,
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Regs. 106, 402.204.
372
C S O T T S CO. v. IGGINS.
3. The facts upon whch The Te as Co. case was decded dscose
that the company s engaged n the o busness n many States and
uses dstrbutors (buk pant agents) as part of ts outet. The
dstrbutor contracted wth the company to se ts petroeum prod-
ucts as consgned to hm and to account for the proceeds when co-
ected to se such products at prces set by the company to bear a
e penses e cept freght and ta es on the products consgned to fur-
nsh hs own trucks and other equpment, whch must conform wth
the company s standards and at hs e pense to hre and pay the wages
of a necessary assstants, over whom he assumed fu contro and
responsbty and for whose acts he was to ndemnfy the company f
necessary. e was to remt day a hs coectons wthout deducton,
recevng commssons from the company upon hs saes n accordance
wth a f ed schedue.
4. The contract coud be termnated bv ether party on fve days
notce and the company coud buy out the pant at the amount the
dstrbutor had nvested n t. In accordance wth the contract, the
dstrbutor but and operated a dstrbutng staton at one pace n
whch he nvested 33,000 and another staton at a second pace n
whch he nvested 0,000. e conducted both statons under the
name O Company. t one staton he had four assstants whom
he hred and dscharged at hs peasure and whose wages, hours, and
workng condtons he determned. e pad a e penses arsng from
the operaton of the statons the teephone and bank account were n
hs name he dd some oca advertsng he dd not report to the com-
pany the saares he pad and he f ed the hours and da| s durng
whch the pants shoud be open. e purchased hs trucks and cars
wthout consutng the company he kept hs own records, wdch were,
however, audted by the company s e amners and he was not respon-
sbe for customers accounts e cept n so far as they e ceeded the credt
whch the company f ed for each customer. The company gave the
dstrbutor a manua settng out n much deta ts admontons as to
the proper way to operate one of ts buk statons. owever, the
court found that the dstrbutor was not requred to observe the
admontons.
C S O M RIC N OIL CO. v. LY.
5. In the case of the mercan O Co., three forms of contracts
were consdered coverng the operatons of corporate, partnershp, and
ndvdua dstrbutors conductng buk pants. The contracts dffer
n some detas but are n agreement n substance. Under the terms
of the contracts the company s to furnsh ts products for dstrbuton,
at a- whoesae storage and dstrbutng staton beongng to the com-
pany whch ncudes storage tanks, warehouses, swtch tracks, drve-
ways, and other factes and equpment, to be mantaned at the com-
pany s e pense. The products sent to the dstrbutors are to be se-
ected by the company the prces to the dstrbutors are f ed by the
company, devered to the staton n caroad ots and the products
reman the property of the company unt sod. The dstrbutors
are to furnsh at ther own e pense devery trucks, tanks, and other
equpment and bear a e penses of operatng them, and of unoadng
and dstrbutng the products, ncudng a e pense of the buk pant
operatons.
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373
Regs. 106, 402.204.
6. The dstrbutors are to carry abty nsurance to protect both
the company and themseves. They agree to pay on demand at prces
ed by the company for a commodtes devered to them whch
they have sod and to use ther best efforts to se and dstrbute the
argest possbe quantty, for cash, or at ther own rsk on credt, e cept
that the company may n wrtng seect customers t s wng to
credt, to whom the dstrbutors may se, reportng each such sae
and takng credt as though cash had been remtted. The proceeds of
other saes are to be remtted to or deposted to the credt of the com-
pany as drected, and accounts of a saes are to be kept sub|ect to
nspecton as may be requred by the company. The dstrbutors
have no rght to bnd the company by any contract, or assgn or dee-
gate ther dutes wthout the consent of the company. They may
empoy others to assst them who are stated to be ther agents and
empoyees and not those of the company, and sub|ect soey to ther
drecton and contro.
7. The dstrbutors are compensated by the named commssons per
gaon and per pound aowed n settement wth the company. The
contracts are for terrtores not specfcay defned and for an ndef-
nte perod canceabe by ether party on one day s notce. ach ds-
trbutor contros hs own hours and methods of work, and ses to such
gersons as he can proftaby reach at prces he can afford to quote,
tate and muncpa permts and censes for operatng the buk pant
are taken out and pad for by the company. The motor carrer permts
are taken out and pad for by the dstrbutors.
C S O GL NN v. ST ND RD OIL CO.
. The facts upon whch the Standard O Co. case was decded ds-
cose that the company carres on busness n severa States, dstrbut-
ng ts products through commsson agents n charge of ts buk ds-
trbutng pants. The company and such commsson agents entered
nto wrtten contracts, sub|ect to mmedate canceaton by ether
party, under whch the agents agreed to act for the company n the
sae of ts products on a commsson bass, n desgnated areas, recev-
ng, as ther entre compensaton therefor, specfed commssons on
the saes.
9. The company owns a the rea estate on whch the dstrbutng
pants are ocated, as we as the tanks stuated thereon, and the sta-
tons bear ts name. products devered to the agent by the com-
pany were aso ts property, for whch the agent was requred to ac-
count at reguar ntervas, by nventory reports. Cash recepts were
deposted day by the agent n the oca bank n the name of the com-
pany, and the company woud thereafter remt the commssons to the
agents at reguar ntervas. Certan customers approved by the com-
pany coud buy on credt. gents who sod to other customers on cred-
t assumed abty for ther faure to pay ther accounts. The agents
were requred to purchase ther own devery trucks, upon whch the
company paced ts own tanks, wth ts name panted thereon. In ad-
dton, the agents purchased, at ther own e pense, such offce equp-
ment and trucks as they consdered necessary to operate propery they
aso empoyed and pad a the truck drvers and other empoyees re-
qured to carry on the busness. The company had nothng to say
about the persons so empoyed by the agents t was not consuted and
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Regs. 106, 402.204.
374
ts approva was nether requred nor obtaned. ours of work for
such empoyees, vacaton perods, compensaton, rght of dscharge,
and rues respectng ther empoyment, were matters e cusvey wth-
n the contro of the commsson agents.
10. The company f ed the saes prces of ts products and the agents
generay conformed therewth. ut n cases where, for any reason,
they sod at prces ower than those f ed by the company, they took a
reducton n the amount of ther commsson. The company furnshed
the agents wth a rue book, entted Rues for Operaton of uk
Pants, whch detaed safety measures, provsons for the care of the
company s funds, repar and mantenance of ts property, and methods
for successfu operaton of the busness. In addton, the company
maed to the commsson agents, from tme to tme, certan crcuar
etters deang wth the proper operaton of the busness, and, on var-
ous occasons, hed saes conferences, whch the agents were asked to
attend. Twce a year an audtor empoyed by the company vsted
the statons and nspected the operatons and methods of dong bus-
ness, but gave no orders or nstructons. The agents kept, at ther
own e pense, the books reatng to the operaton of the pants, whch
were retaned by them when the contract reatonshp wth the com-
pany was termnated.
11. The agents had an nvestment n the busness, rangng from a
mnmum of 2,000 to a ma mum of 60,000. Operatons of the
agents ranged from sma commssons up to commssons of 31,000
per year. There was no requrement respectng the amount of tme
that the agents woud gve to the busness. Some agents gave fu
tme to the operaton of the company s buk pants others gave t
merey supervsory attenton, devotng not more than an hour, or
even ess, each day, and spent most of ther tme managng other
busnesses, or n other ganfu occupatons. ach agent operated the
buk pant n such a way as n hs opnon woud produce the greatest
hrng and dschargng hs own empoyees, and devotng as much or
as tte tme to the busness as was commensurate wth ts sze and
hs other nterests.
12. In conformty wth these decsons, the ureau w regard a
buk pant agents who operate under crcumstances substantay sm-
ar to those present n the cted cases as ndependent contractors, and
not as empoyees for edera empoyment ta purposes. ny such
buk pant agent who hres, pays, and contros empoyees on hs own
behaf s the empoyer of such empoyees for edera empoyment
ta purposes. The rung stated above, namey, that buk pant agents
are not empoyees, s restrcted to cases n whch the facts, as n the
decsons cted above, do not dscose such contro or rght of contro
over detas and means of operaton as s suffcent to estabsh the
reatonshp of empoyer and empoyee. If doubt e sts n a partcuar
case, such case shoud be referred to the ureau.
13. Correspondence reatng to ths mmeograph shoud refer to
ts number and the symbos C: RR.
voume of saes, payng hs own
1 1 -1 1 T 1
keepng hs own books,
POSITION O UR U.
oseph D. N tnan, r.,
Commssoner.
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375
Regs. 106, 402.215.
Secton 1426: Defntons. 1945-23-121 3
Reguatons 106, Secton 402.215: Regous, Ct. D. 1650
chartabe, scentfc, terary, and educa-
tona organzatons and communty chests.
( so Soca Securty ct, Secton 11
Reguatons 91, rtce 12.)
soca securty ta soca securty act nterna revenue code
D CISION of supreme court.
1. empt Corporatons Scentfc or ducatona Organzaton.
The etter usness ureau of Washngton, D. C, Inc., organzed
as a nonproft corporaton for the mutua wefare, protecton and
Improvement of busness methods among merchants nnd others, and
for the securng of the educatona and scentfc advancement of
1 busness methods so that merchants mght successfuy and proft-
aby conduct ther busness, s not e empt from soca securty ta es
as a corporaton organzed and operated e cusvey for scentfc or
educatona purposes wthn the meanng of secton 11(b) ( ) of the
Soca Securty ct and secton 1426(b) ( ) of the Interna Revenue
Code. Its actvtes are argey anmated by ths commerca pur-
pose and ts efforts are drected fundamentay to ends other than
scentfc or educatona.
2. Decson ffrmed.
Decson of the Unted States Court of ppeas for the Dstrct of
Coumba (14 ed. (2d), 14) nffrned.
etter usness ureau of Washngton, D. C, Inc., pettoner, v. Unted States
of merca.
G6 S. Ct., 112.
0a wrt of certorar to the Unted States Court of ppeas for the Dstrct of Coumba.
November 13, 1945.
opnon.
Mr. ustce Murphy.devered the opnon of the Court.
ere our consderaton Is drected to the queston of whether the pettoner, the
etter usness ureau of Washngton, D. C., Iuc, s e empt from soca securty
ta es as a corporaton organzed and operated e cusvey for scentfc or edu-
catona purposes wthn the meanng of secton 11(b) ( ) of the Soca Securty
ct
rom the stpuated statement of facts t appears that pettoner was organ-
zed In 1920 as a nonproft corporaton under the aws of the Dstrct of Coumba.
It has no shares of stock and no part of ts earnngs nures to the beneft of any
prvate sharehoder or ndvdua. Its offcers are eected annuay from ts
membershp they have merey nomna dutes and are pad no saary. Ony the
managng drector and a sma number of empoyees are pad. Membershp s
open to any person, frm, corporaton or assocaton nterested n better bus-
ness ethcs as may be eected by the board of trustees and pay vountary sub-
scrptons or dues.
149 Stat.. 620. 6.19, 42 U. S. C, secton 1011(b): The term empoyment means any
ervce. of whatever nature, performed wthn the Unted States by au empoyee for hs
empoyer, e cept

( ) Servce performed In the empoy of a corporaton, communty chest, fund, or
foundaton, organzed and operated e cusvey fur regous, chartabe, scentfc,
terary, or educatona purposes, or for the preventon of cruety to chdren or
anmas, no part of the net earnngs of whch nures to the beneft of any prvate
sharehoder or ndvdua.
n amendment to ths defnton, not here reevnnt. was added In 1930. The entre
defnton has been ncorporated nto secton 1426(b)( ) of the Interna Revenue Code
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Regs. 106, 402.215.
376
The charter of pettoner states that the ob|ect for whch t s formed s for
the mutua wefare, protecton and mprovement of busness methods among
merchants and other persons engaged n any and a busness or professons and
occupatons of every descrpton whatsoever that dea drecty or ndrecty wth
the pubc at arge, and for the educatona and scentfc advancements of bus-
ness methods among persons, corporatons or assocatons engaged n busness
n the Dstrct of Coumba so that the pubc can obtan a proper, cean, honest
and far treatment n ts deangs or transactons wth such merchants, trades-
men, corporatons, assocatons or persons foowng a professon and at the same
tme protectng the nterest of the atter casses of busnesses to enabe such as
are engaged n the same to successfuy and proftaby conduct ther busness and
for the further purpose of endeavorng to obtan the proper, |ust, far and effectve
enforcement of the ct of Congress approved May 29th. IG, otherwse known
as n ct to prevent frauduent advertsng n the Dstrct of Coumba.
In carryng out ts charter provsons, pettoner dvdes ts work roughy
Into fve subdvsons:
(1) Preventon of fraud by nformng nnd warnng members and the genera
pubc of the pans and schemes of varous types of swnders.
(2) ghtng fraud by brngng genera and abstract frauduent practces to
the attenton of the pubc.
(3) evaton of busness standards by showng and convncng merchants
that the appcaton of the doctrne of caveat emptor s not good busness
and by showng and convncng them that mseadng advertsng, e travagant
cams and prce comparsons are not good busness.
(4) ducaton of consumers to be ntegent buyers.
(5) Cooperaton wth varous governmenta agences nterested n aw en-
forcement.
Informaton whch the pettoner compes s avaabe to anyone wthout
charge and s communcated to the members and the pubc by means of the
rado, newspapers, buetns, meetngs and ntervews. Ths nformaton s aso
e changed wth the appro matey 5 other better busness bureaus n the Unted
States.
fter payng the soca securty ta es for the caendar years 1937 to 1941,
Incusve, pettoner fed cams for refunds, whch were dsaowed. Ths sut
to recover the ta es pad was then fed by pettoner n the dstrct court, whch
granted a moton for summary |udgment for the Unted States. The court beow
affrmed the |udgment (14 ed. (2d), 14), and we granted certorar, the Tenth
Crcut Court of ppeas havng readed a contrary resut n ones v. etter us-
ness ureau of Okahoma Cty (123 ed. (2d), 767).
Pettoner cams that t quates as a corporaton organzed and operated
e cusvey for scentfc or educatona purposes
no part of the net earnngs of whch nures to the beneft of any prvate share-
hoder or Indvdua wthn the meanng of secton 11(b)( ) of the Soca
Securty ct and hence s e empt from payment of soca securty ta es. No
serous asserton s made, however, that pettoner s devoted e cusvey to
scentfc purposes. The basc contenton s that a of ts purposes and actvtes
are drected toward the educaton of busness men and the genera pubc.
Merchants are taught to conduct ther busnesses honesty, whe consumers are
taught to avod beng vctmzed and to purchase goods ntegenty. We |on
wth the courts beow n re|ectng ths contenton.
It has been urged that a bera constructon shoud be apped to ths e empton
from ta aton under the Soca Securty ct In favor of regous, chartabe
and educatona nsttutons. (Cf. Trndad v. tagrada Orden, 263 U. S., 57
T. D. 354 , C. 1 . III-, 270 (1924) everng v. ss, 293 U. S., 144 Ct. D. S4,
C. . III-2, 191 (1934) .) ut t s unnecessary to decde that ssue here.
(Cf. assctt v. ssocated ospta Servce Corporaton, 125 ed. (2d), 611
(C. C. . 1).) ven the most bera of constructons does not mean that statu-
tory words and phrases are to be gven unusua or tortured meanngs un|ustfed
by egsatve Intent or that e press mtatons on such an e empton are to be
gnored. Pettoner s contenton, however, demands precsey that type of statu-
tory treatment. ence t can not preva.
In ths nstance, n order to fa wthn the camed e empton, an organzaton
must be devoted to educatona purposes e cusvey. Ths pany means that
the presence of a snge noneducatona purpose, f substanta n nature, w
destroy the e empton regardess of the number or mportance of truy educa-
tona purposes. It thus becomes unnecessary to determne the correctness of
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377
Regs. 106, 402.215.
the educatona characterzaton of pettoner s operatons, t beng apparent
beyond dspute that an mportant f not the prmary pursut of pettoner s organ-
zaton s to promote not ony an ethca but aso a proftabe busness communty.
The e empton s therefore unavaabe to pettoner.
The commerca hue permeatng pettoner s organzaton s refected n s
corporate tte and n the charter provsons dedcatng pettoner to the promo-
ton of the mutua wefare, protecton and mprovement of busness methods
among merchants and others and to the securng of the educatona and
scentfc advancements of busness methods so that merchants mght success-
fuy and proftaby conduct ther busness. Pettoner s actvtes are argey
anmated by ths commerca purpose. Unethca busness practces and fraudu-
ent merchandsng schemes are nvestgated, e posed and destroyed. Such efforts
to ceanse the busness system of dshonest practces are hghy commendabe and
may even serve ncdentay to educate certan persons. Itut they are drected
fundamentay to ends other than that of educaton. ny cam that educaton
s the soe am of pettoner s organzaton s thereby destroyed. (See etter
usness ureau v. Dstrct Unempoyment Compensaton oard, 34 . 2d, 014
D. C. Mun. pp.).)
The egsatve hstory of secton 11(b)( ) of the Soca Securty ct con-
frms the concuson that pettoner s not e empt under that secton. Ths pro-
vson was drawn amost verbatm from secton 101(6) of the Interna Revenue
Code, deang wth e emptons from ncome ta aton. nd Congress has made
t cear, from ts commttee reports, that t meant to ncude wthn secton
S(b) ( ) ony those organzatons e empt from the ncome ta under secton
101(G).1 Sgnfcanty, however, Oongrees dd not wrte nto the Soca Securty
ct certan other e emptons emboded n te ncome ta provsons, especay
the e empton n secton 101(7) of busness eagues, chambers of commerce,
rea-estate boards, or boards of trade. Pettoner cosey resembes such organ-
satons and has, ndeed, secured an e empton from the ncome ta under secton
101 (7) as a busness eague. 1 Thus Congress has made, for ncome ta e emp-
ton purposes, an unmstakabe demarcaton between corporatons organzed and
operated e cusvey for educatona purposes and those organzatons n the
nature of busness eagues and the ke. Its manfest desre to ncude ony the
former wthn the meanng of secton 11(b)( ) of the Soca Securty ct
prevents us from construng the anguage of that secton to Incude an organza-
ton ke pettoner.
Moreover, n amendng the Soca Securty ct In 1039, Congress created certan
new e emptons by provdng, nter aa, that an organzaton e empt from
ncome ta es under any of the subdvsons of secton 101 of the Interna It -venue
Code was aso e empt from soca securty ta es as to those empoyees recevng
do more than S4o n a caendar quarter.4 The Congressona commttee reports
referred specfcay to busness eagues, chambers of commerce, rea estate
boards, and boards of trade as beng ncuded among those organzatons
e empt from ncome ta es and affected by ths new parta e empton from
soca securty ta es. The nescapabe nference from ths s that such organ-
zatons, of whch pettoner s an e ampe, reman sub|ect tq soca securty ta es
as to hgher pad empoyees. No contenton has been made that any of pet-
toner s empoyees are wthn the ow-pad category.
nay, a Treasury reguaton defnng an educatona organzaton as one
desgned prmary for the mprovement or deveopment of the capabtes of
The organzatons whch w be e empt from such socn securty ta es are churches,
choos, coeges, and other educatona nsttutons not operated for prvate proft, the
Y 51. C. ., the Y. W. C. ., the Y. M. . ., the Savaton rmy, and other organzatons
ccn are e empt from ncome ta under secton 101 (6) of the Revenue ct of 1 32. ( .
ept. No. 615, Seventy-fourth Congress, fst sesson, page 33 S. ept. No. 02 , Seventy-
oo rtU Congress, frst sesson, page 45.)
Pettoner states that t was ncorporated under the provson of the Dstrct of Coumba
Code reatng to educatona and scentfc Insttutons and t asserts that f t were another
type of nsttuton t woud have been requred to ncorporate under some other code prov-
son. ut pettoner s cassfcaton for ncorporaton purposes has no more reevance for
purposes of e empton from soca securty ta es than t has for purposes of Income ta
e empton, as to whch pettoner has been cassfed as a busness eague rather than as an
educatona or scentfc nsttuton.
53 Stat., 1360, 1374, 1334 42 . S. C, secton 409(b) (10) 26 II. S. C, secton
142 b 10).
0. Rept. No. 72 (Seventy-s th Congress, frst sesson), pases 47-4 S. ept. No. 734
(Seventy-s th Congress, frst sesson), page 57. ducatona Insttutons of the type
aremv e empt under secton 11 (b) ( ) were not mentoned In ths respect.
rtce 101(61-1 of Treasury Reguatons 6.
6 4354 46- 25
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Regs. 107, 403.502.
37
the ndvdua for purposes of secton 101(6) of the Interna Revenue Code
was n effect at the tme when fongress used that secton n framng secton
11(b)( ) of the Soca Securty ct. n Identca defnton has been pro-
mugated under secton 11(b)( ) and pettoner admttedy does not meet Its
terms.7 Under the crcumstances the admnstratve defnton s hghy ree-
vant and matera evdence of the probabe genera understandng of the tmes
and of the opnons of men who probaby were actve n the draftng of the
statute. (Whte v. Wnchester Cub, 315 U. S., 32, 41 Ct. D. 153 , C. .
1942-1, 272 .) It ends persuasve weght to the concuson we have reached.
or the foregong reasons the udgment of the court beow s
ffrmed.
Secton 1430: Other aws appcabe.
Reguatons 106, Secton 40 2.602: When to report wages.
or year, when pad after cose of such quarter or year. (See Mm.
579(5, page 379.)
C PT R 9, SU C PT R C D R L UN MPLOYM NT T CT.
Secton 1600: Rate of ta .
Reguatons 107, Secton 403.304: When wages are pad.
5796, page 379.)
Secton 1607: Defntons.
Reguatons 107, Secton 403.204: Who are empoyees.
uk pant operators. (See Mm. 5925, page 371.)
Secton 1610: Other aws appcabe.
Reguatons 107, Secton 403.502: When to report wages.
5796, page 379.)
rtce 12 of Treasury Reguatons 1 secton 402.215 of Treasury Reguatons 106.
The defnton further states that under e ceptona crcumstances an educatona organ-
saton may ncude an assocaton whose soe purpose s the Instructon of the pubc,
or an assocaton whose prmary purpose s to gve ectures on sub|ects usefu to the n-
dvdua and benefca to the communty, even though an assocaton of ether cass has
Incdenta amusement features. No e ceptona crcumstances are apparent In
pettoner s case and, moreover, nether e ceptona category fts the pettoner.
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379 Regs. 91, rt. 203.
T S UND R T SOCI L S CURITY CT.
TITL III. T S WIT R SP CT TO MPLOYM NT.
Secton 01: Income ta on empoyees. 1945-2-11944
Reguatons 91, rtce 203: When empoyees Mm. 5796
ta attaches.
( so Secton 04 Reguatons 91, rtce 303
aso Subchapter ( edera Insurance Con-
trbutons ct), Sectons 1410 and 1430 Regua-
tons 106, Sectons 402.403 and 402.602 and
Subchapter C ( edera Unempoyment Ta
ct), Sectons 1600 and 1610 Reguatons 107,
Sectons 403.304 and 403.502.)
mpoyment ta es Treatment of wages for pay perod ended
wthn caendar quarter or year, when pad after cose of such
quarter or year.
S. S. T. 227 (C. . 1937-2, 36 ) revoked.
Washngton 25, D. C, December ,1944.
1. ach empoyer of one or more empoyees s requred under the
edera Insurance Contrbutons ct to report the wages of such
empoyees on a quartery return on orm SS-a. ach empoyer
of eght or more empoyees, as defned n the edera Unempoyment
Ta ct, s requred under that ct to report the wages of such em-
poyees on an annua return on orm 940. Numerous nqures have
been receved as to the proper tme to report such wages when they
are pad after the cose of a ta -return perod (caendar quarter or
year) for a pay-ro perod whch ended n such ta -return perod.
Many pay-ro perods end, for e ampe, on December 31 of a caendar
year, but the empoyees do not receve ther wages unt the foowng
year.
2. The genera rue s that wages sha be reported n the ta return
for the perod n whch they are actuay pad uness they were con-
structvey pad n a pror ta -return perod, n whch case such wages
sha be reported onv n the return for such pror perod. (Secton
402.602 of Reguatons 106 and secton 403.502 of Reguatons 107.)
Wages are constructvey pad when they are credted to the account
of or set apart for an empoyee so that they may be drawn upon by
hm at any tme athough not then actuay reduced to possesson. To
consttute payment n such a case the wages must be credted or set
apart to the empoyee wthout any substanta mtaton or restrcton
as to the tme or manner of payment or condton upon whch payment
s to be made, and must be made avaabe to hm so that they may
be drawn at any tme, and ther payment brought wthn hs own
contro and dsposton. (Secton 402.403 of Reguatons 106 and
secton 403.304 of Reguatons 107.)
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Regs. 91, rt. 12.
3S0
3. In S. S. T. 227 (C. . 1937-2, 36 ), the ureau of Interna
Revenue rued that constructve payments of wages are made under
the foowng crcumstances:
It s stated that the wages of the empoyees of the M Company for a partcuar
pay-ro perod are credted to the empoyees accounts at the termnaton of such
perod. owever, actua payment of the wages s deferred unt the foowng
month because of the mpossbty of preparng the entre pay ro n tme for
payment on the ast day of the month n whch the wages are earned. The
empoyees, however, have the unrestrcted rght to demand and receve payment
of such wages at the tme credted to ther accounts and at any tme thereafter.
4. Reconsderaton of the rung pubshed as S. S. T. 227 resuts n
the concuson that such rung s erroneous, and t s hereby revoked.
It was stated n such rung that payment of the wages s deferred
because of the mpossbty of preparng the entre pay ro n tme
for payment on the ast day of the month n whch the wages are
earned. The mpossbty of preparng the entre pay ro n tme
for payment on the ast day of the month mposes a substanta m-
taton or restrcton as to the tme or manner of payment, and effec-
tvey nufes the empoyer s pocy of payng wages on demand at
the end of the month. Under these crcumstances the wages are not
pad, for edera empoyment ta purposes, unt the foowng
month, and there s no constructve payment n the month n whch
the wages were earned.
5. When checks n payment of wages are prepared and maed on
or before the ast day of a ta -return perod, and the empoyer thus
has done a n hs power to pay the wages, actua payment of such
wages w be deemed to have been made on or before such ast day.
In other cases n whch an empoyer customary pays, and s prepared
to pay, hs empoyees on a certan day, constructve payment of wages
w be deemed to have been made to any empoyee who dd not actuay
receve hs wages on that day due to absence or other causes not wthn
the empoyer s contro.
6. Correspondence reatng to ths mmeograph shoud refer to ts
number and to the symbos C: RR.
Geo. . Schoeneman,
ctng Commssoner.
Secton 04: cse ta on empoyers.
Reguatons 91, rtce 303: When empoyers ta attaches.
Constructve payment and recept of wages. (See Mn. 5796,
page 379.)
Secton 11: Defntons.
Reguatons 91, rtce 12: Regous, char-
tabe, scentfc, terary, and educatona
organzatons and communty chests.
mpoyment ta status of better busness bureau. (See Ct. D. 1650,
page 375 )
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MISC LL N OUS T RULINGS.
ST T T .
INT RN L R NU COD .
1945-12-12064
T. D. 5455
T TION PURSU NT TO TR TI S C N D .
Reguatons reatng to estate ta pursuant to conventon between
the Unted States and Canada, procamed by the Presdent of the
Unted States on March 6, 1W5.
Washngton 25, D. C.
Tabe or Contents.
Secton.
2.1. Introductory.
2.2. Scope of reguatons.
23. Domce and ctzenshp.
2.4. Stus of property.
2.5. Ta aton on bass of domce or ctzenshp.
2.6. Ta aton on bass of stus of property.
52.7. Credt for Canadan successon dutes.
2. . Informaton furnshed by each contractng country to the other.
52.9. Doubtfu questons.
2.10. Protests by nterested persons.
Secton 2.1. Introductory. The procamaton of the Presdent
of the Unted States, contanng the te t of the conventon between
the Unted States and Canada reatng to edera estate ta es and
Domnon successon dutes (herenafter referred to as the conventon),
s set forth beow:
Y T PR SID NT O T UNIT D ST T S O M RIC
PROCL M TION
Whereas a conventon between the Unted States of merca and Canada for
the avodance of doube ta aton and the preventon of fsca evason In the case
f estate ta es and successon dutes was sgned by ther res ectve penpoten-
tares at Ottawa on the th day of une, one thousand nne hundred forty-four,
the orgna of whch conventon Is word for word as foows:
The Government of the Unted States of merca and the Government of
Canada, beng desrous of avodng doube ta aton and of preventng fsca eva-
son n the case of estate ta es and successon dutes, have decded to concude a
conventon and for that purpose have apponted as ther penpotentares:
Ray therton, mbassador traordnary and Penpotentary of the
Unted States of merca at Ottawa, for the Unted States of merca and
W. L. Mac enze ng, Secretary of State for terna ffars, and Con
W. G. Gbson, Mnster of Natona Revenue, for Canada.
(3 1)
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3 2
Who, havng communcated to one another ther fu powers found n good and
due form, have agreed upon the foowng artces
rtce I.
1. The ta es referred to In ths conventon are:
(a) for the Unted States of merca the edera estate ta es
(6) for Canada the ta es mposed under the Domnon Successon Duty
ct.
2. In the event of apprecabe changes n the fsca aws of ether contractng
State, the competent authortes of the contractng States w consut together.
rtce II.
1. Rea property stuated n Canada sha be e empt from the appcaton
of the ta es mposed by the Unted States of merca.
2. Rea property stuated In the Unted States of merca sha be e empt
from the appcaton of the ta es mposed by Canada.
3. Te queston whether rghts reatng to or secured by rea property are to
be consdered as rea property for the purposes of ths conventon sha be de-
termned n accordance wth the aws of the contractng State mposng the ta .
rtce III.
1. Shares n a corporaton orgnnzed In or under the aws of the Unted States
of merca, of any of the States or Terrtores of the Unted States of merca,
or of the Dstrct of Coumba, sha be deemed to be property stuated wthn
the Unted States of merca.
2. Shares n a corporaton organzed n or under the aws of Canada, or of
any of the Provnces or Terrtores of Canada, sha be deemed to be property
stuated wthn Canada.
3. Ths artce sha not be construed as mtng the abty of the estate of
any person not domced n Canada or of any ctzen of the Unted States of
merca, under the estate ta aws of the Unted States of merca.
rtce I .
1. The stus of property sha be determned n accordance wth the aws of
the contractng State mposng the ta , e cept as otherwse provded n ths
conventon.
2. owance for debts sha be determned n accordance wth the aws of
the contractng State mposng the ta .
3. Domce sha be determned n accordance wth the aws of the contract-
ng State mposng the ta .
rtce .
1. In the case of a decedent who at the tme of hs death was a ctzen of,
or domced n, the Unted States of merca, the Unted States of merca may
ncude n the gross estate any property (other than rea property) stuated
n Canada as though ths conventon had not come nto effect.
2. In the case of a decedent (other than a ctzen of the Unted States of
merca) who at the tme of hs death was domced n Canada, the Unted
States of merca sha, n mposng the ta es to whch ths conventon reates:
(a) take nto account ony property stuated n the Unted States of
merca and
(6) aow as an e empton an amount whch bears the same rato to the
persona e empton aowed n the case of a decedent who was at the tme
of hs death a ctzen of, or domced In, the Unted States of merca as
the vaue of the property of such decedent stuated n the Unted States of
merca bears to the vaue of the property ncuded n the entre gross
estate of the decedent.
3. In the case of a decedent who at the tme of hs death was domced n
Canada, Canada may ncude n the gross estate any property (other than rea
property) stuated n the Unted States of merca as though ths conventon
had not come nto effect.
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Msc.
the Unted States of merca, Canada sha, n mposng the ta es to whch ths
conventon reates:
(a) take Into account ony property stuated In Canada and
(6) aow as an e empton an amount whch bears the same rato to
the persona e empton aowed In the case of a decedent who was at the
tme of hs death domced n Canada as the vaue of the property of such
decedent stuated n Canada bears to the entre vaue of the property,
wherever stuated.
rtce I.
1. In the case of a decedent who at the tme of hs death was a ctzen of or
domced n the Unted Stntes of merca, the Unted States of merca sha
mpose the estate ta es to whch ths conventon reates upon the foowng
condtons:
(a) In respect of property stuated n Canada whch, for the purpose
of estate ta es, s ncuded n the gross estate, ess such property as Is
specfcay deducted therefrom (ether because of transfer for pubc,
chartabe, educatona, regous or smar uses or because the property
has been prevousy ta ed under provsons of aw reatng to property
prevousy ta ed), there sha be aowed aganst the estate ta es a credt
for Canadan successon ta es n respect of the property stuated n Canada,
the stus of such property beng determned n accordance wth the aws
of Canada, sub|ect to the provsons of ths conventon.
(6) The porton of the Canadan successon ta es to be aowed as a
credt aganst Unted States estate ta es sha be an amount whch bears
the same rato to the tota Canadan successon ta es as the vaue of the
property stuated In Canada and wth respect to whch estate ta es are
mposed by the Unted States of merca bears to the tota vaue of the
pro erty wth respect to whch successon ta es are mposed by Canada.
(c) The credt n any such case sha not e ceed an amount whch bears
the same rato to such estate ta es, computed wthout the credt provded
for heren, as the vaue of the property stuated n Canada and not e cuded
or deducted from the gross estate as provded n (a) bears to the vaue of
the entre gross estate.
(d) The vaues referred to n (c) are the vaues determned by the Unted
States of merca for the purpose of estate ta es.
(e) The credt provded for heren sha appy after the appcaton of
secton 13 (b) of the Interna Revenue Code, as amended by the Revenue
ct of 1942.
Canada, Canada sha mpose the successon ta es to whch ths conventon
reates upon the foowng condtons:
(a) In respect of property stuated n the Unted States of merca whch,
for the purpose of successon ta es, s ncuded n the gross estate, ess
such property as s specfcay deducted therefrom (because of transfer
for chartabe, educatona, regous or smar uses), there sha be aowed
aganst the successon ta es a credt for Unted States estate ta es n
respect of the property stuated n the Unted States of merca, the stus
of such property beng determned n accordance wth the aws of the Unted
States of merca, sub|ect to the provsons of ths conventon.
(6) The portou of the Unted States estate ta es to be aowed as a
credt aganst Canadan successon ta es sha be an amount whch bears
the same rato to the tota Unted States estate ta es as the vaue of the
property stuated n the Unted States of merca and wth respect to whch
successon ta es are mposed by Canada bears to the tota vaue of the
property wth respect to whch estate ta es are mposed by the Unted
States of merca.
(c) The credt n any such case sha not e ceed an amount whch bears
the same rato to such successon ta es, computed wthout the credt provded
for heren, as the vaue of the property stuated n the Unted States of
merca and not e cuded or deducted from the gross estate as provded
n (a) bears to the entre vaue of the property, wherever stuated.
(d) The vaues referred to n (c) are the vaues determned by Canada
for the purpose of successon ta es.
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3 4
S. ( ) The credt referred to n ths artce may be aowed by the Unted
States of merca If cam therefor s fed wthn the perods provded n
secton 13(b) of the Interna Revenue Code, as amended.
(6) The credt referred to In ths artce may be aowed by Canada f cam
therefor s fed wthn the perod provded by subsecton 4 of secton 35 of the
Domnon Successon Duty ct reatng to refund of overpayment.
(c) refund based on the credt may be made f a cam therefor s fed
wthn the respectve perods above provded.
(d) ny refund based on the provsons of ths artce or any other provsons
of ths conventon sha be made wthout nterest.
rtce II.
1. Wth a vew to the preventon of fsca evason each of the contractng States
undertakes to furnsh to the other contractng State as provded n the succeedng
artces of ths conventon, the Informaton whch ts competent authortes have
at ther dsposa or are n a poston to obtan under ts revenue aws n so far
as such nformaton may be of use to the authortes of the other contractng
State n the assessment of the ta es to whch ths conventon reates.
2. The nformaton to be furnshed under ths artce, whether n the ordnary
course or on request, may be e changed drecty between the competent authortes
of the two contractng States.
btck III.
1. The Commssoner sha notfy the Mnster as soon as practcabe when
the Commssoner ascertans that n the case of:
(a) a decedent, any part of whose estate s sub|ect to the edera estate
ta aws, there s property of such decedent stuated In Canada
(ft) a decedent domced n Canada, any part of whose estate s sub|ect
to the Domnon Successon Duty ct, there s property of such decedent
stuated n the Unted States of merca.
2. The Mnster sha notfy the Commssoner as soon as practcabe when
the Mnster ascertans that n the case of:
(a) a decedent, any part of whose estate s sub|ect to the Domnon
Successon Duty ct, there s property of such decedent stuated n the
Unted States of merca
(6) a decedent domced n the Unted States of merca, any part of
whose estate s sub|ect to the edera estate ta aws, there s property of
such decedent stuated n Canada.
rtce I .
1. If the Mnster deems t necessary to obtan the cooperaton of the Com-
mssoner n determnaton of the successon ta abty of any person, the
Commssoner may, upon request, furnsh the Mnster such Informaton bearng
upon the matter as the Commssoner Is entted to obtan under the revenue
aws of the Unted States of merca.
2. If the Commssoner deems It necessary to obtan the cooperaton of the
Mnster In the determnaton of the estate ta abty of any person, the
Mnster may, upon request, furnsh the Commssoner such nformaton bearng
upon the matter as the Mnster s entted to obtan under the revenue aws of
Canada.
rtce .
The competent authortes of the contractng States may:
(a) prescrbe reguatons to carry nto effect ths conventon wthn the
respectve States and rues wth respect to the e change of nformaton
(6) f doubt arses, sette questons of Interpretaton or appcaton of ths
conventon by mutua agreement
(c) communcate wth each other drecty for the purpose of gvng effect
to the provsons of ths conventon.
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rtce I.
If any fducary or benefcary can show that doube ta aton has resuted or
may resut n respect of the ta es to whch ths conventon reates, such fducary
or benefcary sha be entted to odge a cam or protest wth the State of ctzen-
shp or domce of such fducary or benefcary, or, f a corporaton or other
entty, wth the State n whch created or organzed. If the cam or protest
shoud be deemed worthy of consderaton, the competent authorty of such State
may consut wth the competent authorty of the other State to determne whether
the aeged doube ta aton e sts or may occur and f so whether It may be
avoded n accordance wth the terms of ths conventon.
rtce II.
The provsons of ths conventon sha not be construed to restrct n any
manner any e empton, deducton, credt or other aowance accorded by the
aws of one of the contractng States n the determnaton of the ta mposed
by such State.
rtce III.
1. s used n ths conventon:
(a) The term Mnster means the Mnster of Natona Revenue of
Canada or hs duy authorzad representatve.
(6) The term Commssoner means the Commssoner of Interna
Revenue of the Unted States of merca, or hs duy authorzed representa-
tve.
(c) The term competent authorty or competent authortes means
the Commssoner and the Mnster and ther duy authorzed representatves.
2. When used n a geographca sense:
(o) The term Unted States of merca ncudes ony the States, the
Terrtory of aska, the Terrtory of awa, and the Dstrct of Coumba.
(6) The term Canada means the Provnces, the Terrtores and Sube
Isand.
rtce I .
1. Ths conventon sha be ratfed and the nstruments of ratfcaton sha
be e changed at Washngton as soon as possbe.
2. Ts conventon sha be deemed to have come nto effect on the 14th
day of une, 1941. It sha contnue n effect for a perod of fve years from
that date and ndefntey after that perod, but may be termnated by ether
of the contractng States at the end of the 5-year perod or at any tme there-
after provded that at east s months pror notce of termnaton has been
gven.
Done n dupcate, at Ottawa, ths th day of une, 1 44.
sea. Ray tterton.
W. L. Mackenze no.
Con Gbson.
nd whereas the sad conventon has been ratfed on both parts, and the
Instruments of ratfcaton of the two Governments were e changed at Wash-
ngton on the Cth day of ebruary, one thousand nne hundred forty-fve
nd whereas t s provded n rtce I of the sad conventon that the
conventon sha be deemed to have come nto effect on the 14th day of une,
one thousand nne hundred forty-one
Now, therefore, be t known that I, rankn D. Roosevet, Presdent of the
Unted States of merca, do hereby procam and make pubc the sad conven-
ton to the end that the same and every artce and cause thereof may be ob-
served 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 come nto
effect on the 14th day of une, one thousand nne hundred forty-one.
I| testmony whereof, I have hereunto set my hand and caused the Sea
of the Unted States of merca to be aff ed.
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3 6
Done at the cty of Washngton ths 6th day of March n the year of our Lord
one thousand nne hundred forty-fve, and of the ndependence of the Unted
States of merca the one hundred s ty-nnth.
sea. rankn d. Roosevet.
y the Presdent:
oseph C. Grew,
ctng Secretary of State.
Secton 3791 of the Interna Revenue Code provdes as foows:
(a) uthorzaton.
(1) In genera. the Commssoner, wth the approva of the
Secretary, sha prescrbe and 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 Com-
mssoner wth the approva of the Secretary, may prescrbe the e tent, f any,
to whch any rung, reguaton, or Treasury decson, reatng to the nterna
revenue aws, sha be apped wthout retroactve effect.
Sec. 2.2. Scope of Reguatons. These reguatons pertan to the
appcaton of the edera estate ta es as modfed under the prov-
sons of the conventon n cases of decedents dyng on or after une
14, 1941, who were domced n ether the Unted States or Canada,
or who were ctzens of the Unted States. These reguatons aso
pertan to reated admnstratve matters and to the furnshng of
nformaton by the ta authortes of each country to such authortes
of the other country whch may be usefu n the determnaton and
enforcement of the edera estate ta es and the Domnon successon
dutes.
The provsons of the conventon are restrcted to the estate ta es
mposed by the edera Government and the successon dutes mposed
by the Domnon Government, and do not comprehend estate, nhert-
ance, egacy, or successon ta es mposed by any State, Terrtory, the
Dstrct of Coumba, or possesson of the Unted States or death dutes
mposed by any Provnce or Terrtory of Canada. (Paragraph 1 of
rtce I of the conventon.) The credt aganst the edera estate
ta , authorzed by secton 13(b) of the Interna Revenue Code, as
amended, for estate, nhertance, egacy, or successon ta es pad any
State, Terrtory, the Dstrct of Coumba, or possesson of the Unted
States, s not affected. (Paragraph 1(c) of rtce I of the
conventon.)
Sec. 2.3. Domce and Ctzenshp. Determnatons wth respect
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 con-
venton, and f so, such determnatons are necessary for two further
purposes, . e., frst, n order to ascertan the property 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. or 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.
(Paragraph 3 of rtce III, paragraph 3 of rtce I , and para-
graphs 1 and 2 of rtce I of the conventon.) Where n a partcu-
ar case ony one of the contractng countres asserts ta by reason of
the decedent s beng domced theren, the other contractng country
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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.
or the purpose of determnng whether the decedent was domced
n ether the Unted States or Canada at tme of death, the Unted
States ncudes the States thereof, the Terrtory of aska, the Terr-
tory of awa, and the Dstrct of Coumba, and Canada ncudes the
Provnces and Terrtores thereof and Sabe Isand. (Paragraph 2
of rtce III of the conventon.)
Sec. 2.4. 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 wth
respect to property stuated n the other country whch s party to the
conventon. or such purposes, and sub|ect to the provsons of
the conventon e paned n the ne t paragraph, the stus of property
sha be determned n accordance wth the aws of the contractng
country whch mposes the ta by reason of stus of property theren
or whch mposes the ta for whch credt s aowed by the other con-
tractng country. (Paragraph 1 of rtce I , and paragraphs 1(a)
and 2(a) of rtce I of the conventon.)
The stus rues of both countres have been changed by the conven-
ton wth respect to shares of stock n mercan and Canadan corpora-
tons. ( rtce III of the conventon.) Under the conventon, n the
case of the estate of a decedent domced n ether the Unted States
or Canada at tme of death, or n the case of the estate of a decedent
who was a ctzen of the Unted States at tme of death, shares of the
capta stock of a corporaton organzed n or under the aws of the
Unted States, a State or Terrtory of the Unted States, or the Dstrct
of Coumba, are deemed stuated ony n the Unted States, and shares
of the capta stock of a corporaton organzed n or under the aws
of Canada, or a Provnce or Terrtory of Canada, are deemed stuated
ony n Canada. Thus n such a case shares of stock of a Canadan
corporaton are not regarded as stuated n the Unted States even f
the stock certfcates are ocated n the Unted States, and shares of
stock of an mercan corporaton are not regarded as stuated n
Canada even f the stock certfcates and the transfer regstry are
ocated n Canada.
The conventon does not change the stus rues n cases of estates
of decedents not ctzens of the Unted States and not domced n
ether country, and accordngy n such cases, for the purposes of the
edera estate ta shares of stock of Canadan corporatons are re-
garded as stuated n the Unted States f the stock certfcates are
ocated n the Unted States.
oth the Unted States and Canada e empt rea property stuated
outsde the ta ng country, and the conventon confrms such rues n
so far as rea property stuated n the Unted States or Canada s con-
cerned. The conventon provdes that the queston whether rghts re-
atng to or secured by rea property are to be consdered as reaty or
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3 S
personaty w be determned n accordance wth the aws of the con-
tractng country mposng the ta . ( rtce II of the conventon.)
or the purpose of determnng whether property s stuated n
ether the Unted States or Canada, the Unted States ncudes the
States thereof, the Terrtory of aska, the Terrtory of awa, and
the Dstrct of Coumba, and Canada ncudes the Provnces and Ter-
rtores thereof and Sabe Isand. (Paragraph 2 of rtce III of
the conventon.)
Seo. 2.5. Ta aton o ass of Domce or Ctzenshp. In the
case of the estate of a decedent domced n or a ctzen of the Unted
States at tme of death, the Unted States w contnue to ncude n
the gross estate and sub|ect to the edera estate ta any property
stuated n Canada, other than rea property, and the conventon makes
no change n ths respect, e cept as to the credt provded n paragraph
1 of rtce I of the conventon. (Paragraph 1 of rtce of the
conventon.) In the case of the estate of a decedent domced n
Canada at tme of death, Canada w contnue to ncude n the gross
estate and sub|ect to the Domnon successon dutes any property st-
uated n the Unted States, other than rea property, and the conven-
ton makes no change n ths respect, e cept as to the credt provded
n paragraph 2 of rtce I of the conventon. (Paragraph 3 of
rtce of the conventon.)
Sec. 2.6. Ta aton on ass of Stus of Property. In the case
of the estate of a decedent who at tme of death (on or after une
14, 1941) was domced n Canada and not a ctzen of the Unted
States, n mposng the edera estate ta , the Unted States sha:
(a) Take nto account ony property stuated n the Unted
States, and
(b) ow for each specfc e empton an amount not ess than
that proporton of the specfc e empton authorzed for the
estate of a decedent domced n the Unted States whch the
vaue of the property stuated n the Unted States bears to the
vaue of the entre gross estate wherever stuated. (Paragraph
2 of rtce of the conventon.)
The restrcton reatve to takng nto account property stuated
outsde the Unted States, set forth n (a) above, refers to what may
be ncuded for the purpose of f ng the rate of ta , and does not
refer to what s ncuded n the gross estate and utzed n ascer-
tanng the proportonate specfc e empton prescrbed n (b) above
and aso utzed n ascertanng the proportonate deductons for
admnstraton e penses, debts, etc., prescrbed n secton 1.52 of
Treasury Reguatons 105 and secton 61(a)(1) of the Interna
Revenue Code. The restrcton set forth n (a) above merey con-
frms e stng practce and does not change the mposton of the
edera estate ta es. The conventon e pressy provdes that aow-
ance for debts sha be determned n accordance wth the aws of
the contractng State mposng the ta . (Paragraph 2 of rtce
I of the conventon.)
In the case of a decedent dyng after October 21, 1912, the amount
of the specfc e empton w not be ess than the 2,000 provded by
statute. ( rtce II of the conventon.)
In computng the net estate for the purpose of the basc estate ta ,
the amount of the specfc e empton s (a) that proporton of 100,000
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whch the vaue of the property stuated n the Unted States bears
to the vaue of the entre gross estate wherever stuated, or (b) 2,000,
f the decedent ded after October 21, 1942, and such atter amount s
the greater.
In computng the net estate for the purpose of the addtona estate
ta , the amount of the specfc e empton s (a) f the decedent ded
after October 21, 1942, that proporton of 00,000 whch the vaue of
the property stuated n the Unted States bears to the vaue of the en-
tre gross estate wherever stuated, or 2,000. whchever s the greater,
or (b) f the decedent ded before October 22, 1942, that proporton
of 40,000 whch the vaue of the property stuated n the Unted
States bears to the vaue of the entre gross estate wherever stuated.
or e ampe, f the decedent, domced n Canada at tme of death
and not a ctzen of the Unted States, ded on uy 1, 1944, eavng
a gross estate (other than rea property outsde the Unted States) of
500,000, of whch 100,000 s stuated n the Unted States, the
amount of the specfc e empton for the purpose of the basc ta s
n h 100,000 20,000, and the amount of the specfc e emp-
ton for the purpose of the addtona ta s 00,000 12,000.
If the federa estate ta s mposed upon the bass of stus of prop-
erty n the case of a decedent dyng on or after une 14, 1941, who
at the tme of death was domced n Canada, suppementa orm
700b shoud be substtuted for Schedue II of the estate ta return.
orm 700.
ny cam for refund of estate ta based upon e cuson of shares
of stock of a Canadan corporaton or upon ncreased specfc e emp-
ton shoud be made on orm 43, wth Suppementa orm 70Gb
attached, and must be fed wthn three years after such ta was
pad. ny refund of ta resutng from the appcaton of the con-
venton bears no nterest. (Paragraph 3(d) of rtce I of the
conventon.)
Sec. 2.7. Credt for Canadan Successon Dutes. 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 edera
estate ta es for Domnon successon dutes pad wth respect to prop-
erty stuated n Canada and sub|ected to such ta es by both countres.
(Paragraph 1 of rtce I of the conventon.)
If at the tme the edera estate ta return s fed, the Domnon
successon dutes have not been determned and pad, credt therefor
may be entered on the return n an estmated amount. owever,
before credt for Domnon successon dutes s fnay aowed, the
representatve of the estate must submt a statement by an authorzed
Domnon successon duty offca certfyng the tota amount of the
Domnon successon dutes, wthout addton of any nterest or pen-
ates, that such dutes were computed n accordance wth mtatons
provded n the conventon and that the amount thereof has been
pad, together wth the date of payment. No credt s aowabe wth
respect to any such nterest or penaty. n temzed st of property
stuated n Canada and sub|ected to Domnon successon dutes, ds-
cosng vaues, must be shown. The certfcate sha aso show whether
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390
(1) a cam for refund of such dutes or any part thereof s pendng,
and (2) whether a refund thereof has been authorzed. If any refund
or cam for refund s nvoved, the date, amount, and descrpton of
the property affected sha be shown. The Commssoner may requre
the submsson of any addtona proof as s deemed necessary to estab-
sh the rght to the credt.
If subsequent to the aowance of credt for Domnon successon
dutes, a refund s made of any such successon dutes, then the person
to whom the refund s made s requred to advse the Commssoner
thereof and pay any further edera estate ta resutng from any
reducton n the credt.
The conventon mts the mposton of the Domnon successon
dutes, n the case of a decedent domced n the Unted States, by
permttng ony property stuated n Canada to be taken nto account
n determnng the ta rate. (Paragraph 4( ) of rtce of the
conventon.) Thus, n such a case, Canada no onger f es the nta
rate of duty by reference to the tota vaue of the property stuated
both nsde and outsde of Canada. Ths mtaton s not appcabe
to the case of a decedent who was a ctzen of the Unted States dom-
ced outsde the Unted States. The conventon changes the appca-
ton of the Domnon successon dutes mposed upon the bass of stus
of property, n the case of a decedent domced n or a ctzen of the
Unted States, by e cudng from stus n Canada shares of the capta
stock of any corporaton organzed n or under the aws of the Unted
States, any of the States or Terrtores of the Unted States, or the
Dstrct of Coumba, regardess of such other factors as the ocaton
of the transfer regstry or the ocaton of the stock certfcates. The
conventon aso changes the appcaton of the Domnon successon
dutes mposed upon the bass of stus of property, n the case of a
decedent domced n or a ctzen of the Unted States, by ncudng
as stuated n Canada shares of the capta stock of any corporaton
organzed n or under the aws of Canada or any of the Provnces or
Terrtores of Canada, regardess of such other factors as the ocaton
of the transfer regstry or the ocaton of the stock certfcates.
( rtce III of the conventon.)
The credt s mted to the amount of the Domnon successon du-
tes attrbutabe to property stuated n Canada and sub|ected to
edera estate ta es. (Paragraph 1(6) of rtce I of the conven-
ton.) The credt s aso mted to the amount of the edera estate
ta es attrbutabe to property stuated n Canada and sub|ected to
Canadan successon dutes. (Paragraph 1(c) of rtce I of the
conventon.) Property sub|ected to edera estate ta does not ncude
any rea property stuated n Canada. urthermore, t does not n-
cude any property prevousy ta ed or any property specfcay be-
queathed or transferred for pubc, chartabe, educatona, regous,
or smar uses, and wth respect to whch a deducton s aowed for
edera estate ta purposes. (Paragraph 1(a) of rtce I of the
conventon.)
If ony a part of the property of a partcuar successon upon whch
Domnon successon duty s mposed consttutes Canadan property
sub|ected to the edera estate ta , ony the porton of such Domnon
successon duty attrbutabe to such part may be ncuded n the tota
Domnon successon dutes for whch credt s aowabe. Such por-
ton of the Domnon successon duty s the amount (a) whch bears
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391
Msc.
te same rato to ( ) the amount of the Domnon successon duty m-
posed upon the partcuar successon (wthout aowance of credt, f
any, for edera estate ta ) that (c) the vaue of the part of the
successon whch consttutes Canadan property sub|ected to edera
estate ta bears to (d) the vaue of the entre property of the suc-
cesson sub|ected to Domnon successon duty. The vaues used n
ths proporton are the vaues determned for the purpose of the
Domnon successon duty. The amount of the Domnon successon
dutes for whch credt s aowabe must be converted nto Unted
States money.
The amount of the credt s mted to the proporton of the edera
estate ta (computed wthout aowance of credt for Canadan suc-
cesson dutes) whch the vaue of the property stuated n Canada
and sub|ected to both Domnon successon dutes and edera estate
ta bears to the vaue of the gross estate. or the purpose of ths
proporton, the edera estate ta refers to the amount of the ta
after aowance of credt for State nhertance or smar ta es author-
zed by secton 13(b) of the Interna Revenue Code but before the
aowance of credt for Canadan successon dutes. If edera gft
ta s nvoved, see the e panaton foowng the frst e ampe n ths
secton. or the purpose of ths proporton the property stuated
n Canada and sub|ected to both Domnon successon dutes and ed-
era estate ta and the gross estate do not ncude any rea prop-
erty stuated n Canada, and aso do not ncude any property prev-
ousy ta ed or any property specfcay bequeathed or transferred for
pubc, chartabe, educatona, regous, or smar uses, and wth
respect to whch a deducton s aowed for edera estate ta purposes.
The vaues used n ths proporton are the vaues determned for the
purpose of the edera estate ta . (Paragraph 1(d) of rtce I of
the conventon.)
Whe n most nstances the country whch mposes tho ta on the
bass of the decedent s domce n that country aows a credt for the
ta mposed by the other country on the bass of stus of property
theren, both countres w aow credts n the case of a decedent who
was a ctzen of the Unted States domced n Canada. owever,
n such case credt aowed by each country s restrcted to the part
of the ta attrbutabe to property stuated n the other country.
Credt for Domnon successon dutes can not be aowed uness cam
therefor s made wthn four years after the estate ta return s fed,
or wthn such further perod as s provded by secton 13(b) of the
Interna Revenue Code, as amended, reatve to credt for State n-
hertance ta es, n the case of a petton fed wth The Ta Court or
n the case of an e tenson of tme for the payment of ta . ny
refund of ta resutng from the appcaton of the conventon bears
no nterest. (Paragraph 3 of rtce I of the conventon.)
or computaton of the estate ta wth credt for Domnon
successon dutes, orm 706c shoud be used as a suppement to the
estate ta return, orm 706. ny cam for refund based upon credt
for Domnon successon dutes shoud be fed on orm 43, wth
suppementa orm 706c attached.
ampe (ustratng the operaton of both mtatons, but not
nvovng credt for edera gft ta ). Decedent was at tme of
death domced n and a ctzen of the Unted States, and hs wdow
and daughter are the benefcares under hs w. The vaue of the
G
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392
gross estate for the purpose of the edera estate ta (n Unted
States money) s 1 0,000, consstng of stocks of Canadan corpora-
tons, 50,000, and of other property, 130,000. The amount of the
edera estate ta wthout aowance of credt for Domnon successon
dutes s 20,140. The vaue n Canadan money of the wdow s suc-
cesson sub|ected to the Domnon successon duty s 500,000, con-
sstng of Canadan rea property, 460,000, and stocks of Canadan
corporatons, 40,000. The amount of the Domnon successon duty
mposed upon the wdow s successon s 79,433 n Canadan money.
The vaue n Canadan money of the daughter s successon sub|ected
to the Domnon successon duty s 15,000, consstng entrey of
stocks of Canadan corporatons. The amount of the Domnon suc-
cesson duty mposed upon the daughter s successon s 1,215 n Ca-
nadan money. In computng the Domnon successon dutes, no
property stuated outsde Canada s taken nto account n determnng
the ta rates. Computatons are shown beow:
Computaton of porton of Domnon successon duty mposed upon wdow s
successon attrbutabe to property sub|ected to edera estate ta
1. mount of Domnon successon duty Imposed upon the successon. 79,433. 00
2. aue of property stuated n Canada and sub|ected to both Domn-
on successon duty and edera estate ta 40, 000. 00
3. Tota vaue of property sub|ected to Domnon successon duty 500,000. 00
4. mount of Domnon successon duty attrbutabe to tem 2 (pro-
porton of tem 1 that tem 2 bears to tem 3) 6, 354. 64
Tota Domnon successon dutes for whch credt s aowabe
1. or wdow s successon 6, 354. 64
2. or (aughter s successon 1,215. OO
3. Tota 7.5G9. 64
The amount of tem 3 converted nto Unted States money equas 6, 1.49.
Computaton of estate ta wth credt for Canadan successon dutes (vaues
and amounts n Unted States money)
1. edera estate ta wthout aowance of credt for
Domnon successon dutes 20,140.00
2. Domnon successon dutes attrbutabe to Canadan
property sub|ected to edera estate ta 6, 1. 40
3. aue of property stuated n Canada and sub|ected to
both Domnon successon dutes and edera estate
ta _ 50, 000. 00
4. aue of gross estate 1 0,000.00
5. edera estate ta attrbutabe to Canadan property
sub|ected to Domnon successon dutes (proporton
of tem 1 that tem 3 bears to tem 4) 5, 594. 44
6. Credt for Domnon successon dutes (tem 2, or tem
5, f the atter tem s the smaer) 5, 594. 44
7. Net edera estate ta (tem 1 mnus tem 6) 14, 545. 5G
Under the conventon the credt for Canadan successon dutes
s subordnated to the credt for State nhertance and smar ta es
authorzed by secton 13(b) of the Interna Revenue Code, but s
accorded prorty over the credt, f any, for edera gft ta . (Par-
agraph 1( ) of rtce I of the conventon.) Consequenty f
credt for edera gft ta s nvoved t w be necessary to aocate
the credt for Canadan successon dutes aganst the basc and add-
tona estate ta es, and, f present, aganst the defense ta . The
computatons and aocatons of the credts descrbed n the reman-
ng paragraphs of ths secton are ony appcabe to cases nvovng
gt ta credts (whch t s antcpated w rarey occur).
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Msc.
If the decedent ded after October 21, 1942, the amount of the credt
for Canadan successon dutes aocated aganst the basc ta s (a)
the amount of the Domnon successon dutes attrbutabe to the
property stuated n Canada and sub|ected to both Domnon suc-
cesson dutes and edera estate ta , or (b) the proporton of the
dfference between the gross basc estate ta and the credt for State
nhertance or smar ta es whch the vaue of the property stuated
n Canada and sub|ected to both Domnon successon dutes and ed-
era estate ta bears to the vaue of the gross estate, f (b) s the
smaer. In such case the amount of the credt for Canadan suc-
cesson dutes aocated aganst the addtona estate ta s (a) the
e cess of the amount of the Domnon successon dutes attrbutabe
to the property stuated n Canada and sub|ected to both Domnon
successon dutes and edera estate ta over the amount of the credt
for Canadan successon dutes aocated aganst the basc estate
ta , or (b) the proporton of the gross addtona estate ta whch
the vaue of the property stuated n Canada and sub|ected to both
Domnon successon dutes and edera estate ta bears to the. vaue
of the gross estate, f (b) s the smaer.
If the decedent ded on or before October 21, 1912, the Interna
Revenue Code provdes that credt for gft ta aocated aganst the
basc ta be gven prorty over the credt for State nhertance or sm-
ar ta es. ccordngy, n such a case the amount of the credt for
Canadan successon dutes aocated aganst the basc ta s (a)
the amount of the Domnon successon dutes attrbutabe to the
property stuated n Canada and sub|ected to both Domnon suc-
cesson dutes and edera estate ta , or (b) the proporton of the
dfference between the gross basc estate ta and the tota amount of
the credts for both State nhertance or smar ta es and edera
gft ta aocated aganst such basc ta whch the vaue of the prop-
erty stuated n Canada and sub|ected to both Domnon successon
dutes and edera estate ta bears to the vaue of the gross estate, f
(6) s the smaer. s no credt for State nhertance or smar ta es s
aowed aganst the addtona estate ta , the credt for Canadan suc-
cesson dutes aocated aganst the addtona estate ta s gven pr-
orty over the gft ta credt. In such case the amount of the credt
for Canadan successon dutes aocated aganst the addtona estate
ta s (a) the e cess of the amount of the Domnon successon dutes
attrbutabe to the property stuated n Canada and sub|ected to both
Domnon successon dutes and edera estate ta over the amount
of the credt for Canadan successon dutes aocated aganst the
basc estate ta , or (b) the proporton of the gross addtona estate
ta whch the vaue of the property stuated n Canada and sub|ected
to both Domnon successon dutes and edera estate ta bears to
the vaue of the gross estate, f (b) s the smaer. If the decedent
ded before September 21, 1941, the amount of the credt aocated
aganst the defense ta s (a) the e cess of the amount of the Domnon
successon dutes attrbutabe to the property stuated n Canada and
sub|ected to both Domnon successon dutes and edera estate ta
over the tota amount of the credts for Canadan successon dutes
aocated aganst the basc and addtona estate ta es, or (b) the
proporton of the gross defense ta whch the vaue of the property
stuated n Canada and sub|ected to both Domnon successon dutes
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394
and edera estate ta bears to the vaue of the gross estate, f (b) s
the smaer.
If the decedent ded after October 21, 1942, any credt for gft ta
aganst the basc ta can not e ceed the proporton of the gross basc
ta ess credts for State nhertance or smar ta es and for Canadan
successon dutes whch the vaue of the ncuded gft ta ed bears to
the entre gross estate, uness the gft ta was mposed by the Reve-
nue ct of 1924, as amended, n whch case the entre amount s a-
owabe. ny credt for gft ta aocated aganst the addtona
estate ta can not e ceed the proporton of the gross addtona ta
ess credt for Canadan successon dutes whch the vaue of the n-
cuded gft ta ed bears to the entre gross estate, and furthermore
can not e ceed the dfference between the tota amount of the gft ta
and the gft ta credt aowed aganst the basc estate ta . No credt
s aowabe aganst the addtona estate ta for gft ta mposed
by the Revenue ct of 1924, as amended.
If the decedent ded on or before October 21, 1942, any credt for
gft ta aocated aganst the basc estate ta can not e ceed the pro-
orton of the gross basc ta whch the vaue of the ncuded gft ta ed
ears to the entre gross estate uness the gft ta was mposed by the
Revenue ct of 1924, as amended, n whch case the entre amount
s aowabe as a credt. ny credt for gft ta aocated aganst the
addtona estate ta can not e ceed the proporton of the gross add-
tona estate ta ess credt for Canadan successon dutes whch the
vaue of the ncuded gft ta ed bears to the entre gross estate, and
furthermore can not e ceed the dfference between the tota amount
of the sft ta and the gft ta credt aowed aganst the basc estate
ta . No credt s aowabe aganst the addtona estate ta for gft
ta mposed by the Revenue ct of 1924, as amended. Thus, n ao-
catng the proporton of the credt for Canadan successon dutes
aganst the addtona estate ta n such a case, such credt s gven
prorty over credt for gft ta .
ampe (nvovng the aocaton of credts for both the Canadan
successon dutes and edera gft ta ). Decedent was domced n
and a ctzen of the Unted States at tme of death, uy 1, 1944.
The vaue of the gross estate s 200,000, and the amount of the de-
ductons n addton to the specfc e emptons s 10,000. Gft ta of
12,000 had been pad by the decedent on 75,000 of the property. The
amount of the Domnon successon dutes attrbutabe to property
(vaued at 50,000) stuated n Canada and sub|ected to both Domn-
on successon dutes and edera estate ta s 9,175 n Unted States
money.
The computatons for ths e ampe are set forth beow:
. edera estate ta es attrbutabe to property sub|ected to Canadan successon
dutes.
1. asc estate ta ess credt for State nhertance or estate ta 5260
2. ddtona estate ta 2 , 400
3. aue of property stuated n Canada and sub|ected to both Domn-
on successon dutes and edera estate ta 50, 000
4. aue of gross estate 200, COO
5. mount of basc estate ta attrbutabe to tem 3 (proporton of
tem 1 that tem 3 bears to tem 4) C5
6. mount of addtona estate ta attrbutabe to Item 3 (proporton
of tem 2 that tem 3 bears to tem 4) 7,100
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395
Msc.
. Computaton of estate ta .
I Gross basc ta 1,300.00
2. Credt for State nhertance or estate ta 1,040.00
3. Gross basc ta ess credt for State nhertance or
estate ta (tem 1 mnus Item 2) 200.00
4. Credt for Canadan successon dutes ( 9,175 or Item
5 of , If the atter s the smaer) 65.00
5. Gross basc ta ess credts for tems 2 and 4 (tem 3
ess tem 4) 195.00
6. Credt for gft ta (proporton of tem 5 that vaue of
gft bears to vaue of gross estate) 73.13
7. Net basc ta (tem 5 ess tem 6) 121. 7
. Tota gross ta es (basc and addtona) 29,700.00
0. Gross basc ta 1,300.00
10. Gross addtona ta (tem mnus tem 9) 2 ,400.00
11. Credt for Canadan successon dutes (amount of (a)
e cess of ),175 over tem 4 above, or (b) tem 0
of , f the atter s the smaer) 7,100. 00
12. Gross addtona ta ess credt for Canadan succes-
son dutes (tem 10 mnus tem 11) 21,300.00
13. Credt for gft ta (amount of (u) proporton of tem
12 that vaue of gft bears to vaue of gross estate or
(6) the dfference between amount of gft ta and
tem 6 f the atter s the smaer) 7,9 7.50
11 Net addtona ta (tem 12 mnus tem 13) 13,312.50
15. Tota estate ta payabe (tem 7 pus tem 14) 13,434. 37
Sec. 2. . Informaton urnshed by ach Contractng Country
to the Other. In order to prevent evason and to factate admns-
traton the Unted States and Canada w furnsh each other such
nformaton as ts competent authortes have at ther dsposa or are
n a poston to obtan under ts revenue aws whch may be of use n the
assessment of the edera estate ta es and Domnon successon dutes.
Such nformaton may be e changed drecty between the competent
authortes of the two countres. ( rtce II of the conventon.)
The term competent authortes means the Commssoner of Inter-
na Revenue of the Unted States or hs duy authorzed representatve,
and the Mnster of Natona Revenue of Canada or hs duy author-
zed representatve. (Paragraph 1 of rtce III of the conventon.)
The Commssoner w notfy the Mnster as soon as practcabe
when the Commssoner ascertans that there s property stuated n
Canada n the case of an estate sub|ect to the edera estate ta , and
that there s property stuated n the Unted States n the case of a
decedent domced n Canada whose estate s sub|ect to the Domnon
successon duty. The Mnster w notfy the Commssoner as soon as
practcabe when the Mnster ascertans that there s property stuated
n the Unted States n the case of an estate sub|ect to the Domnon
successon dutes and that there s property stuated n Canada n the
case of a decedent domced n the Unted States whose estate s sub|ect
to the edera estate ta . ( rtce III of the conventon.) The
competent authorty n each country w furnsh specfc nformaton
requested by the competent authorty of the other country reatve to
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396
edera estate ta es or Domnon successon dutes whch may be
obtaned under the revenue aws. ( rtce I of the conventon.)
If subsequent to the aowance by one of the contractng States of
a credt authorzed by rtce I of the conventon a refund of ta
s made by the other contractng State, the atter sha prompty
advse the former thereof.
Sec. 2.9. Doubtfu uestons. If doubt arses the competent
authortes of the Unted States and Canada are authorzed to sette
questons of nterpretaton or appcaton of the conventon by mutua
agreement, and are authorzed to communcate wth each other drecty
for the purpose of gvng effect to the provsons of the conventon.
( rtce of the conventon.)
Sec. 2.10. Protests y Interested Persons. If a fducary or
benefcary can show that doube ta aton has resuted or may resut
wth respect to the edera estate ta es and the Domnon successon
dutes, such fducary or benefcary s entted to fe a protest wth the
country of hs ctzenshp or domce, and n the dscreton of the
competent authorty of such country (ether the Unted States or
Canada) the competent authorty of the other country may be con-
suted n order to determne whether the aeged doube ta aton e sts
or may occur, and f so, whether t may be avoded n accordance wth
the conventon. ( rtce I of the conventon.)
Under the authorty of rtce of the conventon and secton
3791 of the Interna Revenue Code (53 Stat., 467, 26 U. S. C, 1940
ed., 3791) and pursuant to the provsons of the conventon and Chap-
ter 3 of the Interna Revenue Code (53 Stat., 119, 26 U. S. C, 1940
ed., 00 et seq.), the foregong reguatons are hereby prescrbed.
oS rn D. Nunan, r.,
pproved May 31, 1945.
INT RN L R NU COD .
C PT R 3.
1945-12-1 0G|
Mm. 5 72
state ta procedure under death duty conventon between the
Unted States and Canada.
Washngton 25, D. C, une 5,19 5.
The conventon between the Unted States and Canada, reatng to
death dutes (ratfcatons e changed on ebruary 6, 1945, and pro-
camed by the Presdent of the Unted States on March 6, 1945), s
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397
Msc.
appcabe to estates of decedents, dyng on or after une 14, 1941,
who at tme of death were domced n ether country or who at tme
of death were ctzens of the Unted States. It affords estates reef
from doube ta aton, and provdes the two Governments wth means
for recproca admnstratve assstance n preventng ta evasons.
The scope of the conventon s restrcted to the estate ta es mposed
by the edera Government and the successon dutes mposed by the
Domnon Government, and does not comprehend estate, nhertance,
egacy, or successon ta es mposed by any State, Terrtory, the Ds-
trct of Coumba, or possesson of the Unted States or death dutes
mposed by any Provnce or Terrtory of Canada.
The conventon requres the contractng country whch asserts ta
by reason of the decedent s beng domced theren or a ctzen thereof
to aow a credt for the ta asserted by the other contractng country
wth respect to property stuated n such other country. oth the
Unted States and Canada mpose ta by reason of the decedent s beng
domced n the country, but the Unted States s the ony one of the
two contractng countres whch mposes ta by reason of the dece-
dent s beng a ctzen of the country. In cases not ta ed upon the bass
of domce or ctzenshp both countres mpose ta upon the bass of
property stuated n the ta ng country. In addton to the provson
authorzng the credt, the conventon provdes for unform treatment
by both countres wth respect to (a) the stus of shares of stocks of
Canadan and mercan corporatons, (b) a prorated specfc e emp-
ton, and (c) a prohbton aganst f ng the ta rate by takng nto
account property not sub|ected to the ta and not stuated n the ta ng
country.
The te t of the conventon and reguatons ssued pursuant thereto
are set forth n Treasurv Decson 5455, approved on May 31, 1945
page 3 1, ths uetn .
or convenence n the admnstraton of the conventon, decedents
estates are cassfed n two categores (1) estates ta ed on the bass
of stus of property, and (2) estates ta ed on the bass of domce or
ctzenshp. In consderng the effect of the conventon on the edera
estate ta , n the frst category (estates of resdents of Canada not ct-
zens of the Unted States) e cuson of Canadan stocks and the
aowance of a prorated specfc e empton are the domnant features,
and n the second category (estates of resdents or ctzens of the
Unted States) aowance of credt aganst the edera estate ta for
the Domnon successon dutes pad wth respect to property stuated
n Canada s the domnant feature.
or cases n the frst category, orm 70Gb, Computatons of Net
states, has been provded as a suppement to the estate ta return,
orm 706. Ths suppementa form consttutes a part of the return, s
to be substtuted for Schedue R, and shoud be nserted n eu of sheet
I . or cases n the second category. orm 70(c, Computaton
of state Ta wth Credt for Canadan Successon Dutes, has been
provded as a suppement to the estate ta return, orm 706. Ths sup-
pementa form consttutes a part of the return and shoud be n-
serted mmedatey after sheet thereof. If credt for Canadan
successon dutes s camed at the tme the estate ta return s fed,
the amount entered at tem 7 of orm 70t c s the amount of the estate
ta as determned by the representatve of the estate nstead of the
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Regs. 105, 1.16.
39
ast tem, denomnated Tota state Ta Payabe, under Com-
putaton of Ta , on sheet of orm 706, and the amount of such
tem 7 s the amount to be assessed and pad. orm 70Gd, Certfca-
ton of Domnon Successon Dutes for Credt aganst edera state
Ta es, s requred for cases wthn the aforementoned second cate-
gory. orm 706d shoud be e ecuted by the representatve of the
estate and forwarded to the Canadan Revenue Department for cer-
tfcaton. ccompanyng each form are nstructons e panng ts
use.
The offces of the nterna revenue agents n charge w advse the
representatves of estates of any requrements pursuant to the prov-
sons of the conventon n cases pendng before those offces. The rep-
resentatves of estates of prevousy cosed cases shoud fe cams for
refunds of any overpayments of estate ta es resutng from the pro-
vsons of the conventon. ny cam for refund of ta based upon
the provsons of the conventon shoud be fed wth the approprate
coector of nterna revenue on orm 43 wth suppementa orm
70Gb or 706c, whchever s appcabe, attached thereto n dupcate.
Correspondence reatve to the contents of ths mmeograph shoud
refer to ts number and to the symbos MT: T.
S CTION 11. GROSS ST T TR NS RS IN CONT MPL TION O
D T .
ST T T R NU CT O 1926, S M ND D D CISION O SUPR M
COURT.
L Geoss state Transfers Intended to Take ffect n Posses-
son ob n|oyment at or fter Death Insurance and
nnuty Contracts.
The decedent purchased a snge premum contract and at the
same tme a snge premum annuty contract, both contracts desg-
natng hs wfe ns the owner or purchaser and the decedent as the
nsured or annutant. The contracts provded that the wfe shoud
have the usua ncdents of ownershp and that, n the event the wfe
shoud predecease the decedent, a the enumerated powers were to
vest n the decedent to the e tent that such powers had not otherwse
been e ercsed by the wfe. The decedent retaned not ony the rght
to semannua payments under the annuty contract, but aso a
contngent reversonary nterest n the entre proceeds of both
contracts, whch nterest he possessed at the tme of hs death.
ed: These two contracts, whch must be consdered together, con-
tan none of the true eements of nsurance rsk, and the proceeds of
the contracts are Incudbe n the decedent s gross estate as a
transfer ntended to take effect n possesson or en|oyment at or
after the decedent s death, under the provsons of secton 302(c) of
the Revenue ct of 1926, as amended by secton 11(c) of the
2. Decson ffrmed.
Crcut (144 ed. (2d), 373), affrmng decson of the Dstrct Court,
S. D. New York (52 ed. Supp., 704), affrmed.
oseph D. Nunan, r.,
Commssoner.
Reguatons 105, Secton 1.16: Transfers n
contempaton of death.
1945-13-12077
Ct. D. 1644
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399
Regs. 105, 1.16.
Sufbkme Court of the Unted States.
eatrce L. ( odstonc and ugene L. Iondy, ecutors of the. state of Morrs L.
Godstone, Deceased, pettoners, v. The Unted States of merca.
325 U. S., 0 7.
une 11, 1945.1
OPINION.
The queston here s whether the proceeds of certan contracts payabe upon
the death of the decedent to hs wfe are ncudbe n hs gross estate for estate
ta purposes under secton 302(c) of the Revenue ct of 1926, as amended,
Interna Revenue Code, sectou 11(c).1
On une 29, 1933, the qutabe Lfe ssurance Socety of the Unted States
ssued two contracts for whch the decedent pad sums aggregatng 26,500:
(1) The frst contract, for whch the decedent pad a snge premum of
14,357.0 , nsured the decedent s fe for 1 ,92 , payabe upon death to hs wfe
or, f she predeceased hm, to ther daughters. If a the benefcares predeceased
the decedent, the proceeds of the contract were to be pad to hs e ecutors or
atmustratos. In eu of a physca e amnaton n connecton wth the ssuance
of ths contract, decedent was requred to purchase a second or an annuty
contract.
(2) Under the annuty contract, the decedent pad a snge premum of
12,142.92. The contract provded for semannua payments of 3 0.51 to be
made to the decedent durng hs fetme and for payment of 6,071.40 to hs
wfe upon hs death or, f she predeceased hm, to ther daughters or, f they
were dead, to hs estate.
y the terms of each contract the wfe had the unrestrcted rght to assgn
It, to borrow money on t, to receve dvdends, to change the benefcares and
to surrender the contract and obtan the surrender vaue thereof. The contracts
desgnated her as the Owner or Purchaser, the decedent beng caed the
Insured or nnutant. In the event that the wfe shoud predecease the
decedent, the contracts provded that a of the enumerated powers were to vest
n the decedent to the e tent that such powers had not otherwse been e ercsed by
the wfe.
The decedent was 63 years od when the contracts were ssued. e ded neary
fve years ater, on ebruary 23, 193 , survved by hs wfe and daughters. s
wfe had not surrendered, assgned or aenated ether contract pror to hs
death. The qutabe Lfe ssurance Socety thereupon pad the wdow 6,071.46
under the annuty contract, 1 ,92 under the fe contract and 1 2.24 as accumu-
ated dvdends, makng a tota of 25,1 1.70.
On these facts the Commssoner of Interna Revenue determned that the
proceeds of the two contracts were ncudbe n decedent s estate for estate ta
purposes. The pettoners, as e ecutors of the estate, were assessed a defcency
of 5,376.11. fter payng that amount they fed a cam for refund. The cam
was re|ected. They then brought ths sut for refund. The dstrct court sus-
taned the acton of the Commssoner and dsmssed the compant. (52 ed.
Supp., 704.) The S cond Crcut Court of ppeas affrmed ths |udgment. (144
ed. (2d), 373.) n apparent confct of authorty among ower courts on the
queston presented ed us to grant certorar.2
1 The vaue of the gross estate of the decedent sha be determned by ncudng the vaue
at the tme of hs death of a property, rea or persona, tangbe or ntangbe, wherever
btuated, e cept rea property stuated outsde of the Unted States

(c) To the e tent of any Interest theren of whch the decedent hns at any tme made
a transfer, by trust or otherwse. In contempaton of or ntended to take effect n possesson
or en|oyment at or after hs death .
1 The |udgment beow s stated by the Unted States to be nconsstent wth the resut
reached In Loud s state v. Commssoner (141 ed. (2d), 75 (C. C. . 3)) and to be n
harmony wth aey v. Unted States (31 ed. Supp.. 77 (Ct. Cs.)). The Unted Stntes
aso cams that the resut beow s nconsstent wth the same court s pror affrmance of
state of aard v. Commssoner (47 IS. T. ., 7 4. affrmed, 13 ed. (2d). 512 (C. C. .
2)). In vew of the manner of our dsposton of the Instant case, however, we have no
occason to determne whether these asserted confcts e st or whether the decson here
necessary contros the factua stuatons presented n these other cases. s amended
by order of the Court on une 1 , 1945.
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Regs. 105, 1.16.
400
Ieverng v. Le Gerse (312 U. S., 531 Ct. D. 1491, C. . 1941-1, 430 ) makes
It pan that these two contracts, whch must be consdered together, contan
none of the true eements of nsurance rsk. Secton 302(g) of the ct, reatng
to amounts recevabe as nsurance under poces taken out by the decedent
upon hs own fe, s therefore nappcabe. The soe queston, then, s whether
the proceeds of the contracts are ncudbe n the decedent s gross estate under
secton 302(c) as the sub|ect of a transfer ntended to take effect n possesson
or en|oyment at or after the decedent s death. That queston we answer In the
affrmatve.
Secton 302(c), as demonstrated by cverng v. Iaock (309 U. S., 106 Ct. D.
1440, C. . 1940-1, 223 ), reaches a nter vvos transfers whch may be resorted
to, as a substtute for a w, n makng dspostons of property operatve at
death. It thus sweeps nto the gross estate a property the utmate possesson
or en|oyment of whch s hed n suspense unt the moment of the decedent s
death or thereafter. ( dety-Phadepha Trust Co. v. Rothenses, 324 U. S.,
10 , 111 Ct. D. 1030, page 40G, ths uetn ). In so dong, secton 302(c) perces
a the verbage of unwtty dverstes of the aw of property. ( evcrng v.
aock, supra, 11 .) Testamentary dspostons of an nter vvos nature can
not escape the force of ths secton by hdng behnd ega ncetes contaned n
devces and forms created by conveyancers.
In ths nstance the decedent carefuy procured the ssuance of two contracts
n hs wfe s name wthout possessng for a measureabe perod most of the usua
attrbutes of ownershp over the contracts. ut ths procedure does not concea
the fact that decedent used these contracts as a means of effectng a transfer of
appro matey 25,000 of hs estate to the natura ob|ects of hs bounty. Nor
does t negatve the fact that ths nter vvos transfer possessed a the ndca
of a testamentary dsposton. There was, n other words, a transfer of property
procured through e pendtures by the decedent wth the purpose, effected at hs
death, of havng t pass to another. (Chase Natona ank v. Unted States,
27 U. S., 327. 337 Ct. D. 40, C. . III-1, 30 (1929) .) Secton 302(c) must
therefore be brought to bear.
The decedent, n makng dsposton of 25,000 of hs property through these two
contracts, retaned a vauabe nterest n that amount whch was not e tngushed
unt he ded. e retaned not ony the rght to semannua payments under the
annuty contract but aso a contngent reversonary nterest n the entre proceeds
of both contracts. ad he survved hs wfe he coud have e ercsed the attr-
butes of ownershp over the contracts, changng the benefcares or surrenderng
the contracts as he saw ft. If he had survved both hs wfe and hs daughters
the proceeds of the two contracts woud automatcay have been payabe to hs
estate when he ded. Thus the utmate dsposton of the proceeds of the con-
tracts was suspended unt the moment of decedent s death. Ony then dd the
respectve nterests of the wfe and daughters become f ed ony then were ther
nterests freed from the contngency of the decedent s survva. s death was
the decsve fact that termnated a of hs potenta rghts and nsured the com-
pete rpenng of the wfe s nterests. The transfer of the proceeds of the contracts
havng been effectuated fnay and defntey at the decedent s death, as n the
aock case, secton 302(c) requres that those proceeds be ncuded wthn the
decedent s gross estate.
Ths concuson s unatered by the fact that the wfe had the unrestrcted
power durng the decedent s fetme to e ercse many mportant ncdents of
ownershp over the contracts, ncudng the power to termnate the decedent s
reversonary nterest n the proceeds. Whatever the kehood of the e ercse
of ths power, t s a fact that the wfe dd not change the benefcares or sur-
render the contracts so as to destroy decedent s reversonary nterest. The strng
that the decedent retaned over the proceeds of the contracts unt the moment
of hs death was no ess rea or sgnfcant because of the wfe s unused power to
sever t at any tme.
The essenta eement n ths case, therefore, s the decedent s possesson of
a reversonary nterest at the tme of hs death, deayng unt then the deter-
mnaton of te utmate possesson or en|oyment of the property. The e stence
of such an nterest consttutes an mportant ncdent of ownershp suffcent by
tsef to support the Imposton of the estate ta . (Ieverng v. aock. supra.)
The ndefeasbty of that nterest pror to death or the decedent s possesson of
other powers of ownershp s unnecessary and ndecsve of estate ta abty.
The dsappearance of a decedent s reversonary nterest, together wth the re-
sutng estate ta abty, pror to death through events beyond the decedent s
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401
Regs. 105, 1.24.
contro s a possbty In many stuatons such as the one n ssue. Lkewse a
reversonary nterest may become vested pror to a decedent s death because of
the occurrence of other events beyond the ream of the decedent s voton and
unconnected n any way wth hs death. ut the Imposton and computaton of
the estate ta are based upon the nterests n actua e stence at the tme of the
decedent s death. It foows that ony those events that actuay occurred pror
to that moment can be consdered n determnng the e stence and vaue of the
ta abe nterests. vents that mght have but faed to take pace so as to erase
a decedent s reversonary nterest aw be gnored such unreazed possbtes,
f sgnfcant at a, ony add to the remoteness of the reversonary nterest.
In our vew of the case we need not consder the aternatve argument urged
by the Unted States to the effect that the specfc amendments to secton 302(c)
are aso appcabe snce the decedent actuay receved an annua return from
the contracts for a perod whch dd not n fact end before hs death. Nor do we
reach any questons of vauaton of the decedent s reversonary nterest such as
those whch were decded n dety-Phadepha Trust Co. v. Rothenscs, supra,
and Commssoner v. state of ed (324 U. S., 113 Ct. D. 1631, page 40 , ths
uetn ).
ffrmed.
Dssentng opnon by Mr. ustce Roberts, n whch Mr. ustce Dougas |ons.
Reguatons 105, Secton 1.24: Property sub- 1945-3-11961
|ect to power of appontment by decedent. T. D. 5434
R GUL TIONS R L TING TO ST T T .
Secton 1.24 of Reguatons 105 amended to conform to Pubc Law
511 .( Seventy-eghth Congress, second sesson page 542, ths ue-
tn ), reatng to reease of powers of appontment.
Washngton 25, D. C.
In order to conform Reguatons 105 Part 1, Tte 26, Code of ed-
era Reguatons, Cum. Sup. to Pubc aw 511, approved December
20, 1944 (Seventy-eghth Congress, second sesson L)ge 542, ths
uetn ) such reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey after secton 505 of
the Revenue ct of 1943, whch was nserted by Treasury Decson
5351, approved March 27, 1944 C. . 1944, 579 , and precedng
secton 302(f) of the Revenue ct of 1926 (as orgnay enacted), as
set forth precedng secton 1.24, the foowng:
PU LIC L W 511 (S NTY- IG T CONGR SS, S COND S S-
SION), PPRO D D C M R 20,1944).
e t enacted by the Senate and ouse of Representatves of the, Unted
States of merca n Congress assembed. That secton 403(d) (3) of the
Revenue ct of 1942 (reatng to the reease of certan powers of appont-
ment) s amended by strkng out anuary 1, 1945 wherever t appears
and nsertng n eu thereof uy 1, 1945 .
Thus. In dety-Phadepha Trust Co. v. Rothense (324 U. S 10S Ct. D. 1030, page
406. ths uetn ), the decedent s contngent power of appontment was e ercsabe ony
W her two (aughters ded before her and eft no survvng descendants. If the daughters
ued frst but eft survvng descendants, t woud be certan before the decedent s death
that her power of appontment woud be nugatory. ut such a contngency dd not happen.
t the tme when the decedent ded there was st the possbty that her power of appont-
ment mght be effectve. The fact that the power of appontment mght have been de-
stroyed pror to the decedent s death dd not prevent the mposton of the estate ta . The
u|cednt s death was st the decsve factor whch enarged and matured the nterests
of the daughters. s amended by order of the Court on une 1 , 43.1
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Regs. 105, 1.24.
402
Par. 2. Secton 1.24(5), added by Treasury Decson 5239, ap-
proved March 10,1943 C. . 1943,10 1 , and as amended by Treasury
Decson 52 3, approved uy 12,1943 C. . 1943,1114 , and Treasury
Decson 5351, approved March 27, 1944 supra , s further amended
as foows:
( ) y strkng out December 31, 1944 wherever t appears
and by nsertng n eu thereof une 30, 1945.
( ) y strkng from the frst sentence of paragraph (3) (as
amended by secton 505 of the Revenue ct of 1943) and by nsertng
n eu thereof (as amended by Pubc Law 511 (Seventy-eghth Con-
gress), approved December 20,1944).
(C) y strkng out anuary 1, 1945 wherever t appears and
by nsertng n eu thereof uy 1,1945.
secton 3791 of the Interna Revenue Code (53 Stat., 467, 26 U. S. C,
1940 ed., 3791) and Pubc Law 511 (Seventy-eghth Congress), ap-
proved Decembsr 20, 1944.)
( ed wth the Dvson of the edera Regster ebruary 3, 1945, 12.42 p. m.)
Reguatons 105, Secton 1.24: Property sub|ect 1945-17-12122
to power of appontment by decedent. T. D. 5470
TITL 2G INT RN L R NU . C PT R I, SU C PT R , P RT 1
R GUL TIONS R L TING TO ST T T
nnth Congress page 530, ths uetn ), reatng to reease of
powers of appontment.
Offce of Commssoner of Intf.rna Revenue,
Washngton 25, D. C.
edera Reguatons, Cum. Sup. to Pubc Law 95 (Seventy-nnth
Congress), approved une 29,1945 page 530, ths uetn , such regu-
Paragraph 1. There s nserted mmedatey after Pubc Law 511
(Seventy-eghth Congress), whch was nserted by Treasury Decson
5434, approved ebruary 2,1945 page 401, ths uetn , and before
secton 302(f) of the Revenue ct of 1926 (as orgnay enacted) as
set forth precedng secton 1.24, the foowng:
PU LIC L W 95 (S NTY-NINT CONGI5 SS), PPRO D
UN 29, 1945.
Resoved by the Senate and ouse of Representatves of the Unted
States of mrrea n Congress assembed, That secton 403(d) (3) of the
Revenue ct of 1942 (reatng to the reease of certan powers of appont-
ment) s amended by strkng out uy 1,1945 wherever It appears and
Insertng n eu thereof uy 1, 1940 ,
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403 Regs. 0 (1937), rt. 16.
Par. 2. Secton 1.24(5), added bv Treasury Decson 5239, ap-
proved March 10,1943 C. . 1943,10 1 , and as amended by Treasury
Decson 52 3, approved uy 12, 1943 C. . 1943, 1114 , Treasury
Decson 5351, approved March 27, 1944 C. . 1944, 579 , and Treas-
ury Decson 5434, approved ebruary 2, 1945 supra , s further
amended as foows:
( ) y strkng out une 30, 1945 wherever t appears and by
nsertng n eu thereof une 30,1946.
( ) y strkng from the frst sentence of paragraph (3), (as
amended by Pubc Law 511 (Seventy-eghth Congress), approved
December 20, 1944) and by nsertng n eu thereof (as amended
bv Pubc Law 95 (Seventv-nnth Congress), approved une 29,
1945).
(C) y strkng out uy 1, 1945 wherever t appears and by
nsertng n eu thereof uy 1,1946.
secton 3791 of the Interna Revenue Code (53 Stat, 4G7, 26 U. S. C,
1910 ed., 3791) and Pubc Law 95 (Seventy-nnth Congress), ap-
proved une 29,1945.)
oseph D. Nuvan, r.,
pproved ugust 14,1945.
oseph . O Conne|., r.,
TITL III. ST T T . (1926)
S CTION 302. GROSS ST T TR NS RS Y D C D NT
IN IS LI TIM .
Regcatons 0 (1937), rtce 16: Transfers 1945-4-11971
n contempaton of death. Ct. D. 1629
ST T T R NU CT OP 1926, S M ND D D CISION O SUPR M
COURT.
1. Gross state state of Incompetent Pkrson Transfers Made
n Contempaton of Death Lega ffect of owances
Made by State Court to Descendants and Co athka.s of
Decedent.
The grantng of aowances to the descendants of an ncompetent
by the Supreme Court of New York actng as the representatve of
the State s, n ega effect, the act of the ncompetent and the motve
s hers. ccordngy, n the nstant case, such aowances, e cept
as to an amount representng payments whch the decedent, when
competent, bad reguary made to her daughters, fa wthn the
sweep of secton 302(c) of the Revenue ct of 1 I2G, as amended,
and are ncudbe n her gross estate as transfers made n con-
tempaton of death. owances to needy coateras were, n effect,
current payments for support and are not Incudbe n the dece-
dent s gross estate as transfers made n contempaton of death.
2. Decson Reversed n Part.
Crcut (142 ed. (2d), 599), affrmng decson of the Dstrct
Court, W. D. N. . (43 ed. Supp., 790), reversed n part.
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Regs. 0 (1937), rt. 16.
404
StTP M COU T O T UNIT D ST T S.
Cty ank armers Trust Co., formery known as The armers Loan Trust
Co., as dmnstrator, etc., pettoner, v. Ocorge T. Mc owan, Coector of
Interna Revenue for the Twenty-eghth Coecton Dstrct, New York.
323 U. S., 594.
anuary 29,1945.
OPINION.
Mr. ustce Roberts devered the opnon of the Court
Ths case presents an Issue of mportance arsng under secton 302(c) of the
Revenue ct of 1926, as amended,1 whch requres Incuson, In the gross ta abe
estate of a decedent, of any nterest n property of whch the decedent has
at any tme made a transfer n contempaton of hs death,
. More specfcay, the nqury Is whether the secton reaches aow-
ances out of the ncome of an ncompetent person.
een a a ded n 1935 ntestate. or nne years she had been Incuraby
nsane. In 1926 an ad|udcaton of ncompetency was entered by the Supreme
Court of the State of New York, and a commttee was apponted to care for
her property, whch conssted of ncome-producng reaty and personaty. In
addton, she was n recept of the ncome of a trust. Durng the perod of fve
years pror to the ad|udcaton her annua ncome from a sources had averaged
300,000. She was over 70 years of age but n good physca heath. She had a
vng daughter and three grandsons, chdren of a deceased daughter. ppca-
ton was made to the court to make aowances out of ncome to Mrs. a s ssue
and to a brother and ssters. The court referred the matter to a referee before
whom t was shown that she had, over a perod of years, aowed each of her
daughters 6,000, and one of her ssters 500, per annum, and had made gfts to
her daughters, but not wth reguarty. s she was confned n an nsttuton,
her tota needs, ncudng mantenance and ta es, dd not e ceed 50,000 per
annum. ccumuated Income n the hands of the commttee amounted to over
750,000.
The court, on the bass of the referee s report, entered an order whch, after
rectng that Mrs. a had made no w, that the daughter and grandchdren, or
ther ssue, woud, upon her death, be her ony hers at aw and ne t of kn, and
the ony persons entted to share n her estate, and that, f she were n pos-
sesson of her menta facutes, she woud desre that the aowance herenafter
f ed be made , and woud make such aowance to such persons out
of her property, drected the commttee to pay yeary, n quartery nstaments,
50,000 to the vng daughter and 50,000 to the guardan of the chdren of
the deceased daughter, 2,000 each to a but one of the brother and ssters
and 3,000 to the remanng sster.
Some s years ater an appcaton was made for an ncrease n the aow-
ance. The matter was agan referred for hearng and, on the comng In of the
referee s report showng that accumuated Income n Mrs. a s account had
ncreased to over 1,000,000, that ncome had averaged, for over fve years,
appro matey 395,000 per annum, and, after payng aowances and a e -
penses, the surpus averaged about 191,000 a year, the court made an order
rectng that she was then 77 years of age and ncurabe, enumerated the ssue
who woud be entted to her estate at death, that she had no w, and that f
she were competent she woud have desred that the sums named n the earer
decree be augmented, rased the aowances to the daughters and to the grand-
chdren coectvey to 75,000, retroactve to the date of the orgna order. It
was never camed, and Is not contended, that the ne t of kn needed any such
aowances for ther mantenance and support In ther staton In fe. It s
conceded that the brother and ssters to whom aowances were made were
desttute and n need of mantenance.
t Mrs. a s death the aowances theretofore pad totaed 1,377, 36.67.
The Commssoner of Interna Revenue Incuded the sum n the decedent s gross
estate and determned a defcency. The pettoner, as admnstrator, pad the
sum demanded, camed a refund and, on dena, nsttuted ths acton n the
dstrct court. That court, upon consderaton of the record of the proceedngs
In the Supreme Court of New York, found that the tota of the aowances was
1 Interna Revenue Cop. secton 11(c) (20 U. S. C, secton 11(c)).
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405
Regs. 0 (1937), rt. 16.
propery Incuded In the decedent s gross estate, e cept so much as represented
annua payments to the daughter and the grandchdren s guardan of 6,000
each and 500 per annum of the gfts to coateras, and entered |udgment
accordngy. The Crcut Court of ppeas, by a dvded court, affrmed the
|udgment.3 We granted certorar.
The Supreme Court of New York s empowered by statute to act as representa-
tve of the State, as parens patrae, n carng for the persons and the estates of
ts ncompetent ctzens. That court may grant aowances out of ncome ony
f t determnes that the ncompetent woud probaby have granted such aow-
ances hmsef had be been sane. The court does not, n any proper sense, act as
the ncompetent s agent. In the e ercse of the power the prmary consderaton
s that the Incompetent s property sha not be wasted but preserved aganst the
possbty of restoraton to santy. On these propostons the partes are n
accord.
The pettoner urges that the present case s not wthn the terms of the
statute and that, n enactng secton 302, Congress dd not contempate any such
contngency as that here nvoved. It nssts that Mrs. a made no transfer
bat, f any was made, the court made t that she had and coud have no
motve n respect of the gft. In addton, t urges thnt, under the State aw, the
court s contro over the estate ceases nt the ncompetent s death, and the court
can not make a w for her or n any wse nterfere wth the devouton of her
estate. ence, t concudes that to suggest the court sanctoned transfers of a
testamentary character s to assume that t e ceeded ts powers. Such an
assumpton, so pettoner says, ought not to be nduged. On the contrary, t
shoud be presumed that the court acted wthn ts granted powers that s,
authorzed transfers nter vvos, wth no testamentary motve.
The Government, on the other hand, takes the poston that nothng n the
aw of New York, and no authorty cted by the pettoner, precudes the State
court from makng an aowance n contempaton of death f, upon the record
made, the court, pacng tsef n the ncompetent s poston on the supposton
that she were sane and competent, concudes that she woud have made the
transfers. nd, t adds, that what was done by the Supreme Court n ths case
was not appeaed and s now beyond correcton, f erroneous, and that the
records and orders evnce an understandng that the certanty of contnuance of
dsabty unt death, the fact of ntestacy, and the natura e pectatons of
the dstrbutees under the ntestate aws were prevaent factors n movng the
court to make the orders n queston, and characterze the court s acton as
taken In contempaton of death. The Government says that, as the court was
requred to, and dd, act as the decedent woud have acted f competent, ths
ease s not outsde the terms of secton 302(c) but, on thp contrary, n contem-
paton of aw, the decedent dd make the transfers n queston.
The ssue s a narrow one. Lteray Mrs. a nether made the transfers
nor dd she have any motve wth respect to them. ut a court stood n her
pace and unquestonaby had the functon of effectuatng a transfer of her
property and of determnng what motve or purpose woud have actuated her
had she been competent to act. It seems to us that t s stckng n the bark to
say that, n the crcumstances, the trnnsfers are not wthn the secton because
Congress dd not add a phrase to the effect that where a court made the transfer,
actng In eu of the Incompetent owner, such a transfer shoud be governed by
the statute.
We hod, therefore, that where, as n New York, the court s to substtute
Itsef as neary as may be for the Incompetent, nnd to act upon the same
motves and consderatons as woud have moved her, the transfer s, n ega
effect, her act and the motve s hers.
Ths beng so, the ony remanng queston s whether the proof was suffcent
to overcome the presumpton arsng from the Commssoner s determnaton that
the transfers were made n contempaton of death. The appcabe test s that
stated n Unted State v. We (2 3 U. S., 102 Ct. D. 340, C. . -, 475 (1931) 1).
Ths s whether the thought of death Is the mpeng cause of the transfer.
s respects the descendants of Mrs. a, t woud seem cear enough that there
was no domnant motve for the transfer other than the thought that, as they
woud nhert her estate, and as there was a arge accumuaton of unneeded n-
come, they mght as we receve substanta portons now as awat her death
to en|oy ther nhertance. The fact that these benefcares dd not stand n
need of the money, the fact that the ncrease granted at the second hearng was
43 ed. Snpp., ,
142 ed. (2d),
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Regs. 0, rt. 15.
406
made retroactve, and that the past nstaments were pad In a ump sum, the
arguments of counse n both hearngs that the ony reason for grantng the
aowances to Mrs. a s descendants was that they nevtaby woud dvde
her estate amongst them, and the rectas of the court orders, to whch reference
has been made, a go to confrm, rather than to undermne the Commssoner s
determnaton.
We thnk the dstrct court was rght In hodng that, to the e tent of 6,000
per annum, whch was the sum Mrs. a, when competent, had reguary aowed
each of her daughters, the transfers fa wthout the terms of secton 302(c), but
that the baance of the payments to her descendants fas wthn ts sweep.
dfferent queston s presented respectng the aowances to coateras. It
appears that they were n need of funds for ther mantenance and support,
and t s obvous that no payments to them coud be on account of any share of
ther sster s ntestate estate. The aowances have the coor of current pay-
ments for support and they were authorzed because the court concuded that,
f sane and cognzant of the stuaton, Mrs. a woud have made them. These
consderatons ead to the concuson that the Commssoner s determnaton con-
cernng them s rebutted and that they shoud not have been ncuded n the
decedent s gross estate. To the e tent ndcated the |udgment of the crcut court
of appeas s reversed.
So ordered.
S CTION 302(c). TR NS RS Y D C D NT IN IS LI TIM .
Reguatons 0, rtce 15: Transfers durng 1945 5-119 1
fe. Ct. D. 1630
estate ta revenue act of 1920 decson of supreme court.
1. Gross state Transfers n Trust Intended to Take ffect
n Possesson or n|oyment at or fter Death.
The decedent transferred property n trust, retanng a fe estate
In trust ncome, at her death such ncome to be pad to her
daughters for ther ves. Trust corpus was to be pad to survvng
descendants of the daughters, or, f none, to such persons as the
settor mght appont by w, and, n defaut of such appontment,
to certan named chartes. ed: Unt the moment of her death
or unt an undetermned tme thereafter the decedent hed a strng
or contngent power of appontment over the tota corpus of the
trust. The transfer therefore was one ntended to take effect
In possesson or en|oyment at or after death wthn the meanng
of secton 302(c) of the Revenue ct of 1926, and the vaue of the
entre corpus of the trust s ncudbe n the decedent s gross estate
for edera estate ta purposes.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (142 ed. (2d), 3 ), affrmed.
Supreme Court of te Unted States.
dety-Phadepha Trust Co. and Robert . Workman, ecutors of the
state of nna C. Stnson, Deceased, pettoners, v. Water . Rothenses,
Indvduay and as Coector of Interna Revenue for the rst Dstrct of
Pennsyvana.
324 U. S., 10 .
On wrt of certorar to the Unted States Crcut Court ot ppeas for the Thrd Crcut.
ebruary 5,1945.
opnon.
Our attenton here Is drected toward the proper vauaton for edera estate
ta purposes of the corpus of an nter vvos trust where the transfer was n-
tended to take effect n possesson or en|oyment at or after death and where the
settor retaned a fe estate In the trust ncome and a reversonary nterest n
the corpus.
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407
Regs. 0, rt. 15.
On March 26, 192 , the decedent, nna C. Stnson of ryn Mawr, Pa., trans-
ferred certan property n trust, the vaue of whch at the tme of her death
was |S4,443.49. The ncome of the trust was to be pad to the settor durng
her fe and at her death to her daughters (aged 12 and 10 at the tme of the
creaton of the trust) durng ther respectve ves. t the death of each
daughter, the corpus supportng her share of the ncome was to be pad to her
descendants. If ether daughter ded wthout eavng survvng descendants,
the corpus of her share was to be added to the share of the other daughter or
of the survvng descendants of the other daughter. ut f both daughters ded
wthout eavng survvng descendants, the corpus was to be p:d to such per-
sons as the settor mght appont by w. In defaut of such appontment,
the corpus was to go to certan named chartes.
The decedent e ercsed the power of appontment n a w made n 1930. She
ded n 1934 at the age of 51, eavng two unmarred daughters. The atter have
subsequenty marred and both have chdren.
The Commssoner determned that ths arrangement was a transfer n trust
ntended to take effect n possesson or en|oyment at or after death wthn the
meanng of secton 302(c) of the Revenue ct of 1921 (44 Stat., 9, 70), and that
the net vaue of a the property comprsng the corpus of the trust shoud be
ncuded n the decedent s gross estate for estate ta purposes. The e ecutors,
however, dened that the transfer fe wthn, the meanng of secton 3 2(c) they
further camed that even f secton 302(c) dd appy the vaue of the fe estates
of the settor s daughters and the vaue of the remanders to ther survvng
descendants shoud be deducted from the vaue of the trust assets for ta purposes.
The e ecutors pad a ta on the fu vaue of the trust assets and ted ths cam
for refund of the ta . The dstrct court dened recovery and the court beow
affrmed. (142 ed. (2d), 3 .) Confct wth ed s state v. Commssoner
(144 ed. (2d), 62) ed vs to grant certorar mted to the queston of whether the
entre vaue of the corpus of the trust at the tme of decedent s death shoud have
been ncuded n the decedent s gross estate.
The courts bfow, utzng the prncpes set forth n en v. Unted States
(2S3 U. S., 231 fCt. D. 333, C. . -, 462 (1931) ) and Ievcrng v. uoek (309
U. S., 106 Ct. D. 1440. C. . 1940-1, 223 ), correcty hed that the decedent s trans-
fer n trust n 192 was one ntended to take effect n possesson or en|oyment at
or after death wthn the meanng of secton 302(c) of the evenue ct of 1926,
pror to the amendments of 1931 and 1932. Whe the matter of vauaton was not
argued and was not drecty n ssue n those cases, the nescapabe consequence
of the prncpes enuncated there and n the dssentng opnon n rrerng v.
St. Lous Unon Trust Co. (296 U. S., 39, 46 f Ct. D. 1044, C. 15. I -2, 337 ( S) 1),
Is to ncude the entre trust corpus n the gross estate of the decedent under these
crcumstances.
Secton 302(c) tsef provdes for the Incuson wthn the gross estate of
property to the e tent of any nterest theren of whch the decedent has at any
tme made a transfer, by trust or otherwse, n contempaton of or ntended to
take effect n possesson or en|oyment at or after hs death. s we sad n
everna v. aock, supra, 110, 111, ths provson deas wth property not
techncay passng at death but wth nterests theretofore created. The ta abe
event s a transfer nter vvos. ut the measure of the ta s the vaue of the
transferred property at the tme when death brngs t nto en|oyment. (Cf.
Rcneeke v. Northern Trust Co., 27 U. S., 339, 347 T. D. 4261, C. . III-1, 305
(1929) .) The ta abe gross estate, n other words, must ncude those property
nterests the utmate possesson or en|oyment of whch s hed n suspense unt
the moment of the grantor s death or thereafter.
Tested by that standard, the entre corpus of the trust shoud have been ncuded
n the decedent s gross estate and an estate ta eved on ts net vaue at the date
of decedent s death. The utmate dsposton of a the trust property was
suspended durng the fe of the decedent. Ony at or after her death was t
certan whether the property woud be dstrbuted under the power of appont-
ment or as provded n the trust nstrument. The fe estates of the daughters
were contngent upon ther survvng ther mother and took effect n en|oyment
ony at the death of the atter. The remander nterests of the descendants of
the daughters were contngent upon ther survvng both the decedent and the
(aughters and took effect n possesson ony after the death of the decedent.
Thus unt the moment of her deafh or unt an undetermned tme thereafter the
decedent hed a strng or contngent power of nppontment over the tota corpus
of the trust. The retenton of such a strng, whch mght have resuted n aterng
competey the pan contempated by the trust nstrument for the transmsson of
decedent s property, sub|ected the vaue of the entre corpus to estate ta abty.
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Regs. 0, rt. 15.
40
It Is frutess to specuate on the probabtes of the property beng dstrbuted
under the contngent power of appontment. Indeed, such specuaton s rreevant
to the measurement of estate ta abty. The appcaton of ths ta does not
depend upon eusve and subte casustres. ( everng v. oock, supra, 11 .)
No more shoud the measure of the ta depend upon con|ectures as to the pro-
pnquty or certanty of the decedent s reversonary nterests. It s enough f he
retans some contngent nterest n the property unt hs death or thereafter,
deayng unt then the rpenng of fu domnon over the property by the bene-
fcares. The vaue of the property sub|ect to the contngency, rather than the
actuara or theoretca vaue of the possbty of the occurrence of the con-
tngency, s the measure of the ta . That vaue s demonstrated by the conse-
quences that woud fow n ths nstance from the decedent s survva of her
daughters and any of the atter s survvng descendants.
We are not concerned here wth determnng whether the vaues of any property
nterests or ntervenng estates not affected by the decedent s death and not sub|ect
to the contngent power of appontment shoud be deducted from the vaue of the
corpus. The vaue of the fe estate retaned by the decedent obvousy can not be
deducted. nd the fe estates of the daughters and the remander nterests of
ther survvng descendants were a sub|ect to dvestment by the contngent
power of appontment and were freed from ths contngency ony at or after the
decedent s death. There s thus no bass for deductng ther vaues as suggested
by pettoners.
ffrmed.
Mr. ustce Douoas, concurrng.
The dstrct court found that ths trust was ntended to take effect n possesson
or en|oyment at or after the death of the decedent. The crcut court of appeas
agreed. Certorar was not granted on that queston but ony on the queston
whether the entre vaue of the corpus of the trust at the tme of decedent s
death shoud be ncuded n her gross estate. So n ths case, as n Commssoner
v. ed, No. 57 , decded ths day Ct. D. 1031, beow, ths uetn , we are not
faced wth the queston whether May v. ener (2 1 U. S., 23 Ct. D. 1 0, C. .
I -1, 3 2 (1930) ) shoud survve everng v. oock (309 U. S., 106). On the
fndngs of the dstrct court, t s pan that the entre corpus must be ncuded
n decedent s gross estate by vrtue of secton 302(c) of the 1926 ct uness the
vaue of the fe estate must be deducted. The vaue of the fe estate deducted
n the aock case was the fe estate n the settor s wfe. It was e cuded
because t took effect n possesson or en|oyment when the trust was created. The
fe estate whch the decedent reserved to hersef s obvousy n a dfferent
cntegory. It Is not an outstandng fe estate wthn the meanng of Treasury
Reguatons 0, artce 17.
I woud rest the decson there and reserve |udgment on the other questons
adverted to n the opnon of the Court.
Reguatons 0, rtce 15: Transfers durng 1945-5-119 2
fe. Ct.D.C31
estate ta revenue act of 1920 decson of supreme court.
1. Gross state Transfers n Trust Intended to Take ffect
n Possesson or n|oyment at or fter Death.
The decedent transferred property n trust, the trust beng m-
ted n duraton to the ves of decedent s two neces, but, f both
neces shoud de before the decedent, the corpus was to be pad to
the decedent rather than to the benefcares named n the trust
nstrument. If decedent shoud de pror to the termnaton of the
trust, eavng ssue, the property was to be hed n trust for the ch-
dren or ther ssue, sub|ect to decedent s rght to reduce or cance
the amount of the gfts trust ncome to be pad to named bene-
fcares for fe and upon ther deaths the corpus to such bene-
fcares ssue survvng f none, to the ssue of the decedent survv-
ng or, f none, then to decedent s brother or sster or ther ssue.
ed: The decedent havng retaned a strng attached to a the
property unt death severed t, the entre corpus was swept nto the
gross estate and was ta abe accordngy under the provsons of
secton 302(c) of the Revenue ct of 191:6.
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409
Regs. 0, rt. 15.
2. Decson Reversed.
(2 T. C, 21), reversed.
Commssoner of Interna Revenue, pettoner, v. state of Lester ed, Deceased,,
arnctt oander, Temporary dmnstrator and ecutor.
324 U. S., 113.
ebruary 5, 1945.
OPINION.
Mr. ustce Muhphy devered the opnon of the Court.
Ths s a companon case to dety-Phadepha Trust Co. v. Rothcnses.
No. 2133, decded ths day Ct. D. 1G30, page 400, ths uetn . It too presents
a queston as to the proper vauaton of the corpus of an nter vvos trust under
secton 302(c) of the Revenue ct of 1926 ( 44 Stat., 9, 70.)
On une , 1922, the decedent transferred to a trustee certan assets vaued
at the date of hs deat at the sum of 157,452. 2. The matera portons of
the trust provded:
1. The trust was to contnue for the |ont ves of two neces and the fe of
the survvor of them uness termnated earer under 4, nfra.
2. The ncome was to be pad to the decedent for hs fe uness the trust
termnated before hs death.
3. If the decedent ded pror to the termnaton of the trust eavng ssue,
the trust property was to be hed n trust for the chdren or ther ssue, sub|ect
to decedent s rght to reduce or cance the amounts of the gfts by w or
wrtten nstrument. Provsons were aso made for a 150,000 trust for the
wdow whch s not n ssue n ths ease.
4. Durng the contnuance of the trusts the ncome was to be pad to the
benefcary mmed and upon the death of the benefcary durng the contnuance
of the trust the corpus was to be pad to the benefcary s ssue survvng, but
f there be none, to the ssue of the decedent survvng f none, then to decedent s
brother or sster or ther ssue.
5. Upon termnaton of the trust before the death of the decedent the corpus
was to be pad over to decedent.
6. Upon termnaton of the trust after the death of the decedent but durng
the e steuee of any trust the corpus was to be pad to the fe benefcary.
The decedent at no tme had any ssue. t hs death n 1937 at the age of 52,
he was survved by the two neces whose ves were to measure the ma mum
fe of the trust. These neces were then aged 1 and 25 respectvey. e was
aso survved by hs wdow, a sster and ssue of a deceased brother.
The Ta Court hed that the entre amount of 157,452. 2 was ncudbe n
the gross estate for purposes of the estate ta . (2 T. C, 21.) ut the court
beow reversed and remanded the case to The Ta Court wth drectons to
ncude n the gross estate ony 24,930.76 the vnue at the tme of decedent s
death of a remander n the sum of 157,452. 2 payabe at a events upon the
death of the survvor of two femaes, aged 1 and 25 respectvey. (144 ed.
(2d), 62.)
The error of the court beow s sef-evdent from our dscusson n the
dety-Phadepha Trust Co. case. The trust here wns mted In duraton
to ths ves of the decedent s two neces. ut f both neces ded before the
decedent, the corpus woud have been pad to the decedent rather than to the
benefcares named In the trust nstrument (n ths nstance the decedent s
sster and the ssue of hs deceased brother). Thus unt decedent s death t
was uncertan whether any of ths corpus woud pass to the benefcares or
whether t woud revert to the deeedent. Decedent retanng a strng attached
to a the property unt death severed t, the entre corpus was swept nto the
gross estate and was ta abe accordngy.
There Is no bass evdent for deductng the vaue of the corpus for the perod
of the fe e pectances of the two measurng ves, as was done by the court
4354 10 27
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Regs. 0 (1937), rt. 99.
410
beow. The estate ta Is not based on the vaue of the reversonary Interest of
the decedent at the tme of hs death but on the vaue at the tme of hs death
of the property to whch that reversonary Interest reates. It makes no df-
ference how vested may be the remander nterests In the corpus or how remote
or uncertan may be the decedent s reversonary nterest. If the corpus does
not sbed the possbty of reverson unt at or after the decedent s death, the
vaue of the entre corpus on the date of death s ta abe.
Reversed.
Mr. ustce Dougas, concurrng.
If the trust gave a fe estate to the decedent and the remander to hs chdren,
secton 302(c) of the 1926 ct woud not requre the payment of a ta under the
rue of May v. ener (2 1 U. S., 23 Ct. D. 1 6, C. . I -1, 3 2 (1930) ) urnet
v. Northern Trust Co. (2 3 U. S., 7 2) McCormck v. urnet (2S3 U. S., 7 4)
and sset v. Wech (303 U. S., 303 Ct. D. 1317, C. . 193 -1, 490 ). The theory
of May v. ener was that under those crcumstances no nterest n the property
passed from the grantor to the remanderman on the grantor s death, snce the
tte of the remanderman had been defntey f ed by the trust deed. We need
not determne whether the rue of May v. ener shoud survve everng v.
aock (30.0 U. S., 106 Ct. D. 1440, C. . 1940-1, 223 ). (See Pau, edera
state and Gft Ta aton (1942), secton 7.15.) or n ths case the grantor
retaned the rght to reduce or cance by w or wrtten nstrument the nterests
of the chdren and the corpus woud have been returned to the grantor f he
survved hs neces. ence t seems pan that the gfts over woud take effect
n possesson or en|oyment ony at or after the death of the grantor.
S CTION 319. LIMIT TION P RIOD OR ILING R UND CL IMS.
Reguatons 0 (1937), rtce 99: Cam for 1945-4-11972
refund. Ct. D. 162
ST T T R NU CT O 1920, S M ND D D CISION O SUPR M
COURT.
1. Cam fob Refund Statute of Lmtatons dvance Payment
of stmated Ta Consdered n Nature of Cash ond.
n advance payment of estmated edera estate ta es set asde
by the coector of nterna revenue n a speca suspense account s
not hed as ta es duy coected but s hed as a depost made n the
nature of a cash bond for the payment of ta es thereafter found to
be due. cam for refund fed more than three years after such
payment but wthn three years after the Commssoner s determna-
ton and assessment of the tota net ta due, Is not barred by the
statute of mtatons prescrbed by secton 319(b) of the Revenue
ct of 1926, as amended by secton 10(a) of the Revenue ct of
1932.
2. Decson Reversed.
Decson of the Court of Cams (53 ed. Supp., 722) (1944)
reversed.
Lena Rosenman and the Natona Cty ank of New York, a Corporaton, as
ecutors of the Last W and Testament of Lous Rosenman, Deceased,
pettoners, v. The Unted States.
323 U. S., 65 .
On wrt of certorar to the Court of Cams.
anuary 29, 1945.
OPINION.
Ths s an acton upon a cam for refund of a edera estate tar, and the
specfc queston before us s whether the cam was asserted too ata The
matter s governed by secton 319(b) of the Revenue ct of 1926 (44 Stat., 9,
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411 Regs. 0 (1937), rt. 99.
4), as amended by secton 10(a) of the Revenue ct of 1032 (47 Stat., 169,
2 2, 26 D. S. C, secton 910), readng hs foows:
cams for the refundng of the ta mposed by ths tte aeged to have
been erroneousy or egay assessed or coected must be presented to the
Commssoner wthn three years ne t after the payment of such ta . The
amount of the refund sha not e ceed the porton of the ta pad durng the
three years mmedatey precedng the fng of the cam, or f no cam was
fed, then durng the three years mmedatey precedng the aowance of the
refund.
Pettoners are e ecutors of the w of Lous Rosenman, who ded on
December 25, 1933. Under approprate statutory authorty, the Commssoner of
Interna Revenue e tended the tme for fng the estate ta return to ebruary
25, 1935. ut there was no e tenson of the tme for payment of the ta
whch became due one year after the decedent s death, on December 25, 1934.
The day before, pettoners devered to the coector of nterna revenue a
check for 120,000, the purpose of whch was thus defned In a etter of trans-
mtta: We are deverng to you herewth, by messenger, an estate check
payabe to your order, for 120,000, as a payment on account of the edera
estate ta . . Ths payment Is made under protest and duress, and
soey for the purpose of avodng penates and nterest, snce It Is contended
by the e ecutors that not a of ths sum s egay or awfuy due. Ths
amount was paced by the coector In a suspense account to the credt of the
estate. In the books of the coector the suspense account concerns moneys
receved n connecton wth edera estate ta es and other msceaneous
ta es f, as here, no assessment for ta es s outstandng at the tme. On
ebruary 25, 1935, pettoners fed ther estate ta return accordng to whch
there was due from the estate 0,224.24. On March 2 , 1935, the coector
advsed pettoners that 0,224.24 of the 120,000 to ther credt In the suspense
account had been apped In satsfacton of the amount of the tn assessed
under ther return. On the bass of ths notce, pettoners, on March 20, 193 ,
fed a cam for 39,775.76, the baance between the 120,000 pad by them
under protest and the assessed ta of 0,224.24.
Upon competon, after neary three years, of the audt of the return, the
Commssoner determned that the tota net ta due was 12 ,759.0 . No
appea to the oard of Ta ppeas havng been taken, a defcency of 4 ,534. 4
was assessed. The coector thereupon apped the baance of 39,775.76 stand-
ng to the credt of pettoners n the suspense account n parta satsfacton of
ths defcency, and on pr 22, 193 , pettoners pad to the coector the
addtona amount of 10,497.34, whch covered the remander of the defcency
pus nterest. The Commssoner then re|ected the pettoners cam for refund
fed n March of that year. On May 20, 1940, pettoners fed wth the coector
a cam, based on addtona deductons, for refund of 24,717.12. The cnn
was re|ected on the ground, so far as now reevant, that the ta camed to
have been egay e acted had been pad more than three years pror to the
fng of the cam, e cept as to the amount of 10,497.34 pad by pettoners n
193 . Pettoners brought ths sut n the Court of Cams whch hed that
recovery for the amount here In dspute was barred by statute (53 ed. Supp.,
722). To resove an asserted confct of decsons n the ower courts we
brought the case here. (323 U. S., .)
Cams for ta refunds must conform strcty to the requrements of Congress.
cam for refund of an estate ta aeged to have been erroneousy or
egay assessed or coected must be presented to the Commssoner wthn
three years ne t after the payment of such ta . On the face of t, ths
requrement Is couched n ordnary ngsh, and snce no e traneous reevant
ads to constructon have been caed to our attenton Congress has evdenty
meant what these words ordnary convey. The cam Is for refund of a ta
aeged to have been erroneousy or egay assessed or coected, and the
cam must have been fed after the payment of such ta , that s, wthn
three years after payment of a ta whch accordng to the cam was errone-
ousy or egay coected. The cru of the matter s the aeged Iega assess-
ment or coecton, and payment of such ta pany presupposes chaenged
acton by the ta ng offcas.
The acton here companed of was the assessment of a defcency by the
Commssoner n pr, 193 . efore that tme there were no ta es erroneousy
or egay assessed or coected for the coecton of whch pettoners coud
have fed a cam for refund. The amount then demanded as a defcency by
the Commssoner was, so the pettoners camed, erroneousy assessed. It Is
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Regs. 0 (1937), rt. 99.
412
ths erroneous assessment that gave rse to a cam for refund. Not unt then
was there such a cam as coud start the tme runnng for presentng the cam.
In any responsbe sense payment was then made by the appcaton of the
baance credted to the pettoners n the suspense account and by the addtona
payment of 10,407.34 an pr 22, 103 . oth these events occurred wthn
three years of May 20, 1940, when the pettoners present cam was fed.
ut the Government contends payment of such ta was made on December
24, 1934, when pettoners transferred to the coector a check for 120,000. Ths
stopped the runnng of penates and nterest, says the Government, and there-
fore s to be treated as a payment by the partes. ut on December 24, 1934,
the ta payer dd not dscharge what he deemed a abty nor pay one that was
asserted. There was merey an nterm arrangement to cover whatever con-
tngences the future mght defne. The ta obgaton dd not become defned
unt pr, 193 . nd ths s the practca constructon whch the Government
has paced upon such arrangements. The Government does not consder such
advances of estmated ta es as ta payments. They are, as t were, payments
In escrow. They are set asde, as we have noted, n speca suspense accounts
estabshed for depostng money receved when no assessment s then out-
standng aganst the ta payer. The recept by the Government of moneys
under suc an arrangement carres no more sgnfcance than woud the gvng
of a surety bond. Money n these accounts Is hed not as ta es duy coected
are hed but as a depost made In the nature of a cash bond for the payment
of ta es thereafter found to be due. (See Rung of the Comptroer Genera,
-1 307, pr 14, 1933.) ccordngy, where ta payers have sued
for nterest on the overpayment of moneys receved under smar condtons,
the Government has nssted that the arrangement was merey a depost
and not a payment Interest on whch Is dne from the Government If there
Is an e cess beyond the amount of the ta eventuay assessed. (See user v.
Unted States, 130 ed. (2d), 537, 53 tantc. OU Producng Co. v. Unted
States, 35 ed. Supp., 7G6 Moses v. Unted States, 2 ed. Supp., 17 Chcago
Tte t Trust Co. v. Unted States, 45 ed. Supp., 323 state of Rogers v.
Commssoner .) If t s not payment n order to reeve the Govern-
ment from payng nterest, It can not be payment to bar sut by the ta payer
for ts ega retenton. It w not do to treat the same transacton as payment
and not as payment, whchever favors the Government. (See Unted States v.
Wurts, 303 U. S., 414 Ct. D. 1325, C. . 193 -1, 329 .)
acton of nterest from the Government requres statutory authorty, and It
merey carres out the true nature of an arrangement such as ths to treat t as
an estmated depost and not as a payment whch, f n e cess of what shoud
propery have been e acted, entted the ta payer to Interest as the return on
the use that the Government has had of moneys that shoud not have been e acted.
(We need not here consder the effect of the Current Ta Payment ct of 1943,
secton 4(d), 57 Stat., 120, 140.) On the other hand, by aowng such a depost
arrangement, the Government safeguards coecton of the assessment of whatever
amount ta offcas may eventuay fnd owng from a ta payer, whe the ta -
payer n turn s saved the danger of penates on an assessment made, as n ths
case, years after a fary estmated return has been fed. The constructon whch
n our vew the statute compes safeguards the nterests of the Government, Inter-
prets a busness transacton accordng to ts tenor, and avods gratutous resent-
ment n the reatons between Treasury and ta payer.
Reversed.
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413
Regs. 10 , 6.2.
GI T T .
INT RN L R NU COD .
Reguatons 10 , Secton 6.2: Transfers 1945-1-11970
reached. T. D. 5437
TITL 26 INT RN L R NU . C PT R I, SU C PT R , P RT 0. GI T
T UND R C PT R 4 O INT RN L R NU COD , S M ND D.
Secton 6.2 of Reguatons 10 amended to conform to Pubc I|w
511 (Seventy-eghth Congress, second sesson), reatng to reease of
powers of appontment.
Washngton 25, D. C.
To Coectors of Interna Revenue and Others Concerned: .
edera Reguatons, Cum. Sup. to Pubc Law 511 approved Decem-
ber 20, 1944 (Seventy-eghth Congress, second sesson), such regua-
Paragraph 1. There s nserted mmedatey after secton 505 of
the Revenue ct of 1943, whch was nserted by Treasury Decson
5366, approved May 5, 1944 C. . 1944, 5 3 , and precedng sec-
ton 6.1, the foowng:
PU LIC L W 511 (S NTY- IG T CONGR SS, S COND
S SSION), PPRO D D C M R 20, 1944.
Unted States of merca n Congress assembed, That sec-
ton 452(c) of the Revenue ct of 1942 s amended to read as foows:
(c) Reease efore uy 1, 1945.
(1) reease of a power to appont before uy 1, 1945, sha
not be deemed a transfer of property by the ndvdua possessng
such power.
(2) Ths subsecton sha appy to a caendar years pror to
1945 and to that part of the caendar year 1945 pror to uy 1,
1945.
Par. 2. Secton 6.2(6), as amended by Treasury Decson 5306,
approved May 5, 1944, s further amended as foows:
( ) y strkng out anuary 1, 1945 wherever t appears and
by nsertng n eu thereof uy 1,1945.
( ) y strkng out as amended by secton 505 of the Revenue
ct of 1943 wherever t appears and by nsertng n eu thereof
as amended by Pubc Law 511 (Seventy-eghth Congress), approved
December 20, 1944.
sectons 1000(c), 1029. and 3791 of the Interna Revenue Code (56
Stat.,952 53 Stat., 157,467 26 U. S. C, 1940ed., 1000(c), 1029, 3791),
and Pubc Law 511 (Seventy-eghth Congress), approved December
20, 1944.)
oseph D. Nunan, r.,
( ed wth the Dvson of the edera Regster ebruary 5, 1945, 11.37 a. m.)
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Regs. 10 , 6.2.
414
Reguatons 10 , Secton 6.2: Transfers 1945-17-12124
reached. T. D. 5471
GI T T UND R C PT R 4 O INT RN L R NU COD , S M ND D.
nnth Congress page 530, ths uetn ), reatng to reease of
powers of appontment
O TTC of Commssoner of Interna Revenue,
Washngton 5, D. C.
edera Reguatons, Cum. Sup. to Pubc Law 95 (Seventy-nnth
Congress), approved une 29, 1945 page 530, ths uetn , such
reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey after Pubc Law 511
(Seventy-eghth Congress), whch was nserted by Treasury Decson
5437, approved ebruary 3,1945 page 413, ths uetn , and preced-
ng secton 6.1, the foowng:
PU LIC L W 95 (S NTY-NINT CONGR SS), PPRO D UN
29, 1945.
States of merca n Congress assembed. That secton 452(c)
of the Revenue ct of 1942 s amended to read as foows:
(c) Reea.se efore uy 1, 1946.
(1) reease of a power to appont before uy 1, 1946, sha
not be deemed a transfer of proparty by the ndvdua possessng
such power.
(2) Ths subsecton sha appy to a caendar years pror
to 1946 and to that part of the caendar year 1946 pror to uy 1,
1946.
Par. 2. Secton 6.2 ( ), as amended by Treasury Decson 536G,
approved May 5, 1944 C. . 1944, 5 3 , and Treasury Decson 5437,
approved ebruary 3, 1945 supra , s further amended as foows:
( ) y strkng out uy 1, 1945 wherever t appears and by
nsertng n eu thereof uy 1,1946.
( ) y strkng out as amended by Pubc Law 511 (Seventy-
eghth Congress), approved December 20, 1944 wherever t appears
and by nsertng n eu thereof as amended by Pubc Law 05
(Seventy-nnth Congress), approved une 29, 1945.
sectons 1000(c), 1029, and 3791 of the Interna Revenue Code (56
Stat., 952, 53 Stat, 157,467 26 U. S. C, 1940 ed., 1000(c), 1029, 3791),
and Pubc Law 95 (Seventy-nnth Congress), approved une 29,
1945.)
oseph D. Nunan, r.,
( ed wth the Dvson of the edera Regster ugust 17, 1945, 1159 a. m.)
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415 Regs. 79 (1936), rt. 3.
Reguatons 79 (1936), rtce 3: Cessaton 1945-17-12123
of donor s domnon and contro. T. D. 5469
GI T T UND R T R NU CT O 1032. S M ND D.
Reguatons 79 ()3C dton) amended to conform to secton 2
of Pubc Law 95 (Seventy-nnth Congress page 530, ths uetn ),
reatng to certan dscretonary trusts.
W ashng ton 25, D. C.
In order to conform Reguatons 79 (1936 dton) Part 5, Tte
26, Code of edera Reguatons to secton 2 of Pubc Law 95
(Seventy-nnth Congress), approved une 29, 1945 page 530, ths
uetn , such reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey after secton 502(c)
of the Revenue ct of 1943, whch was nserted by Treasury Dec-
son 5365, approved May 5, 1944 C. . 1944, 5 5 , and precedng
artce 1 secton 5.1 of such Tte 26 the foowng:
PU LIC L W 95 (S NTY-NINT CONGR SS), PPRO D
UN 29, Mu.

Se 2. Secton 501(c) of the Revenue ct of 1932 as added by sec-
ton 502(b) of the Revenue ct of 1943. reatng to certan dscretonary
trusts, s amended by strkng out the words on or after anuary 1,
1939, and and nsertng n eu thereof the words on or after une
7, 1932, and .
Par. 2. rtce 3 secton 5.3 of such Tte 26 , as amended by
Treasury Decson 5010, approved September 19, 1940 C. . 1940-2,
293 , and Treasury Decson 5365, approved May 5, 1914 supra , s
further amended by changng the phrase n the frst sentence of the
ast paragraph the renqushment b 7 the grantor on or after an-
uary 1, 1939, and pror to anuary 1, 1940 to read the renqush-
ment by the grantor on or after une 7, 1932, and pror to anuary
1, 1940.
n sectons 501 and 520 of the Revenue ct of 1932 (47 Stat., 245,
259), approved une 6, 1932, secton 502 of the Revenue ct of 1943
(Pubc Law 235, Seventy-eghth Congress C. . 1944, 756 ), enacted
ebruary 25, 1944, and secton 2 of Pubc Law 95 (Seventy-nnth
Congress), approved une 29,1945.)
oseph D. Nunan, r.,
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Regs. 79 (1936), rt. . 416
TITL III. GI T T . (1932)
S CTIONS 501 ND 503.
Reguatons 79 (193C), rtce : Transfers for 1945-6-11995
a consderaton n money or money s worth. Ct. D. 1634
gft ta revenue act of 1932 decson of supreme court.
1. Transfer of Stock Donatve Intent Consderaton ntre
aue of Stock Transferred n Consderaton of Marrage and
Loss of Income Ta abe as Gft.
The transfer of stock from the ta payer to hs ntended wfe,
pursuant to an antenupta agreement, n consderaton of marrage
and to compensate her for the oss of ncome from trusts set up by
her former husband, s sub|ect to the gft ta mposed by secton
501(a) of the Revenue ct of 1932 upon the whoe vaue of the stock
transferred. Sectons 501 and 503 shoud not be separated n app-
caton, a donatve ntent s not essenta, and where a transfer Is
not made n the ordnary course of busness t s sub|ect to gft ta to
the e tent that t s not made for an adequate and fu consderaton
n money or money s worth. The quoted phrase ams to reach those
transfers whch are wthdrawn from the donor s estate and requres
consderaton whch must beneft the donor. Nether detrment to
the donee nor the nducement of marrage satsfy the requrements of
secton 503.
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, S th Cr-
cut (144 ed. (2d), 7 ), reversng decson of The Ta Court of
the Unted States (2 T. C, 76), reversed.
Commssoner of Interna Revenue, pettoner, v. Wam . Wemyss.
324 U. S., 303.
On wrt of certorar to the Unted States Crcut Court of ppeas for the S th Crcut
March 5, 1945.
OPINION.
In 1939 ta payer proposed marrage to Mrs. More, a wdow wth one chd. er
deceased husband had set up two trusts, one haf the ncome of whch was for
the beneft of Mrs. More and the other haf for that of the chd wth provson
that, n the event of Mrs. More s remarrage, her part of the ncome ceased and
went to the chd. The corpus of the two trusts conssted of stock whch brought
to Mrs. More from the death of her frst husband to her remarrage, about fve
years ater, an average ncome of 5,4 4 a year. On Mrs. More s unwngness
to suffer oss of her trust ncome through remarrage the partes on May 24, 1939,
entered upon an agreement whereby ta payer transferred to Mrs. More a bock
of shares of stock. Wthn a month they marred. The Commssoner rued that
the transfer of ths stock, the vaue of whch, 149,450.13, ta payer does not
controvert, was sub|ect to the edera gft ta , sectons 501 and 503 of the Reve-
nue ct of 1932 (47 Stat., 169, 245, 247, 26 U. S. C, sectons 1000, 1002). ccord-
ngy, he assessed n defcency whch The Ta Court uphed (2 T. C, 70), but
the Crcut Court of ppeas reversed The Ta Court (144 ed. (2d), 7 ). We
granted certorar to sette uncertantes In ta admnstraton engendered by
seemngy confctng decsons. (323 U. S., .)
The answer to our probem turns on the proper appcaton of sectons 501(a)
and 503 supra to the mmedate facts. These provsons are as foows:
S C. 501. IMPOSITION O T .
(a) or the caendar year 1932 and each caendar year thereafter a ta ,
computed as provded n secton 502, sha be mposed upon the transfer durng
such caendar year by any ndvdua of property by gft.
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417
Regs. 79 (1936), rt. .
S C. 503. TR NS RS OR L SS T N D U T ND ULL CONSID-
R TION.
Where property s transferred for ess than an adequate and fu consdera-
ton n money or money s worth, then the amount by whch the vaue of the
property e ceeded the vaue of the consderaton sha, for the purpose of the
ta mposed by ths tte, be deemed a gff, and sha be ncuded n computng the
amount of gfts made durng the caendar year.
In vew of the ma|or r61e whch The Ta Court pays In edera ta tgaton.
It becomes mportant to consder how that court deat wth ths probem. usng,
as t were, sectons 501 and 503, The Ta Court read them as not beng mted
by any common aw technca notons about consderaton. nd so, whe rec-
ognzng that marrage was of course a vauabe consderaton to support a con-
tract. The Ta Court dd not deem marrage to satsfy the requrement of secton
503 n that t was not a consderaton reducbe to money vaue. ccordngy, the
Court found the whoe vaue of the stock transferred to Mrs. More ta abe under
the statute and the reevant Treasury Reguatons 79 (1936 ed.), artce :
consderaton not reducbe to a money vaue, as ove and affecton, promse of
marrage, etc., s to be whoy dsregarded, and the entre vaue of the property
transferred consttutes the amount of the gft. . In the aternatve, The Ta
Court was of the vew that f Mrs. More s oss of her trust ncome rather than
the marrage was consderaton for the ta payer s transfer of hs stock to her,
he s not reeved from the ta because he dd not receve any money s worth
from Mrs. More s renqushment of her trust ncome, and, In nny event, the actua
vaue of her nterest n the trust, sub|ect to fuctuatons of Its stock earnngs,
was not proved. One member of The Ta Court dssented, deemng that the gft
ta egsaton nvoked ordnary contract conceptons of consderaton.
The Crcut Court of ppeas re|ected ths ne of reasonng. It found n the
marrage agreement an arm s ength bargan and an absence of donatve ntent
whch t deemed essenta: donatve ntent foowed by a donatve act Is es-
senta to consttute a gft and no straned and artfca constructon of a
suppementary statute shoud be Induged to ta as a gft a transfer actuay
ackng donatve ntent. (144 ed. (2d), 7 , 2.)
Sectons 501 and 503 are not dsparate provsons. Congress drected them
to the same purpose, and they shoud not be separated n appcaton. ad
Congress ta ed gfts smpcter, t woud be approprate to assume that the
term was used n ts cooqua sense, and a search for donatve ntent woud
be ndcated. ut Congress Intended to use the term gfts In ts broadest
and most comprehensve sense. ( . Rept. No. 70S, Seventy-second Congress,
frst sesson, page 27 C. . 1939-1 (Part 2), 457 S. Rept. No. 605, Seventy-
second Congress, frst sesson, page 39 C. . 1939-1 (Part 2), 400 cf. Smth v.
haughnessy, 31 U. S., 176 Ct. D. 1575, C. . 1943, 1144 Robnette v. cvcr-
ng, 31 U. S., 1 4 Ct. D. 1574, C. . 1943, 1141 .) Congress chose not to requre
an ascertanment of what too often s an eusve state of mnd. or purposes of
the gft ta t not ony dspensed wth the test of donatve ntent. It formu-
ated a much more workabe e terna test, that where property s transferred
for ess than an adequate and fu consderaton In money or money s worth,
the e cess n such money vaue sha, for the purpose of the ta mposed by
ths tte, be deemed a gft . nd Treasury reguatons have empha-
szed that common aw consderatons were not emboded n the gft ta .1
To renforce the evdent desre of Congress to ht a the protean arrangements
whch the wt of man can devse that are not busness transactons wthn the
meanng of ordnary speech, the Treasury reguatons make cear that no genune
busness transacton comes wthn the purport of the gft ta by e cudng a sae,
e change, or other transfer of property made n the ordnary course of busness
(a transacton whch s bona fde, at arm s ength, and free from any donatve
ntent). (Treasury Reguatons 79 (1936 ed.), artce .) Thus on fndng
that a transfer n the crcumstances of a partcuar case s not made n the
ordnary course of busness, the transfer becomes sub|ect to the gft ta to the
e tent that It s not made for an adequate and fu consderaton n money or
money s worth. (See 2 Pau, edera state and Gft Ta aton (1042),
page 1113.)
The Ta Court n effect found the transfer of the stock to Mrs. More was not
made at arm s ength n the ordnary course of busness. It noted that the
Treasury Reguatons 79 (1936 ed.), artce 1: Imposton or Ta . The
ta Is not mted In ts Imposton to transfers of property wthout a vauabe consderaton,
whch at common aw are treated as gfts, but e tends to saes and e changes (or ess than
an adequate and tu consderaton In money or money s worth.
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41
nducement was marrage, took account of the dscrepancy between what she got
and what she gave up, and aso of the beneft that her marrage settement brought
to her son. These were consderatons The Ta Court coud |ustfaby heed,
and heedng, decde as t dd. Its concuson on the ssue before t was no ess
to be respected than were the ssues whch we deemed t was entted to decde
as t dd n Dobson v. Commssoner (320 U. S., 4 9 Ct. D. 1597 C. . 1944, 56 ),
Commssoner v. ennger (320 U. S., 407 Ct. D. 1596 C. . 1944, 4 4 ), Comms-
soner v. Scottsh mercan Co. (323 U. S., 119 Ct. D. 1619 C. . 1944, 340 ).
If we are to soate as an ndependenty revewabe queston of aw the vew
of The Ta Court that money consderaton must beneft the donor to reeve
a transfer by hm from beng a gft, we thnk The Ta Court was correct. (See
Commssoner v. rsto, 121 ed. (2d), 129.) To be sure, the Revenue ct of
1932 does not spe out a requrement of beneft to the transferor to afford reef
from the gft ta . Its forerunner, secton 320 of the 1924 ct (43 Stat., 253, 314),
was more e pct n that t provded that the e cess of the transfer over the
consderaton receved sha be deemed a gft. It w hardy be sug-
gested, however, that n renposng the gft ta n 1932 Congress meant to e cude
transfers that woud have been ta ed under the 1924 ct. The secton ta ng
as gfts transfers that are not made for adequate and fu money consdera-
ton ams to reach those transfers whch are wthdrawn from the donor s estate.
To aow detrment to the donee to satsfy the requrement of adequate and
fu consderaton woud voate the purpose of the statute and open wde the
door for evason of the gft ta . (See 2 Pau, supra at 1114.)
Reversed.
Mr. ustce Roberts dssents.
Reguatons 79 (1936), rtce : Transfers for 1945-6-11996
a consderaton n money or money s worth. Ct. D. 1635
gft ta revenue act of 19 2 decson of supreme court.
1. Transfer of Property n Trust Renqushment of Dower
and Other Marta Rghts as Consderaton.
The estabshment by ta payer of an rrevocabe nter vvos trust
for the beneft of hs wfe, pursuant to an antenupta agreement
whereby the wfe reeased her dower and other marta rghts n
consderaton for the creaton of the trust, Is sub|ect to the gft ta
mposed by secton 501(a) of the Revenue ct of 1932. Such reease
does not consttute an adequate and fu consderaton n money
or money s worth wthn the meanng of secton 503 of that ct.
The quoted phrase, aso used n the estate ta aw, s to be construed
ake n both the gft and estate ta aws as e cudng renqushment
of dower and other marta rghts, snce the two aws are In par
matera. The amendment to the estate ta n secton 04 of the
Revenue ct of 1932, specfcay e cudng such renqushment from
the meanng of the quoted phrase, was merey carfyng and a
cautous redundancy.
2. Decson ffrmed.
Crcut (142 ed. (2d). 651), reversng decson of the Dstrct Court,
S. D. orda (51 ed. Supp., 120), affrmed.
Chares . Merr, pettoner, v. ohn L. ahs, Unted States Coector of Interna
Revenue for the Dstrct of orda.
324 . S., 30 .
March 5,1945.
OPINION.
Ths s a companon ca e to Commssoner v. Wemyss, No. 629, ust decded
Ct. D-1634, page 416, ths uetn .
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419
Regs. 79 (1936), rt. .
On March 7, 1939, ta payer, the pettoner, made an antenupta agreement
wth nta Desnare. Ta payer, a resdent of orda, had been twce marred
and had three chdren and two grandchdren. e was a man of arge resources,
wth cash and securtes worth more than 5,000,000, and orda rea estate
vaued at 135,000. Mss Desmare s assets were neggbe. y the arrangement
entered nto the day before ther marrage, ta payer agreed to set up wthn 90
days after marrage an rrevocabe trust for 300,000, the provsons of whch were
to conform to Mss Desmare s wshes. The ta payer was aso to provde In hs
w for two addtona trusts, one, kewse n the amount of 300,000, to contan
the same mtatons as the nter vvos trust, and the other, aso n the amount of
300,000, for the beneft of ther survvng chdren. In return Mss Desmare
reeased a rghts that she mght acqure as wfe or wdow n ta payer s property,
both rea and persona, e ceptng the rght to mantenance and support. The
nducements for ths agreement were stated to be the contempated marrage,
desre to make far requta for the reease of marta rghts, freedom for the
ta payer to make approprate provsons for hs chdren and other dependents,
the uncertanty surroundng hs fnanca future and marta tranquty. That
gnch an antenupta agreement s enforceabe In orda s not dsputed (North v.
Rngng, 149 a., 739), nor that orda gves a wfe an nchoate nterest In
a the husband s property, contngent durng hs fe but absoute upon death.
( orda Statutes (1941), secton 731.34 Smth v. nnes, 10 a., 25 enderson
v. Usher, 125 a., 709.) The partes marred, and the agreement was fuy car-
red out
On ther gft ta return for 1939, both reported the creaton of the trust but
camed that no ta was due. The Commssoner, however, determned a def-
cency of 99,000 n ta payer s return n reaton to the transfer of the 300,000.
Upon the Commssoner s re|ecton of the ta payer s cam for refund of the
assessment pad by hm, the present sut aganst the coector was fed. The
dstrct court sustaned the ta payer (51 ed. Supp., 120), but was reversed by
the Crcut Court of ppeas for the fth Crcut, one |udge dssentng. (142
ed. (2d), 661.) We granted certorar In connecton wt Commssoner v.
Wemyss, supra, and heard the two cases together. (323 U. S., .)
Ths case, unke the Wemyss case, does not come here by way of The Ta
Court. No ad can therefore be drawn from a pror determnaton by the trbuna
specay entrusted wth ta ad|udcatons. (See Grswod, The Need for a Court
of Ta ppeas (1944), 57 arv. L. Rev., 1153, 1173.) ut ke the Wemyss case,
ths case turns on the proper appcaton of secton 503 of the Revenue ct of
1932 ( 47 Stat., 169, 247, 26 U. S. C, secton 1002). In the nterest of carty we
reprnt t here: Where property Is transferred for ess than an adequate and
fa consderaton In money or money s worth, then the amount by whch the
vaue of the property e ceeded the vaue of the consderaton shn, for the pur-
pose of the ta mposed by ths tte, be dwmed a gft, and sha be ncuded n
computng the amount of gfts made durng the caendar year. Ta payer cams
that Mss Desmare s renqushment of her marta rghts consttuted adequate
and fu consderaton n money or money s worth. The coator, reyng on the
constructon of a ke phrase n the estate ta , contends that reease of marta
rghts does not furnsh such adequate and fu consderaton.
We put to one sde the argument that In any event Mss Desmare s contngent
Interest n her husband s property had too many varabes to be reducbe to do-
ars and cents, and that any attempt to transate t nto money s worth was
mere specuaton bearng the deusve appearance of accuracy. ( umes v.
nted States, 276 T . S.. 4S7, 494 T. D. 41 5, C. . II-2, 37 (192 ) .) We sha
go at once to the man ssue.
The gudng ght s what was sad n state of Sanford v. Commssoner (30
U. S., 39, 44 Ct. D. 1426, C. . 1939-2, 340 ) : The gft ta was suppementary
to the estate ta . The two are n par matera and must be construed together.
The phrase on the meanng of whch decson must argey turn that s, trans-
fers for other than an adequate and fu consderaton n money or money s
worth came Into the gft ta by way of estate ta provsons. It frst appeared
n the Revenue ct of 1926. Secton 303(a) (1) of that ct (44 Stat, 9, 72)
aowed deductons from the vaue of the gross estate of cams aganst the
estate to the e tent that they were bona fde and ncurred for an adequate and
fu consderaton n money or money s worth. It s mportant to note that the
anguage of prevous cts whch made the test far consderaton was thus
changed after courts had gven far consderaton an e pansve constructon.
The frst modern estate ta aw had ncuded n the gross estate transfers n
contempaton of, or ntended to take effect n possesson or en|oyment at, death,
e cept a bona fde sae for a far consderaton n money or money s worth.
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Regs. 79 (1936), rt. .
420
(Secton 202(b), Revenue ct of 1916, 39 Stat., 756, 777.) Dower rghts and other
marta property rghts were ntended to be ncuded n the gross estate, snce
they were consdered merey an e pectaton, and n 191 Congress specfcay
ncuded them. (Secton 402(b), 40 Stat., 1057, 1097.) Ths provson was for
the purpose of carfyng the e stng aw. ( . Rept. No. 767, S ty-ffth Congress,
second sesson, page 21 C. . 1939-1 (Part 2), 6 .) In 1924 Congress mted de-
ductbe cams aganst an estate to those supported by a far consderaton n
money or money s worth (secton 303(a) (1) 43 Stat, 253, 305), empoyng the
same standard apped to transfers n contempaton of death ( . Rept. No. 179,
S ty-eghth Congress, frst sesson, pages 2 , 66 C. . 1939-1 (Part 2), 241 ).
Smar anguage was used n the gft ta , frst mposed by the 1924 ct, by pro-
vdng, Where property s sod or e changed for ess than a far consderaton n
money or money s worth the e cess sha be deemed a gft. (Secton 320, 43
Stat., 253, 314.)
The two types of ta thus foowed a smar course, ke probems and purposes
beng e pressed n ke anguage. In ths stuaton, courts hed that far con-
sderaton Incuded renqushment of dower rghts. ( erguson v. Dckson, 300
ed., 961 and see McCaughn v. Carver, ID ed. (2d), 126 tubbefcd v. Unted
States, 6 ed. Supp., 440.) Congress was thus ed, as we have ndcnted, to sub-
sttute In the 1026 Revenue ct, the words adequate and fu consderaton
n order to narrow the scope of ta e emptons. (See Taft v. Commssoner, 304
U. S., 351, 356 Ct. D. 1346, C. . 193 -1, 510 .) When the gft ta was reenacted
n 1032 Revenue ct, the restrctve phrase adequate and fu consderaton as
found n the estate ta was taken over by the draftsman.
To be sure, In the 1932 ct Congress specfcay provded that renqushment of
marta rghts for purposes of the estate ta sha not consttute consderaton
n money or money s worth. The commttees of Congress reported that If the
vaue of renqushed marta nterests may, n whoe or n part, consttute a
consderaton for an otherwse ta abe trnnsfer (as has been hed so), or an other-
wse unaowabe deducton from the gross estate, the effect produced amounts to
a subverson of the egsatve Intent . ( . Rept. No. 703, Seventy-
second Congress, frst sesson, page 47 C. . 1939-1 (Part 2), 457 S. Rept.
No. G05, Seventy-second Congress, frst sesson, page 50 C. . 1939-1 (Part 2),
496 .) Pany, the e pctness was one of cautous redundancy to prevent sub-
verson of the egsatve ntent. Wthout ths specfc provson, Congress un-
doubtedy ntended the requrement of adequate and fu consderaton to
e cude renqushment of dower and other marta rghts wth respect to the
estate ta . (Commssoner v. rsto, 121 ed. (2d), 129 Sheets v. Commssoner,
95 ed. (2d), 727.)
We beeve that there s every reason for gvng the same words n the gft ta
the same readng. Correaton of the gft ta and the estate ta st requres
egsatve nterventon. (Commssoner v. Pronty, 115 ed. (2d), 331, 337
Warren. Correaton of Gft and state Ta es (1941), 55 arv. L. Rev., 1
Grswod, Pan for the Coordnaton of the Income, state and Gft Ta Pro-
vsons (1942), 56 arv. L. Rev., 337.) ut to nterpret the same phrases n the
two ta es concernng the same sub|ect matter n dfferent ways where obvous
reasons do not compe dvergent treatment Is to ntroduce another and needess
compe ty nto ths aready rksome stuaton. ere strong reasons urge dent-
ca constructon. To hod otherwse woud encourage ta avodance. (Comms-
soner v. rsto, supra at 136 2 Pau, state and Gft Ta aton (1942), 111 .)
nd t woud not fuf the nurpose of the gft ta n dscouragng famy sette-
ments so as to avod hgh ncome surta es. ( . Rept. No. 70 , Seventy-second
Congress, frst sesson, page 2 S. Rept. No. 665, Seventy-second Congress, frst
sesson, page 40.) There Is thus every reason n ths case to construe the pro-
vsons of both ta es harmonousy. ( state of anford v. Commssoner,
supra.1)
ffrmed.
Mr. ustce Roberts dssents.
Dssentng opnon by Mr. ustce Reed, n whch the Chef ustce and Mr.
ustce Dougas on.
1 Treasury Reguatons 79 (193 ed.), artce , Is nappcabe. To fnd that the trans-
acton was made In the ordnary course of busness Is to attrbute to the Treasury n
strange use of ngsh.
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421
Regs. 79 (1936), rt. 11.
S CTION 504. N T GI TS. (1932)
Reguatons 79 (1936), rtce 11: uture
nterests n property.
1945-4-11973
Ct. D. 1C27
gft ta revenue act of 1932 decson of supreme court.
1. Net Gfts uture Interests n Property Trusts for eneft
of Mnor Grandchdren.
Irrevocabe trusts were created by the ta payers provdng for
the persona comfort, support, mantenance, and wefare of mnor
grandchdren. t the tme the trusts were created, the parents of
each chd were fuy abe to provde for and educate hm, and woud
probaby contnue so unt the chd s ma|orty. cept upon certan
contngences, the ncome was to be accumuated, each benefcary to
receve 25 per cent of corpus and accumuatons at age 25, 33 per
cent at age 30, and the remander at age 35. The trustees coud not
act n any case to appy corpus or ncome for support, mantenance,
and educaton of the benefcary unt necessty arose. ed: n-
|oyment of the gfts was contngent upon the occurrence of future
events not ony uncertan but mprobabe of occurrence, and the gfts
consequenty were of future nterests In property wthn the
meanng of secton 50-1 (b) of the eveuue ct of 1932 and artce 11
of Reguatons 79 (1936 ed.).
2. Decson ffrmed.
Crcut (141 ed. (2d), 419) (1044), affrmng decson of The Ta
Court of the Unted States (1 T. C, 1036) (1943), affrmed.
a . ondren, and the state of W. W. ondrcn, Deceased, et a., pettoners, v.
324 U. S., 1 .
Mr. ustce Rt|tedoe devered the opnon of the Court.
In 1935, 1936, and 1937 pettoner, a . ondren, and her husband, snce
deceased, created seven separate Irrevocabe trusts, each In favor of a grandchd
of tender years and each of them made gfts to each trust of corporate stock
havng the far market vaue of 5,975. The donors made gft ta returns for
1937, camng the statutory e cuson of 5,000 for each gft, and accordngy
reported ta abe gfts for each trust of 975. Gft ta es were pad on ths bass.
The Commssoner made defcency assessments, dsaowng the e cusons on
the ground that the gfts were of future nterests n property wthn the mean-
ng of the Revenue ct of 1932 (eh. 209, 47 Stat., 169) and Treasury Reguatons
9 (1936 ed.).1 The Ta Court uphed the Commssoner, the enses beng con-
sodated for hearng and decson. (1 T. C, 1036.) The Crcut Court of ppeas
affrmed The Ta Court s decson, one udge dssentng. (141 ed. (2d), 419.)
Certorar was granted (323 U. S., ), because of the mportance of the queston
The statute Is as foows:
S C. 504. N T GI TS.
(a) Genkba Defnton. The term net gfts means the tota amount of gfts made
darng the caendar year, ess the deductons provded In secton 505.
(b) Gfts Less Than 5,000. In the case of gfts (other than of future nterests n
property) made to any person by the donor durng the caendar year, the frst 5,000 of
such gfts to such person sha not, for the purposes of subsecton (a), be Incuded In the
tota amount of gfts made durng such year.
The pertnent part of the reguaton s quoted In the te t beow.
anuary 29, 1945.
OPINION.
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Regs. 79 (1936), rt. 11.
422
as affectng the ta abty of gfts made for the beneft of mnor chdren and
because of aeged or apparent confct wth decsons of other courts.
The soe ssue s whether the gfts were of future nterests wthn the
meanng of the statute and the reguaton. The atter provdes:
rt. 11. uture nterests s a ega term, and ncudes reversons,
remanders, and other nterests or estates, whether vested or contngent, and
whether or not supported by a partcuar nterest or estate, whch are mted to
commence n use, possesson, or en|oyment at some future date or tme.
mphass tacs added.
Upon the facts the ssue turns on whether the nterests acqured by the
mnor benefcares were mted to commence n use, possesson, or en|oyment
at some future date or tme. (Ryerson v. Unted States, 312 U. S., 405 Ct. D.
1496, C. . 1941-1, 443 Unted States v. Pezer, 312 U. S., 399 Ct. D. 1495,
C. . 1941-1, 441 .)
Under these decsons t s not enough to brng the e cuson Into force that
the donee has vested rghts. In addton he must have the rght presenty
to use, possess or en|oy the property. These terms are not words of art, ke
fee n the aw of sezn (Unted States v. Pezer, supra at 403), but
connote the rght to substanta present economc beneft. The queston s of
tme, not when tte vests, but when en|oyment begns. Whatever puts the
barrer of a substanta perod between the w of the benefcary or donee
now to en|oy what has been gven hm and that en|oyment makes the gft one
of a future nterest wthn the meanng of the reguaton.
ccordngy, t has been hed that f the ncome of a trust s requred to be
dstrbuted perodcay, as annuay, but dstrbuton of the corpus s deferred,
the gft of the ncome s one of a present nterest, that of the corpus one
n futuro. ( sher v. Commssoner, 132 ed. (2d), 3 3 Senscnbrenner v.
Commssoner, 134 ed. (2d), 3.) fortor, f ncome s to be accumuated
and pad over wth the corpus at a ater tme, the entre gft s of a future
nterest, athough upon specfed contngency some porton or a of the fund
may be pad over earer. The contngency may be the e ercse of the trustee s
dscreton, ether absoute or contngent. It may aso be the need of the
benefcary, not e stng when the trust or gft takes effect egay, but arsng
ater upon antcpated though une pected condtons, ether to create a duty
n the trustee to pay over or to permt hm to do so n hs dscreton
In the ght of these prncpes and decsons, t s necessary to consder the
terms of the trusts and the crcumstances n whch the gfts were made. The
trust nstruments were substantay unform e cept for varatons n the names
of the benefcares and, n case of death, ther successors n nterest. The
trusts were rrevocabe, the donors retanng no benefca nterest u the estates.
ach nstrument named the donor, W. W. ondren, as trustee, and a .
ondren, the other donor, as successor trustee. They reserved the rghts as
donors to remove any trustee, e cept Mr. ondren, and to name successor
trustees. Sub|ect to these reservatons and the drectons set forth beow, the
trustee was gven substantay compete contro.
The trusts stated purpose was to provde for the persona comfort, support,
mantenance, and wefare of the grandchdren. ut from the e pct rectas
of the nstruments,7 as we as the evdence, ncudng a stpuaton, t s cear
that the parents of each chd were so stuated that, when the gfts were made,
1 The petton aeged confct wth Smth v. Commssoner (131 ed. (2d), 254) (C. C. .
) Sensenbrenner v. Commssoner (134 ed. (2d), 3) (C. C. . 7) and nney r.
ngm (43 ed. Supp., 431) (N. D. Caf.). Cf. aso Dsston v. Commssoner (144 ed.
(2d), 115) (C. C. . 3). The decson, one |udge dssentng, overrued the pror decson In
Commssoner v. Tayor (122 ed. (2d), 714, certorar dened. 314 U. S., 699). petton
for wrt of certorar was fed n the Dsston case on October 12, 1944, and now s pendng.
Wech v. Pane (120 ed. (2d), 141) Commssoner v. Tayor (122 ed. (2d), 714. 715.
certorar dened, 14 T . S., 699) Commssoner v. randcgec (123 ed. (2d), 5 ) : Com-
mssoner v. Phps state (126 ed. (2d), 51) Commssoner v. Gardner (127 ed.
(2d), 1)29) : Wech v. Pane (130 ed. (2d), 990) Comm oner v. Wes (132 ed. ( M),
405) rench v. Commssoner (13 ed. (2d), 254) Roberts v. Commssoner (143 ed.
(2d), 657) owe v. Unted States (142 ed. (2d), 310) vtchngsSeay Sat. ank v.
Commssoner (141 ed. (2d), 422) everng v. ar (121 ed. (2d), 945).
Ibd.
Wech v. Pane (120 ed. (2d), 141) Commssoner v. Tayor (122 ed. (2d). 714, 715,
certorar dened, 314 T . S., 699) : Commssoner . randegec (123 ed. (2d), 5 ) Co
mssoncr v. Phps state (126 ed. (2d), 51) Commssoner v. Gardner (127 ed.
(2d), 929) Wnterbotham v. Commssoner (46 . T. ., 972): cf. Ryerson v. Unted
States (312 U. S.. 405, 40 ).
Cf. authortes cted note 3 supra.
Cf. the rectas quoted n the te t beow.
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423
Regs. 79 (1936), rt. 11.
they were fuy abe to provde for and educate hm. nd, from the same rectas,
t s cear there was tte reason to beeve that any parent woud not contnue
so unt the chd s ma|orty. ccordngy, n each Instance, the trust was to
contnue unt the chd shoud attan the age of 35. ence aso the ncome was
to be accumuated, e cept upon the contngences specfed beow, and each
benefcary was to receve 25 per cent of the corpus and accumuatons at age
2a, 33 per cent at age 30, and the remander at age 35.
ware of the uncertantes of our word, however, the donors drected n
artce 3:
T he trustee sha provde for the support, mantenance and educa-
ton of our sad grandson, usng ony the ncome of sad estate for the purpose
f t be suffcent. If t be necessary to use any of the corpus of the estate for
that purpose and n the |udgment of the trustee t s best to do so, sad trustee
may make advancements out of the corpus of sad trust estate for such purpose
for the beneft of our sad grandson.
It s contempated, however, that our sad grandson w have other adequate
and suffcent means of support, and that t w not be necessary to use ether
the ncome or the corpus of the trust estate hereby created to propery provde
for hs educaton, mantenance and support and, f the ncome from the trust
estate be not needed for these purposes, then a of the ncome from sad trust
estate not so needed sha be by the trustee passed to capta account of sad
trust estate, and sha be and become a part of sad trust estnte, t beng our
hope that a of the earnngs and ncome of sad trust estate durng the perod
of ths trust may be used to augment the trust estnte and be devered to our
sad grandson at the perods heren provded for. It s e pressy provded,
however, that cur sad grandson sha be propery mantaned, educated and
supported, and f t be necessary to use a of the ncome and even a of the
corpus of the trust estate hereby created and a augmentatons thereof, t sha
be the duty of the trustee to see that ths obgaton sha be propery and reason-
aby dscharged. mphass Itacs added.
In vew of the apparenty confctng terms of ths artce for use of the
corpus, the e act scope of the trustee s dscreton s by no means cear. ut
ths need not be determned. Whether the dsposton Is n hs |udgment entrey,
as the frst cause ndcates, or under the second s so ony wth reference to
how much of the fund may be needed, the trustee can not act In any case to
appy corpus or Income for the support, mantenance and educaton of the
benefcary unt necessty arses.
Under the partcuar facts, ths requrement s Important n two respects. It
s, as pettoners urge, a mtaton upon the trustee s dscreton. s power Is
not unconfned. ven though the e stence and amount of need may be n the
frst nstance for hs determnaton, t does not foow that, need e stng, the
trustee arbtrary coud refuse to make the appcaton. The case therefore s
not one n whch present en|oyment s dependent upon an e ercse of the
trustee s absoute dscreton.
ut ths does not show, as pettoners seem to thnk, that the mnor bene-
fcares had, at the moment of the gft, a present rght of en|oyment. It rather
shows the contrary that ther rght was not absoute and mmedate, but was
condtoned, durng mnorty and afterward unt the tmes specfed for ds-
trbuton, upon a contngency whch mght never arse. That contngency, by
the e pct terms of the trust, was the e stence of need whch was then
none stent and, n the stated contempaton of the donors, was not key to
occur n the future, at any rate durng the chd s mnorty. The crcumstnnces
surroundng the donors and the donees confrm these rectas. The case s one
therefore n whch the gft, f presenty vested, made en|oyment contngent
upon the occurrence of future events, not ony uncertan, but by the rectas of
the nstrument tsef mprobabe of occurrence. The gfts consequenty were
of future nterests In property wthn the meanng of secton 504(b).
Pettoner presents the case as f no dscreton whatever were vested In the trustee as to
makng the payments over. owever, n the frst provson for use of the carpus such use
1 authorzed f t be necessary anu- n the |udgment of the trustee t s best
to do so : In the other provson the duty mposed. If It be necessary to use a of the
ncome and even a of the corpus, s one to see that ths obgaton sha be propery
and reasonaby dscharged. If the frst cause mts the second, the trustee s dscreton
U bounded ony by what he thnks It s best to do, and n any event under the atter hs
outy s ony to see that the obgaton s propery and reasonaby dscharged. Presum-
aby aso the trustee woud have some room for |udgment on whether partcuar crcum-
stances woud amount to necessty and partcuar measures woud be requred to meet t.
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Rogs. 79 (193C), rt 11.
424
Pettoners contrary argument, apart from the msconcepton that ega vestng
of the nterest wthout more satsfes the statute, rests chefy upon consdera-
tons arsng from the egsatve hstory and from the fact that gfts for the
beneft of chdren under ega dsabty to manage ther own property must
make provson for ts contro by trustees or otherwse.
Speca stress s pheed on the fact that each gft was made to or for the
beneft of a specfcay named benefcary then n esse and for a defnte amount.
s the Pezer opnon noted ( 12 U. S., at 403), the commttee reports recom-
mendng the egsaton stated: The e empton beng avaabe ony n so far
as the donees are ascertanabe, the dena of the e empton In the case of gfts
of future nterests s dctated by the apprehended dffcuty, n many nstances,
of determnng the number of eventua donees and the vaues of ther respectve
gfts. 10 mphass Itacs added. nd n the Pezer case the Court found
that the gft nvoved these dffcutes, as we as postponement of en|oyment
to the happenng of a future uncertan event, snce the rght of en|oyment was
contngent n nny event upon the benefcares survvng the 10-year perod
specfed for accumuaton of ncome. (312 U. S., at 404.)
oth concusons woud seem appcabe n ths case, the chef dfference beng
that the perod of postponement, whch the benefcares must survve before
en|oyment begns. Is Indefnte rather than for a specfed tme. That s true n
any case where the ength of the perod s governed by a contngency. ut the
reguaton, adopted amost n the anguage of the commttee reports, does not
mt the dena of the e empton to Instances where the deferment of en|oyment s
at a events for a perod whch s defnte and certan. (Cf. Commssoner v. Gos,
123 ed. (2d), 54 , 550.) Ceary the statute s not to be apped dfferenty, to
grant or deny the e empton, f there s postponement, merey because n one
case the perod s under any eventuaty for a certan, specfed ength of tme,
whereas n another t s of uncertan or ndefnte ength. The mportant thng Is
the certanty of postponement, not certanty of the ength of ts duraton.
urthermore, f there s postponement, the e empton s dened whether or not
the admnstratve dffcutes antcpated n the commttee reports nhere In the
partcuar gft. (Commssoner v. Oos, supra Wech v. Pane, 120 ed. (2d),
141.) Those reports specfcay state these dffcutes are present n many
nstances. ut they aso state that the term future nterests n property
refers to any nterest or estate, whether vested or contngent, mted to commence
n possesson or en|oyment at a future date. They thus contempate, as does
the reguaton framed n smar terms, vested as we as contngent nterests and
estates. nd there s nothng to ndcate that gfts to specfed donees n esse
and n defnte amounts are to be e cuded from the dena, f by the terms of
the gft en|oyment s deferred to a future tme. gan, the cruca thng s post-
ponement of en|oyment, not the fact that the benefcary s specfed and In esse
or that the amount of the gft s defnte and certan.
The consderatons, whch pettoners advance to support ther poston, from
the mnorty of the benefcares and ther consequent ega dsabty to manage
and contro ther property are ntermnged wth others reatng to the motves
of the donors n makng the gfts. It s sad that ther purpose was to provde
for the comfort, support, mantenance and wefure, Incudng educaton, of the
grandchdren that the atter were ncapabe of takng over the management
Severa of pettoners statements of ther contentons Ignore the contngency upon
whch en|oyment s deferred n ths ca e, namey the occurrence at some future tme of the
need or necessty of the benefcary whch woud brne the tru tee s power or duty to pro-
Tde for support or mantenance from the trust fund nto pay. It s not necessary to note
these contentons specfcay further than to say, n addton to what has been sad aready,
that thev assume as the answer to t the very ssue n the case.
10 . Rept. No. 70 , Seventy-second Congress, frst sesson, 29 C. . 1939-1 (Part 2),
4157 : S. ept. No. (563, Seventy-second Congress, frst sesson, 41 C. . 19 -1 (Part 2),
496 .
Cf. te t at note 12 nfra.
11 Cf. note 10 supra.
u The absence of these factors Is reevant as showng the more ceary that postponement
e sts and therefore the e empton does not appy. Ther presence does not show that there
s no postponement or that the e empton appes. The admnstratve dffcutes reatng
to these matters n many nstances were reasons for denyng the e empton. Tbey do
not and were not ntended to encompass the fu scope of the dena. s the statute e -
tended the e empton. n the snected amount, to n gfts, whether arge or sma. made
to any person ( cverng v. utchng . 312 U. S 393, 397 Ct. D. 1493. C. . 1941-1.
43 ), so It dened the e empton to a gfts, whether arge or sma, vested or contngent,
made to any person, whether specfed and n esse or ascertanabe ony n the future, fnd
whether for a specfc or a presenty unascertanabe amount, f the gft s one of a future
Interest In property, that Is, one as to whch en|oyment a postponed to some future tme.
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425
Regs. 79 (1936), rt. 11.
and contro of the property that accordngy It was necessary for some arrange-
ment to be made for vestng ths power n trustees or others capabe of e ercsng
t that the trustees were gven no power to wthhod ether Income or corpus n
case of need and consequenty the whoe fund became avaabe to the bene-
fcary for hs mantenance mmedatey upon the consummaton of the gft,
so that he was vested at once wth the rght of present en|oyment as fuy as any
chd of tender years coud be and In no way dfferenty, takng account of hs
dsabty, than any owner of property by tte In fee smpe.
So far as the argument turns on the motve of the donors, t may be answered
that the statute and the reguaton make no such test. If motve has bearng, t
s ony by reason of ts effect upon the eement of tme and whatever reaton may
be gven, by the partcuar terms of the gft, to t and the dscosng of a purpose
to provde for or aganst mmedate en|oyment. The statute In ths respect pur-
ports to make no dstncton between gfts to mnors and gfts to aduts. If there
s deferment n ether case the e empton s dened. Consequenty n ths case
the donors audabe desre to make provson for ther grnndchdren n case of
future need can not nufy the deferment whch the rected absence of present
need, couped wth the terms of the trust, brought about. gan, contngency of
need n the future s not dentca wth the fact of need presenty e stng. nd a
gft effectve ony for the former stuaton s not effectve, for purposes of reef
from the ta , as f the atter were specfed, whether the donee s an adut or a
mnor.
Upon the facts, furthermore, the trusts hardy can be taken as desgned pr-
mary for the perods covered by the chdren s mnorty. They dd not termnate
wth the endng of that perod. The graduated scae of payments, begnnng at
age 25 and endng at 35, together wth the prohbton of payment earer e cept
n case of necessty, shows prncpa concern for a perod of adut fe. nd, from
the fact that ths woud be the perod when the grandchdren normay woud
be assumng famy responsbtes of ther own, the nference we mght be
drawn that the chef purpose was to gve ad and some securty n that tme.
The contngent provson, n case of earer need, can not be taken therefore to
represent the donors prmary concern as e pressed n the nstruments. (Cf.
sher v. Commssoner, 132 ed. (2d), 3 3, 3 6.) ut, whether so or not, n the
partcuar crcumstances that need was but a contngency to be reazed, f at
a, n the future. nd, unt reazed, the contngency stood squarey n the
way of any chd s recevng a snge doar from the fund.
nay t s urged that uness these gfts are to be taken as conferrng the
rght to Immedate en|oyment, no gft for the beneft of a chd of tender years
can be so regarded snce n any such case some competent person must be the
prmary |udge as to the necessty and e tent of reasonabe requrements of the
benefcary. The argument s appeang, n so far as t seeks to avod mputng
to Congress the ntenton to penaze gfts to mnors merey because the ega
dsabty of ther years precudes them for a tme from recevng ther ncome n
hand currenty. (Cf. Dsston v. Commssoner, 144 ed. (2d), 115, 119.) ut
we thnk t s not appcabe n the facts of ths case, snce by the terms of the
trusts and the facts rected n the nstruments none of the fund, whether ncome
or corpus, coud be apped mmedatey for the chd s use or en|oyment.
It does not foow, as pettoners say, that f the e empton does not appy In
ths case t can appy In no other made for a mnor s beneft. Whenever prov-
son s made for mmedate appcaton of the fund for such a purpose, whether of
ncome or of corpus, the e empton appes. Whether, n the ease of a gft requr-
ng such an appcaton of the ncome, but provdng for retenton of a corpus
no more than reasonaby suffcent to produce the Income requred for ths pur-
pose and to Insure ts contnued payment durng mnorty, the donaton woud
fa wthn the e empton, as to corpus as we as ncome, s a queston not pre-
sented on ths record and therefore not determned.
The reguaton has receved the constructon now reaffrmed wth substanta
consstency. The statute, wth the meanng thus setted, has been reenacted by
Congress. The constructon shoud be foowed unt Congress sees ft to
change t.
The |udgment s affrmed.
Congress wthdrew the e cuson, as to gfts In trust, In the Revenue ct of 103
(ch. 2 9, 52 Stat., 447), secton 505, amendng secton 504(b) of the 1932 rt. ut t
was restored, though reduced to 3,000, by the Revenue ct of 1942 (ch. G19, 56 Stat.,
79 ), secton 454.
6S43540 46 2
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Regs. 79 (1936), rt. 11. 42G
Reguatons 79 (1936), rtce 11: uture 1945-12-12067
nterests n property. Ct. D. 1642
GI T T R NU CT O 1932 D CISION O SUPR M COURT.
1. Gfts n Trust uture Interests n Property.
The ta payer n 1936 created a spendthrft trust for the beneft of
hs chdren, some of whom were mnors n 1937 he added to the
corpus of the trust, and n 103S he created another ke trust for ther
beneft. The trust nstruments provded that the net ncome of each
trust was to be accumuated durng the mnorty of the benefcary,
wth dscreton n the trustees to appy such ncome as mght be
necessary for mantenance, educaton, and support of the mnor, and
to nvade the corpus upon certan contngences that after mnorty
the ncome was to be pad to each benefcary durng hs fetme, and
he was to receve a porton of the corpus upon reachng the age of
45 years that upon hs death ether before or after reachng that
age, the remander of the trust was to be dvded among hs then v-
ng descendants and that f there shoud be no vng descendants,
the remander was to be dvded among ta payer s other chdren
and ther descendants. ed: The gfts n trust were gfts of
future nterests In property wthn the meanng of secton 504(b)
of the Revenue ct of 1932.
2. Computaton of Ta Statute of Lmtatons.
The ad|ustment of net gfts for 1936 n computng 1937 and 193 ta
abty a not barred by the statute of mtatons. Secton 517(a)
of the Revenue ct of 1932 does not bar ad|ustment of the net gft
fgure for the purpose of computng gft ta abty, but smpy
prevents assessment and coecton of a ta for a year barred by the
statute. The statute does not purport to precude an e amnaton
nto events of pror years for the purpose of correcty determnng gft
ta abty for years whch are st open, but requres determna-
ton of the true and correct aggregate of net gfts for prevous years.
3. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Thrd
Crcut (144 ed. (2d), 115), reversng memorandum opnon of The
Ta Court, reversed.
Commssoner of Interna Revenue, pettoner, v. Wam D. Dsston.
325 U. S., 442.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Thrd Crcut
une 4, 1945.
opnon.
Mr. ustce Rut-edge devered the opnon of the Court.
Ths case ke ontrcn v. Commssoner (324 U. S. Ct. D. 1627, page 421, ths
uetn ), presents questons whether certan gfts to mnors are gfts of
future nterests n property, wthn the meanng of the Revenue ct of 1932
(ch. 209, 47 Stat., 169).
In 1930 the respondent, Wam D. Dsston, created a trust for the beneft of
eac of Is fve chdren, three of whom were then mnors. The tota of hs gfts
that year was 71,952. The Commssoner aowed an e empton of 5,000 on
each gft for the chdren and on one to hs wfe. The ta payer aso was aowed
the specfc e empton of . 40,000 provded by secton 505 of the Revenue ct of
1932, as amended by secton 301(b) of the Revenue ct of 1935. The net gfts
for 1936 accordngy were computed to be 1,952, upon whch a ta was assessed
and pad.
In 1937 the ta payer added to the corpus of the trust securtes vaued at
25,000, of whch 5,000 was aocated to each chd s nterest, ncudng the three
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427
Regs. 79 (1936), rt. 11.
who were st mnors. In 193 he created another trust for hs fve chdren,
the corpus consstng of undeveoped and worth 3 ,5 1. Two of the chdren
st were mnors.
The two trusts were dentca n a respects now matera. The prncpa was
dvded nto fve equa shares, one for each chd. The trusts were of the spend-
thrft varety. shares of the corpus and ncome were to be free from antc-
paton, assgnment, pedge, or obgatons of benefcares, as we as e ecuton
or attachment. The shares of the mnors aone are now nvoved. ence the
nature of the trust as appcabe to them ony need be consdered.
The ta payer s son, Wam L. Dsston, was 19 n 193(5 when the frst trust
was created. s to hs share the trustees were drected, n the second artce,
to accumuate the net ncome therefrom for the beneft of Wam L. Dsston
unt he reaches the age of 21 years, at whch tme to pay over to hm a
accumuated ncome, and thereafter to pay over to hm n not ess than quar-
tery nstaments the entre net ncome derved therefrom durng hs fetme
provded, however, that upon hs reachng the age of 45 years one-haf of the
prncpa of hs share sha be pad over to hm free and dscharged of a trusts
and upon further trust upon hs death whether before or after reachng the
age of 45 years, to dvde the prncpa of hs share, or such porton thereof
as s then hed by the trustees, among hs then vng descendants n
such amount as he sha by w appont, and n defaut of such appontment,
to dvde the same equay per strpes, wth provson for dvson among the
ta payer s other chdren and ther descendants f no descendant of the bene-
fcary shoud then be vng. The artce contans a provso that f the ta -
payer s son shoud de before reachng 45, the son may appont to hs spouse
for a perod no onger than her fe not more than one-haf of the ncome from
hs share of the corpus.
Identca provsons were made for the two mnor daughters, e cept that
they were to obtan ony one-thrd of the corpus at age 45 and coud appont
to ther spouses ony one-thrd of the ncome.
subsequent paragraph provded that the trustees shoud hod the mnors
shares durng ther respectve mnortes, and durng such tme sha appy
such ncome therefrom as may be necessary for the educaton, comfort and sup-
port of the respectve mnors, and sha accumuate for each mnor unt he
or she reaches the age of 21 years, a ncome not so needed. The foregong
cause sha appy to mnor chdren of the settor rrespectve of the drecton
heretofore set forth to accumuate a ncome for such mnors.
In addton the fourth artce, whch defned the trustees powers, authorsed
them t o appy the ncome to whch any benefcary sha be entted hereunder
for the mantenance, educaton, and support of such benefcary shoud he or
she by reason of age, ness, or any other cause n the opnon of the trustees
be ncapabe of dspensng t. Payment by the trustees to the parent of any
mnor sha be suffcent acquttance and dscharge to the trustees for
such payment or payments.
nay, the trustees were authorzed to Invade the corpus n an emergency:
To e pend out of the share of prncpa from whch any benefcary may be
recevng Income under ths deed of trust such sums as trustees may consder
to be for the best Interests of such benefcares durng Iness or emergency of
any knd provded, however, that n no case sha such e pendtures of prnc-
pa e ceed n the aggregate 10 per cent (10 ) of the vaue of such share of
prncpa.
In operaton the 193 trust of unmproved reaty had produced no net ncome
to the tme the case came before The Ta Court. Most of the 1936 ncome of
the frst trust, 2 for each mnor, was pad to the mother of the benefcares.
In 1937 parta payments of Income, 94 per mnor chd, were made. The bene-
fcares mother returned other checks to the corporate trustee n 1937, and one
of the ndvdua trustees, an adut chd of the ta payer, drected the corporate
trustee thereafter to accumuate the Income of the mnors. No further pay-
ments of ncome were made to any chd pror to hs becomng of age.
In determnng the ta payer s gft ta for 1937 the Commssoner dsaowed
three 5,000 e cusons from the net gfts for that year on the ground that the
gfts to the three mnor chdren were gfts of future nterests. or 193 the
Commssoner dsaowed two 5,000 e cusons on the ground that the gfts
made that year to the two chdren who were st mnors were gfts of future
Interests.
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Regs. 79 (1936), rt. 11. 42
In computng the gft ta for 1937 and 193 t was necessary for the Com-
mssoner to compute the aggregate sum of the net gfts for the precedng years.1
The Commssoner, n determnng the net gfts made for ths purpose by the
1936 trust, ad|usted the e cusons whch he had aowed In 1936 to the e tent
of 5,000 for each of the three mnors. The perod of mtatons for assessment
and coecton of 1936 gft ta es had run.
The Ta Court uphed the Commssoner, but the court of appeas reversed,
hodng no future nterests arose as a resut of the gfts to the mnors. Conse-
quenty t was unnecessary for the court of appeas to consder whether the statute
of mtatons barred read|ustment of the net gft fgure for 1936 or smpy barred
coecton of any further gft ta es for that year.
The gudng prncpes were outned recenty n ondren v. Commssoner
(324 U. S., ). Gfts of future nterests, wthn the meanng of secton
504(b), to any person are not e cuded from the computaton of net gfts to
the e tent of the frst 5,000 n vaue, as are present nterests. Treasury Regu-
atons 79 (1936 ed.), artce 11, defnes future nterests as nterests mted
to commence n use, possesson, or en|oyment at some future date or tme.
The defnton has been approved repeatedy. (Cf. Ryerson v. Unted
States, 312 U. S., 405 Ct. D. 1496, C. . 1941-1, 443 Unted States v. PeUer,
312 U. S., 399 Ct. D. 1495, C. . 1941-1, 441 ondren v. Commssoner, 324
U. S., .)
Ceary the corpus of the trusts fas wthn the defnton. Dstrbuton to
Wam L. Dsston, for e ampe, has no reaton to hs reachng hs ma|orty,
whch he has now attaned. e must ve to attan the age of 45 to enabe
hm to receve one-haf of the corpus. If he does not reach that age, hs estate
receves no part of the prncpa. The recpents are an undetermned group desg-
nated n the trust provson, among whom the benefcary has a mted power
of appontment. t the tme of the gfts n 1936-193 t was unknown who n
fact woud receve ths one-haf nterest. Obvousy the en|oyment was postponed.
s to the other haf n Wam L. Dsston s share, t kewse was unknown
who woud en|oy the corpus. One thng ony was known, that the named chd
coud not en|oy t. e woud contnue to receve the ncome from It for hs fe,
but the prncpa was not gven to hm. The possbty that In an emergency
the trustees mght nvade the corpus to the e tent of 10 per cent for hs beneft
dd not confer a present nterest n that part of the prncpa. The emergency
by defnton was e traordnary, somethng that mght or mght not occur at
some ndefnte future tme. No present, certan and contnuous en|oyment was
contempated, nor dd t materaze. What has been sad of the one mnor s
true of the others.
The queston must be determned whether the trusts provded for a present
nterest n the trust ncome, or some defnabe porton of It. The frst drecton
of each trust s to accumuate the net ncome unt the mnor reaches 21. If
that were a, t woud agan be cear that a future nterest was created by the
postponement of en|oyment. ater paragraph drects the trustees, however,
to appy such ncome therefrom as may be necessary for the educa-
ton, comfort and support of the respectve mnors and to accumuate the
remander.
Respondent urges that ths case dffers from the ondren case n that there
the trust nstrument showed that It was not contempated that the ncome woud
be needed for educaton and support and the trustee was drected to accumuate
the ncome uness no other funds were avaabe for such purposes, whereas here
there Is nothng n the trust nstrument to ndcate such an ntent. In fact,
respondent argues, the trust Instrument means that the trustees must appy an
amount of the Income suffcent to provde for educaton, comfort and support,
even though the mnor s ampy cared for by hs parents, hs own efforts, or other
sources of revenue, ctng .1 Scott, Trusts, secton 12 .4 and other authortes.
When faced wth the fact that the hstory of the trust s admnstraton shows a
practca constructon by the trustees that support money need not automatcay
1 The formua resuts n a progressve rate of gft ta aton, not mted to progresson
wthn the caendar year, but e tendng over the te of the donor. The computaton for-
mua s set forth n secton 502 of the Revenue ct of 1032:
The ta for each caendar year sha be an amount equa to the e cess of
(1) a ta , computed n accordance wth the Rate Schedue herenafter set forth,
on the aggregate sum of the net gfts for such caendar year and for each of the pre-
cedng caendar years, over
(2) a ta , computed n accordance wth the Rate Schedue, on the aggregate sum
of the net gfts for each of the precedng caendar years.
See secton 517(a) of the Revenue ct of 1932.
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429
Regs. 79 (1936), rt. 11.
be pad over, respondent urges that the terms of the trust and the nature of
the nterest granted can not be vared by what was subsequenty done n
admnstraton.
The anguage of the trust nstruments drects that the ncome be accumuated
durng mnorty. The subsequent provson for payments for mantenance and
support may be sad to ndcate a departure from the pocy of accumuaton
ony when necessary, n the reasonabe dscreton of the trustees. If that Is
the approprate nterpretaton of the trust nstruments, then tte dfference
from the ondren case s nvoved. ven n ts practca workng, the trustees
dd not fnd the necessary prerequstes for a steady appcaton of a or any
ascertanabe part of the ncome for educaton, support and mantenance.
ut, even though the trustees were under a duty to appy the ncome for support,
rrespectve of outsde sources of revenue, there s aways the queston how much,
f any, of the Income can actuay be apped for the permtted purposes. The
e stence of a duty so to appy the ncome gves no cue to the amount that
w be needed for that purpose, or the requrements for mantenance, educaton
and support that were foreseeabe at the tme the gfts were made. In the
absence of some ndcaton from the face of the trust or surroundng crcum-
stances that a steady fow of some ascertanabe porton of Income to the mnor
woud be requred, there s no bass for a concuson that there s a gft of
anythng other than for the future. The ta payer camng the e cuson must
assume the burden of showng that the vaue of what he cams s other than a
future nterest. (Of. New Coona Co. v. everng, 292 U. S.. 435 Ct. D. 41,
C. . III-1, 104 (1934) .) That burden has not been satsfed n ths case.
The queston remans whether the ad|ustment of net gfts for 1936 n com-
putng 1937 and 193 ta abty s barred by the statute of mtatons. s
has been noted, secton 502 requres utzaton of the aggregate sum of the
net gfts for each of the.precedng caendar years In the formua for com-
putng gft ta abty. Secton 517(a) does not purport to bar ad|ustment of
the net gft fgure for that purpose, but smpy prevents assessment and coecton
of a ta for a year barred by the statute. The statute does not purport to
precude an e amnaton nto events of pror years for the purpose of correcty
determnng gft ta abty for years whch are st open. The Ta Court
and Treasury reguatons have construed secton 517(a) as requrng determna-
ton of the true and correct aggregate of net gfts for prevous years. The
constructon s In accord wth the Statutory anguage.
ccordngy, the udgment s
Reversed.
The pertnent Treasury Reguatons 79, artce 5, provdes: .v the words
aRgregate sum of the net gfts for each of the precedng caendar years (asde from the
amount of the specfc e empton deductbe) Is meant the true and correct agtrrennte of
such net gfts, not necessary that returned for such years and In respect to whch ta wns
pad. See aso Wnterbotham v. Commssoner (46 . T. ., 972) : Waersten
T Commssoner (2 T. C, 542) Roberts . Commssoner (2 T. C. 079).
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Regs. 64 (1943), 137.72.
430
C PIT L STOC T .
INT RN L R NU COD .
Secton 1200: Capta stock ta . 1945-3-11957
Reguatons 64 (1943), Secton 137.72: Return C. S. T. 13
by domestc corporaton.
new ta abe entty s not created upon the converson of a
State bank Into a natona bank, pursuant to secton 35, Tte
12, Unted States Code, and n such cases ony one edera capta
stock ta return s requred for the entre ta abe year.
S. T. 732 (C. . III-1, 44 (1934)) revoked.
In S. T. 732 (C. . III-1, 44 (1934)) t was hed that where a
State bank s converted nto a natona bank durng a ta abe year
endng une 30, a new ta abe entty s created and both banks are
sub|ect to the capta stock ta and requred to fe returns for such
year under secton 215(a) of the Natona Industra Recovery ct.
In G. C. M. 24423 (page 145, ths uetn) t was hed that a new
ta abe entty s not created upon the converson of a State bank nto a
natona bank, pursuant to secton 35, Tte 12, Unted States Code,
and n such cases ony one edera ncome ta return s requred for
the entre ta abe year.
The concuson reached n G. C. M. 24423, supra, s aso appcabe
to capta stock ta returns for years endng une 30 fed under the
provsons of secton 1200 of the Interna Revenue Code and under
correspondng provsons of pror cts.
Snce the concuson reached n S. T. 732, supra, s contrary to that
n G. C. M. 24423, S. T. 732 s revoked.
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431
Regs. 46 (1940), 31G.4.
M NU CTUR RS CIS T S.
INT RN L R NU COD .
S CTION 3403(c), S M ND D Y S CTION 544(b) O T R NU
CT O 1941. UTOMO IL S, TC., P RTS OR CC SSORI S.
( so Secton 316.55.)
Crcumstances under whch a person may be regarded as a manu-
facturer or producer, wthn the meanng of secton 3403 of the
Interna Revenue Code, as amended, and accordngy abe for ta
under that secton n connecton wth the sae of rebut or recond-
toned automobe parts and accessores. Persons engaged n bus-
ness of rebudng and reparmen dstngushed.
dvce s requested as to the crcumstances under whch a person
may be regarded as a manufacturer or producer, wthn the meanng
of secton 3403 of the Interna Revenue Code, as amended, and accord-
ngy abe for ta under that secton, n connecton wth the sae of
rebut or recondtoned automobe parts and accessores.
Secton 3403(c), as amended, mposes a ta of 5 per cent of the prce
for whch parts or accessores (other than tres and nner tubes and
rados) for any of the artces enumerated n subsecton (a) or (b) of
secton 3403 are sod by the manufacturer, producer, or mporter.
The mere dsassembng, ceanng, and reassembng (wth any nec-
essary repacement of worn parts wth ta -pad parts) performed n
recondtonng used automobe fue pumps, water pumps, carburetors,
dstrbutors, shock absorbers, wndshed wper motors, brake shoes,
cutch dsks, votage reguators, etc., do not ncur manufacturers
e cse ta under secton 3403 of the Code regardess of by whom per-
formed. owever, any new ta abe parts produced or erroneousy
purchased ta -free for use as repacements n recondtonng such
unts are sub|ect to ta when used by the recondtoner.
The manufacturers e cse ta appes to the rebuder s sae from
hs stock on hand of (a) rebut batteres, (b) rebabbted or machned
connectng rods, (c) rebut cutch assembes, (d) resurfaced cutch
pates, (e) rewound armatures, (/) reassembed generators contanng
armatures rewound by the reassember, (g) remetazed crankshafts,
( ) motors n whch the cynders are machned, () shock absorbers
n whch some of the parts are machned, and (|) smar tems n
whch machnng, rewndng, or comparabe operatons are performed.
In dstngushng between persons engaged n the busness of re-
budng and mere reparmen, where a repar shop operator merey
dsassembes, ceans, and reassembes unservceabe unts taken n e -
change from a car owner (ncudng n the |ob any machnng or
repacng of parts whch s necessary) and the repar shop operator
uses such rebut unt as a repacement of the ne t unservceabe unt
whch a car owner brngs to hs shop, no ta abty s ncurred. On
the other hand, a person who s engaged n the busness of rebudng
automobe parts to be paced n stock for resae s abe for the ta .
Reguatons 46 (1940), Secton 316.4: Who s
1945-9-12037
S. T. 932
a manufacturer.
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Regs. 46, 316.190.
432
Where a rebuder does not suppy hs customer wth unts aready
rebut and n hs stock n e change for any unservceabe unts ac-
cepted by hm for rebudng, but merey rebuds and returns to hs
customer a number of unts equvaent to the number receved from
such customer whch he fnds are capabe of beng rebut, he ncurs no
ta abty on such rebut unts, provded he dd not acqure tte to
the unservceabe unts and dd not se the rebut unts, but nstead
charged ony for hs abor and any repacement materas supped.
In cases where a rebuder ses unts from stock and takes an od
part n e change, the amount aowed or, n the absence of a defnte
aowance, the far vaue of such used artce must be ncuded n the
sae prce of the ta abe rebut artce n computng the ta .
L CTRIC L N RGY T .
S CTION 3411, S M ND D.
Reguatons 46, Secton 316.190: Scope of ta . 1945-19-12145
S. T. 933
Saes of eectrca energy to regous organzatons for use In mon-
asteres, parsonages, and convents of such organzatons, and to
educatona, regous, or chartabe nsttutons for use n homes,
dormtores, or vng quarters mantaned by such nsttutons, are
consdered saes for domestc consumpton and are sub|ect to the
ta mposed by secton 3411 of the Interna Revenue Code, as
amended.
dvce s requested whether eectrca energy sod to regous or-
ganzatons for use n monasteres, parsonages, and convents of such
organzatons, and to educatona, regous, or chartabe nsttutons
for use n homes, dormtores, or vng quarters, are sub|ect to ta un-
der secton 3411 of the Interna Revenue Code, as amended. That sec-
ton provdes n part as foows:
(a) There sha be mposed upon eectrca energy sod tor domestc or com-
merca consumpton a ta to be pad by the vendor under
such rues and reguatons as the Commssoner, wth the approva of the Secre-
tary, sha prescrbe. Itacs supped.
Secton 316.190 of Reguatons 46, as added by Treasury Decson
5099 (C. . 1941-2,267), reads n part as foows:
owever, eectrca energy s sub|ect to ta f sod for consumpton
n domestc phases, such as n dormtores or vng quarters mantaned
by educatona Insttutons, churches, chartabe nsttutons, or others.
The ta abty of saes of eectrca energy s determned by the type
or nature of the consumpton and not by the knd of organzaton
consumng the eectrca energy or the purpose for whch the organza-
ton s mantaned. (S. T. 909, C. . 1940-2,309.)
In vew of the foregong, t s hed that saes of eectrca energy
to regous organzatons for use n monasteres, parsonages, and con-
vents of such organzatons, and to educatona, regous, or chartabe
nsttutons for use n homes, dormtores, or vng quarters mantaned
by such nsttutons, are consdered saes for domestc consumpton
and are sub|ect to the ta mposed by secton 3411 of the Interna
Revenue Code, as amended.
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433
Regs. 46 (1932), rt. 10.
M NU CTUR RS CIS T S. (1932)
S CTION 619. S L PRIC .
Reguatons 46 (1932), rtce 10: Charges for 1945-3-1195
coverngs, contaners, etc. Ct. D. 1625
M NU CTUR RS CIS T R NU CT O 1032 INT RN L R NU
COD D CISION O SU R M COURT.
1. Ta on Toet Preparatons dvertsng and Seng -
penses Incudbe n Ta ase,
dvertsng and seng e penses ncurred by a manufacturer
from October 1, 1930, to une 30, 1939, are not to be e cuded from
the seng prce n computng the e cse ta mposed by secton
603 of the Revenue ct of 1932 and secton 3401 of the Interna Rev-
enue Code. The ncuson of such e penses n the ta base s pany
warranted by the anguage of secton 619(a) of the Revenue ct of
1932.
2. Decson ffrmed.
Decson of the Unted States Crcut Court of ppeas, ghth
Crcut (1944) (141 ed. (2d), 3S0), reversng decson of the Ds-
trct Court, Southern Dstrct Iowa, Centra Dvson (1943) (52
ed. Supp., 292), affrmed.
The . W. tch Co., a Corporaton, pettoner, v. Unted States of merca.
323 U. ., 5 2.
On wrt of certorar to the Unted States Crcut Court of ppeas for the ghth Crcut.
anuary 15, 1945.
OPINION.
Mr. ustce Murphy devered the opnon of the Court
Secton 603 of the Revenue ct of 19 2 (ch. 209, 47 Stat, 169, 261, Interna
Revenue Code secton 3401) Imposes on toet preparatons sod by manufacturers
or producers an e cse ta equvaent to stated percentages of the prce for
whch so sod. Pettoner was sub|ect to ths ta from October 1, 1936, to une
30,1939, and has sought a refund of a porton of the ta pad on the ground that
ts seng and advertsng e penses shoud have been e cuded from the seng
prces n computng the ta . The dstrct court after tra uphed ths cam and
awarded a refund (52 ed. Supp., 292), but the court beow reversed that |udg-
ment (141 ed. (2d), 3S0). The aeged confct wth the decsons of the Crcut
Court of ppeas for the Seventh Crcut In Gampana Corporaton v. arrson
(114 ed. (2d), 400) and Campana Corporaton v. arrson (135 ed. (2d), 334)
ed us to gTant certorar.
The controversy here centers about secton 619(a) of the ct, whch provdes
for the Incuson and e cuson of certan tems n computng the seng prce
for purposes of the ta eved by secton 603 as we as varous other sectons.
Secton 619(a) states that, In computng the saes prce,
there sha be ncuded any charge for coverngs and contaners of
whatever nature, and any charge ncdent to pacng the artce n condton
packed ready for shpment, but there sha be e cuded the amount of ta mposed
by ths tte, whether or not stated as a separate charge. transportaton,
devery, nsurance, nstaaton, or other charge (not requred by the foregong
sentence to be ncuded) sha be e cuded from the prce ony f the amount
thereof s estabshed to the satsfacton of the Commssoner, n accordance wth
the reguatons.
Pettoner contends that advertsng and seng e penses fa wthn the term
other charge appearng n the ast sentence of secton 619(a) and hence are
e cudbe n determnng the seng prce for ta purposes. Ths cam, how-
ever, s refuted by both the sprt and the etter of ths statutory provson.
Congress sought In the Revenue ct of 1932 to use the manufacturer s or
whoesaer s seng prce, rather than the reta prce, as the measure of the
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Regs. 46 (1932), rt. 10. 434
e cse ta es mposed by secton 603. (75 Congressona Record, 113 3, 11657.)
Secton 619(a) was desgned to ay down specfc rues for determnng ths se-
ng prce, especay n reaton to costs ncurred after the artce tsef had been
manufactured. It provdes for the use of the manufacturer s or producer s f. o. b.
prce at the factory or pace of producton. In essence, a manufacturng and
other charges ncurred pror to the actua shpment of an artce and refected
separatey or otherwse n the f. o. b. whoesae prce are to be ncuded n the sae
prce underyng the ta , whe a charges ncurred subsequent thereto are to
be e cuded. ence any addtona charge whch a purchaser woud not be
requred to pay f he accepted devery of the artce at the factory or pace of
producton may be so e cuded. (See . Rept. No. 70 , Seventy-second Congress,
frst sesson, page37 C. . 1939-1 (Part 2), 457 S. Rept. No. 665, Part 3, Seventy-
second Congress, frst sesson, page 3 C. . 1939-1 (Part 2), 496 ouse Con-
ference Report No. 1492, Seventy-second Congress, frst sesson, page 22 C. .
1939-1 (Part 2), 539 .)
dvertsng and seng e penses Incurred by a manufacturer such as pet-
toner ceary fa wthn the cass of charges whch Congress ntended to be
Incuded n the ta base. Regardess of whether we consder such e penses
techncay as manufacturng costs, t Is obvous that they are ncurred Dror to
the actua shpment of artces to whoesae purchasers and that they enter nto
the composton of the whoesae seng prce. ven f the purchaser accepts
devery at the factory, he pays for the advertsng and seng e penses. Thus
they must be ncuded In the ta abe saes prce.
The ncuson of these e penses s pany warranted by the anguage of secton
619(a). Preshpment charges reatve to coverngs, contaners and pacng an
artce In condton for shpment are specfcay ncuded n the determnaton
of the seng prce. ut a subsequent transportaton, devery, nsurance,
Instaaton, or other charge Is to be e cuded f propery estabshed. In the
settng of ths case, no rue of reason or grammar |ustfes pacng advertsng
and seng e penses wthn the meanng of ths e cusonary sentence.
To begn wth, advertsng and seng e penses are obvousy not comparabe
to the specfed charges for transportaton, devery, nsurance or nstaaton-
a of whch are Incurred subsequent to the preparaton of an artce for shp-
ment and are not ncuded n the manufacturer s f. o. b. seng prce. ence
advertsng and seng e penses can not be encompassed by the term other
charge uness that term be taken to ncude charges entrey dssmar to those
specfed. Ths term, however, was understood by ts framers to mean ke
charges or smar charges to those specfcay enumerated n the same sen-
tence. ( . Rept. No. 70 , Seventy-second Congress, frst sesson, page 37 S. Rept.
No. 665, Part 3, Seventy-second Congress, frst sesson, page 3 ouse Conference
Report No. 1492, Seventy-second Congress, frst sesson, page 22.) When ths fact
Is added to the genera ntent of Congress to Incude a costs or charges Incurred
pror to shpment, the appcabty of the e|usdcm geners rue to the term other
charge becomes cear. Ths rue, whch appropratey may be nvoked here snce
It does not confct wth the genera purpose of the statute (compare S. . C. v.
oner Corporaton, 320 U. S., 344, 350, 351, wth Smth v. Davs, 323 U. S., ),
mts the other charge to e penses smar n character to those ncurred for
transportaton, devery, Insurance and nstaaton. Snce advertsng and se-
ng e penses arse pror to shpment and are necessary components of the f. o. b.
seng prce, the term other charge can not cover them.1 They must be Incuded
n the ta base. Such has been the consstent admnstratve constructon of
the statute (G. C. M. 21114. C. . 1939-1 Part 1 , 351, 353.) nd such s the
resut made necessary by the accepted rues of statutory constructon.
It s argued that ths concuson resuts n a dscrmnaton aganst a manu-
facturer who nduges n hs own advertsng and seng campagns In favor
of one whose products are advertsed by hs customers and that Congress coud
1 The parenthetca matter foowng the term other charge n the a t sentence of
secton 619(a) (not requred by the foregong sentence to be Incuded) Is not sgnf-
cant In ths case. It serves smpy to provde that, to the e tent that the provsons for
ncuson and e cuson may overap, the former sha contro.
Secton 3(a) of the Revenue ct of 1939 (53 Stat., 02, 03, Interna Revenue Code
secton 3401) e cuded from the sae prce a transportaton, devery, nsurance, or other
charge, and the whoesaer s saesmen s commssons and costs and e penses of advertsng
and seng. Itacs added. Secton 3(b) made ths amendment prospectve ony and
hence secton 3(a) can not be taken as a Congressona decaraton that the advertsng
and seng e penses were ntended to be e cuded from the s ng prce under the Revenue
ct of 1932. On the contrary, the very fact that Congress found t necessary In 1939 to
e cude such e penses specfcay s persuasve evdence that pror thereto advertsng nd
seng e penses were not meant to be e cuded.
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435 Regs. 51 (1941), 320.23.
not have ntended such a dscrmnaton. ut ths dscrmnaton, to the e tent
that t may e st, s an unavodabe consequence of an e cse ta based on the
whoesae seng prce. Such cost factors as abor, materas and advertsng
naturay vary among competng manufacturers dfferent costs and dfferent
methods of dong busness n turn may cause the whoesae seng prces to
ack unformty. nd f these prces are ta ed wthout ad|ustment for dfferng
cost factors, ta nequates, and dscrmnatons nevtaby resut. ut where,
as here, a fat ta s paced on the whoesae seng prces and no statutory
provsons are made for reef from the resutng natura ta nequates,
courts are poweress to suppy t themseves by mputng to Congress an une -
pressed ntent to acheve ta unformty among manufacturers seng at
whoesae.
nay, pettoner urges that secton 619(b) must aso be consdered n order
to ascertan the true Congressona ntent and n order to gve secton t9(n)
ts proper constructon. ut secton 619(b) merey provdes that where the
manufacturer ses at reta, on consgnment or otherwse than through an arm s
ength transacton, the ta sha be based upon a fgure determned by the Com-
mssoner wth reference to the prces at whc smar artces are sod n the
ordnary course of trade. Inasmuch as pettoner s saes were made at whoe-
sae, secton 619(b) has no drect appcaton to ths case. ut t does serve
to emphasze the faure of Congress to make smar provsons for ta equa-
zaton under secton 619(a) where the manufacturer s saes are at whoesae. It
can not, however, vary the pan ntent and anguage of secton 019(a) and Con-
gressona statements reatng to the desrabty of emnatng dscrmnatons
aganst manufacturers makng reta saes can not be taken as evdence of a
desre to prevent the natura nequates that resut when a ta s paced on the
whoesae seng prce.
ffrmed.
Mr. ustce Robebts s of opnon that the |udgment shoud be affrmed.
R T IL RS CIS T S.
Reguatons 51 (1941), Secton 320.23: Saes 1945-1 -12135
for resae. T. D. 5475
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.
Saes by retaers of artces for resae at reta. Reguatons
51 amended.
Washngton, I). C.
1941 Sup. as ast amended by Treasury Decson 5353, approved
March 31,1944 C. . 1944 597 , are hereby further amended by nsert-
ng mmedatey after secton 320.22 the foowng:
saes for resae.
Sec. 320.23. Saes fob Resae. saes of ta abe artces by persons en-
gaged n the busness of seng such artces at reta are presumed to be saes
at reta, uness the character of a sae as a sae for resae s evdenced ether
Congress has subsequenty reazed that the e cse ta on the whoesae spng prce
created ta nequates among manufacturers. In secton 552 of the Revenue ct of 1041
(55 Stat., 6 7, 71 ), Congress substtuted a reta e cse ta for the manufacturer s e cse
ta on toet preparatons. The reasons assgned for te change were that under the
earer aw evason Is substanta and Inequtabe compettve stuatons are created.
( . Rept. No. 1040, Seventy-seventh Congress, frst sesson, page 3 C. . 1941-2, 4131.)
See . Rept. No. 70 (Seventy-second Congress, frst sesson, pages 32-33 C. . 1939-1
Part 2). 457 75 Congressona Record, 5693, 6694.
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Regs. 51 (1941), 320.23. 436
(1) by a retaers e empton certfcate furnshed by the purchaser n the
form outned heren, or (2) by equvaent proof of e empton.
The foowng s the prescrbed form of retaers e empton certfcate:
R T IL RS MPTION C RTI IC T .
, 19 .
(Date.)
The undersgned purchaser hereby certfes that he Is engaged
under, the name of , ocated
(Name under whch purchaser operates.)
at , n seng at reta artces sub|ect to
( ddress.)
retaers e cse ta that the artce or artces specfed and fuy
dentfed n the accompanyng order, or on the reverse sde hereof,
are purchased from for resae and that
(Name of vendor.)
the retaers e cse ta payabe In respect of reta saes of ug-
gage, etc., under secton 1651 of the Interna evenue Code, and In
respect of reta saes of |ewery, etc., furs, and toet preparatons
under sectons 2400, 2401, and 2402, respectvey, and for the war
perod under secton 1G50, w be reported n returns fed by the
undersgned wth the coector of nterna revenue at
The undersgned understands that he must be prepared to estab-
sh by competent evdence that the artces were actuay purchased
for the purpose stated and that the ta due thereon was pad to the
Government.
It s aso understood that the frauduent use of ths certfcate
to secure e empton w sub|ect the undersgned and a guty
partes to a fne of not more than 10,000, or to mprsonment for
not more than fve years, or both, together wth costs of prosecuton.
(Name.)
( ddress.)
The proof of e empton consdered equvaent to a retaers e empton cer-
tfcate s not restrcted to any partcuar form, but must be n wrtng and
show the name under whch the purchaser Is engaged n busness, hs busness
address, hs ntenton to rese the artces at reta and pay ta thereon, and the
coector of nterna revenue to whom the ta w be pad.
Where the certfcate of e empton or equvaent proof, as outned above, Is
not procured by the retaer from the purchaser pror to or at the tme the
retaer fes hs return for the month In whch the sae for resae s made, the
retaer must Incude the ta on such sae n such return. owever, If the
certfcate or equvaent proof Is ater obtaned, a cam on orm 43 for refund
of the ta may be fed by the retaer or he may take credt upon a subsequent
return, but such acton must be taken wthn the 4-year perod of mtaton
prescrbed by secton 3313. (See secton 320.7a)
If It s mpractcabe to furnsh a separate certfcate or equvaent proof for
each purchase order, a snge certfcate, or equvaent proof, coverng a saes
between gven dates (the perod not to e ceed a month) w be acceptabe.
The certfcates of e empton or equvaent proof and proper records of In-
voces, orders, etc., rentve to ta -free saes must be retaned by the vendor
seng for resae as provded In secton 320.72 and must be ready accessbe
for nspecton by Interna revenue offcers.
Notwthstandng that an e empton certfcate or equvaent proof wth respect
to any sae Is obtaned by the vendor, the atter sha be abe for the ta f n
fact the sae s at reta.
The provsons of ths secton appy to saes of toet preparatons In a
cases e cept saes to operators of beauty parors, etc. or speca provsons
reatng to ta -free saes of toet preparatons to operators of beauty parors,
etc., see secton 320.52.
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437 Regs. 51, 320.33, 320.37.
(Ths Treasury decson s ssued pursuant to the authorty con-
taned n sectons 2410 and 3791 of the Interna Revenue Code (55
Stat., 720, 53 Stat., 467 26 U. S. C, 1941 ed., 2410, 3791).)
oseph D. Nunan, r.,
INT RN L R NU COD .
Reguatons 51, Sectons 320.33 and 320.37. 1945-19-12144
T. D. 5479
TITL 2 INT RN L R NU . C PT R I, SU C PT R C, P RT 320.
R T IL RS CIS T S.
Mechanca pencs/ Reguatons 51 amended.
Washngton 25, D. O.
edera Reguatons, 1941 Sup. , reatng to retaers e cse ta es
under Chapters 9 and 19 of the Interna Revenue Code, to Pubc
Law 1 0 (Seventy-nnth Congress, frst sesson), approved ugust
11, 1945 page 540, ths uetn , such reguatons are amended as
foows:
320.30, the foowng:
PU LIC L W 1 0 (S NTY-NINT CONGR SS, IRST S SSION),
PPRO D UGUST 11, 19-15.
Unted States of merca n Congress assembed, That secton 2400 of the
Interna Revenue Code (reatng to the retaers e cse ta on |ewery,
etc.) s amended by strkng out to a fountan pen or smokers ppe f
the ony parts of the pen or the ppe and nsertng n eu thereof
to a fountan pen, mechanca penc, or smokers ppe f the ony parts
of the pen, the penc, or the ppe .
Sec. 2. The amendment made by ths ct sha take effect on the frst
day of the frst month whch begns more than ten cays after the date
of the enactment of ths ct
proved March 31, 1944 C. . 1944, 597 , s further amended by
changng the second and thrd sentences of the ast paragraph thereof
to read as foows:
If, n the case of a fountan pen sod on or after October 1, 1941, a smokers
ppe sod on or after November 1, 1942, or a mechanca penc sod on or
after September 1, 1945, the ony parts whch consst of precous metas are
essenta parts not used for ornamenta purposes, such fotfntan pen, smokers
ppe, or mechanca penc s not sub|ect to the ta . Such essenta parts of a
fountan pen are the pen pont, ever, cp, and the pan narrow band or bands
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Regs. 51, 320.50.
43
paced on the cap for the purpose of preventng the cap from spttng or e -
pandng. Such essenta part of a smokers ppe s the pan narrow band or
bands paced on the shank of the ppe to prevent the shank from spttng.
Such essenta parts of a mechanca penc are the tapered pont hodng the
ead for wrtng, the cp, and the pan narrow band or bands paced on the
barre or cap, or both, for the purpose of preventng such part or parts from
spttng or e pandng. The ta w attach f the band or bands on a
fountan pen, mechanca penc, or smokers ppe consst of precous metas
or mtatons thereof and have a combned wdth of more than three-eghths
of an nch, or f the fountan pen, mechanca penc, or smokers ppe has any
parts other than the essenta parts enumerated above whch are made of, or
ornamented, mounted or ftted wth, precous metas or mtatons thereof.
further amended by changng the ast sentence of the frst paragraph
thereof to read as foows:
or e emptons n the case of certan knds of fountan pens, mechanca pen-
cs, smokers ppes, and watches, see sectons 320.33 and 320.34.
(Ths Treasury decson s ssued pursuant to the authorty contan-
ed n sectons 2410 and 3791 of the Interna Revenue Code (55 Stat.,
720, 53 Stat., 467 26 U. S. C, 1940 ed., and Supp. I , 2410, 3791).)
oseph D. Nunan, r.,
pproved September 24,1945.
S CTION 2402, S DD D Y S CTION 552 O T R NU CT O
1941, ND M ND D Y S CTION 302 O T R NU CT O 1943.
Reguatons 51, Secton 320.50: Scope of ta . 1945-5-119 4
Mm. 5 2
rtces ta abe as toet preparatons, under secton 2402 of the
Interna Revenue Code, as added by secton 552 of the Revenue ct
of 1941, and amended by secton 302 of the Revenue ct of 1943.
Washngton 25, D. C, ebruary b, 1945.
ttenton s caed to the retaers ta on toet preparatons, etc.
(ncreased from the rate of 10 to 20 per cent, effectve pr 1, 1944),
appcabe to saes of such artces for use rather than for resae by
the purchasers.
Many questons have been asked as to the types of artces to whch
ths ta appes. In order that coectors may nform the retaers
concerned, as neary as possbe, of the scope of the ta , there are sted
beow those artces whch the ureau has hed ta abe when sod at
reta. owever, ths st shoud be consdered merey ustratve n-
stead of a-ncusve. In any case where the ta abty of a partcuar
artce s n queston, a sampe of the product or the manufacturer s
quanttatve formua, together wth abes and other advertsng
matter showng the purposes for whch t s to be used, shoud be sub-
mtted to the ureau for a rung thereon.
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439
Regs. 51, 320.50.
TOIL T PR P R TIONS SU CT TO 20 P R C NT T ON R T IL S LLING
PRIC .
fter shave creams.
fter shave otons.
fter shave powders.
nt-persprants.
nontng os (for nfants or aduts).
romatc cachous (sen sen and sm-
ar aromatc peets).
strngents (after shave, ant-per-
sprants, etc.).
aby os.
aby powders.
andone.
ath crystas.
ath o (snphonated o water sof-
tener, usuay scented).
ath mk (wettng agent water sof-
tener, usuay scented).
ath powder.
ath sats (chemca water softener,
usuay scented).
ay rum.
eauty creams, mask preparatons,
etc.
each creams (Incudng frecke re-
mover).
each otons (ncudng frecke re-
mover).
ody powders.
reath sweeteners (e cept candy,
chewng gum, fe savers, etc.).
rantne.
ubbe baths.
Ceansng creams (ncudng those for
removng stans from the skn).
Ceansng otons (ncudng those for
removng stans from the skn).
Cod creams.
Coognes.
Compact refs.
Cosmetc stockng preparatons.
Cutce softeners and removers.
Dandruff remedes.
Dandruff removers.
Deodorants.
Depatores (e cept abrasve art-
ces). 1
Dustng powders.
yebrow pencs.
yeash mascara.
yeshadows.
yewashes (ony If represented to
beautfy the eyes).
ace creams.
ace otons.
ace packs.
ace powders.
nger wave otons.
recke removers.
oot powders.
Grease pants,
fycerne and rose water.
ar beaches.
ar dressngs.
ar dyes.
ar acquers (sprayed on the har
after shampoo, to refect ght).
ar otons.
ar os.
ar pomades.
ar restoratves.
ar rnses.
ar straghteners.
ar tnts.
ar toncs.
and creams.
and otons.
enna.
Lash and brow dyes.
Lavender water.
Leg make-up.
Lp pomade (coored or scented).
Lpstck.
Lpstck refs.
Lqud p coor.
Lqud face powder.
Mancure preparatons.
Mascara.
Massage creams.
Mttens (contanng toet powder).
Mustache wa .
Na beaches,
Na enames.
Na ename removers.
Na acquers.
Na poshes (paste, powder, or q-
ud).
Na whtener.
Pancake make-up.
Perfumes.
Pero de (of 10 voumes or more).
Permanent warng creams or otons.
Petroeum |ey (f scent or coor add-
ed).
Puckng creams (for use after puck-
ng har).
Posh removers (na posh remov-
ers).
Pomades for the har.
Pore ceansers (other than soap).
Protectve creams (havng toet
cams or used as skn creams or nnt-
persp rants).
Powder (ncudng baby, bath, body,
dustng, powder base, foot, sachet, and
tacum).
I owder mtts (contanng powder).
ock sat bath crystas.
Rose water and gycerne.
ouges.
Sachets (contanng sachet powder or
aroma producng materas).
Scap otons (for dry, oy or fang
har, dandruff, mange, etc.).
Sen sen (aromatc cachous).
Shampoos (contanng 5 per cent or
ess of soap or saponaceous matter).
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Regs. 51, 320.50.
440
TOIL T PR P R TIONS SU CT TO 20 P R C NT T ON T IL S LLING
PRIC Contnued.
Shampoos (regardess of soap content,
used aso to beach, dye, tnt, or add
uster to the har).
Skn beaches (ncudng frecke re-
mover).
Skn creams.
Skn fresheners.
Skn otons.
Skn whteners.
Sunburn preventves.
Suntan o.
Theatrca make-up.
Toet creams.
Toet anon.
Toet powders (ncudng after shave,
baby, bath, body, dustng, foot, sachet
and tacum powder).
Toet water.
anshng creams.
Waveset (pnste, powder, or oton).
Water softeners (perfumed and hav-
ng toet cams).
Wtch haze.
ny correspondence n reference to ths mmeograph shoud refer
to the symbos MT:ST.
Commssoner.
eguatons 51, Secton 320.50: Scope of ta . 1945-15-12101
Mm. 5 93
Ta abty of shampoos under secton 2402 of the Interna Revenue
Code, as added by secton 552 of the Revenue ct of 1941, and
amended by secton 302 of the Revenue ct of 1943.
Washngton 25, D. C, uy ,1945.
ttenton s caed to the appcaton of the retaers e cse ta on
toet preparatons, etc. (ncreased from the rate of 10 to 20 per cent,
effectve pr 1,1944), to saes at reta of shampoos.
ny shampoo (1) contanng 5 per cent or ess of saponaceous mat-
ter, regardess of advertsng cams, or (2) contanng more than 5
per cent saponaceous matter but desgnated or recommended as a har
tonc or dressng, or for wavng, beachng, dyeng, tntng, or other-
wse mpartng an artfca appearance to the har, s sub|ect to the
ta when sod at reta.
In order that coectors may nform retaers concerned whether
certan shampoos are sub|ect to the ta there are sted beow those
shampoos whch have been hed not sub|ect to the ta by ths offce,
based upon chemca anayses and other nformaton furnshed by the
manufacturers or dstrbutors showng that the products contan more
than 5 per cent saponaceous matter and ndcatng that they are recom-
mended n advertsng matter soey for ceansng purposes. ny
change n advertsng matter to the effect that one of these shampoos
s to be used for toet purposes other than ceansng the har and scap
w render reta saes of the product sub|ect to the ta on and after
the date of such change, regardess of the amount of saponaceous
matter n the product.
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441
Regs. 51, 320.50.
Shampoos no ta abe on the bass of nformaton furnshed.
Manufacturer or dstrbutor.
dmracon O Shampoo Treatment-.
dmracon oamy Shampoo --
-Purpose Whte reem Shampoo
may Tar Shampoo
may Suphonated O Shampoo (Perfumed,
Unscented, and wth Tar).
mam Camome for ondes (Shampoo)
mam for Gray ar (Shampoo)
mam Pan (Shampoo)
pe egetabe O Shampoo
rdena Soapess O Shampoo
arceona Caste Shampoo
reck Ph Lather O Shampoo.
reck Lacene Shampoo
reck Shampoo Reguar
Canthro Shampoo
Camome Shampoo ----
Caste Shampoo
Caste Soap Shampoo
Cont Caste Shampoo
Cocoanut O Shampoo
Co-Op Soapess Shampoo.
Daggett Ramsde Perfect Shampoo.
Dandruff Remover Shampoo
Dara Soapess Shampoo
Detergent Latherng Shampoo
Drene Shampoo
Drene wth ar Condtonng cton (Sham-
poo).
Drezma Shampoo
Dr. s egetabe O Shampoo
dna Waace opper s ruty Shampoo
mpress Latherng O Shampoo
tch s Dandruff Remover Shampoo
tch s New Process O Shampoo ...
tch s Saponfed Coconut O Shampoo
42 ucayptus O Shampoo
our Penny Shampoo
Go- er eauty Soap Shampoo
. . Z. Lqud Shampoo. -
ao Shampoo
eene Curts Cream Shampoo
eene Curts Duchess Soapess O (Sham-
poo).
eene Curts Duchess Latherng O Sham-
poo.
eene Curts u-O- oam (Shampoo)
eene Curts Tru- rt Lather Shampoo.
eene Curts Tru- rt Medcated Shampoo.
eene Curts Mky Shampoo
erbc G. O. S. Shampoo
erbe O Shampoo
- at Pne Tar Shampoo
o-Cur egetabe O Shampoo
rem (Shampoo)
ubak Shampoo
dmracon Laboratores.
Do.
W. G. Sheton Co., Inc.
mav, Incorporated.
Do.
mam Dstrbutors, Inc.
Do.
Do.
pe News ar Co., Inc:
za -th rden Saes Corpora-
ton.
arceona Saes Co., Inc.
ohn . reck, Inc.
Do.
Do.
Consodated Roya Chemca
Corporat on.
Yardey of London, Inc.
ohn T. Staney Co., Inc.
Ogvc Ssters.
Cont Products Corporaton.
Natona Cooperatves, Inc.
Stanco Dstrbutors, Inc.
W. G. Sheton Co., Inc.
Dara Products.
. G. Sheton Co., Inc.
Procter Gambe Dstrbutng
Co.
Do.
Drezma, Inc.
Dr. s Saes Co., Inc.
mercan ome Products Corpo-
raton.
The Natona Mnera Co.
The . . tch Co.
Do.
Do.
42 Products, Ltd.
our Penny Products Co.
. Cav Gover Co., Inc.
. . Z. Dstrbutors, Inc.
Cogate-Pamove-Peet Co.
Do.
Do.
Do.
Do.
Do.
Do.
Parker erbe Corporaton.
Do.
- at Co.
ffated Products, Inc.
R. . Semer Co.
Consodated Roya Chemca
Corporaton.
6 4354 46 29
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Regs. 51, 320.50. 442
Shampoos not ta ahe on the om of nformaton furnshed Contnued.
Product.
L. . oamng Shampoo
Laco Shampoo
La ac Cocoanut O Shampoo
La ac Pne Tar Shampoo
. Lareuse Shampoo
Latherng O Shampoo
Lathcress Shampoo (Pne roma)
Lemon Shampoo
Lentherc Shampoo
Lucky Tger Magc Shampoo
Luckv Tger O Shampoo
Lucky Tger eauty O Shampoo
Mahdeen Shampoo
Marchand Caste Shampoo
Mar-O-O Shampoo
Mar-O-O Super oamy Shampoo
Musfed Coconut O Shampoo
Namnoo O Shampoo
Natura Cocoanut O Shampoo
Nourshnc Soap Shampoo
Od ouse Shampoo
Od ouse Caste Shampoo
Od ouse ne Tar Shampoo
Ove O Shampoo
Opa Cocoanut O Shampoo
Packers Shampoo wth Pne Tar
Packers Shampoo wth Ove O
Pamove Shampoo
Pnaud Lqud Shampoo
Rap-I-Do Condtonng Shampoo
Shampene (Shampoo)
Sheen-Tone Cream Shampoo. -
Sro Shampoo Soap
Soap Shampoo
Soy ean O Shampoo
Tar Shampoo
Tender ge Shampoo and Skn Ceanser-
an ss Shampoo
Wdroot Cocoanut O Shampoo
Wdroot Taroeum Shampoo
Woodbury Cocoanut O Caste Shampoo
Zeno uff Shampoo
L. . Laboratores, Inc.
Laco Products, Inc.
evstone Laboratores, Inc.
Do.
Godefroy Manufacturng Co.
W. G. Shcton Co., Inc.
Ogve Ssters.
Lentherc, Inc.
Lucky Tger Manufacturng Co.
Do.
Do.
The Mahdeen Co.
Chares Marchand Co.
Marrow s, Inc.
Do.
The R. L. Watkns Co., Dvson
of Sterng Drug, Inc.
Darbou Toetres.
Nourshne Saes Co.
Scheffen Co.
Do.
Do.
ohn T. Staney 4 Co., Inc.
Darbou Toetres.
Packers Tar Soap, Inc.
Do.
Cogate-Pamove-Pect Co.
Pnaud, Inc.
Rapdo Dstrbutng Corpora-
ton.
The Ode Co., Inc.
Prmrose ouse, Inc.
Sro Laboratores, Inc.
. G. Sheton Co., Inc.
en . Wrscy Co.
Nya Company.
Whteha Pharmaca Co.
Wdroot Company, Inc.
Do.
The ndrew crgens Co.
Raymond Laboratores.
The foowng products are ta abe ether because they (1) con-
tan not more than 5 per cent of saponaceous matter, or (2) are des-
gnated or recommended on abes or n other advertsng matter
for one or more of the toet purposes set forth n paragraph 2 of
ths mmeograph, as we as for ceansng purposes:
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443
Regs. 51, 320.50.
Product.
mam enna Shampoo
onde Shampoo
569 ar Lghtener Shampoo
Goden Shampoo
eene Curts Cod Wave Shampoo Neutra-
zer.
enna Shampoo
enna Shampoo
enna Shampoo
enna Shampoo Powder
ennafoam Geam Shampoo
ordeau Rnseess Shampoo
MDpoo Dry Shampoo
Raymonde s Presoftenng Shampoo
Scap-Go Shampoo
Shaee Presoftenng Shampoo
Tntz Coor Shampoo Soap (In a the arous
Shades).
mam Dstrbutors, Inc.
Swedsh Shampoo Laboratores.
The ouse of Lecher.
Neste-Le Mur Co.
Nestc-Le Mur Co.
Yardey of London, Inc.
Ogve Ssters.
The ennafoam Co.
ean ordeau, Inc.
nnette ennngs, Inc.
Raymond Laboratores, Inc.
Raymond Laboratores, Inc.
Tntz Company.
ny correspondence n reference to ths mmeograph shoud refer
to the symbos MT: ST.
Wm. T. Sherwood,
ctng Commssoner.
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Regs. 113, 143.30.
444
MISC LL N OUS CIS T S.
INT RN L R NU COD .
T L P ON , T L GR P , R DIO ND C L CILITI S.
S CTIONS 3465 ND 3466, S M ND D.
Reguatons 42 (1942), Secton 130.45: Servces 1945-24-12195
utzed n the coecton of news for or dssem- M. T. 23
naton of news through the pubc press, news
tcker servces, or rado broadcastng.
Ta abty by reason of ther admnstratve nature of certan
messages sent by or to newspapers or press assocatons.
S. T. 646 C. . II-1, 422 (1933) ampfed.
dvce s requested whether certan messages sent by or to news-
papers or press assocatons fa wthn the scope of admnstratve
messages, as used n S. T. 646 (C. . II-1, 422 (1933)), and are
ta abe under secton 3465 of the Interna Revenue Code.
S. T. 646, supra, provdes that the e empton under secton 3466(b)
of the Code, reatng, among other thngs, to payments receved from
any person for servces or factes used n the coecton of news for
the pubc press, does not appy to messages of an admnstratve
nature.
It s hed that admnstratve messages ncude messages to corre-
spondents reatng to assgnments for gatherng and reportng news
tems for pubcaton, as we as smar messages sent by correspondents
to newspapers or press assocatons, and that charges therefor are not
e empt from ta mposed by secton 3465 of the Interna Revenue Code,
as amended. so sub|ect to ta as admnstratve messages are
messages whch reate to hote accommodatons for reporters on assgn-
ment and messages transmttng funds to correspondents.
T ON TR NSPORT TION O PROP RTY.
S CTION 3475, S DD D Y S CTION 620 O T R NU CT
O 1942.
Reguatons 113, Secton 143.30: Transportaton 1945-12-12066
of property beyond the boundares of the Unted Mm. 5 77
States.
Ta on the transportaton of property Shpments consgned to
rmy and Navy offcers at port of e portaton.
Washngton 26, D. C, une ,19 5.
The ta mposed under secton 3475(a) of the Interna Revenue
Code on the transportaton of property does not appy to shpments
to a foregn destnaton or to a possesson of the Unted States when
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445
Regs. 113, 143.30.
made n accordance wth the provsons outned n Subpart of
eguatons 113.
In vew of the presumpton that shpments consgned to rmy and
Navy offcers at port of e portaton are utmatey e ported and the
obvous dffcuty on the part of shppers n procurng proof of e por-
taton n such cases, the ureau, at the request of the War and Navy
Departments, hed that the fng of orms 79 and 799 woud not be
requred wth respect to shpments consgned to rmy or Navy offcers
charged wth the duty of recevng such shpments at a port of
e portaton.
Due to changes n procurement poces, the War and Navy Depart-
ments amended ther procurement reguatons, effectve respectvey
as of une 1, 1944, and ugust 15,1944, so as to requre the ncuson
of the transportaton ta n the prce f ed by a prme contract or
reated subcontract n respect of e port shpments to be made on
commerca bs of adng, even though consgned to an rmy or Navy
offcer at the port of e portaton.
ccordngy, e port shpments made on commerca bs of adng
and consgnee to an rmy or Navy offcer at a port of e portaton are
not e empt from the transportaton ta , where made pursuant to a
5rme contract entered nto wth the War Department on or after
une 1,1944, or a prme contract entered nto wth the Navy Depart-
ment on or after ugust 15,1944, ncudng n ether case a subcontract
reated to the prme contract. In such case, the transportaton ta
appes to the shpment, and a Temporary empton Certfcate,
orm 79 , may not be fed n eu of payment of ta .
owever, the e empton aowabe n respect of e port shpments
st appes to shpments under commerca bs of adng consgned
to an rmy or Navy offcer at the port of e portaton, where the shp-
ment s made pursuant to a prme contract entered nto on a ta
e cusve bass by the War and Navy Departments pror to the effec-
tve dates of the above-mentoned amendments of ther procurement
reguatons, and appes aso to any subcontract (regardess of date)
reated to such prme contract, provded the subcontract s kewse
made on a ta e cusve bass. s to such prme contracts and sub-
contracts, the person payng the transportaton charges may, n eu
of payment of the ta , fe wth the carrer an e empton certfcate
on orm 79 , provded the orm 79 s modfed by enterng across the
bottom thereof, the foowng statement:
Shpped under prme contract No. dated ,
whch e cudes transportaton ta .
Where the shpment s made under a subcontract, ony the number
and date of the prme contract need be entered on the modfed
orm 79 .
The fng of a Certfcate of portaton, orm 799, w not be
requred where a modfed orm 79 s fed pursuant to the prov-
sons of ths mmeograph.
So much ofparagraph No. 3 of the nstructons on orms 79 and
799 (revsed ebruary, 1944) as s nconsstent herewth s revoked,
as of the date of ths mmeograph.
The provsons of ths mmeograph do not affect the e empton
appcabe to amounts pad for the transportaton of property shpped
on a Unted States Government b of adng.
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Msc.
446
Ths mmeograph sha be effectve as of the date of ssue.
correspondence n reference to ths mmeograph shoud refer
10 the symbos MT: M.
oseph D. Nunan, r.,
Commssoner.
DMISSIONS T .
S CTION 1700(a), S M ND D.
1945-7-12007
Mm. 5 43
Ta on admssons to athetc games and other affars conducted
by schoos.
Washngton- 5, D. C, March SI, 1945.
Secton 1700(a) of the Interna Revenue Code, as amended by
secton 541 of the Revenue ct of 1941 and further amended by
secton 302 of the Revenue ct of 1943, mposes a ta of 1 cent for
each 5 cents or ma|or fracton thereof of the amount pad for
admsson to any pace, ncudng admsson by season tcket or
subscrpton. The ta s to be pad by the person payng for
admsson. It s provded that no ta sha be mposed on the
amount pad for the admsson of a chd under 12 years of age f
the amount pad s ess than 10 cents.
In many cases schoos coect from students an actvty fee or other
charge n return for whch the students receve season books or
tckets coverng admsson to athetc games or other affars at the
schoos. The student fees represent amounts pad for admsson by
season tcket or subscrpton and are sub|ect to ta at the rate of 1
cent for each 5 cents or ma|or fracton thereof. If the student fee
covers subscrpton to the schoo paper, or other prveges n add-
ton to admssons, the charge appcabe to the admssons and the
charge appcabe to the schoo paper, etc., may be separated and the
ta coected ony on the charge for admssons.
Secton 1700(a) of the Code, as amended, provdes that n the
case of persons (e cept bona fde empoyees, muncpa offcers on
offca busness, chdren under 12 years of age, members of the
mtary or nava forces of the Unted States when n unform,
members of the mtary or nava forces of any of the Unted Natons
when n unform, and members of the Cvan Conservaton Corps
when n unform) admtted free or at reduced rates to any pace at
any tme when and under crcumstances under whch an admsson
charge s made to other persons, an equvaent ta sha be coected
based on the prce so charged to such other persons for the same
or smar accommodatons, to be pad by the person so admtted.
Students admtted to affars hed at, or conducted by, the schoo
whch they attend, and students of schoos competng n any athetc
game or tournament, regardess of where hed, are not admtted
under crcumstances under whch other persons are admtted and
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447
Msc.
f admtted free are not abe for ta or f admtted at reduced
rates are abe for ta on the reduced prce, e cept that an admsson
charge of ess than 10 cents for a chd under 12 years of age s
uot sub|ect to ta .
Students of schoos, other than those specfcay mentoned n the
precedng paragraph, admtted free or at reduced rates are abe
for ta based on the reguar estabshed prce of admsson to the
pubc for the same or smar accommodatons, whether or not the
students are seated n a separate secton. Chdren under 12 years
of age are abe for ta on the amount actuay pad by them for
admsson, e cept that f the amount pad s ess than 10 cents no
ta appes.
Coaches, members of a band, and other persons admtted free to a
pace soey for the purpose of performng speca dutes n connec-
ton wth the event are not abe for ta .
Members of the facuty admtted free to affars hed at, or con-
ducted by, the schoo at whch they are empoyed or to athetc games
or tournaments n whch such schoo s competng are not abe
for ta , and f admtted at reduced rates are abe for ta on the
reduced prce.
The provsons of ths mmeograph sha appy wth respect to any
admssons on and after the date thereof, and revoke as of such date
any prevous rungs nconsstent wth ths mmeograph, ncudng
Mmeograph 52 9, dated November 22, 1941.
correspondence n reference to ths mmeograph shoud refer
to the symbos MT:M.
oseph D. Nunan, r.,
C ommssoner.
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Regs. 99 (1937), rt. 200. 44
SUG R CT O 1937.
S CTION 402. T ON T M NU CTUR O SUG R.
Reguatons 99 (1937), rtce 200: ffectve 1945-1-11924
date. Ct. D. 1622
M NU CTUR RS CIS T SUG R CT O 1037 D CISION O COURT.
Ta on Manufactube op Sugar ffectve Date of the ct.
Sugar manufactured on September 1, 1937, was sub|ect to the ta
mposed by secton 402 of Tte I of the Sugar ct of 1937, whch
ct was sgned by the Presdent on September 1, 1937. Secton
402(c) of that ct pertans prncpay to the requrements for mak-
ng and fng returns, and the provson theren reatng to the effec-
tve date of the ta s not suffcent, n tsef, to overcome the effect
and purpose of secton 406, whch specfcay prescrbes the effectve
date of the mposton of the ta .
Court of Cams of the Unted States.
The mercan Sugar Refnng Co. v. The Unted States.
56 ed. Supp., 9 .
October 2, 1944.
OPINION.
Pautff seeks to recover 15,571.92 e cse ta , and nterest thereon, pad
November 30, 1937, on sugar manufactured on September 1, 1937. Ths ta was
pad under secton 402 of the Sugar ct of 1937, approved September 1, 1937
(50 Stat., 903), and the reguaton of the Commssoner thereunder. The queston
presented s whether the ta was due n respect of sugar manufactured on
September 1, the pantff contendng that secton 402 dd not become effectve
unt September 2, 1937.
SP CI L INDINGS O CT.
1. Pantff s a New ersey corporaton wth ts offce and prncpa pace of
busness at 120 Wa Street, n the cty and State of New York.
2. On November 30, IS 37, the pantff, under protest, fed wth the coector
of nterna revenue for the second dstrct of New York ts Monthy Return
of Manufacturer of Manufactured Sugar for the month of September, 1937, ds-
cosng the sae or use durng that month of 5,22 ,142 pounds of manufactured
sugar and a resutng ta abty of 25,066.5 . That ta was pad by the
pantff to the coector of nterna revenue on November 30, 1937. Of the
tota amount of ta pad, the sum of 15,571.92 s wth respect to sugar manu-
factured on September 1, 1937, amountng to 2,9 5,317 pounds.
3. On November 30, 1939, the pantff fed wth the approprate coector of n-
terna revenue a cam for refund n amount of 15,571.92, assertng the foowng
grounds therefor:
The sum for whch cam s made was pad wth respect to sugar manu-
factured on September 1, 1937, and the coecton thereof s not provded for and
s Iega and n drect contraventon of the provsons of the Sugar ct of 1937.
The effectve date of Tte I of sad Sugar ct was September 1, 1937, the
date of enactment of sad ct, and t was specfcay provded n sad ct that
the manufacturer shoud fe a return and pay the ta wth respect to manufac-
tured sugar manufactured after the effectve date of sad tte. ccordngy, manu-
factured sugar manufactured on September 1, 1937, was not sub|ect to the ta
mposed by sad ct.
4. On December 11, 1939, the Commssoner of Interna Revenue notfed the
pantff by regstered ma that Its cam for refund was thereby re|ected. That
etter read as foows:
Reference s made to your cam, fed on orm 43, for refund of 15,571. 2,
ta aeged to have been erroneousy pad under the provsons of secton 402
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449
Regs. 99 (1937), rt. 200.
of the Sugar ct of 1937 (superseded March 1, 1939, by secton 3490 of the In-
terna Revenue Code), wth respect to sugar manufactured on September 1,
1937, and reported on your orm 1 (Sugar) fed for the month of September,
1937.
You state that the sum for whch cam s made was pad wth respect to sugar
manufactured on September 1,1937, and the coecton thereof Is not provded for
and s ega and n drect contraventon of the provsons of the Sugar ct of
1937. You state, further, that the effectve date of Tte I of sad ct was Sep-
tember 1,1937, the date of enactment of sad ct, and t was specfcay provded
n sad ct that the manufacturer shoud fe a return and pay the ta wth
respect to manufactured sugar manufactured after the effectve date of sad tte.
You, therefore, request refund of the amount of ta pad wth respect to the sugar
manufactured on September 1, 1937.
The ta mposed under the provsons of secton 402 of the Sugar ct of 1937
became effectve on the frst moment of September, 1937. In ths connecton see
artce 200 of Reguatons 99.
Snce your cam s based on ta pad wth respect to sugar manufactured
after the frst moment of September, 1937, t was propery pad. ccordngy, your
cam Is hereby re|ected n fu.
5. arous and numerous day newspapers, fnanca |ournas, and other pub-
catons ssued under date of September 2, 1937, contaned news tems whch
stated that the Presdent had sgned the Sugar ct of 1937 ate n the evenng or
nght of September 1, 1937.
The offca copy of the Sugar ct of 1937 on fe In the Department of State
does not dscose the hour of September 1, 1937, on whch the Presdent sgned
that ct. Dgent search has faed to dscose any evdence whatsoever as to
the hour of September 1,1937, when the Presdent sgned such ct.
CONCLUSION O L W.
Upon the foregong speca fndngs of fact, whch are made a part of the |udg-
ment heren, the court concudes as a matter of aw that pantff s not entted
to recover, and the petton s therefore dsmssed.
udgment s rendered aganst pantff for the cost of prntng the record heren,
the amount thereof to be entered by the cerk and coected by hm accordng to
aw.
OPINION.
Ltteton, udge, devered the opnon of the court.
The e cse ta provsons of Tte I of the Sugar ct, approved September 1,
1937, pertnent to the queston whether pantff was abe for the ta mposed on
sugar manufactured on September 1,1937, are as foows:
Sec. 402. (a) Upon manufactured sugar manufactured In the Unted States,
there sha be eved, coected and pad a ta , to be pad by the manufacturer at
the foowng rates:
(1) On a manufactured sugar testng by the poarscope nnety-two
sugar degrees, 0.465 cent per pound, and for ench addtona sugar degree
, 0.00 75 cent per pound addtona and fractons of a degree n pro-
porton.
(2) On a manufactured sugar testng by the poarscope ess than nnety-
two sugar degrees, 0.5144 cent per pound of the tota sugars theren.

(c) The manufacturer sha fe on the ast day of each month a return and
pay the ta wth respect to manufactured sugar manufactured after the effectve
date of ths tte (1) whch has been sod, or used In the producton of other
artces, by the manufacturer durng the precedng month (f the ta has not
aready been pad) and (2) whch has not been so sod or used wthn tweve
months endng durng the precedng caendar month, after t was manufactured
(f the ta has not aready been pad) : Provded, That the frst return and pay-
ment of the ta sha not be due unt the ast day of the second month foowng
the month n whch ths tte takes effect.

Seo. 403. (a) In addton to any other ta or duty mposed by aw, there sha
be Imposed, under such reguatons as the Commssoner of Customs sha pre-
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Regs. 99 (1937), rt. 200. 450
scrbe, wth the approvn of the Secretary of the Treasury, a ta npon artces
mported or brought nto the Unted States as foows:
(1) On a manufactured sugar testng by the poarscope nnety-two
sugar degrees, 0.4 3 cent per pound, and for each addtona sugar degree
shown by the poarseopc test, 0.00 75 cent per pound addtona, and frac-
tons of a degree n proporton
(2) On a manufactured sugar testng by the poarscope ess than
nnety-two sugar degrees 0.5144 cent per pound of the tota sugars theren
(3) On a artces composed n chef vaue of manufactured sugar 0.5144
cent per pound of the tota sugars theren.
(b) Such ta sha be eved, assessed, coected, and pad In the same
manner as a duty mposed by the Tarff ct of 1930, and sha be treated for
the purposes of a provsons of aw reatng to the customs revenue as a duty
mposed by such ct, e cept that for the purposes of secton 33 and 350 of such
ct (the so-caed fe be-tarff and trade-agreements provsons) such ta
sha not be consdered a duty or Import restrcton, and e cept that no pref-
erence wth respect to such ta sha be accorded any artces mported or brought
Into the Unted States.
Sec. 405. (a)
(b)
(c) The Commssoner of Interna Revenue, wth the approva of the Secre-
tary of the Treasury, sha prescrbe such rues and reguatons as may be neces-
sary to carry out a provsons of ths tte e cept secton 403.

Sec. 406. The provsons of ths tte sha become effectve on the date of
enactment of ths ct.
Secton 401, the frst secton of Tte I , reated to defntons, and secton 404
reated to e portaton, vestock feed, and dstaton.
Treasury Reguatons 99, approved by the Secretary of the Treasury and pro-
mugated under secton 402 of the Sugar ct of 1937 provded:
rt. 200. ffectve Date. The ta s effectve wth respect to the manufac-
ture of manufactured sugar from the frst moment of September 1, 1937, the
date of enactment of the Sugar ct of 1937.

rt. 205. When the Ta ttaches. (a) The ta attaches upon the compe-
ton of that process of manufacturng the drect resut of whch s manufactured
sugar. If the competon of the manufacturng process takes pace durng the
perod the ta s n effect, the ta attaches, notwthstandng that some part of the
manufacturng process took pace before such perod.

rt. 504. Records. (a) Inventory. very manufacturer of manufactured
sugar sha make an Itemzed nventory of a manufactured sugar hed by hm,
as of the frst moment of September 1, 1937. separate nventory sha be made
for each factory, refnery, or other pace where such person hods or manufactures
manufactured sugar, and a copy of such Inventory sha be retaned on the
premses.
( ) Manufacturng records. very person who on and after September 1,1937,
manufactures manufactured sugar sha keep an accurate record of the manu-
facturng done by hm. separate record sha be kept at and for each pace
where the manufacturng s done.

In pursuance of the provsons of secton 405(c) of the ct and other prov-
sons of the Interna revenue aws, the foregong reguatons are hereby pre-
scrbed.
Treasury Decson 491(50, approved by the Secretary of the Treasury (72 Treas-
ury Decsons, ureau of Customs), promugated pursuant to secton 403, Sugar
ct of 1937, provded:

Pursuant to the authorty contaned In secton 403(a) of the Sugar ct of
1937 (Pubc, No. 414 Seventy-ffth Congress, approved September 1, 1937), the
foowng reguatons are hereby promugated .
.
(b) ffectve date. The mport compensatng ta es prescrbed by secton 403
are appcabe to manufactured sugar and artces composed n chef vaue of
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451 Regs. 99 (1937), rt. 200.
manufactured sugar entered for consumpton or wthdrawn from warehouse for
consumpton after the openng of busness on September 1, 1937.

In vew of a the pertnent anguage of the ct, ts apparent purpose, and the
nterpretve reguatons of the Treasury thereunder, we are of opnon that pan-
tff s contenton that the e cse ta mposed by secton 402(a) on manufactured
sugar was by secton 402(c) made effectve on September 2, 1937, can not be
sustaned.
t the outset pantff s confronted wth the we-estabshed rue that n case
of ambguty or doubt as to the e act meanng of a statute the contemporaneous
nterpretaton or constructon thereof by the e ecutve department charged wth
ts admnstraton and enforcement s entted to great weght, s hghy persua-
sve of the Congressona ntent, and shoud not be dsturbed e cept tor the most
cogent reasons. Upon consderaton of the ct as a whoe, n the ght of ts
apparent purpose, we thnk the nterpretaton thereof by the Treasury was rea-
sonabe, and that pantff has not overcome ths nterpretaton by the argument
that the ordnary meanng of tn phrase sugar manufactured after the effec-
tve date of ths ct means sugar manufactured on and after the day foowng
the date of approva of the ct, and that Congress probaby Intended by such
anguage to gve manufacturers one day wthn whch to appropratey ad|ust
ther prces. The anguage reed upon mght mean what pantff contends, but
whether t does or not depends upon ts settng and conte t. Under pantff s
argument there s a confct between subsecton (c) of secton 402 and secton 406
as to the tme of mposton of the ta , the atter provdng that a the provsons
of Tte I sha become effectve on the date of enactment of the ct, nnd that
date was September 1, 1937. Pantff contends, however, that the specfc an-
guage of subsecton (c) must contro over the genera anguage of secton 406,
and that f the specfc anguage of secton 402(c) were not controng and
gven effect, t woud be rendered meanngess. In the crcumstances we thnk
the rue wth reference to specfc and genera anguage s not appcabe here,
nor do we thnk that a hodng that secton 406 s controng as to the tme of
mposton of the ta renders the mentoned anguage of subsecton (c) meanng-
ess. Reasonaby and propery nterpreted, both may be reconced and gven fu
effect accordng to ther apparent purpose. It s we estabshed that ths shoud
be done wherever possbe. It s admtted that the provsons of secton 406 appy
to the ta on manufactured sugar as we as Imported sugar t s aso admtted
that under the anguage of ths secton the mposton of the ta on both manu-
factured and mported sugar became effectve from the frst moment of Septem-
ber 1, 1937. No reason s shown why Congress woud have wshed to make a
dstncton between the tme of Imposton of the ta on the domestc manufac-
turer of sugar and on mported sugar. The obvous purpose of the ct was to
rase revenue, and the purpose of mposng the ta upon mported sugar was to
mantan a party between the sugar derved from both sources and not to
sub|ect ether to an unequa burden. In vew of ths, Is the anguage of sub-
secton (c) of secton 402 reed upon suffcent, n Itsef, to overcome the effect
and purpose of secton 406 We thnk not. Subsecton (c) of secton 402 was
not specfcay drected to the mposton of the ta by subsecton (a) of that
secton, but was deang wth and drected to the makng of monthy returns and
payment of the ta so Imposed In the months foowng the date on whch the
ct became effectve. In the draftng of that secton the mnd of Congress was
apparenty on these matters, rather than on the matter of the evy or mposton
of the ta , and the anguage used, . e., that The manufacturer sha fe on the
ast day of each month a return nnd pay the ta wth respect to manufactured
sugar manufactured after the effectve date of ths tte (I) whch has been
sod, , doubtess had reference to sugar manufactured after the ct.
(See Mutua Lfe Insurance Co. of New York v. urnt Packng Co., 263 U. S.,
167, 174, 175.) Ths nterpretaton whch the Treasury gave to the secton s a
reasonabe one, and gves the subsecton fu effect as to ts sub|ect matter.
(Compare Tasty akng Co., a Corporaton, v. The Unted States, 93 C. Cs.,
667, 674.) On the other hand, secton 406, whe perhaps genera as to some
matters, was more specfc as to the effectve date of the mposton of the ta
under subsecton (a) of secton 402 than was subsecton (c). Secton 406 must
therefore contro.
The petton must therefore be dsmssed. It s so ordered.
Madden, udge Whttaker, udge and Whabt, Chef ustce, concur.
ones, udge, took no part In the decson of ths case.
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Regs. 71, (1941), 113.33. 452
ST MP T S.
INT RN L R NU COD .
S CTIONS 1 02(b) ND 34 1, S M ND D. C PIT L STOC ( ND
SIMIL R INT R STS) S L S ND TR NS RS.
Reguatons 71 (1941), Secton 113.33: Saes 1945-6-11997
and transfers sub|ect to ta . M. T. 22
( so Secton 113.63.)
The rue announced n M. T. 20 (C. . 1044, 640) w be apped
ony to transfers of securtes made on and after May 25, 1044, the
date of pubcaton of that rung n the Interna Revenue uetn.
In M. T. 20, pubshed n Cumuatve uetn 1944, page 649, t
was hed that
The admsson of a new partner nto the M Partnershp effected a change n the
ownershp of the securtes carred on the partnershp s books and a transfer of
ega tte thereto whch s sub|ect to stamp ta under sectons 1 02(b) and 34 1
of the Interna Revenue Code, as amended. (Syabus.)
Secton 3791(b) of the Interna Revenue Code provdes n part that
the Commssoner, wth the approva of the Secretary, may prescrbe
the e tent, f any, to whch any rung reatng to the nterna revenue
aws sha be apped wthout retroactve effect.
Under the authorty of secton 3791(b) of the Interna Revenue
Code, t s hed that the rue announced n M. T. 20, supra, sha be
apped ony wth respect to such transfers made on and after May 25,
1944, the date of pubcaton of M. T. 20 n the Interna Revenue
uetn.
pproved.
ctng Secretary pf the Treasury.
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453 Regs. 9 (1936).
T S ON OL OM RG RIN , TC.
INT RN L R NU COD .
Reguatons 9 (1936), rtce 27: onds. 1945-4-11977
T. D. 5439
TITL 26 INT RN L R NU . C PT R I. SU C PT R C, P RT 310.
T S ON OL OM RG RIN , DULT R T D UTT R, ND PROC SS OR
R NO T D UTT R.
Oeomargarne, aduterated butter, and process or renovated butter
bonds, Reguatons 9 amended.
Washngton 25, D. C.
Reguatons 9 (revsed pr, 1936) Part 310, Tte 26, Code of
edera Reguatons , but ony as prescrbed and made appcabe to
the Interna Revenue Code by Treasury Decson 4 6, approved eb-
ruary 11, 1939 C. . 1939-1 (Part 1), 396 note, Part 310, Tte 26,
Code of edera Reguatons, Cum. Sup. , are amended as foows:
rtce 27 secton 310.27, Tte 26, Code of edera Reguatons s
amended by changng paragraph (a) thereof to read as foows:
(a) ecuton. efore commencng busness a manufacturer sha furnsh
the coector wth a bond whch meets wth hs approva. onds sha be e ecuted
n dupcate on orm 214. oth copes sha be forwarded to the coector, who
w retan the orgna and forward the dupcate to the Commssoner. onds
may be e ecuted wth ndvdua or corporate suretes or supported by Government
securtes.
3791).)
oseph D. Nunan, r.,
Commssoner of Interna Re venue.
pproved ebruary 20,1945.
( ed wth the Dvson of the edera Regster ebruary 21, 1945, 11.20 a,, m.)
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Regs. 34 (192 ).
454
WIT DR W L O OL OM RG RIN , TC., ROM CTORI S, R
O T , OR US O T UNIT D ST T S.
Reguatons 34 (192 ). 1945-5-119 5
T. D. 5440
WIT DR W L OP OL OM RG RIN , PL YING C RDS, TO CCO, SNU ,
CIG RS, ND CIG R TT S, ROM CTORI S, R O T , OR US OP
T UNIT D ST T S.
Reguatons 34 amended to Incude fed cheese.
Theasurt Department,
Washngton 25, D. C, ebruary 27,191,5.
Reguatons 34 (revsed anuary, 192 Part 450, Tte 26, Code of
edera Reguatons , but ony as prescrbed and made appcabe to
the Interna Revenue Code by Treasury Decson 4 4, approved eb-
ruary 11, 1939 C. . 1939-1 (Part 1), 395 Note, Tte 26, Code of
edera Reguatons, Cum. Sup., page 5 75 , are amended as foows:
Paragraph 1. The capton mmedatey foowng the tte Reg-
uatons No. 34, Revsed s amended to read as foows:
Reguatons Governng the Wthdrawa of O.eomabgamne, ed Cheese,
Payng Caeds, Tobacco, Snuff, Cgaes, and Cgarettes, from actokes, ree
of Ta , for Use of the Unted States, Undeb Secton 3464, Revsed Statutes,
and Secton 3331, Interna Revenue Code.
Par. 2. Immedatey precedng the paragraph secton 450.0 of such
Tte 26 precedng artce 1 secton -450.1 of such Tte 26 there s
nserted the foowng:
S C. 3331. MPTION ROM T O DOM STIC GOODS PUR-
C S D OR T UNIT D ST T S. (INT RN L R NU
COD .)
The prvege e stng by provson of aw on December 1, 1 73 or
thereafter of purchasng suppes of goods mported from foregn
countres for the use of the Unted States, duty free, sha be e tended,
under such reguatons as the Secretary may prescrbe, to a artces
of domestc producton whch are sub|ect to ta by the provsons of
ths subtte.
Par. 3. The frst sentence of the paragraph secton 450.0 of such
Tte 26 mmedatey precedng artce 1 secton 450.1 of such Tte
26 s amended by nsertng fed cheese after oeomargarne, .
Par. 4. The frst sentence of artce 2 secton 450.2 of such Tte
26 s amended by nsertng fed cheese after oeomargarne. .
Par. 5. rtce 5 secton 450.5 of such Tte 26 s amended by add-
ng a new subparagraph at the end thereof, as foows:
(d) ed cheese wthdrawn free of ta for use of the Unted States must
be packed and abeed as the statute requres. (Sec. 2352(b), Interna Revenue
Code.) ach statutory package sha, n addton to the markngs otherwse
requred, have egby and duraby marked, stamped, or branded thereon the
statement or use- of U. S. Government, together wth the number of permt
and the date thereof, the etters and fgures theren to correspond n sze and stye
wth the markngs requred by secton 2352(b)(1) of the Interna Revenue
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455 Regs. (1941), 319.5, 319.23.
Pab. 6. The second sentence of the second paragraph of artce
(a) secton 450. (a) of such Tte 26 s amended by nsertng
, fed cheese, after the word oeomargarne.
n secton 3331 of the Interna Revenue Code (53 Stat., 403, 26 U. S. C,
3331).)
OS P . O CoNN LL, r.,
( ed wth the Dvson of the edera Regster ebruary 2 , 1945. 9.49 a. m.)
T S R L TING TO M C IN GUNS ND C RT IN
OT R IR RMS.
INT RN L R NU COD .
Reguatons (1941), Sectons 319.5 and 319.23: 1945-19-1214
Rates of ta . T. D. 54 1
TITL 26 INT RN L R NU . C PT R I, SU C PT R C. P RT 319.
T S R L TING TO M C IN GUNS ND C RT IN OT R IR RMS.
Sma-game guns Reguatons amended.
Washngton 25, D. C.
In order to conform Reguatons (1941 edton) Part 319, Tte
26, Code of edera Reguatons, 1941 Sup. , Deang wth ta es reat-
ng to machne guns and certan other frearms, to Pubc Law 177
(Seventy-nnth Congress, frst sesson page 539, ths uetn ), ap-
proved ugust 11, 1945, such reguatons are amended as foows:
Paragraph 1. There s nserted mmedatey precedng the quota-
ton of secton 3261 (a), whch s one of the statutory quotatons appear-
ng before secton 319.3, the foowng:
PU LIC L W 177 (S NTY-NINT CONGR SS, IRST S SSION),
PPRO D UGUST 11, 1945.

Sec. 2. Secton 3260(a) of the Interna Revenue Code Is amended y
strkng out Provded, That manufacturers and deaers n guns wth two
attached barres from whch ony a snge dscharge can be made from
ether barre wthout manua reoadng sha pay the foowng ta es:
Manufacturers, 25 per year deaers, 1 per year. and nsertng n eu
thereof the foowng: Provded, That manufacturers and deaers n
guns wth two attached barres, tweve Inches or more n ength, from
whch ony a snge dscharge can be made from ether barre wthout
manua reoadng, guns desgned to be hed n one hand when fred and
havng a barre tweve Inches or more n ength from whch ony a
snge dscharge can be made wthout manua reoadng, or guns of both
types, sha pay the foowng ta es: Manufacturers, 25 per year
deaers, 1 per year.
Sec. 3.
(b) The amendment made by secton 2 of ths ct sha appy wth
respect to any ta wthn the scope thereof payabe under secton
3260(a) of the Interna Revenue Code for any ta abe perod commencng
on or after uy 1,1945.
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Regs. (1941), 319.5, 319.23. 456
Par. 2. The frst paragraph of secton 319.5 s amended to read as
foows:
Sec. 319.5. Rates of Ta . The speca ta es are as foows:
Cass 1. Importers or manufacturers of frearms as defned (see secton
319.1(a)), e cept manufacturers n cass 2 500
Cass 2. Pror to uy 1, 1945, manufacturers whose producton of fre-
arms (see secton 319.1(a)) s mted to guns wth two attached
barres, 12 nches or more n ength, from whch ony a snge dscharge
can be made from ether barre wthout manua reoadng, and on and
after uy 1, 1945, manufacturers of frearms whose producton s
mted to guns wth two attached barres, 12 nches or more n ength,
from whch ony a snge dscharge can be made from ether barre
wthout manua reoadng, or guns desgned to be hed n one hand
when fred and havng a barre 12 Inches or more n ength from whch
ony a snge dscharge can be made wthout manua reoadng, or guns
of both types 25
Cass 3. Pawnbrokers, e cept those n cass 5 300
Cass 4. Deaers, other than pawnbrokers, e cept those n cass 5 200
Cass 5. Pror to uy 1, 1945, deaers, ncudng pawnbrokers, whose
deang n frearms (see secton 319.1(a)) s mted to guns wth
two attached barres, 12 nches or more n ength, from whch ony a
snge dscharge can be made from ether barre wthout manua reoad-
ng, and, on and after uy 1, 1945, deaers, ncudng pawnbrokers,
whose deang n frearms s mted to guns wth two attached barres,
12 nches or more n ength, from whch ony a snge dscharge can be
made from ether barre wthout manua reoadng, or guns desgned to
be hed n one hand when fred, and havng a barre 12 nches or more In
ength from whch ony a snge dscharge can be made wthout manua
reoadng, or guns of both types 1
Par. 3. There s nserted mmedatey precedng the quotaton of
secton 2722(a), whch appears mmedatey before secton 319.22, the
foowng:
PU LIC L W 177 (S NTY-NINT CONGR SS, IRST S SSION),
PPRO D UGUST 11, 1945.
That secton 2720(a) of the Interna Revenue Code s
(a) Rate. There sha be eved, coected, and pad upon frearms
transferred n the contnenta Unted States a ta at the rate of 200 for
each frearm: Provded, That the transfer ta on any gun wth two
attached barres, tweve nches or more n ength, from whch ony a
snge dscharge can be made from ether barre wthout manua reoad-
ng, or any gun desgned to be hed n one hand when fred and havng
a barre tweve nches or more In ength from whch ony a snge
dscharge can be made wthout manua reoadng sha be at the rate
of 1. The ta mposed by ths secton sha be n addton to any
mport duty mposed on such frearm.

Sec. 3. (a) The amendment made by the frst secton of ths ct sha
appy wth respect to any transfer wthn the scope thereof made on or
after uy 1, 1945.

Par. 4. Secton 319.23 s amended to read as foows:
Sec. 319.23. Rate of Ta . The transfer ta to be eved, coected, and pad
wth respect to a artces wthn the term frearm (see secton 319.1(a))
transferred n the contnenta Unted States s at the rate of 200 for each
frearm, e cept that pror to uy 1, 1945, the rate of ta s 1 upon the transfer
of any gun wth two attached barres, 12 nches or more but ess than 1 (16 n the
case of rfes of .22 caber or ess) nches n ength, from whch ony a snge
dscharge can be made from ether barre wthout manua reoadng, and, on and
after uy 1, 1945, the rate of ta s 1 upon the transfer of any gun wth two
attached barres, 12 Inches or more but ess than 1 (16 In the case of rfes of
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457
Regs. (1941), 319.31.
.22 caber or ess) nches n ength, from whch ony a snge dscharge can e
made from ether barre wthout manua reoadng, or any gun desgned to be
hed n one hand when tred and havng a barre 12 nches or more but ess than
1 (16 n the case of rfes of .22 caber or ess) nches n ength, from whch ony
a snge dscharge can be made wthout manua reoadng. In every case the
ta sha be pad by the transferor.
sectons 2732 and 3791 of the Interna Revenue Code (53 Stat., 294,
467 26 U. S. C, 2732, 3791).)
os r- D. Nunan, r.,
pproved October 3, 1945.
(Ped wth the Dvson of the edera Regster October 4, 1945,11.3 a. m.)
INT RN L R NU COD .
S CTION 3261.
Reguatons (1941), Secton 319.31: 1945-21-12160
Regstraton of frearms. Mm. 5937
Regstraton of frearms as defned n secton 2733 of the Interna
Revenue Code sent or brought nto the Unted States by members
of the armed forces.
Washngton 25, D. C, October 15,1945.
Durng the atter part of 1943, pursuant to conferences of repre-
sentatves of the State, War, Navy, and Post Offce Departments,
the ureau of Customs and ths ureau, rmy and Navy personne
were permtted to brng or send nto the Unted States captured enemy
equpment, ncudng frearms as defned n secton 2733 (a) and (b)
of the Interna Revenue Code.
ureau of Customs crcuar etter dated October 22, 1943, provded
that frearms comng wthn the above sectons of the Code woud
be reeased to the mporter when the requred certfcate from hs
commandng offcer accompaned the frearm, and after e ecuton of
orm 6 ( rearms), n dupcate, under oath. It further provded that
where such frearm was sent n the ma to a frend or reatve for hod-
ng unt the owner s return, the addressee, pror to the recept of the
frearm, shoud e ecute orm 6 ( rearms), ndcatng that the form
was e ecuted on behaf of the actua owner, and that f such frearm
was sent n the mas to a frend or reatve as a gft, the addressee,
pror to the reease of the frearm, shoud e ecute orm 6 ( rearms)
as mporter. orm 6 ( rearms) was to be endorsed by the proper
customs offcer to show that the frearm mentoned was reeased as a
trophy of war, after whch the form n dupcate was to be sent to
the Commssoner of Interna Revenue.
6 4354 46 0
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Regs. (1941), 319.31.
45
owever, the Navy Department on November 30, 1944, and the
War Department on Say 2 , 1945, ssued drectves forbddng shp-
ment to the Unted States, after such dates, of frearms of the automatc
type (or component parts), such as machne guns, submachne guns, or
any type gun n whch a number of shots or buets may be dscharged
wth one contnuous pu of the trgger.
Due to the great voume of ma receved from overseas, t has been
physcay mpossbe for the ureau of Customs to e amne more than
a sma percentage of a packages and to compy wth the procedure
as set forth n ts etter of October 22, 1943. Therefore, an unknown
number of these frearms have been mported wth or wthout offcers
certfcates, and due to a ack of knowedge of the regstraton requre-
ments, the possessors of the frearms, n most nstances, have not
e ecuted orm 6 ( rearms).
The duty and responsbty of nvestgatng, preventng, and detect-
ng voatons wth respect to frearms as defned n secton 2733 (a) and
(b) of the Code rests wth the coho Ta Unt of the ureau of
Interna Revenue (Treasury Decson 5067, dated ugust 29, 1941
C. . 1941-2, 366 ).
Where you receve a request for permsson to regster a frearm,
ether on orm 1 ( rearms) or orm 6 ( rearms) .you shoud ascer-
tan whether the frearm s a trophy of war. If the frearm s a trophy
of war, regstraton shoud not be accepted, but you shoud have the
appcant furnsh (1) hs name and address, (2) a descrpton of the
frearm, and (3) nformaton as to the pace where the frearm s ord-
nary kept. The appcant shoud then be advsed that ths nforma-
ton w be furnshed to the nearest dstrct supervsor or nvestgator
n charge of the coho Ta Unt, whereupon an nvestgator w ca
upon the prospectve regstrant regardng the matter. The nforma-
ton secured shoud be forwarded to the dstrct supervsor or nvest-
gator n charge at the earest practcabe date.
Instances w arse where a frearm s hed n customs custody awat-
ng the recept, from the addressee, of a propery e ecuted orm 6
( rearms), n order that the certfcate of reease may be nserted
thereon. The addressee may nadvertenty forward the f orm 6 ( re-
arms) to your offce. If t s shown thereon by whch coector of
customs t was furnshed t w be approprate for you to forward
the sad form to such coector. On the other hand, f ths nformaton
s not avaabe, the form shoud be returned to the addressee wth the
suggeston that t be forwarded to the coector of customs from whom
t was receved.
rearms whch have prevousy been regstered on orm 6 ( re-
arms) as trophes of war shoud not agan be regstered on orm 1
( rearms).
Correspondence reatve to ths mmeograph shoud refer to the
number thereof and symbos MT: M.
Wm. T. Sherwood,
ctng Commssoner.
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MISC LL N OUS RULINGS.
S CTION 3466 O T R IS D ST TUT S.
1945-2-11943
a. D. 1624
federa ta es revsed statutes decson of supreme court.
State Proceedng Genera ssgnment fob eneft of Credtors
Pmc-bty of Cam of Unted States Over Landord s Len and .
Muncpa Ta Len.
In a State proceedng under a genera assgnment for beneft of
credtors secton 3406 of the Revsed Statutes (31 U. S. 0., sec. 191)
gves prorty to a cam of the Unted States for unpad edera un-
empoyment compensaton ta es and a debt arsng out of a edera
ousng dmnstraton transacton over a andord s en for s
months rent due and to become due and a muncpa ta en for
unpad persona property ta es. No decson as to whether the
prorty of the Unted States mght be defeated by a specfc and per-
fected en upon the property at the tme of the nsovency or voun-
tary assgnment s necessary snce the asserted Ieus of the andord
and the muncpaty were not suffcenty specfc and perfected on
the date of the vountary assgnment to cast any serous doubt on the
prorty of the cam of the Unted States. State court s charac-
terzaton of a en as specfc and perfected, however concusve
as a matter of State aw, can not operate by tsef to mpar or super-
sede a ong-standng Congressona decaraton of prorty.
The Unted States of merca, pettoner, v. Wadd, oand nn, Inc., et a.
323 U. S., 353.
On wrt of certorar to the Supreme Court of ppeas of rgna.
anuary 2, 1045.
opnon.
Mr. ustce Murphy devered the opnon of the Court
The ssue here s whether, n a State proceedng under a genera assgnment
for beneft of credtors, secton 3466 of the Revsed Statutes (31 U. S. C, secton
191), gves prorty to a cam of the Unted States over a andord s en and a
muncpa ta en.
Mrs. Oeand Roman, the assgnor, operated a restaurant n Danve, n., on
premses eased from respondent Wadd, oand nn, Inc. On une 19,
1941, she e ecuted a genera deed of assgnment to a trustee for the beneft of
credtors, specfcay conveyng a persona property, f tures and equpment
used by her n the conduct of the restaurant and ocated on the premses. Ths
property remaned on the premses unt sod by the trustee on uy 12, 1941.
fter deducton of approprate admnstratve e penses, a sum of 1,407.29
remaned. our credtors camed prorty of payment from ths amount.
(1) The Unted States camed the sum of 1,559.63, pus nterest, representng
certan unpad edera unempoyment compensaton ta es and a debt arsng
oat of a edera ousng dmnstraton transacton.
(2) The rgna Unempoyment Compensaton Commsson made a ta cam
of 66.3 , pus nterest. The commsson s cam, however, was conceded to
be subordnate to that of the Unted States and need not be further consdered
here,
(3) The cty of Danve camed 300.55 as persona property ta es st un-
pad. On uy 2, 1941, the cty coector dstraned on a of the property on
the eased premses.
(459)
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460
(4) The andord, Wadd, oand nn, Inc., camed 1,500 for s
months rent due and to become due. The assgnor s ease from ths frm ran
for fve years begnnng anuary 1, 1937, at a monthy renta of 250. On uy
1, 1941, 12 days after the deed of assgnment was e ecuted, the frm obtaned the
ssuance of a dstress warrant for 3 months past due rent and an attachment
for 2 months future Instaments of rent. On the same day, the frm eved the
warrant and attachment on the assgnor s property ocated on the eased premses.
The trustee under the genera assgnment fed a petton n the Corporaton
Court of Danve, rectng the varous cams and requestng advce as to the
proper dstrbuton. That court hed that the andord was entted to prorty
n payment over the cams of the Unted States and the rgna Unempoyment
Compensaton Commsson but that ts cam was subordnate to that of the
cty of Danve for ta es n the sura of 222.31. On appea by the Unted States,
the Supreme Court of ppeas of rgna affrmed ths order of dstrbuton.
(1 2 a., 351, 2 S. . (2d), 741.) We granted certorar because of the m-
portance of the probems rased and because of asserted confct wth ths Court s
decsons n New York v. acay (2 C. S., 290), and Unted States v. Te as
(314 U. S., 4 0).
Secton 3466 of the Revsed Statutes provdes n pertnent part that the debts
due to the Unted States sha be frst satsfed whenever any person ndebted
to the Unted States s nsovent or, not havng suffcent property to pay a
hs debts, makes a vountary assgnment thereof. We hod that ths statute
ceary subordnates the cams of both the andord and the muncpaty to
that of the Unted States. The |udgment of the court beow must accordngy
be reversed.
The words of secton 3466 are broad and sweepng and, on ther face, admt
of no e cepton to the prorty of cams of the Unted States. (Theusson v.
Smth, 2 Wheat., 396, 425 Unted States v. Te as, supra, 4 4.) ut ths Court
n the past has recognzed that certan e ceptons coud be read nto ths
statute. The queston has not been e pressy decded, however, as to whether
the prorty of the Unted States mght be defeated by a specfc and perfected
en upon the property at the tme of the nsovency or vountary assgnment.
(Conard v. tantc Insurance Co., 1 Pet., 3 6, 441, 444 rent v. ank of Wash-
ngton, 10 Pet., 596, 611, 612 Spokane County v. Unted States, 279 U. S., 0,
95 C. . III-1, 274 (1929) Unted States v. nott, 29 U. S., 544, 551 New
York v. Macay, supra, 293, 294 Unted States v. Te as, supra, 4 5, 4 6.) It s
wthn ths suggested e cepton that the andord and the muncpaty seek to
brng themseves. Once agan, however, we do not reach a decson as to whether
such an e cepton s permssbe /or we do not beeve that the asserted ens of
the andord and the muncpaty were suffcenty specfc and perfected on the
date of the vountary assgnment to cast any serous doubt on the prorty of
the cam of the Unted States.
The andord rests ts cam upon certan provsons of the rgna Code of
1936. Sectons 5519 and 5523 authorze a andord to evy dstress for s months
rent upon any goods of the essee found on the premses, or whch
may have been removed therefrom not more than 30 days for not
more than s months rent f the premses are n a cty or town. Secton 5524
provdes that the goods of the tenant on eased premses n a cty or town may
not be removed by a enor or purchaser, nor taken under ega process, save on
the terms of payng to the person entted to the rent so much as s n arrear,
and securng to hm so much as s to become due, not to e ceed s months rent.
Other sectons provde for offcers makng the dstress under warrant from a
|ustce, founded upon an affdavt of the person camng the .rent, and for such
offcers to make returns of ther actons and proceedngs upon such warrants.
Provsons are aso made for ega proceedngs ookng toward the possesson
and sae of the property to satsfy the debt.
The Supreme Court of ppeas of rgna has here hed that these sectons
gve the andord a en whch s f ed and specfc, and not one whch s merey
nchoate, and that such a en e sts ndependent of the rght of dstress or
attachment, whch are merey remedes for enforcng It. (1 2 a., at 363, 2
S. . (2d), at 746.) It has aso hed that such a en reates back to the begn-
nng of the tenancy (1S2 a., at 364, 2 S. . (2d), at 746), thus gvng t force
and effect on date of the vountary assgnment. These nterpretatons of the
rgna statutes, as propostons of State aw, are bndng. ut t s a matter
of edera aw as to whether a en created by State statute s suffcenty spe-
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461
Mso.
cfc and perfected to rase questons as to the appcabty of the prorty gven the
cams of the Unted States by an ct of Congress. If the prorty of the Unted
States s ever to be dspaced by a oca statutory en, edera courts must be
free to e amne the en s actua ega effect upon the partes. State court s
characterzaton of a en as specfc and perfected, however concusve as a
matter of State aw, can not operate by tsef to mpar or supersede a ong-
standng Congressona decaraton of prorty. ed v. Unted States, 9 Pet.,
1 2, 201 Unted States v. Okahoma, 261 U. S., 253, 260 Spokane County v.
Unted States, supra, 90.)
Tested by ts ega effect under rgna aw, the andord s en n ths nstance
appeared to serve merey as a caveat of a more perfect en to come. (New
York v. Macny, supra, 294.) s of the date of the vountary assgnment, t was
nether specfc nor perfected. It gave the andord ony a genera power over
unspecfed property rather than an actua nterest n a defntve porton or
portons thereof.
Specfcty was ceary ackng as to the en on une 19, 1941, the date of
the assgnment. On that day t was st uncertan whether the andord woud
ever assert and nsst upon ts statutory en. Unt that was done It was m-
possbe to determne the partcuar s months rent, or a proporton thereof,
upon whch the en was based. The en dd not reate to any partcuar s
months rent but coud attach ony for the rent whch mght be due at or after
the tme when the en was asserted. (Wades v. ggatt, 75 a., 575, 5 2.) nd
f t were asserted at a tme when the tenancy had termnated or woud term-
nate wthn s months of the date to whch rent had been fuy pad, the en
coud ony cover ess than s months rent. Concevaby the amount of reut
due or to become due was uncertan on the day of the assgnment. The and-
ord may have been mstaken as to the renta rate or as to payments prevousy
made and the tenant may have been entted to a set-off. (See en v. art,
1 Graft. (59 a , 722, 737 ancock v. Whteha, dc. Co., 100 a., 443, 447.)
Moreover, whe the en egay attached to a such property as mght be on
the premses when the en was asserted or wthn 30 days pror to dstrant,
the andord coud dstran goods ony to the e tent necessary to satsfy the
rent |usty beeved to be due, the tenant possessng an acton for damages for
e cessve dstrant. ( rgna Code, secton 57 3 shburne v. ngedove, 91
a., 54 Gvrfen v. owe, 142 n., 197.) Thus unt the e tent of the en
was made known by the andord and unt some steps had been taken to dstran
or attach suffcent property to satsfy the en, t was mpossbe to specfy the
goods actuay and propery sub|ect to the en. Some of the goods on the
premses may have been sub|ect to mortgages or ens whch attached before the
goods were brought on the premses, n whch case the andord s en woud be
nferor. ( rgna Code, secton 5523.) nd f other goods were removed
after the date of the vountary assgnment but more than 30 days before the
dstrant or attachment, the rght of dstrant and attachment as to those goods
woud dsappear. ( rgna Code, secton 5523 Dme Depost ank v. Wescott,
113 a., 567.) These factors compe the concuson that nether the rent secured
by the en nor the property sub|ect to the en was suffcenty specfc and ascer-
tanabe on the day of the vountary assgnment to fa wthn the terms of the
suggested e cepton.
Nor was the statutory en perfected as a matter of actua fact, regardess of
how compete It may have been as a matter of State aw. The tenant was
dvested of nether tte nor possesson by the sent e stence of the andord s
statutory en on the date of the assgnment. Ony after the en was actuay
asserted and an attachment or a dstrant eved, enabng the andord to satsfy
hs cam out of the sezed goods, coud t be argued that such goods severed them-
seves from the genera and free assets of the tenant from whch the cams of
the Unted States were entted to prorty of payment. Pror to that tme, the
en operated to do no more than prevent the remova of goods from the premses
by certan casses of persons ( rgna Code, secton 5524), and gve the andord
prorty In dstrbuton under State aw provded that the goods remaned on the
premses. Such a potenta, nchoate en coud not dsturb the cear command
of secton 3466 of the Revsed Statutes. Somethng more than a caveat of a
more perfect en to come was necessary-
The en of the cty of Danve stands n no better poston n so far as the
cam of the Unted States s concerned. The muncpaty contends that t as-
sessed ta es on specfc tems of furnture and equpment pursuant to annua
eves made by the cty counc and that a en attached to such property on anu-
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Regs. 12, rt. 0.
462
ary 1, 1941, by operaton of State aw. It cams that ths en attached before
the cam of the Unted States was acqured and hence had prorty.
Under rgna aw, however, a muncpa ta confers a en on persona prop-
erty whch enabes the cty to foow t wherever t may be taken ony f the
assessment s specfcay made on such property. (Drewry v. augh t Sons,
150 a., 394, 400, 401 Chambers v. ggns, 169 a., 345, 351, 352.) The Corpora-
ton Court of Danve recognzed that the cty had not made such an assessment
n ths case snce t hed that assessment of the furnture and equpment as a
unt was suffcent to satsfy ths rue so ong as they remaned on the premses
where the owner s busness was conducted. It reazed that f ths property unt
were separated or removed from the premses dfferent resuts woud foow.
Uness and unt dstrant was eved, whch n ths case occurred 13 days after
the vountary assgnment, t was uncertan whether the furnture and equpment
woud reman ntact as a unt on the premses and hence be sub|ect to the ta
en. If such property had been removed, dstrant coud then have been eved
on other undetermned property of the tenant. t east unt actua dstrant,
therefore, there was no certanty ns to the property sub|ect to the en and no
transfer of tte or possesson reatve to any property. Such a en can not be
sad to be so e pct and perfected on the date of the vountary assgnment as to
faU wthn the camed e cepton to the prorty of the Unted States.
Reversed.
Mr. ustce ackson Is of opnon that the |udgment shoud be affrmed for tbe
reasons stated by the Supreme Court of ppeas of rgna.
S CTION 161 O T R IS D ST TUT S.
Reguatons 12, rtce 0: Contents not to 1945-2-11942
be dscosed wthout permsson T. D. 542
Pubc nspecton of Record 21, Record of Sezure and Sae of
Rea state. rtce 0, Reguatons 12, amended.
Washngton 5, D. C.
rtce 0 of Reguatons 12, revsed October 1, 1920, whch artce
was amended by Treasury Decson 4640, approved pr 29, 1936
C. . -1, 495 (1936) , s further amended as foows:
( ) y changng the perod at the end of the frst paragraph
thereof to a coon and nsertng thereafter the foowng:
Provded, That Record 21, Record of sezure and sae of rea estate, man-
taned In offces of coectors of nterna revenue, sha be open for pubc
nspecton n such offces, and a certfed or uncertfed copy of any such record
coverng partcuar property w be furnshed by the coector upon appcaton
to hm and payment of a fee of 1.
( ) y strkng from the second paragraph the openng words
Interna-revenue offcers are hereby prohbted and nsertng n
eu thereof the words cept as otherwse provded n the precedng
paragraph nterna-revenue offcers are hereby prohbted.
secton 161 of the Revsed Statutes of the Unted States 5 U. S. C, 22.)
oseph D. Nunan, r.,
pproved anuary 11,1945.
( ed wth the Dvson of the edera Regster anuary 12, 1945, 3.39 p. m.)
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463
Regs. 96, rt. 601.
TITL II. R UNDS O MOUNTS COLL CT D UND R
T GRICULTUR L D USTM NT CT. (1936)
Reguatons 96, rtce 601: Cam form pre- 1945-11-12057
scrbed. Ct. D. 1640
PROC SSING T R NU CT O 1930 D CISION O SUPR M COURT.
1. Cams fob Refund PROC nua L. Requrements vdence
Insuffcent to stabsh Waver of Requrements as to
orm.
Pettoner and Nagnra company had the same offcers, empoyees,
and ma|orty stockhoder, a ont bank account, and a common set of
books, athongh the respectve transactons of the two companes
were entered n separate accounts on the books. fter nvadaton
of the processng ta , three cams for refund were fed, but not on
the requred forms, statng the name of the camant as Nagara
and/or pettoner. Whe these cams were st undetermned,
Nagara fed a cam In due form on ts own behaf aone. There-
after, pettoner for Itsef aone fed on the requred form a cam,
desgnated mendment to Cam, whch faed to gve the Infor-
maton requred by the form and the reguatons, contanng merey
an apportonment between the two companes of the three earer
cams, whch cam was dened. In connecton wth the cam
fed by Nagara the Commssoner s representatve wrote a etter
to pettoner requestng an e amnaton of certan books. The
pettoner contends that the Commssoner through hs agents
waved the forma requrements of hs reguatons by Investgatng
the merts of the pettoner s cam, the evdence of waver restng
argey upon the above etter. ed: The evdence s nsuffcent to
estabsh that the Commssoner waved the requrements of hs
reguatons by e amnng the facts of pettoner s cam n order to
determne the merts. Whe such requrements may be waved, the
showng shoud be unmstakabe that the Commssoner has n fact
seen ft to dspense wth hs forma requrements and to e amne the
merts of the cam. In vew of the confusng dentty of nterest
of the two companes t Is not unreasonabe to attrbute to Nagara s
cam, and not to pettoner s, the request of the Commssoner s
representatve for an e amnaton of the books. The protecton of
the revenue authorzes the Commssoner to demand nformaton In
a partcuar form, and he s entted to nsst that the form be ob-
served so as to advse hm e pedtousy and accuratey of the true
nature of the cam.
2. Decson ffrmed.
Decson of the Crcut Court of ppeas, Second Crcut (144
ed. (2d), 469), affrmng The Ta Court s dsmssa of the proceed-
ng (1 T. C, 1031), affrmed.
Suprkme Court of the Unted States.
ngeus Mng Co., pettoner, v. Commssoner of Interna Revenue.
325 U. S., 293.
May 21, 1945.
opnon.
Ths s a sut under Tte II of the Revenue ct of 1936 (49 Stat., 164 , 1747,
7 U- S. C, secton 044 et seq.), for a refund of processng ta es pad under the
grcutura d|ustment ct of 1933. The probem of the case derves from the
procedura requrements of a cam for such a refund.
The pettoner, ngeus Mng Co., known unt une, 1933, as the MIddeport
oor Ms, Inc., was a processor of wheat, wth ts prncpa offce n Nagara
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Regs. 96, rt. 601.
464
as, N. Y. Durng the years for whch the refund s camed 1933 to 1936
ts processng operatons were cosey connected wth those of the Nagara
as Mng Co. The two companes had the same offcers, empoyees, and
ma|orty stockhoder, and a |ont bank account. They aso had a common set
of books, but the respectve transactons of the two companes purchases, costs
of manufacture, saes were entered n ther separate accounts on the books.
etween uy 9, 1933, and anuary 31, 1935, the companes fed |ont processng
ta returns. etween ebruary 1, 1935, and November 30, 1935, Nagara fed
returns n ts name on behaf of tsef and pettoner.
fter Unted States v. uter (297 U. S., 1 Ct. D. 1070, C. . -1, 421 (1936) )
nvadated the processng ta , three cams were fed wth the Commssoner on
une 22, 1936, a statng the name of the ta payer and camant as Nagara
as Mng Co., Inc., and/or Mddeport our Ms, Inc. ach of these cams
s for ony part of the perod durng whch the. ta was pad, and ther tota s
434,045.27.. dmttedy the form of these cams dd not satsfy the requrements
of the statute1 or the authorzed Treasury reguatons.1 They were fed on an
od orm 43 and not on the requred orm P. T. 79. Whe these cams were st
undetermned, Nagara, on une 30, 1937, fed a cam n the sum of 436,231.73.
Ths cam was n due form but was fed by Nagara on ts own behaf aone.
Thereafter, On ugust 15, 193 , pettoner fed a catm, desgnated mendment
to Cam, for tsef aone for the refund of 145, 39.12. Whe ths cam was
submtted on orm P. T. 79, t faed to gve the nformaton requred by the
form and the reguatons, contanng merey an apportonment between ngeus
and Nagara of the three earer cams. n attached affdavt stated that ths
cam was orgnay fed on the 22d day of une, 1936, n the name of the
Nagara as Mng Co. and/or Mddeport our Ms, Inc. The Comms-
soner, on May 23,1941, dened ths cam.
To revew ths dsaowance, pettoner brought proceedngs In the Unted States
Processng Ta oard of Revew. moton to dsmss, because of a fata defect
n the cam, was dened by the oard, but the Commssoner n hs answer stood
on hs ground that the oard was wthout ursdcton to entertan the proceed-
ngs. t ths stage n the tgaton Congress aboshed the Processng Ta oard
of Revew and transferred ts |ursdcton to the present Ta Court. That court
granted the Commssoner s renewed moton to dsmss (1 T. C, 1031), and the
Crcut Court of ppeas for the Second Crcut affrmed. (144 ed. (2d), 469.)
We brought the case here ( U. S., ), because confct was urged wth the
decson n Unted States v. Memphs Cotton O Co. (2 U. S., 62 Ct. D. 626,
C. . II-1, 307 (1933) ).
Pettoner s cam for recoverng processng ta es pad by It was propery re-
|ected by the Commssoner If t dd not satsfy the condtons whch Congress
drecty and through the rue-makng power gven to the Treasury ad down as
a prerequste for such refund. In so far as Congress has made e pct statutory
requrements they must be observed and are beyond the dspensng power of
Treasury offcas. (Tucker v. e ander, 275 U. S., 22 , 231-232 T. D. 3973,
C. . I-1, 2 7 (1927) Unted States v. Memphs Cotton O Co., 2 U. S.. 62,
71: Unted States v. arbutt O Co., 302 U. S., 52 , 533 Ct. D. 1301, C. . 193 -1.
370 .) Wthout needess eaboraton, we concude that there Is nothng In what
Congress has e pcty commanded to bar the cam. The effectve admnstra-
ton of these modern compcated revenue measures Inescapaby eads Congress
to authorze detaed admnstratve reguatons by the Commssoner of Interna
Revenue. e may nsst upon fu compance wth hs reguatons. (See Unted
States v. Memphs Cotton O Co., supra at 71 Commssoner v. Lane-Wes Co.,
321 U. S., 219, 223-224 Ct. D. 1602, C. . 1944, 539 .) It s hardy con-
tended that the confusng seres of pettoner s cams whch we have summarzed,
whether sngy or n con|uncton, obeyed the reguatons. or such defaut the
1 Secton 903 of Tte II of the 1936 Revenue pt (49 Stat., 1 4 . 1747) requres that
no refund be made or aowed uness a cam for refund has been fed
n accordance wth reguatons prescrbed by the Commssoner wth the approva of the
Secretary. evdence reed upon n support of such cam sha be ceary set forth
under oath.
a The appcabe reguatons provde for the makng of cams on prescrbed forms,
presentaton of the grounds urged, and submsson of evdence, etc. (Treasury Reguatons
90. artces 201. 202. 601, 603, 605, 606.) The ony Informaton furnshed n these cams
Is the name and address of the |ont camants, and a statement of the dates and amounts
of the ta payments made by the Nagara Mng Co.
1 fter we granted certorar In ths case, the same queston of tmeness as to f C
of the petton emerged as Is rased n Commssfoncr v. state of edford, No. 710, decde
ths day Ct. D. 1641, page 351, ths uetn . The decson n the edford case governs
ths.
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465
Regs. 96, rt. 601.
Commssoner coud have re|ected the cams out of hand. e dd not do that, and
by what he dd do he has gven rse to the contenton that he waved the requre-
ment of hs reguatons. The bass of ths cam of waver s that the Comms-
soner through hs agents dspensed wth the forma requrements of a cam by
nvestgatng ts merts.
Candor does not permt one to say that the power of the Commssoner to wave
defects n cams for refund s a sub|ect made crysta-cear by the authortes.
The queston has been somewhat compcated by cases nvovng amendments of
cam. Thus, n Unted States v. Memphs Cotton O Co., supra, a camant s
amendment was aowed because fed before hs orgna cam was re|ected on
forma grounds. ccordng to what was there sad there can be no amendment
after a re|ecton though the Commssoner had e amned the camant s books
and tentatvey found an overpayment. (See dwards v. Maey, 109 ed. (2d),
G40 10 Mertens, Law of edera Income Ta aton (1942), secton 5 .1 ).) It
smacks too much of the strangng ncetes of common aw peadng to fnd no
e stng cam to whch a curatve amendment may be attached, athough there
has been an e amnaton of the merts, smpy because of the pror re|ecton of
a formay defectve cam and yet fnd waver of a forma defect merey because
an e amnaton of the merts by the Commssoner manfests consderaton of
the cam.
Treasury reguatons are cacuated to avod datory, careess, and wastefu
fsca admnstraton by barrng ncompete or confusng cams. (Tucker v.
e ander, supra at 231 Commssoner v. Lane-Wes Co., supra at 223-224.)
ut Congress has gven the Treasury ths rue-makng power for sef-protecton
and not for sef-mprsonment. If the Commtesoner chooses not to stand on hs
own forma or detaed requrements, t woud be makng an empty abstracton,
and not a practca safeguard, of a reguaton to aow the Commssoner to nvoke
technca ob|ectons after he has nvestgated the merts of a cam and taken
acton upon t ven ta admnstraton does not as a matter of prncpe precude
consderatons of farness.
Snce, however, the tght net whch the Treasury reguatons fashon s for the
protecton of the revenue, courts shoud not unduy hep dsobedent refund cam-
ants to sp through t. The showng shoud be unmstakabe that the Comms-
soner has n fact seen ft to dspense wth hs forma requrements and to e amne
the merts of the cam. It s not enough that n some roundabout way the facts
supportng the cam may have reached hm. The Commssoner s attenton
shoud have been focused on the merts of the partcuar dspute. The evdence
shoud be cear that the Commssoner understood the specfc cam that was
made even though there was a departure from form n ts submsson. We do
not thnk that the pettoner has made out such a case here.
The evdence of waver argey rests upon a etter from a genera deputy
coector requestng an e amnaton of certan books, and upon affdavts of two
accountants, one an offcer of the company, to the effect that the Commssoner
e amned pettoner s books n order to consder the cam. We agree wth The
Ta Court that the evdence s nsuffcent to estabsh waver. The etter from
the genera deputy coector requestng pettoner s presdent to aow e amna-
ton of the records of the Mddeport our Ms, Inc., and ngeus our Ms,
Inc. was n connecton wth the cam whch had been fed by the Nagara Mng
Co. In vew of the confusng dentty of nterest of the two compnnes, t s not
unreasonabe to attrbute ths nqury, as dd The Ta Court, to Nngara s cam
and not to pettoner s. or smar reasons, the affdavts regardng the purpose
of the Commssoner s representatves bear nterpretaton of a ke sgnfcance.
In the Memphs Cotton O case, where an amendment was aowed out of tme,
the Deputy Commssoner, after an audt of the ta payer s books, notfed the
ta payer n wrtng that ts refund cams had been consdered and that ts ta es
had been read|usted n accordance wth a proven overnssessment. Smar ev-
dence of preoccupaton by the Commssoner wth the partcuar cam and contro-
versy has been offered n cases where waver was recognzed. (See, e. g.. Unted
States y. gn Nat. Watch Co., 06 ed. (2d), 344 Unted States v. umbe O
Refnng Co., 69 ed. (2d), 214 Wehman v. Unted States, 4 ed. Supp., 155.)
To be sure, t s not essenta for the estabshment of a waver that the Comms-
soner communcate hs rung on the merts to the ta payer. ut n the absence
of such e pctness the mpcaton that forma requrements were dspensed wth
shoud not be tenuousy argumentatve. No more than that can he squeezed out
of the materas n ths record. Thus t s camed that the Commssoner offered
a refund, sub|ect to offsets, to the Nagara as Mng Co. ut ths rather
confrms the ndcaton the Commssoner was bent on Nagara s cam. The
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Regs. 96, rt. 605.
46G
Commssoner may have acqured knowedge of pettoner s affars but ony by
the way, ncdentay to hs nvestgaton of Nagara s cams. Pettoner has
faed to sustan hs burden of showng that the Commssoner, by e amnng the
facts of pettoner s cam n order to determne the merts, dspensed wth the
e actons of the reguatons.
n addtona argument of the pettoner need not detan us ong. It urges
that takng the cams fed by Nagara and pettoner together, they furnsh a
the data requred by the reguatons. ut t s not enough that somewhere under
the Commssoner s roof s the nformaton whch mght enabe hm to pass on a
cam for refund. The protecton of the revenue authorzes the Commssoner to
demand nformaton n a partcuar form, and he s entted to nsst that the
form be observed so as to advse hm e pedtousy and accuratey of the true
nature of the cam.
ffrmed.
Mr. ustce Dougas dssents.
S CTION 907. ID NC ND PR SUMPTIONS.
Reguatons 96, rtce 605: vdence as to 1945-5-119 3
margns. Ct. D. 1632
processng ta agrcutura ad|ustment act of 1933 revenue act
op 1936 decson of supreme court.
1. Sut Recovery of Suoab Processng Ta es Statutory Prma
acte vdence and Presumpton.
In a sut for recovery of sugar processng ta es pad under the
grcutura d|ustment ct of 1933, as amended, the presumpton
under secton 907 of the Revenue ct of 1936, to the effect that the
ta payer bore the burden of the ta to the e tent that Its average
margn for the ta perod was ower than for the base perod, s
fuy rebutted when the Commssoner presents evdence tendng to
show that n certan nstances the camant s seng prces ncuded
the ta . owever, wth the presumpton thus removed from the
case, the margns reman as evdence and mght afford a ratona
bass for refund. The case must therefore be remanded to The Ta
Court for a weghng of the evdence apart from any queston as to a
presumpton. The statutory method of makng a prma face case
s e cusve, and margn evdence wth respect to the ta payer s
e perence n 1936, after the termnaton of the base perod, can not
be used n connecton therewth. owever, such evdence s adms-
sbe for whatever probatve vaue t mght Independenty have.
2. udgment Modfed and Cause Remanded.
udgment of the Unted States Crcut Court of ppeas, fth
Crcut (140 ed. (2d), 76 ), modfed and cause remanded to the
Crcut Court of ppeas wth drectons to remand to The Ta Court.
Webre Steb Co., Ltd., pettoner, v. Commssoner of Interna Revenue.
324 U. S., 164.
On wrt of certorar to the Unted States Crcut Court of ppeas for the fth Crcut
ebruary 12, 1945.
opnon.
Mr. ustce ackson devered the opnon of the Court.
Ths s a proceedng brought for recovery of sugar processng ta es pad under
the grcutura d|ustment ct of 1933. The Commssoner havng dened to
entrety the ta payer s cam for ,169.97, the tota ta pad by t, ta payer
pettoned for revew by the Processng Ta oard of Revew, as provded by
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467
Regs. 96, rt. 605.
statute 49 Stat, 1749). The oard awarded refund n the amount of 3,665. 2,
and motons for rehearng made by both partes were dened by The Ta Court,
whch had succeeded to the |ursdcton of the Processng Ta oard of Revew.
(56 Stat., 79 .) On appea, the Court of ppeas for the fth Crcut reversed
and hed that the cam shoud be dened. (140 ed. (2d), 76 .) We took the
case to revew questons of appcaton of the prma face evdence and pre-
sumpton sectons of Tte II, Revenue ct of 1936, on whch there was confct
n the crcuts. (Commssoner v. an Peanut Co., 134 ed. (2d), 53, certorar
granted, 320 U. S., 721, dsmssed on moton of pettoner, 321 U. S., 00 Ieverng
v. Insuar Sugar Refnng Corporaton, 141 ed. (2d), 713 cf. . Rcgensburg
Sons v. everng, 130 ed. (2d), 507.)
new admnstratve procedure for recovery of ta es pad under the grcu-
tura d|ustment ct was provded by Tte II of the Revenue ct of 1936
(sectons 901-917, 49 Stat. 1747, 7 U. S. C, sectons 644-659), repeang sectons
21 (d), (e), and (g) of the 1935 amendments to the grcutura d|ustment
ct (49 Stat, 771-773). The provsons were revewed at ength and ther con-
sttutonaty uphed n nnston Mfg. Co. v. Davs (301 U. S., 337 Ct. D. 1234,
C. . 1937-1,4 5 ). In outne, so far as reevant to ths case, they are as foows:
The camant s requred to prove that he bore the burden of the ta . Secton 902.
verage margns per unt of the commodty processed, consstng of the df-
ference between cost of the commodty (pus ta pad, f any) and gross saes
vaue of the artces resutng from the processng, are to be computed for the
ta perod and a base perod the base perod s the perod two years precedng
mposton of the ta and the s months thereafter ( ebruary to uy, 1936).
(Sectons 907 (b), (c).) If the margns for the ta perod are ower than those
for the base perod, t s prma face evdence that, to that e tent, the
camant bore the burden of the ta f they are not ower, t s prma face
evdence that none of the burden was borne by the camant. (Secton 907(a).)
nt ths presumpton may be rebutted ether by the camant or by the Com-
mssoner, by proof of the actua e tent to whch the camant shfted the ta
to others. Such proof may ncude, but s not mted to, certan types of evdence
descrbed by the statute. (Secton 907(e).)
or our purposes the matera facts must be geaned from the fndngs and
memorandum of the oard of Revew and a stpuaton fed by the partes n the
court of appeas.
Pettoner s a grower and purchaser of sugarcane, whch t processes nto
drect-consumpton sugar and edbe moasses.1 It operates durng the months
of October, November, and December of each year. The ta went nto effect
on une , 1934, and pettoner pad ta es unt November , 1935, so that t
pad processng ta es 7,067.12 on sugar and 1,102. 5 on moasses for the
months of October, November and December 1934 and October and November
1935. Its average statutory margn for ths perod was .01192, and the tota
number of unts processed was 2,256,676 pounds of sugar. Pettoner s base
perod conssted ony of the two years pror to the ta because t dd no
processng n the s months ebrunry to uy 1936. Its average statutory
margn per unt for the base perod was .01354. Thus the mnrgn durng
the ta perod was .00162 per unt ower than that durng the base perod, cre-
atng prma face evdence that pettoner had borne the ta to the e tent
of 3.6. 5. 2, the amount of refund aowed by the oard. Pettoner contends
that ths amount shoud have been ncreased by ncudng n the margns ts
frst processng after Invadaton of the grcutura d|ustment ct, whch
was ts processng of the 1936 crop, October 1936 to anuary 1937. The aver-
age margn per unt for ths perod, computed as for the base perod, was
01 , 2, or .0022S more than the base-perod margn.
vdence that the ta was not borne by pettoner was as foows: Unversa
ncreases n the sae prce of sugar were effected on the date of mposton of
the processng ta n the amount of .55 per hundred pounds, to cover the
amount of the ta . of the accounts stated between pettoner and Its broker,
. . Ranod, Inc., respectng saes of moasses made through that broker,
ncuded the processng ta as a separate tem and as an addton to the sae
prce of the artce. n account sae, typca of a such accounts, respectng
the sae of sugar, made through ts sad broker bore the notaton, Goden
Rdge, 100 Pkts. 10,000# 3.71tf 371.00. . O. . Ptn. Ta Pd. Ta
Ths procewnt was sub|ected to ta by the ct of May 9, 1934 (ch. 263, 4 Stat.,
60), amendng the grcutura d|ustment ct. See especay secton 9(d)(6) ( )
ma ( ) of the ct as amended (7 U. S. C, secton 609(d) (6) ( ), ( )).
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Regs. 96, rt. 605. 46
0.526tf, .526 beng the prevang rate of processng ta at the tme the partcuar
account was rendered. etter from the broker Ranod to pettoner, dated
anuary 17, 1936, contaned the foowng: ccordng to memorandum you
furnshed us on processng ta you pad on 29 ,017 pounds of sugar, and we
have accounted to you for there three cars of 00 pockets and part car of
300 pockets and when we get pad for baance of ths part car, or 500 pockets,
t w tota 3,200 pockets or 320,000# on whch the processng ta was ncuded
n the prce. Therefore you have not pad any more ta than you coected
and these sugars n warehouse here and esewhere, that s Chcago, or are
reay ta free.
On the foregong facts the oard of Revew found that The e tent to whch
the processng ta was pad and borne by the pettoner and not shfted to
others n any manner whatsoever s 3,655. 2, and t awarded refund In that
amount. Ths award was based, the crcut court of appeas thought, upon
the theory that the camant had estabshed facts suffcent to Invoke the
statutory presumpton that It had borne the burden of the ta to that e tent,
the vew of the court of appeas, however, the evdence ceary was suff-
cent to dssove the presumpton, and snce there was no other proof to support
any refund, the cam shoud have been dsaowed n ts entrety.
Our frst queston s whether the oard was entted to base an award upon
the statutory prma face evdence or presumpton, or whether the Gov-
ernment s evdence removed the presumpton from the case as a matter of aw.
or, athough the oard dd not state how t arrved at ts award, t seems
key that t reed upon the prma face evdence provsons and not upon a
weghng of the evdence pettoner does not assgn error to the contrary, a-
though t contends that the evdence supports the oard s award.
The statute, unfortunatey, s beset by the ambguty and the mprecson of
defnton whch are not uncommon wth respect to presumptons. ut the df-
fcutes of the sub|ect w not e cuse us from the duty to appy as best we
may a statute Congress has seen ft to enact. t one pont ts speaks ony of
prma face evdence and at another It refers to the pror secton as creat-
ng a presumpton. Prma face evdence aone mght be taken to sgnfy
ony a permssve nference, ndcatng that the Commssoner or the courts
mght, f they saw ft, permt a recovery soey on the bass of the margn
evdence. (See Crane v. Morrs, 6 Pet., 59 , 621 aey v. abama, 219 U. S..
219, 234 9 Wgmore on vdence (3d ed. 1940), secton 2494.) ut the statute s
ater use of the word presumpton and the carefu deta wth whch the
margn evdence and rebutta evdence are descrbed argue aganst such an
nterpretaton, as does the egsatve background. commttee report on Tte
II, e panng the necessty for amendng the e stng refund provsons,
stated: It has been contended that whe that secton secton 21(d) of
the grcutura d|ustment ct states the condtons under whch the Com-
mssoner may deny a refund of ta es pad, t does not estabsh affrmatvey
any condtons, compance wth whch w enabe the camant to secure a
refund. (S. ept. 2156, Seventy-fourth Congress, second sesson, page 33 C. .
1939-1 (Part 2), 67 .) rom ths t seems cear that the new provson was
meant to prescrbe a mnmum of proof whch woud requre refund n the absence
of opposng evdence. Therefore the nference arsng from the margn evdence
must be a compeed one.
The statute does not te, however, on what event the e stence of the pre-
sumed fact must cease to be assumed by the trer. Does the presumpton cease to
operate as soon as the Commssoner has met the burden of gong forward wth
evdence to show shftng of the ta , or does t pace on hm the burden of proof
The Government and the court beow, takng the former vew, support t wth the
contenton that It s never the functon of a rebuttabe presumpton to shft
the burden of proof. (Commssoner v. an Peanut Co., 134 ed. (2d), 53, 57.)
It s unnecessary for us to take so broad a ground, even f t s correct. Deang
ony wth the partcuar presumpton now before us, we fnd nothng to ndcate
that Congress attached e ceptona probatve vaue to the margn evdence, or
that t desred for any other reason to tt the scaes sharpy aganst the Com-
2 ut see, e. g.. Morrson v. Caforna (291 . S., 2, -91) Page v. Pheps (10
Conn.. 572) : Wrber v. Chcago. R. I. rf Pac. R. Co. (175 Iown, 35 ) ond v. St. Lous-
San rancsco y. Co. (315 Mo., 9 7) ozhemer v. Lt rothers (2f2 Pa., 150)I
Morgan, Instructng the ury upon Presumptons and urden of Proof (1933) (47 arv. L.
Rev., 59, 77- 3) : Some Observatons Concernng Presumptons (1931) (44 arv. L. er..
906) ohen, Studes n the Law of Torts (1926) (636. 637, 64 -653) mercan Law
Insttute, Mode Code of vdence, rue 703.
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469
Regs. 96, rt. 605.
mssoner rather than merey to even them somewhat n behaf of camants.
There s, for e ampe, no reason to suppose that the Commssoner s better abe
than the processor to prove where the ta burden fe. On the other hand, the
speca probem here of preventng un|ust enrchment, added to the usua strct
e amnaton of cams aganst the Government, convnces that Congress prob-
aby ntended to eave the burden of proof on the camant. (Cf. Unted States v.
efferson ectrc Mfg. Co., 291 U. S., 3 6 Ct. D. 03, C. . III-1, 393 (1934) .)
In the absence of any cearer statement n the statute, therefore, we thnk
the presumpton s gven adequate effect f the burden s paced on the Comms-
soner of gong forward wth evdence suffcent to support a fndng that the
camant dd not absorb the ta . Once such evdence s presented, the presump-
ton becomes noperatve and the ssue s to be determned as f there had never
been a presumpton. The statute decares, however, that the presumpton may
be rebutted by proof of the actua e tent to whch the burden of the ta was
shfted. Ths angunge appears to mean that the presumpton may be rebutted
pro tanto, and not necessary a at once or not at a. Thus t does not cease
to operate on ntroducton of evdence merey suffcent to support a fndng
that some of the ta was shfted. It must be evdence suffcent to support a
fndng that the entre ta was shfted. Short of that, the presumpton s not
emnated but ony dmnshed to the e tent that the rebutta evdence w
support a contradctory fndng. (See . Regensburg Sons v. everng, 130
ed. (2d), 607, 509.) When the margns are unfavorabe to the ta payer and
favorabe to the Commssoner, t s unnecessary, of course, to pace a burden of
gong forward wth evdence on the camant, for he has that burden anyway,
as we as the burden of proof. Whether ths means that the statute s anguage
makng the presumpton operate n favor-of the Commssoner s superfuous, or
that n such a case the presumpton must be gven a dfferent effect than when
n favor of the camant, we do not now decde. (Cf. . Regensburg Sons v.
everng, supra.)
On the vew we take of the statute, the proof ntroduced by the Comms-
soner made the presumpton noperatve. We certany coud not say that,
vewed by tsef, the Commssoner s evdence woud not permt a fndng that
pettoner shfted the entre burden of the ta . It tended to show that n a
deangs wth ts broker the pettoner added the amount of the ta to the sae
prce and temzed t separatey. That ths was true as to a snes of moasses
seems to be conceded. It was aso true, or so t mght be found, as to a sub-
stanta part of the sugar saes and therefore nferentay as to a such saes.
Pettoner rases some queston as to the proper Inference to be drawn from
the sugar account and the broker s etter quoted above. ut at east the broker s
remarks that the processng ta was ncuded n the prce and Therefore
you have not pad any more ta than you coected are unmstakabe n ther
meanng. of ths evdence s among the knds e pressy mentoned by the
statute as tendng to rebut the presumpton. More Important, the statute appears
specfcay to provde that Introducton of any evdence of hs partcuar knd sha
be suffcent to rebut the entre presumpton. It states that the presumpton may
be rebutted by proof that the camant modfed saes contracts to refect the nta-
ton, termnaton, or change n amount of the ta , or at any such tme
changed the sae prce of the artce, or at any tme bed the ta as a separate
tem, or ndcated by any wrtng that the sae prce ncuded tte amount
of the ta . It then decares, but the camant may estabsh that such
acts do not represent hs practce at other tmes. (Secton 907(e) (2).)
Ths seems ceary to mean that when any e ampes of the named practces are
proved, t may be nferred that they represent the unform practce of the
camant and the burden becomes hs to prove that they do not. Snce the
Commssoner proved that not ony n a few cases but n a great number the
ta was ndcated n wrtng to be ncuded n the sae prce, we thnk there s
no doubt that he fuy rebutted the presumpton wthn the meanng of the
statute.
The second queston Is whether, wth the presumpton out of the case, there
s evdence from whch The Ta Court woud be entted to award a refund to
pettoner n any amount The court beow, athough t remanded the cause,
apparenty meant for It to be dsmssed, for t sad, snce there was no other
proof to support any refund, the cam shoud have been dsaowed n ts en-
trety. Lteray, of course, ths can not be true, for the mnrgn evdence re-
maned n the case for whatever t mght be worth apart from the presumpton.
Wth ths the Government agrees, and t concedes that, uness we can say that
the evdence woud not ratonay support a fndng n favor of pettoner, the
case must go back to The Ta Court for decson on the evdence rather than
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Regs. 96, rt. 605.
470
on the presumpton. We must determne whether there s evdence whch
s egay suffcent for admnstratve acton, but we may not wegh It. (Dobson
v. Commssoner, 320 U. S., 4 9 Ct. D. 1597, C. . 1944, 56 .)
The fact that margns for the ta perod are ower than those for the base
perod has some ogca tendency to estabsh that the burden of the ta was
borne by the processor. (See nnston Mfg. Co. v. Davs, 301 U. S., 337, 354.)
There are, to be sure, other and confctng Inferences whch may aso be drawn.
s the margns are defned, the drop mght be due to a decne n the demand
for the processed goods, or to a decrease In the yed of the raw commodty,
or to an ncrease n the prce of the raw commodty. ut we have no bass
for sayng that the margn thus defned does not tend to be comparatvey stabe
and that a fa concdent wth mposton of a ta woud not more key refect
the ta than a change n other factors. We suppose the takng of average margns
over a base perod has some tendency to produce that resut nd The Ta
Court s speca e perence mght support such an nference. (Cf Dobson v.
Commssoner, supra.) Congress apparenty beeved that the ratona connec-
ton was strong enough to ustfy basng a fndng of absorpton on the margn
evdence aone. or, as we have seen, Congress ntended that In a case where
the margns were favorabe to the camant and no other evdence was Intro-
duced the camant shoud be entted to a refund, and there appears no reason
of convenence or pocy whch woud ead to such a rue n the absence of
ratona connecton. or a these reasons we thnk a fndng of absorpton
whch was based soey on the margn comparsons woud not be rratona.
Nor Is the Commssoner s evdence so concusve as to deprve the margn ev-
dence of a sgnfcance. It permts but does not requre a fndng that pettoner
had a unform practce of bng the ta as a separate Item. ven though such
a practce be nferred, there Is no evdence to show how far pettoner succeeded
n ts effort to pass the ta on, e cept for the evdence that there was a genera
rse n the market on a date some months before pettoner s processng began.
The margns are some evdence that the prce may not have responded con-
tnuousy to the effort to shft the ta . The fact may be that nether sde s
evdence goes very far toward demonstratng where the burden of the ta fe
the nqury s at best a dffcut one. ut we do not thnk t can be sad that
the record s devod of ratona support for a fndng that pettoner absorbed
some of the ta . ccordngy we must remand the case for a weghng of the
evdence, ncudng, of course, such further evdence as that court may thnk t
proper to receve n vew of the way n whch the case has been tred. In
dong so we ntmate no opnon, of course, as to whether pettoner has sustaned
the burden of proof paced upon t by the statute.
Snce the case must go back, It Is necessary to pass upon a further queston
rased by pettoner. Pettoner, as we have noted, was not processng durng
the s months, ebruary to uy 1936, desgnated by the statute for computng
margns after the ta perod. or such a case the statute provdes: If durng
any part of such perod the camant was not n busness the average
prces pad or receved by representatve concerns engaged n a smar busness
and smary crcumstanced may wth the approva of the Commssoner, where
necessary for a far comparson, be substtuted n makng the necessary com-
putaton. (Secton 907(c).) Contendng that there were no smary crcum-
stanced concerns, pettoner sought to use the fgures of a ater perod, that of
Its own 1936 producton, In computng the base-perod margns, whch woud
have made those margns hgher. We thnk the oard and the court beow
were correct n hodng that the statutory method of makng a prma face case
Is e cusve and that the 1936 evdence mght not be so used. The statute s
restrctons, however, have reference ony to the presumpton they do not
e cude other evdence generay reevant on the ssue of whether the ta burden
was shfted. The 1936 e perence, though It coud not hep pettoner to create
a favorabe presumpton, was entted to be gven whatever probatve vaue t
mght ndependenty have had and, sub|ect to the usua prncpes of admssbty,
was therefore admssbe. (. nnston Mfg. Co. v. Davs, 301 U. S., 337, 355-356.)
The |udgment beow Is modfed and the cause s remanded to the Crcut
Court of ppeas wth drectons to remand to The Ta Court for proceedngs
n conformty wth ths opnon.
Dssentng opnon by Mr. ustce Rutedge, n whch Mr. ustce uck
concurs.
See ohnson, Refunds: Study In Ta Incdence (1037) ( 7 CoL L. Rev., 910).
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Msc.
S L RY ST ILIZ TION.
1945-3-11962
T. D.5435
tte 2 abor. chapter v, part 1002. stabzaton of saares.
Washngton 25, D. 0.
Treasury Decson 5295 Part 1002, Tte 29, Code of edera Regu-
atons C. . 1943, 1193 , reatng to the stabzaton of saares
under the ct of October 2,1942, s amended as foows:
Paragraph 1. Subparagraph (a) of secton 1002.2 s amended to
read as foows:
(a) Secton 5(a) of the ct provdes n effect that the Presdent sha prescrbe
the e tent to whch any saary payment made n contraventon of reguatons
promugated under the ct sha be dsregarded by e ecutve departments and
other governmenta agences n determnng the costs or e penses of any em-
poyer for the purpose of any other aw or reguaton. Paragraph (a) of secton
4001.15 of the Genera Reguatons, as amended, provdes n effect that f any
saary payment Is determned by the Commssoner to have been made by an
empoyer n contraventon of the ct or the reguatons, rungs, or orders pro-
mugated thereunder, the entre amount of such payment sha be certfed to and
dsregarded by the e ecutve departments and a other agences of the Govern-
ment (e cept as provded n paragraph (6) and paragraph (c) of such secton)
for the purposes of:
(1) Determnng costs or e penses of any empoyer for the purpose of
any aw or reguaton, ether heretofore or hereafter enacted or promugated,
ncudng the mergency Prce Contro ct of 1942, or any ma mum prce
reguaton thereof.
(2) Cacuatng deductons under the revenue aws of the Unted States.
(3) Determnng costs or e penses under any contract made by or on
behaf of the Unted States.
Paragraph (6) of secton 4001.15 of the Genera Reguatons, as amended, pro-
vdes n effect that the Commssoner s authorzed, n nny case n whch t has
been found that an empoyer has made wage or snary payments n contraventon
of the ct, to determne, n the ght of such e tenuatng crcumstances as are
found to be present n each case and a other pertnent consderatons: (1) n
amount, ess than the fu amount prescrbed n (a) above, whch sha be dsre-
garded by the e ecutve departments and other agences of the Government, and
(2) the partcuar departments or other agences of the Government by whch
the amount sha be dsregarded, and to certfy such amounts to such agences.
Paragraph (c) of secton 4001.15 of the Genera Reguatons, as amended, pro-
vdes n effect that any such determnaton by the Commssoner sha bo con-
eusve and the e ecutve departments and the other agences of the Government
whch receve such certfcatons sha dsregard the amount thus certfed n
determnng the empoyer s costs or e penses for the purpose of any aw or regu-
aton ncudng the mergency Prce Contro ct of 1942 or any ma mum prce
reguaton thereunder or for the purpose of cacuatng deductons under the
revenue aws of the Unted States or for the purpose of determnng costs or
e penses of any contract made by or on behaf of the Unted States.
Par. 2. Subparagraph (6) of secton 1002.2 s amended to read as
foows:
(6) In the case of saares decreased n contraventon of the ct, the amount
to be dsregarded may, under paragraph (a) of ths secton, be the entre amount
f f the saary actuay pad or ccrued by the empoyer at the reduced rate. Thus,
If, for e ampe, on November 1, 1942, a weeky saary rate of 100 has been
un|ustfaby reduced to 50 for the remander of the caendar year 1942, the
amount to be dsregarded under paragraph (a) of ths secton may be the tota
amount of saary pad at the weeky rate of 50.
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472
Par. 3. Subparagraph (c) of secton 1002.2 s amended to read as
foows:
(c) In the case of saares ncreased n contraventon of the ct, the amount to
be dsregarded may, under paragraph (a) of ths secton, be the entre amount
of the saary actuay pad or accrued by the empoyer at the Increased rate and
not merey an amount representng an ncrease n such saary. Thus, f, for
e ampe, on November 1, 1942, a weeky saary rate of 100 s un|ustfaby n-
creased to 150 for the remander of 1942, then the amount of saary to be ds-
regarded for purposes of paragraph (a) of ths secton may be the tota amount
pad at the weeky rate of 150. so, f, for e ampe, on ebruary 1, 1943, a
weeky saary rate of 100 s ncreased to 150 wthout pror requred approva,
but s restored to 100 on une 1, 1943, after forma dsapprova by the Comms-
soner or regona of cer, then the amount of saary to be dsregarded for purposes
of paragraph (a) of ths secton may be the tota amount at the weeky rate of
150. Nether n the cases descrbed n ths paragraph nor n the case descrbed
n paragraph (6) of ths secton are the tota amounts pad at the weeky rate
of 100 to be dsregarded for purposes of paragraph (a) of ths secton. (See
secton 1002.30, reatng to saary aowances under secton 23(a) of the Code.)
oseph D. Nunan, r.,
( ed wth the Dvson of the edera Regster ebruary 3, 1945, 12.42 p. m.)
1945-7-12014
T. D. 5450
tte 29 abor. chapter v, part 1002. stabzaton of saares.
Washngton 25, D. C.
Treasury Decson 5295 C. . 1943,1193 Part 1002, Tte 29, Code
of edera Reguatons , reatng to the stabzaton of saares under
the ct of October 2,1942, s amended as foows:
Secton 1002.37, as added by Treasury Decson 5416 C. . 1944,
717 9 . R. 13195 , s amended to read as foows:
Submsson of Report. If, upon revew of the report of nvestgaton, the
head of the regona offce beeves that the saary payment was made n contra-
venton, he sha submt a report, n deta, to the Commssoner, together wth
the orgna report of nvestgaton. The empoyer, f he so desres, may have a
conference In the regona offce pror to the submsson of the report to the
Commssoner.
Geo. . Schoeneman,
pproved pr 5,1945.
( ed wth the Dvson of the edera Regster pr 7,1945,11.36 a. m.)
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473
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1945_14_120 7
T. D.5462
tte 2ft abor. chapter v, part 1002. stabzaton of saares.
Washngton 25, D. C.
Treasury Decson 5295 C. . 1943, 1193 Part 1002, Tte 29,
Code of edera Reguatons , reatng to the stabzaton of saares
under the ct of October 2, 1942, s amended, for fsca and caendar
years endng subsequent to December 31, 1943, as foows:
Subdvson (4) of the thrd paragraph of secton 1002.14, as
added by the second paragraph of paragraph 4 of Treasury Decson
5106 C. . 1944,715 (9 . R., 11 37), s amended to read as foows:
(4) (a) If the empoyer has, pror to October 3, 1942, customary pad bonuses
on a f ed percentage bass or had entered nto a contractua agreement pror
to that date to pay bonuses on a ed percentage bass, the empoyer may pay
a bonus determned n accordance wth such custom or agreement, provded no
change has been made n ether the percentage or method of determnng the
bonus fund, and no change has been made n the percentage or method of de-
termnng the amount paynbe to each empoyee.
(6) If te empoyer had, pror to October 3, 1942, customary pad bonusas
out of a fund based on a f ed percentage of profts, saes or the ke, the em-
poyer may, wthout pror approva, pay a bonus determned n accordance
wth such custom provded no change has been made n ether the percentage
or method of determnng the bonus fund, and no change has been made n
the bass of determnng the amount payabe to each empoyee.
pproved uy 9, 1945.
( ed wth the Dvson of the edera Regster uy 11, 1945, 10.0 a. m.)
6 4354 46 31
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474
MISC LL N OUS.
INT RN L R NU COD .
S CTION 3 04. TIM OR P R ORMING C RT IN
CTS POSTPON D Y R SON O W R.
1945-2-11946
T. D.5429
TITL 26 INT RN L R NU . C PT R I, SU C PT R . P RT 472. TIM
Secton 472.102(6) of Treasury Decson 5279 C. . 1043, 952 ,
specfyng certan nets wth respect to whch a perod of tme may be
dsregarded under secton 3 04 of the Interna Revenue Code,
amended to ncude the renqushment by the grantor of power to
change the dsposton of certan trust property as provded n
secton 1000(e) of the Code.
Washngton, D. C.
Secton 472.102( ) of Treasury Decson 5279 Part 472, Tte 26.
Code of edera Reguatons, 1943 Sup. , approved uy 10, 1943
C. . 1943, 952 , as amended by Treasury Decson 5293, approved
ugust 30, 1943 C. . 1943, 977 , s further amended by nsertng at
(11) Renqushment by the grantor, as provded n secton )OO(e), of power
to change the dsposton of the property n certan trusts descrbed u such
secton or the ncome therefrom.
n sectons 3791 and 3 04 of the Interna Revenue Code (53 Stat.
467, 5(5 Stat., 9(31 26 U. S. O, 1940 ed., 3791, 26 U. S. C, 1940 ed.,
Sup. I, 3 04).)
oseph D. Nunan. r.,
oseph . O Conne , r.,
1945-6-1190
T. D. 5444
TITL 20 INT RN L R NU . C PT R I. SU C PT R . P RT 472 TIM
Secton 472.102(6) of Treasury Decson 5279 C. . 1943, 952 ,
specfyng certan acts wth respect to whch a perod of tme may be
dsregarded under secton 3 04 of the Interna Revenue Code,
amended to ncude the eecton referred to n secton 112(b) (7) (C)
and (D) of the Code.
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Washngton, D. C.
Secton 472.102( ) of Treasury Decson 5279 Part 472, Tte 20,
Code of edera Reguatons, 1943 Sup. , approved uy 10,194.5 C. .
1943, 952 , as amended by Treasury Decson 5429, approved anuary
16,1945 page 474, ths uetn , s further amended by nsertng at
(12) In the case of the wrtten eecton of the sharehoder (other than a cor-
poraton), the fng requred hy secton 112(b) (7) (D) wthn 30 days after the
adopton of the pan of qudaton, but ony f the 0 per cent requrement of
secton 112(b) ( ) (C) () s satsfed by the fng of eectons whch are tmey
wthout regard to ths provson of these reguatons.
sectons 3791 and 3 04 of the Interna Revenue Code (53 Stat., 407,
56 Stat., 901 26 U. S. C, 1940 ed., 3791, 26 U. S. C, 1940 ed., Sup.
I, 3 04).)
Geo. . Scoeneman.
( ed wth the Dvson of the edera Regster March 5, 1945, 4.11 p. n.)
S CTION 511 O T M RC NT M RIN CT, 1930,
S M ND D.
1945-0-11999
T. D. 5445
TITL 26 INT RN L R NU C PT R I, SU C PT R , P RT 32.
ST LIS M NT O CONSTRUCTION R S R UNDS.
TITL 46 S IPPING. C PT R II UNIT D ST T S M RITIM COMMIS-
SION. P RT 2 7. (G N R L ORD R 3 R IS D, SUPP. I).
mendment of revsed reguatons under secton 511 of the Mer-
chant Marne ct, 1930, as amended.
Offce of the Secretary of the Treasury,
Washngton 25, D. C.
Unted States Martme Commsson,
Washngton 25, D. C.
To Offcers and mpoyees of the Treasury Department, the Unted
States Martme Commsson, and Others Concerned:
In order to conform reguatons fed wth the Dvson of the ed-
era Regster anuary 29, 1944, and desgnated as Treasury Decson
53.30 C. . 1944, 720 , and as Genera Order 3 Revsed of the
Unted States Martme Commsson Part 32, Tte 20, and Part 2 7,
Tte 46, Code of edera Reguatons, 1944 Supp. , to the ct ap-
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476
proved December23,1944 (Pubc Law 552, Seventy-eghth Congress),
such reguatons are hereby amended as foows:
Paragraph 1. Secton 32.0 s amended by nsertng mmedatey
foowng the quotaton of secton 511 of the Merchant Marne ct,
193G, as amended, the foowng:
The ct approved December 23, 1944 (Pubc Law 552, Seventy-eghth Con-
gress), provdes:
That the frst sentence of secton 511(c) of the Merchant Marne ct,
1936, as amended, s amended to read as foows:
(c) In the case of the sae or actua or constructve tota oss of a
vesse, f the ta payer deposts an amount equa to the net proceeds of
the sae or to the net ndemnty wth respect to the oss n a constructon
reserve fund estabshed under subsecton (b), then
(1) f the ta payer so eects n hs ncome-ta return for the ta -
abe year n whch the gan was reazed, or
(2) n case a vesse s purchased or requstoned by the Unted
States, or s ost, n any ta abe year begnnng after December 31,
1939, and pror to anuary 1,1944, and the ta payer receves payment
for the vesse so purchased or requstoned, or receves from the
Unted States ndemnty on account of such oss, subsequent to the
end of such ta abe year, f the ta payer so eects pror to March 31,
1945, or pror to the e praton of s ty days after the recept of the
payment or ndemnty, whchever s ater, and n accordance wth a
form of eecton to be prescrbed by the Commssoner of Interna
Revenue wth the approva of the Secretary of the Treasury,
no gan sha be recognzed to the ta payer n respect of such sae or
Indemnfcaton n the computaton of net ncome for the purposes of ed-
era ncome or e cess-profts ta es. If an eecton s made under subdv-
son (2) and f computaton or recomputaton n accordance wth ths
subsecton s otherwse aowabe but s prevented, on the date of makng
such eecton or wthn s months thereafter, by any statute of mtaton,
such computaton or recomputaton nevertheess sha be made notwth-
standng such statute f a cam therefor s fed wthn s mouths after
the date of makng such eecton.
Sec. 2. Secton 511 of the Merchant Marne ct. 1936, as amended, s
amended by addng at the cad thereof a new subsecton to read as
foows:
(n) The terms contract for the constructon and constructon
contract , as used n ths secton, sha Incude, n the case of n ta payer
who constructs a new vesse n a shpyard owned by such ta payer, an
agreement between such ta payer and the Commsson wth respect to
such constructon and contanng provsons deemed necessary or advs-
abe bv the Commsson to carry out the purposes and pocy of ths sec-
ton.
Par. 2. Secton 32.1 s amended by nsertng mmedatey foowng
subparagraph ( ) a new subparagraph, as foows:
(t) The terms contract, contract for the constructon, and construc-
ton contract, sha ncude, n the case of a ta payer who constructs a new
vesse n a shpyard owned by such ta payer, an agreenwnt between such ta -
payer and the Commsson wth respect to such constructon and contanng pro-
vsons deemed necessary or advsabe by the Commsson to carry out the pur-
poses and pocy of the statute.
Par. 3. Secton 32.12 s amended to read as foows:
Sec. 32.12. ecton. (o) Genera. s a prerequste to nonrecognton of
gan on the sae or oss of a vesse, or a part nterest theren as provded by the
statute, the ta payer, after estabshng a constructon reserve fund, must make
an eecton wth respect to such vesse or share theren.
Depost of an amount equa to the net proceeds of the sae or oss of the vesse or
of the ta payer s nterest theren must be made wthn the perod specfed n
secton 32.15 of these reguatons and may not be deayed beyond the specfed
perod to awat the e ecuton or fng of a statement of eecton.
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(6) Manner of eecton. (1) Genera. cept In cases of certan Govern-
ment payments covered by paragraph (2) an eecton sha be made In accord-
ance wth ths paragraph: The eecton sha be made n the ta payer s ncome
ta return, or n case of a partnershp n the partnershp return of ncome, for
the ta abe year n whch the gan s reazed. The eecton sha be shown
by a statement to that effect, submtted as a part of, and attached to, the return.
The statement, whch need not be on any prescrbed form, sha set forth a com-
putaton of the amount of the reazed gan, the Identty of the vesse, the nature
and e tent of the ta payer s nterest theren, whether such vesse was sod or ost
and the date of sae or oss, the fu sae prce or fu amount of ndemnty, and
the amount and date of eac payment thereof, the bass for ta purposes and any
other data affectng the determnaton of the reazed gan.
(2) Certan Government payments. In case a vesse Is purchased or requs-
toned by the Unted States, or s ost, n any ta abe year begnnng after De-
cember 31, 1939, and pror to anuary 1, 1944, and the ta payer receves payment
for the vesse so purchased or requstoned, or receves from the Unted States
ndemnty on account of such oss, subsequent to the end of such ta abe year,
the ta payer may make hs eecton by fng notce thereof wth the Commssoner
of Interna Revenue, Washngton 25. D. C, pror to March 31, 1945, or pror to
the e praton Of ( 0 d ys after recept of the payment or ndemnty, whchever
s ater. The ta payer shoud te a copy of the notce wth the Secretary, Unted
States Martme Commsson, Washngton 25, D. C. The form of the notce of
eecton, whch form sha be prepared by the ta payer, sha be substantay as
foows:
ecton Reatve to Nonrecognton of Gan Unk| Secton 511(c) (2),
Merchant Marne ct, 1936.
Pursuant to the provsons of secton 511 of the Merchant Marne ct, 1930,
as amended by the ct approved December 23, 1944 (I ubc Law 552, Seventy-
eghth Congress), notce s hereby gven that the undersgned ta payer eects that
gan n respect of the sae to the Unted States, or ndemnfcaton receved from
the Unted States on account of the oss, of the vesse named beow or share theren
sha not be recognzed. The crcumstances nvoved n the computaton of such
gan are as foows:
Name and other dentfcaton of vesse
Nature and e tent of the ta payer s nterest n the vesse
Nature of dsposton, . e., sae or oss
Date of dsposton
u sae prce or fu amount of ndemnty receved by ta payer
mount and date of each payment of sae prce or ndemnty receved by ta -
payer
mount and date of each prevous depost of such payments n constructon re-
serve fund
Identfcaton of each check or other nstrument by whch payment made to
ta payer
Ta bass of ta payer s nterest In vesse
ny other data affectng the determnaton of the reazed gan
mount of gan (submt computaton)
(Name of ta payer.)
y
( uthorzed representatve.)
(Date of e ecuton.)
Par. 4. Secton 32.1 s amended by strkng out the second sentence
of the ne t to the ast paragraph thereof and nsertng n eu of such
sentence the foowng:
Sub|ect to the provsons of ths secton, a new vesse may be but by or for the
ta payer, or may be acqured after It s but.
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47
Par. 5. Secton 32.22 s amended by addng at the end thereof an-
other paragraph, readng as foows:
If an eecton s made under subdvson (c) (2) of secton 511, as amended, and
secton 32.12(6) (2) of these reguatons, and f computaton or recomputaton In
accordance therewth s otherwse aowabe but s prevented, on the date of
fng of notce of such eecton, or wthn s months thereafter, by any statute of
mtaton, such computaton or recomputaton nevertheess sha be made not-
wthstandng such statute f a cam therefor s fed wthn s months after the
date of makng such eecton. If as the resut of such computaton or recomputa-
ton an overpayment s dscosed, a cam for refund on orm 43 shoud aso be
fed wthn such s months perod.
G O. . SC O N M N,
oseph . O Co ne , r.,
y order of the Unted States Martme Commsson.
. . Wams,
Secretary.
March 6,1945.
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479
MUc.
LCO OL T .
INT RN L R NU COD .
1945-7-12013
T. D.5449
Omc of Commssoner of Interna Revenue,
Washngton 25, D. C.
To Dstrct Supervsors and Others Concerned:
y vrtue of and pursuant to the provsons of sectons 37-10 and
3170 of the Interna Revenue Code and secton 161 of the Revsed
Statutes (U. S. C, Tte 5, secton 22), Treasury Decson No. 4632
C. . -2, 527 (1936) (Part 171, Subpart , of Tte 26 of the Code
of edera Reguatons), prescrbed under the Interna Revenue Code
bv Treasury Decson 4 5 C. . 1939-1 (Part 1), 396 , approved
ebruary 11,1939 (26 C R, 1939 Supp., page 1599), s hereby amended
by nsertng at the end of secton 1 (26 C R, secton 171.2) a new para-
graph, ettered (|), readng as foows:
(/) uthorzaton and Sancton of Suts. The authorzng and sanctonng
of suts for the recovery of ta es, fnes, penates, and forfetures aeged to have
been ncurred under the nterna revenue aws reatng to the ta aton, e porta-
ton, manufacture, possesson, or use of, or traffc n, dsted sprts, fermented
quors, denatured acoho, and other such quors and quds.
oseph D. Nunan, r.,
pproved March 29, 1945.
ctng Secretary of the Treasury,
( ed wth the Dvson of the edera Regster pr 2,19-15, 10.51 a. m.)
1945-24-12197
T. D. 54 5
TITL 20 INT RN L R NG . C PT R I, SU C PT R C, P RT 1S2.
INDUSTRI L LCO OL.
mendng Reguatons 3.
Washngton 25, D. C.
1. The ct of November 5, 1945 (Pubc Law 210, Seventy-nnth
Congress), amends Part II of Subchapter C of Chapter 26 of the
Interna Revenue Code by addng at the end thereof the foowng
new secton:
S C. 3120. M RG NCY PRODUCTION O SUG RS ND SIRUPS IN
INDUSTRI L LCO OL PL NTS.
(a) In Genera. Notwthstandng the provsons of sectons 2S10 and 3122,
ana of any other aw, unt uy 1,19-16, sugars and srups from potatoes and from
hgh mosture or damaged gran may be produced n ndustra acoho pants
smutaneousy wth, or aternatey wth, the producton of acoho.
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Regs. 15, 190.9, 190.177.
4 0
(b) Reguatons. The Commssoner, wth the approva of the Secretary, s
authorzed to prescrbe reguatons to carry out the provsons of ths secton.
2. Pursuant to the foregong provsons of aw and sectons 3105,
3124(a), and 3176, Interna Revenue Code, rtce of Reguatons
3 (26 C R, Part 1 2) s amended by addng after secton 1 2.7 the
foowng new secton:
Sec. 1 2.7 . mebgkncy Producton op Sugars and Srups n Industra -
coho Pants. Notwthstandng the provsons of secton 1 2.7, or other pro-
vsons of these reguatons, unt uy 1, 1916, sugars aud srups from potatoes
and from hgh mosture or damaged gran may be produced n ndustra 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 app-
caton, orm 1431, to cover the use of the premses for that purpose unt uy
1, 1940. 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, orm 1 33, e ecuted n accordance wth
these reguatons. Upon approva of such appcaton, the dstrct supervsor
sha ssue an amended permt, orm 1433, to aow use of the premses In
accordance wth the suppementa appcaton. The propretor sha prepare
each month and attach to hs monthy re ort on orm 1142 a separate reort
showng a potatoes and hgh mosture or damaged gran used day n the
producton of sugars and srups by pounds and the quantty n pounds of sugars
and srups produced and removed each day from the premses. Ths report sha
be deemed a part of orm 1442. such materas receved on the premses
sha be reported n the reguar matera summares of orms 1442 and 1452-
and upon ther use under ths secton, sha be reported at a speca ne In 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 une 30,194G. ( Sec. 3126,1. R. C.)
oseph D. Nunan, r.,
Reguatons 15, Sectons 100.9 and 190.177. 1945-21-12162
T. D.54S2
TITL 20 INT RN L R NU . C PT R I, P RT 190. R CTI IC TION O
SPIRITS ND WIN S.
mendng Reguatons 15.
Washngton 25, D. C.
Pursuant to sectons 2 01, 2 13, 3170, and 3250(1), Interna Reve-
nue Code (U. S. C, Tte 26, sectons 2 01, 2 13, 3176, and 3250(1)),
Reguatons 15 (26 C R, Part 190) s hereby amended as foows:
Note. The astersk ( ) at the end of sectons refers to sectons 2 01(e)(1) and 17 ,
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4 1 Regs. 15, 190.9, 190.177.
btce . Products Unft fob everage Ube.
Secton 190.9 s amended to read as foows:
Sec. 100.9. Pbohbted Manufacture or Stobage. None of the products spec-
fed n secton 190.5 may be manufactured or stored at a rectfyng pant e cept
as specfcay provded heren. Whe rectfers may use favors and favorng
e tracts on whch drawback of ta on the sprts used theren has been aowed
under secton 3250(1), Interna Revenue Code, and Reguatons 29 ssued pur-
suant thereto, the premses used for manufacturng the favors or favorng
e tracts, f contguous to the rectfyng premses, must be competey separated
from the rectfyng premses by sod unbroken parttons and the two premses
must not have means of communcaton wth each other wthn the budng. The
rectfer may not transfer dsted sprts from the rectfyng pant to the favorng
e tract manufacturng premses or from I e favorng e tract pant premses
to the rectfyng pant notwthstandng that the two premses may be owned and
operated by the same person. Dsted sprts used at the favorng e tract
manufacturng premses must be receved drect from the vendor and a records
governng the recept and use of dsted sprts and other ngredents n the
manufacture of favorng e tracts must be kept on the favorng e tract manu-
facturng premses and not on the rectfyng premses. Where favors or favor-
ng e tracts are manufactured on premses of the rectfyng pant, they must be
used e cusvey n the manufacture of ta abe products and no drawback or
ta may be camed thereon. Nonacohoc grenadne, or grenadne contanng
ess than one-haf of 1 per cent of acoho by voume and suffcent sugar to
render t whoy unft for use for beverage purposes, or other such favorng mate-
ras, may not be manufactured on the premses of a rectfyng pant uness they
are to be used by the rectfer n makng hs ta abe products. ( Sec. 32r 0(),
L R. C.
rtce I. Gaugng and Dumpng Sprts fob Rkctfcaton.
Sec. 190.177. ppcaton, obm 122. When the rectfer desres to dump sprts
for rectfcaton, he w carefuy gauge each package and prepare orm 122, n
dupcate, gvng a compete descrpton of the packages and makng appcaton
for permsson to dump the sprts, e cept that where sprts are transferred
to the rectfyng pant drecty upon ta payment from a contguous dstery
or nterna revenue bonded warehouse or a dstery or nterna revenue bonded
warehouse ocated n the mmedate vcnty of the rectfyng pant and owned
by the propretor of the rectfyng pant or a subsdary and dumped for rectf-
caton wthn three days after recept, the wthdrawa gauge w he consdered
as satsfyng the requrement that the sprts sha be gauged when dumped
for rectfcaton. The supervsor w determne from a the crcumstances In
each case whether the dstery or warehouse and the rectfyng pant are n the
mmedate vcnty. Where the sprts are so dumped on the wthdrawa gauge,
detas of such gauge w be coped on orm 122 and n addton thereto, f the
rectfyng pant s equpped wth processng tanks mounted on scaes, the sprts
may be dumped and gauged by weght n such processng tnnks. In such case,
the composte proof and proof gaons determned by such gauge sha aso be
reported on orm 122. The dfference n proof gaons between the wthdrawa
(ta payment regauge) and such tank gauge sha aso be reported on orm 122.
If the sprts are to be drawn from the storage tank, the rectfer w kewse
e ecute orm 122 gvng a the nformaton appcabe. ach orm 122 w be
gven a sera number begnnng wth 1 for the st day of anuary of each year
and runnng consecutvey thereafter to December 31, ncusve. ( Sec. 2 13,
I. R. C.)
oseph D. Nunan, r.,
os .ru . O Conne, r.,
( ed wth the Dvson of the edera Regster November 2, 1945, 12.0 p. m.)
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Regs. 15, 160.177, etc.
4 2
Reguatons 15, Sectons 190.177, 190.190, 1945-14-120
190.276, 190.326, 190.341, 190.353, 190.40 , T. D. 5463
190.409, 190.410, 190.411, 190.414.
TITL 26 INT RN L R NU . C PT R I. T RT 190. R CTI IC TION O
SPIRITS ND WIN S.
Washngton 25, D. C.
To Dstnct Supervsors and Others Concerned:
Pursuant to sectons 2 01, 2 13, 2 61, 2 71, and 3176, Interna Rev-
enue Code (U. S. C, Tte 26, Sees. 2 01, 2 13. 2 61, 2 71, and 3176),
Reguatons 15 (26 C R, Part 190) s hereby amended as foows:
rtce I. Gaugng and Dumpng Spkts fob Rectfcaton.
Sfc. 190.177. ppcaton, orm 122. When the rectfer desres to dump
sprts for rectfcaton he w carefuy gauge each package and prepare orm
122, In dupcate, gvng a compete descrpton of the packages and makng app-
caton for permsson to dump the same, e cept that where sprts are trans-
ferred to the rectfyng pant, drecty upon ta -payment, from a contguous
dstery or Interna revenue bonded warehouse and dumped for rectfcaton
wthn three days after recept, the wthdrawa gauge w be consdered as
satsfyng the requrement that the sprts sha be gauged when dumped for
rectfcaton. Where the sprts are so dumped on the wthdrawa gauge, the
detas of such gauge w be coped on orm 122, and, n addton thereto, f
the rectfyng pant s equpped wth processng tanks mounted on scaes, the
sprts may be dumped and gauged by weght n such processng tanks. In such
case, the composte proof and proof gaons determned by such gauge sha
aso be reported on orm 122. The dfference n proof gaons between the
wthdrawa (ta -payment regauge) and such gauge sha aso be reported on
orm 122. If the sprts are to be drawn from a storage ank the rectfer w
kewse e ecute orm 122, gvng a the nformaton appcabe. ach orm
122 w be gven a sera number begnnng wth 1 for the 1st day of anuary
of each year and runnng consecutvey thereafter to December 31, ncusve.
( Sec. 2S13, I. R. C.)
Sec :0.190. ntre Packagk to he Dumped. porton of a package may not
be dumped for rectfcaton. Where t s desred to rectfy a quantty of sprts
ess than a fu package, the entre package must be dumped nto a processng
tank or receptace and the quantty whch t s desred to rectfy at that tme
must be removed from such tank or receptace to another processng tank for
rectfcaton. The frst processng tank or receptace nto whch the fu package
was dumped w be abeed to show the knd of sprts and the sera number
and date of the orm 122 pursuant to whch such sprts were dumped. Where
sma quanttes of rum, sherry wne, or other quors are to be used for favorng
purposes from tme to tme, a statement to that effect sha be made on orm 122
coverng the gauge and dumpng of the packages, uness the entre quantty
s to be used wthn 10 days from the date of dumpng. No arger quanttes
of quor to be used for favorng purposes sha be dumped than necessary for
a reasonabe perod, e cept that not ess than an entre orgna package (barre
or keg) may be dumped. No quors e cept sma quanttes of those used for
favorng and smar purposes sha be retaned n processng tanks or receptaces
for an ndefnte perod.
sut d under authorty of sectons 2 01 and 3176, Interna Revenue Code.
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4 3
Regs. 15, 190.177, etc.
rtce . Gauge, Return, and Ta -Payment of Rectfed Sprts.
Secton 190.276 s amended, by addng a new secton desgnated
secton 190.276(a), to read as foows:
Sec. 190.276(a). d|ustment of Proof. The proof of rectfed sprts sha be
ad|usted to a whoe degree of proof n accordance wth the provsons of the
Gaugng Manua (26 C R, Part 1 G) preparatory to fng barres or bottes.
d|ustng the proof to tenths of a degree, ether above or beow the whoe or
compete degree, w not be permtted: Provded, That when sprts are beng
prepared for bottng and are to be botted and abeed n tenths of a decree .of
proof, such as 6.6, the proof of the sprts sha be ad|usted to such tenths of a
degree of proof. The proof n each nstance sha be verfed as to accuracy by
the Government offcer. ( Sec. 2 01, I. R. C.)
rtce I. ottng of Rectfed Sprts and Products.
Secton 190.32G s amended to read as foows:
Sec. 100.326. Lquor Pottes. The propretor of n rectfyng pant must com-
py wth the provsons of Reguatons 13 (2( C R, Part 175), respectng the use
of quor bottes and other contaners for rectfed and unrectfed products.
Marked quor bottes may not be used for packagng wnes contanng 24 per
cent or ess of acoho by voume, or products manufactured wth such wnes,
uness such products contan dsted .sprts other than those used n fortfyng
the wne. ottes must be fed as neary as possbe to conform to the amount
stated on the stamp, abe or botte, to be contaned theren, but n no event may
the amount of sprts contaned n any botte due to the ack of unformty of the
bottes, vary more than 2 per cent from the amount stated to be contaned theren
and, further, n such case there sha be substantay as many bottes overfed
as there are bottes underfed for each ot of sprts botted as reported on
orm 230 or 237. ( Sec. 2 71, I. R. C.)
rtce I . ottng of UNR CTrn ) Smrts and Wnes.
Sec. 190.341. Gauge. When preparng appcaton for the dumpng of sprts
for bottng wthout rectfcaton, the rectfer w enter n the space provded
therefor on orm 230 the detas of the wthdrawa gauge for ta -payment. n
actua gauge of the sprts dumped w, however, be made n the bottng tank
after they have been reduced to bottng proof, where such reducton s permss-
be, and before they are reeased by the Government offcer for bottng, and the
detas of such gauge w be entered n the space provded therefor on the form.
Where sprts are to be botted from the orgna package, as provded n secton
100.347, the detas of the wthdrawa gauge for ta -payment w kewse be
entered on orm 230 at the tme the appcaton Is prepared, but nn actua gauge
w be made before the bottng begns and the detas of such gauge w aso
be entered on the form. The proof of sprts sha be ad|usted to a whoe degree
of proof n accordance wth the provsons of the Gaugng Manua (26 C R,
Part 1 6) preparatory to fng bottes. d|ustng the proof to tenths of a
degree, ether above or beow the whoe or compete degree, w not be permtted:
Provded, That when sprts are beng prepared for bottng and are to e
botted and abeed n tenths of a degree of proof, such as 0.6, the proof of
the sprts sha be ad|usted to such tenths of a degree of proof. The restoraton
to the orgna proof and voume of rectfed sprts upon whch the rectfcaton
ta has been pad, by the addton of water, preparatory to bottng, sha not
be deemed a reducton n proof or an ncrease n voume wthn the meanng of
secton 2 01(b) of the Interna Revenue Code. The proof n each nstance sha
be verfed as to accuracy by the Government offcer. ( Sec. 2 01(b), I. R. C.)
Sec 190.353. Reducton of Sprts. Processng tanks may not be used for
the dumpng and reducng of sprts to be botted wthout rectfcaton. Sprts
nay be reduced to bottng proof n dumpng and reducng tanks provded for
the purpose or n the bottng tanks pror to the commencement of bottng. The
reducton In proof or the Increasng In voume of rectfed sprts on whch the
rectfcaton ta has been pad s. however, prohbted by aw, uness the sprts
are agan rectfed and the rectfcaton ta agan pad thereon. owever, the
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Regs. 15, 190.177, etc.
4 4
restoraton to the orgna proof and voume of reetfed sprts upon whch the
rectfcaton ta has been pad, by the addton of water, preparatory to bottng,
sha not be deemed a reducton In proof or an Increase n voume wthn the
meanng of secton 2 01(b) of the Interna Revenue Code. Secton 2 01(b) of
the Interna Revenue Code s not appcabe to the reducton of mported sprts
rectfed abroad, or sprts rectfed n Puerto Rco, the rgn Isands, or the
Phppne Isands, or of domestcay rectfed sprts e empt from rectfca-
ton ta . ( Sec. 2 01(b), I. R.C.)
rtce I. Labes on ottes of Dsted Sprts.
Sec. 190.40 . Comparson of Labes Wth Contents of ottng Tank.
efore reeasng sprts from bottng tanks for bottng, the Government offcer
w requre the rectfer to submt to hm the abe he proposes to use for the
sprts n the bottng tank, together wth the certfcate of abe approva or the
certfcate of abe e empton, as the case may be, and n the case of mported
sprts the certfcate of orgn, age, and cass and type referred to n secton
190.407, and he w compare such abe wth the abe aff ed to such certfcate
to see that they agree n every respect e cept for the dfferences aowed by te
certfcate. e w then compare such abe wth orms 122 and 237, and orm
27 -Suppementa descrbng the formua, for rectfed products, and wth orm
230 as to products beng botted wthout rectfcaton, to determne whether the
abe to be used corresponds n every respect wth the sprts n the bottng
tank, ncudng age, cass and type, and proof. In makng ths determnaton he
w take nto consderaton the knd of sprts, the proof of dstaton, the knd
of cooperage n whch the sprts were stored, and whether the sprts were
treated wth oak chps, etc., as dscosed by the marks and brands on the packages
and entered on orm 122 or orm 230, as the case may be. If the abe and
sprts agree n every respect, the Government offcer w attach the abe se-
curey to the copy of orm 237 or orm 230 to be attached to the bottng tank
and reease the sprts for bottng. If the abe and sprts do not agree n
every respect, the Government offcer w wthhod the reease of the sprts for
bottng unt the rectfer submts to hm a abe and a certfcate of abe ap-
prova or e empton, as the case may be, correcty descrbng the sprts to be
botted. ( Sec. 505, 49 Stat., 1965 27 U. S. C, Sup., 205.)
Sec, 190.409. ddtona Labe Requrements. Offcers assgned to rectfyng
pants w aso see that a abes aff ed to contaners of dsted sprts sub|ect
to the provsons of Reguatons 13 (26 C R, Part 175) conform to the requre-
ments of such reguatons. The methods prescrbed n secton 190.40 w be
foowed n makng such determnatons. ( Sec. 2 71, L R. C.)
Sec. 191410. Tests of otted Sprts. Offcers assgned to rectfyng pants
w, at frequent, rreguar ntervas durng the process of bottng, test and
e amne the botted sprts to determne ( ) whether the abe attached s
dentca wth the abe verfed by the Government offcer under secton 190.40
(6) whether the botted sprts agree n proof wth the data on the abe and
(c) whether the quantty agrees wth the data on the abe, stamp or botte, sub-
|ect to the mtaton prescrbed by secton 190.32 . The test as to proof w be
made by the use of standard gaugng nstruments n accordance wth the prov-
sons of the Gaugng Manua (20 C R, Part 1 6). The test as to quantty w
be made (a) by the utzaton of a gass graduate standardzed at 60 degrees
ahrenhet to be provded by the rectfer, or (h) by weghng a gven number
of empty bottes and reweghng the same bottes after fng. The net contents
w be computed n accordance wth the provsons of the Gaugng Manua (26
C R, Part 1 6). If the contents do not agree as to quantty (sub|ect to the
mtaton of secton 190.326) or as to proof (sub|ect to a norma drop n proo
occurrng durng bottng operatons not to e ceed three-tenths of a degree), wth
the respectve data on the abe, stamp or botte, the Government offcer w
wthhod reease of the botted sprts and requre the rectfer to rebotte. re-
condton, or reabe the sprts n such manner that the abes w correcty
descrbe the contents. owever, the proof at the begnnng of the bottng opera-
tons sha aways be set e acty as provded In sectons 190.276(a) and
190.341.
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Regs. 23, 1 1.3, etc.
Sec. 190.411. Rectfer s Responsbty. Notwthstandng that Government
offcers assgned to rectfyng pants are requred to verfy abeng data, fu
responsbty rests upon tbe rectfer to see that the Inbeug of a sprts and
wnes botted or packaged at hs pant s In conformty wth the requrements of
the edera coho dmnstraton ct and reguatons ssued thereunder, and
Reguatons 13 (26 C R, I art 175).
rtce II. Markng and randng.
Sec. 100.414. Packages of Dsted Sr Ts. The gross weght, tare, and net
weght sha be cut upon the stave to the eft of the bung stave of each barre or
smar contaner of dsted sprts n the order named, begnnng n the mdde
of such stave and and e tendng toward the Government head. In addton to
the sera number, each such contaner sha aso have marked on the Government
head thereof the knd of sprts, the wne gaons, proof, and proof gaons, the
date of fng, the number of the approved formua under whch rectfed, and the
name (or trade name or stye), ocaton (cty or town and State), and the num-
ber of the rectfer s basc permt Issued under the edera coho dmnstraton
ct: Provded, That f the sprts were rectfed by such rectfer, or f the sprts
are unrectfed sprts whch were produced by such rectfer at a dstery, he
may use n connecton wth hs name the desgnaton Rectfer or Dster,
respectvey. ( Sec. 2 01, I. R, C.)
pproved uy 11, 1945.
( ed wth the Dvson of thee edera Regster uy 12, 194,r, 4.19 p. m.)
Reguatons 23, Sectons 1 1.3, 1 1.13, and 1945-23-121 4
1 1.15. T. D. 51 4
TITL 26 INT RN L R NU . C PT R I, SU C PT R C, P RT 1 1.
TILLS ND DISTILLING PP R TUS.
Washngton 25, D. C.
Pursuant to sectons 3176, 3250(|) (1) (3), and 3791, Interna Rev-
enue Code (U. S. C, Tte 26, sectons 3176, 3250(|) (1) (3), and 3791),
Reguatons 23 (26 C R, Part 1 1) s hereby amended as foows:
rtce III. Defntons.
Secton 1 1.3(g) s amended to read as foows:
Sec. 1S1.3. (g) St sha mean any apparatus desgned, Intended, actuay
used, or capabe of beng used for separatng acohoc or sprtuous vapors, or
acoho or sprtuous soutons, or acoho or sprts, from acoho or sprtuous
soutons or m tures, but sha not ncude sts used for aboratory purposes or
sts used for dstng water or other nonacohoc materas, where the cubc
capacty of such sts s 1 gaon or ess.
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4 6
Secton 1 1.3(2) s amended to read as foows:
Sec. 1 1.3. () Worm or condenser sha mean any apparatus desgned,
ntended, actuay used, or capabe of beng used when connected wth a st,
for condensng or quefyng acohoc or sprtuous vapors, but sha not ncude
worms or condensers to be used wth aboratory sts or sts used for dstng
water or other nonacohoc materas, where the cubc capacty of such sts s
1 gaon or ess. (Sees. 3176, 3250(|) (1) (3), and 3791, I. R. C.)
rtce I . Manufacture, Ta -Payment, Sae, Remova, and Regstraton of
Sts or Worms or Condensers.
Secton 1 1.13(a) s amended to read as foows:
Sec. 1 1.13. Ta abe Status of Sts. (a) vdence of use. ny st or
worm or condenser (as defned by secton 1 1.3), wth the e cepton ony of
retorts for the producton of wood acoho, sod to a user by the manufacturer
or otherwse dsposed of or used by the manufacturer, w be presumed to be
ntended for use n dstng, as defned by secton 1 1.12, and speca ta as
manufacturer of sts and ta on the st or worm or condenser, ncurred by
the manufacturer, uness such presumpton as to any st or worm or condenser
ntended for domestc use ony, sha be removed by fng satsfactory evdence
as herenafter provded showng that the same w not be used for dstng as
defned by secton 1 1.12.
Secton 1 1.15(a) s amended to read as foows:
Sec. 1 1.15. Regstry of Sts. (a) Regstraton wth dstrct supervsor.
very person havng n hs possesson, custody, or under hs contro, any st or
dstng apparatus set up, sha regster the same wth the dstrct supervsor of
the dstrct n whch such st or dstng apparatus s ocated, e cept where
such sts have heretofore been regstered and no change n ownershp, possesson,
custody, contro, or ocaton has occurred snce such regstry. Ths requrement
appes to a sts (as defned by secton 1 1.3) set up. e cept retorts for the
producton of wood acoho and as provded by secton 1 1.15(d). Ths regstry
of sts sha be made on orm 26, n trpcate, wth the dstrct supervsor. The
specfc nformaton requred by the nstructons on orm 26 w be entered In
the space provded therefor. One copy of each regstraton of sts on orm 26
w be retaned by the dstrct supervsor, one copy w be returned to the regs-
trant, and the remanng copy w be forwarded mmedatey to the Comms-
soner. The approved copy of orm 26, returned to the regstrant by the super-
vsor, sha be retaned on the premses where the st Is set up for e amnaton
by vstng nterna revenue offcers.
Wm. T. Skkwood,
pproved November 19, 1945.
( ed wth the Dvson of the edera Regster November 20, 1045, 11.30 a. m.)
1945-23-121 5
Ct.D. 1649
acoho ta federa acoho admnstraton act decson of
supreme court.
1. Moton fob Reconsderaton udca Revew.
moton for reconsderaton of an order of the dstrct supervsor
of the coho Ta Unt, as permtted by Treasury reguatons, whch
order annued a permt to operate a whoesae quor busness under
the edera Lquor dmnstraton ct (49 Stat., 977) and dened
pettoner s appcatons for an Importer s and a new whoesaer s
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Msc.
permt, Is not n prerequste to the |udca revew specfcay
provded by Congress under secton 4(h) of such ct.
2. Decson Reversed.
Decson of the Unted States Crcut Court of ppeas, Tenth
Crcut (147 ed. (2d), 047), reversed.
Supreme Coubt of the Unted States.
orest . Levers, dmnstrator, etc., pettoner, v. . . nderson, Dstrct Super-
vsor, coho Ta Unt.
GG S. Ct., 72.
On wrt of certorar to the Unted States Crcut Court of ppeas for the Tenth Crcut.
(November 5, 1045.
opnon.
The pettoner s permt to operate a whoesae quor busness under the edera
coho dmnstraton ct. (49 Stat., 077) was annued by an order of the ds-
trct supervsor of the coho Ta Unt of the ureau of nterna Revenue of the
Unted States. t the same tme the supervsor dened pettoner s appcatons
for an mporter s and a new whoesaer s permt. The supervsor was duy
authorzed to act n these matters. Secton 4(h) of the ct authorzes an ap-
pcant or permttee to appea to the crcut court of appeas wthn CO d ys after
the entry of orders denyng or annung the permts. petton for appea was
fed wthn CO days. The crcut court of appeas dsmssed the appea (147 ed.
(2d), 547), on the ground that pettoner had faed to e haust hs admnstratve
remedes snce he had not frst fed a moton for reconsderaton of the super-
vsor s order as permtted by Treasury reguatons (2G C. . R. Cum. Supp.,
1 2.255), readng n part as foows:
(a) Wthn 20 days nf ter an order s made by the Commssoner or
dstrct supervsor revokng a basc permt, the permttee may fe an appcaton
wth such Commssoner or dstrct supervsor, fur a reconsderaton of such
order, on one or more of the foowng grounds:
(1) The order s contrary to aw, or
(2) It 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.
We thought the queston nvoved mportant and granted certorar.
Whatever mght be the case In other crcumstances, t Is cear that where as
here |udca revew s provded n the ct tsef, the pettoner s rght of appea
to the courts s to be determned by ookng to the statute, the vad reguatons
promugated pursuant to t and proven admnstratve practce throwng ght
upon ther meanng. In construng the ct, however, we must be mndfu of
the ong-setted rue of |udca admnstraton that no one s entted to |udca
reef for a supposed or threatened n|ury unt the prescrbed admnstratve
remedy has been e hausted. (Myers v. ethehem Shpbudng Corporaton,
303 U. S., 41, 50-51.) ut ths rue does not automatcay requre that udca
revew must aways be dened where rehearng s authorzed but not sought. Ths
s shown by our past decsons, from whch we see no reason to depart. Govern-
1 53 Stat., 561 : 54 Stat., 1231 54 Stat.. 230, 231 Treasury Order No. 30 (2f C. . R.
Cum. Snpp., 174.1a, 5 ed. Reg., 2212) Treasury Decson 49S2 C. . 1040-2, 420 (20
C. . . Cum. Supp., 174.4c. 5 ed. Reg.. 2540).
The crcut court of appeas aso referred to the pettoner s faure to take an appea
to the Deputy Commssoner of Interna Revenue, as aowed by amended Treasury regua-
ton 1 2.257. That reguaton provdes that: ppea to the Commssoner Is not requred.
owever, the Commssoner may. n hs dscreton, In order to Insure unformty of admn-
stratve acton, entertan an appea, after revew and reconsderaton as provded n
secton 1 2.255, from an order of revocaton of a basc permt by a dstrct supervsor, f
Ocd wth the Commssoner wthn 10 days of the date of the fna order. The Govern-
ment concedes that the frst sentence of ths reguaton, ppea to the Commssoner Is
not requred, was added to the reguaton as It orgnay stood for the deberate ob|ect
of makng It unnecessary for a party to appea to the Commssoner before gong to court.
Cnder these crcumstances we do not dscuss It further. Cf. Peora Draumentcr Co. v.
Yetowey (123 ed. (2d), 637): Leebern v. Unted States (124 ed. (2d), 505), both
decded before the frst sentence was added.
1 Unted State v. bene t Southern y. Co. (265 D. S.. 274, 2 0-2 2) Prendergast v.
tfer or Te. Co. (202 U. S., 43, 4 -40).
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4 S
ment counse, appearng for respondent, do not defend the dsmssa of pettoner s
appea on such a sweepng assumpton. On the contrary, they assert that motons
for rehearng before the same trbuna that enters an order are under norma
crcumstances mere formates whch waste the tme of tgants and trbunas,
tend unnecessary to proong the admnstratve process, and deay or embarrass
enforcement of orders whch have a the characterstcs of fnaty essenta to
appeaabe orders.
ut Gvernnent counse nsst that the rehearng here nvoved s far more than
a formaty, and that we shoud therefore read the ct and reguatons as f these
barred |udca revew pror to an appcaton for a rehearng. Of course we
recognze that In a partcuar admnstratve pattern new opportuntes to cha-
enge afforded by the moton for rehearng may sub|ect an order to such crtca
admnstratve revew as to reduce t to the eve of a mere premnary or
procedura status, thereby dvestng t of those quates of admnstratve
fnaty essenta to nvocaton of |udca revew. ( edera Power Commsson
v. Metropotan dson Co., 304 U. S., 375, 3 4-3 5.) ut we do not thnk that Is
the case here.
The orders here chaenged were entered after a hearng and they were of a
defntve character deang wth the merts of a proceedng. ( edera Power
Commsson v. Metropotan dson Co., supra, 3 4.) The evdence was taken
before, and the fndngs of fact were made by, a hearng commssoner before
whom pettoner was represented by counse. These fndngs were then approved
by te dstrct supervsor who entered the order. True the fndngs were ap-
proved and the order was made by the dstrct supervsor wthout an opportunty
to pettoner to e cept to hs adverse fndngs of fact or to present ora argu-
ment to hm. nd a rehearng f granted woud have afforded pettoner for the
frst tme an opportunty to see and e cept to adverse fndngs of fact and mght
aso have gven t a chance to present ora argument to the offcer who made
the order. ut the reguatons ony provde that the supervsor may hear the
appcaton for a rehearng. No other anguage of the reguatons, and no
satsfactory proof of pubcy estabshed practce under them, persuades us that
the may means must, or that the supervsors were requred to hear ora argu-
ment. Thus, despte the fact that the reguatons permt a stay pendng the
moton, there s no assurance that a rehearng w be granted, so as to afford
an opportunty to e cept to fact fndngs or argue oray before the supervsor.
Consequenty, whatever weght such factors mght be accorded n determnng
admnstratve fnaty of the order s absent here.
Our concuson s that the moton s n ts effect so much ke the norma,
forma type of moton for rehearng that we can not rend nto the ct an nten-
ton to make t a prerequste to the |udca revew specfcay provded by
Congress. Whether the crcut court of appeas was possessed of power to e er-
cse a dscreton to stay ts revew unt an appcaton was made to the super-
vsor to grant a rehearng s a queston whch was not decded and upon whch
we e press no opnon. (See Unted States v. oenc t Southern Ry. Co.,
supra, 2 2.)
Reversed.
Ths has been e pressy done In severa statutes. See for e ampe 49 Stat.. 60 52
Stat., 31. Of course the mere fact that the reguatons mght bar |udca revew s not
concusve, for the court w consder whether those are consstent wth the egsatve
Intent.
The ony reevant provson (26 C. . . Cum. Supp., 1 2.255) reads:
(b) The Commssoner or dstrct supervsor, wth whom such appcaton
s fed, may hear the appcaton on a date and at a pace to be f ed by hm. The
Commssoner or dstrct supervsor, as the case may be, after hearng such appcaton,
may ether affrm the order of revocaton prevousy made, or may vacate and set asde
such order and dsmss the proceedngs or order a new hearng of the evdence before a
desgnated hearng offcer.
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4 9 Regs. 6, 1 .64.
DISTILL D SPIRITS.
INT RN L R NU COD .
Reguatons 6, Secton 1 .64: Losses and 1945-17-12125
pans n bottng to be ta -pad. T. D. 5472
TITL 26 INT RN L R NU . C PT R I, P RT 1 . OTTLING O
DISTILL D SPIRITS IN OND.
mendng Reguatons 6.
Washngton 25, D. C.
Pursuant to sectons 2 00, 2903, 2904, 3172, 3176, and 3640. Interna
Revenue Code, secton 1 .64 of Reguatons 6 (26 C R, Part 1 ) s
hereby amended to read as foows:
Sec. 1 .64. Losses n ottno to be Ta -Pad. osses sustaned In the
process of bottng, on dsted sprts botted before ta -payment, must be ta -
pad. When orms 1516 have been audted, the dstrct supervsor sha prepare
notce on orm 1607, Notce of Ta Due on Losses of Sprts otted n ond,
n trpcate, for each nterna revenue bonded warehouse, showng thereon the
tota osses n bottng for the month upon whch ta s due. The orgna copy
thereof w be forwarded to the propretor of the nterna revenue bonded ware-
house on whose premses the bottng-n-bond department s stuated, and one
copy w be transmtted to the proper coector of nterna revenue. The thrd
copy of the notce w be fed n the dstrct supervsor s offce. If the ta payer
dues not wthn 30 days from date of such notce pay the ta due, the coector
sha enter the amount for assessment on hs current Dsted Sprts Lst. t
the end of 60 days from the date of the notce, the dstrct supervsor sha ascer-
tan from the coector whether the amount of the ta due has been pad or
assessed, and approprate notatons w be entered on the retaned copv of the
form. ( Sees. 2 00, as amended, 3172, 640, L R. C.)
Ths reguaton sha take effect from and after the date of fng
wth the Dvson of the edera Regster.
oseph D. Nunan, r.,
Note. The astersk at the end of sectons refers to sectons 2903, 2904, and 3176 of
the Interna Revenue Code.
6 4354 46 32
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Regs. 6, 1 .56, etc.
490
Reguatons 6, Sectons 1 .56, 1 .70, and 1945-14-120 9
1 .72. T. D. 5464
TITL 20 INT RN L R NU . C PT R I, P RT 1 . OTTLING O
DISTILL D SPIRITS IN OND.
mendng Reguatons G.
Offce of Covmssoneh of Interna Revenue,
Washngton 25, D. C.
Pursuant to sectons 2 71, 2903, 2901, 2905, and 3176, Interna
Revenue Code, Reguatons 6 (20 C R, Part 1 ) s hereby amended
as foows:
Secton 1S .56 s amended to read as foows:
Sec. 1 .56. ottng Conducted Under Supervson of Storekekter-
Gauoer. The entre operaton of bottng sprts n bond, ncudng the wth-
drawa of the sprts from the packages, the effacement and obteraton of every
mark, brand, and stamp on the packages empted, the stranng of the sprts
and ther reducton by the addton of pure water to the proof requred by aw,
the fng and stampng of the bottes and the casng of the bottes, and the
mmedate remova of the eases from the bottng-n-bond department upon the
competon of bottng of each ot w be performed by the propretor of the
warehouse under the mmedate supervson of the storekeeper-ganger: Pro-
vded, That the storekeeper-ganger sha determne the proof of the sprts n
the tank after reducton and pror to reease for bottng, and make appro-
prate entres on orm 1515. The proof of the sprts sha be ad|usted to a
whoe degree of proof In accordance wth the provsons of the Gaugng Manua
(26 C R, Part 1SG) preparatory to fng bottes. d|ustng the proof to tenths
of a degree, ether above or beow the whoe or compete degree, w not be
permtted: Provded, That when sprts are beng prepared for bottng n bond
for e port and are to be botted and abeed In tenths of a degree of proof,
such as 6.6, the proof of the sprts sha be ad|usted to such tenths of a degree
of proof. The proof n each nstance sha be verfed as to accuracy by the
Government offcer. The proof w be determned n accordance wth the rues
stated In the Gaugng Manua (26 C R, Tart 1 6). Whe the storekeepor-
gauger s charged wth the duty of requrng compance wth the provsons
of the aw and reguatons by the persons engaged n the varous operatons of
bottng the sprts, hs faure n any nstance w not reeve the propretor
of the warehouse from responsbty.
Secton 1 .70 s amended to read as foows:
Sec. 1 .70. Lquor otter. The propretor must compy wth the provsons
of Reguatons 13 (26 C R, Part 175), respectng the use of propery marked
quor bottes. Sprts may be botted n bond for domestc purposes n the
foowng-szed bottes and no others: 1 quart, quart, 1 pnt, pnt, pnt,
o pnt, and, n the case of brandy, a pnt. ottes must be fed as neary
as possbe to conform to the amount stated on the stamp, abe or botte, to be
contaned theren, but n no event may the amount of sprts contaned n any
botte, due to the ack of unformty of the bottes, vary more than 2 per cent
from the amount stated to be contaned theren and, further, n such case
there sha be substantay as many bottes overfed as there are bottes under-
fed for each ot of sprts botted as reported on orm 1515. ( Sec. 2 71,
I. R. C.)
(o) ottes for e port. Dsted sprts may be botted n bond for e port
In the foowng-szed bottes and no others: 1 quart, quart, 1 pnt, pnt,
and ess than pnt. ottes of ess than one-haf pnt capacty may be of
the sze desred. Lquor bottes as defned n Reguatons 13 (26 C R, Part
175) may be used but w not be requred In bottng dsted sprts n bond
for e port. ( Sees. 2 71, 2905, I. R. C.)
Issued under authorty of sectons 2903, 2904, and 3176, Interna Revenue Code.
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491 Regs. 6, 1 .56, etc.
Sectons 1 .72(6), 1 .72(c), 1 .72(d), and 1 .72(c) are
Sec. 1SS.72( ). Comparson of Labes Wth Contents of ottng Tank.
w requre the propretor to submt to hm the abe be proposes to use for
the sprts n the bottng tank, together wth the certfcate of abe ap-
prova or the certfcate of abe e empton, as the case may be, and he w
compare such abe wth the abe aff ed to such certfcate to see that
they agree n every respect e cept for the dfferences aowed by the
certfcate. e w then compare such abe wth orm 1515 to determne
whether the abe to be used corresponds n every respect wth the sprts n the
bottng tank, ncudng age, cass and type, and proof. In makng ths deter-
mnaton he w take nto consderaton the knd of sprts, the proof of dsta-
ton, the knd of cooperage n whch the sprts were stored, and whether the
sprts were treated wth oak chps, etc., as dscosed by the marks and brands
on the packages and entered on orm 1515. If the abe and sprts agree n
every respect, the Government offcer w attach the abe securey to the copy
of orm 1515 to be attached to the bottng tank and reease the sprts for bottng.
If the abe and sprts do not agree n every respect, the Government offcer w
wthhod the reease of the sprts for bottng unt the propretor submts to hm
a abe and a certfcate of abe approva or e empton, as the case may be, cor-
recty descrbng the sprts to be botted.
Sec. 1 S.72(c). ddtona Labe Requrements. Offcers assgned to bottng-
n-bond departments of nterna revenue bonded warehouses w aso see that a
abes aff ed to contaners of dsted sprts sub|ect to the provsons of Reg-
uatons 13 (20 C R, Part 175) conform to the requrements of such regua-
tons. The methods prescrbed n secton 1 .72(6) w be foowed n makng
such determnatons.
Sec. 1 .72(d). Tests of otted Sprts. Offcers assgned to bottng-In-bond
departments w, at frequent, rreguar ntervas durng the process of bottng,
test and e amne the botted sprts to determne (a) whether the abe attached
s dentca wth the abe verfed by the Government offcer under secton
1 .72( 6) (6) whether the botted sprts agree n proof wth the data on the abe
and stamp and (c) whether the quantty agrees wth the data on the abe, stamp
or botte, sub|ect to the mtaton prescrbed by secton 1 .70. The test as to
proof w be made by the use of standard gaugng nstruments n accordance
wth the provsons of the Gaugng Manua (26 C R, Part 1 0). The test as to
quantty w be made (a) by the utzaton of a gass graduate standardzed at
60 degrees ahrenhet to be provded by the propretor or (b) by weghng a
gven number of empty bottes and reweghng the same bottes after tng. The
net contents w be computed n accordance wth the provsons of the Gaugng
Manua (26 C R, Part 1 6). If the contents do not agree as to quantty (sub|ect
to the mtaton of secton 1 .70) or as to proof (sub|ect to a norma drop n
proof occurrng durng bottng operatons not to e ceed three-tenths of a degree)
wth the respectve data on the abe, stamp or botte, the Government offcer
w wthhod reease of the botted sprts and requre the propretor to rebotte,
recondton (where permssbe), or reabe the sprts n such manner that the
abe w correcty descrbe the contents. owever, the proof at the begnnng
of the bottng operatons sha aways be set e acty as provded In secton
1 .56.
Seo. 1 .72(f). Propretor s Responsbty. Notwthstandng that Govern-
ment offcers assgned to bottng-n-bond departments of nterna revenue bonded
warehouses are requred to verfy abeng datn, fu responsbty rests upon the
propretor to see that the abeng of a sprts botted at hs pant s n con-
formty wth the requrements of the edera coho dmnstraton ct and
reguatons ssued thereunder, and Reguatons 13 (26 C R, Part 175).
( Sec. 2 71, t R. C. Sec. 505, 49 Stat., 1C65 27 U. S. C, Sup., 205.)
pproved uy 11,1945.
( ed wth the Dvson of the edera Regster uy 12, 1945, 4.19 p. m.)
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Regs. 11, 1 9.65, etc.
492
Reguatons 11, Sectons 1 9.65,1 9.79,
1 9.91, 1 9.116, 1 9.117, 1 9.11 , 1 9.119.
1945-14-1209O
T. D. 5465
TITL 26 INT RN L R NU C PT R I, T RT 1 9. OTTLING O
T -P ID DISTILL D SPIRITS.
Pursuant to sectons 2 01 (b), 2 03,2 71, and 3176, Interna Revenue
Code (U. S. C, Tte 26, Sees. 2 01 (b), 2 03, 2 71, and 3176), Regua-
tons 11 (26 C R, Part 1 9) s hereby amended as foows:
Secton 1 9.65 s amended to read as foows:
Sec. 1 9.65. ppcaton, orm 230. Propretors of ta -pad bottng houses
desrng to botte ta -pad sprts w e ecute appcaton on orm 230, n dup-
cate, gvng a of the data caed for by the form as ndcated by the headngs
of the coumns and nes and the nstructons prnted thereon. The propretor
w enter on orm 230 the detas of the wthdrawa gauge for ta -paynont
when packages of sprts are to be dumped for bottng, or when queurs or cor-
das are authorzed to be botted from the orgna packages as provded n secton
1 9.7 . n actua gauge of the sprts w, however, be made n ether case before
the bottng begns. The proof of sprts sha be ad|usted to a whoe degree of
proof u accordance wth the provsons of the Gaugng Manua (20 C R, Part
1 0) preparatory to bottng. d|ustng the proof to tenths of a degree, ether
above or beow the whoe or compete degree, w not be permtted: Provded,
That when sprts are beng prepared for bottng and are to be botted and
abeed n tenths of a degree of proof, such ns 0.6, the proof of the sprts sha
be ad|usted to such tenths of a degree of proof. The proof n each nstance
sha be verfed as to accuracy by the Government offcer. The propretor w
enter the detas of hs gauge on orm 230, as provded In sectons 1 9.77 and
1 9.7 . ach orm 230 w be gven a sera number begnnng wth 1 for the
1st day of anuary of each year and runnng consecutvey thereafter to De-
cember 31, Incusve. separate appcaton on orm 230 must be prepared for
each ot of ta -pad sprts to be botted.
Sec. 1 9.79. Reducton of Ta -Pad Rectvkd Sprts Prohbted. The re-
ducton n proof or the ncreasng n voume, at a ta -pad bottng house, of
rectfed sprts on whch the rectfcaton ta has been pad s prohbted by aw.
owever, the restoraton to the orgna proof and voume of rectfed sprts
upon whch the rectfcaton ta as been pad, by the addton of water, prepara-
tory to bottng, sha not be deemed a reducton n proof or an ncrease n
voume wthn the meanng of secton 2 01(b) of the Interna Revenue Code.
Lqueurs and cordas upon whch the ta mposed by secton 3030(a) of the
Interna Revenue Code has been pad, may not be reduced n proof or ncreased
n voume, nor may wnes be ncreased n voume or n ta abe grade, at a ta -
pad bottng house. Secton 2 01(b) of the Interna Revenue Code s not app-
cabe to the reducton of mported sprts rectfed abroad, or of sprts rectfed
n Puerto Rco, the rgn Isands, or the Phppne Isands, or of domestcay
rectfed sprts e empt from rectfcaton ta . ( Sec. 2 01(b), I. R. C.)
Sec. 1 9.91. Lquor Pott.ks. The propretor of a ta -pad bottng house must
compy wth the provsons of Reguatons 13 (26 C R, Part 175), respectng the
Washngton 25, D. C.
rtce I . Dumpng and ottng.
Issued under authorty of sectons 2 03, 2 71, and 3176, Interna Revenue Code.
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493
Regs. 11, 1 9.65, etc.
use of quor bottes and other contaners for rectfed and unrectfed products.
Marked quor bottes may not be used for packagng wnes contanng 24 per cent
or ess of acoho by voume, or products manufactured wth such wnes, uness
such products contan dsted sprts other than those used n fortfyng the
wne. ottes must be fed as neary as possbe to conform to the amount stated
on the stamp, abe or botte, to be contaned theren, but In no event may the
amount of sprts contaned n any botte, due to the ack of unformty of the
bottes, vary more than 2 per cent from the amount stated to be contaned theren
and. further, n such case there sha be substantay as many bottes overfed
as there are bottes underfed for each ot of sprts botted as reported on orm
1515.
rtce I. Labes on ottes of Dsted Sprts.
Sect on 1 9.116 s amended to read as foows:
Sec. 1S9.116. Comparson of Labes Wth Contents of ottno Tank.
w requre the propretor of the ta -pad bottng house to submt to hm the
abe he proposes to use for the sprts In the bottng tank, together wth the
certfcate of abe approva or the certfcate of abe e empton, as the case
way be. and n the case of mported sprts the certfcate of orgn, age, and
cass and type referred to n secton 1 9.115, and he w compare such abe wth
the abe aff ed to such certfcate to see that they agree n every respect e cept
for the dfferences aowed by the certfcate. e w then compare such abe
wth orm 230 to determne whether the abe to be used corresponds n every
respect wth the sprts n the bottng tank, ncudng age. cass and type, and
proof. In makng ths determnaton he w take nto consderaton the knd
of sprts, the proof of dstaton, the knd of cooperage n whch the sprts
were stored, and whether the sprts were treated wt oak chps, etc., as dscosed
by the marks and brands on the packages and entered on orm 230. If the abe
and sprts agree n every respect, the Government offcer w attach the abe
securey to the copy of orm 230 to be attached to the bottng tank and reease
the sprts for bottng. If the abe and sprts do not agree n every respect,
the Government offcer w wthhod the reease of the sprts for bottng unt
the propretor submts to hm a abe and a certfcate of abe approva or
e empton, as the case may be, correcty descrbng the sprts to be botted.
( Sec. 505, 49 Stat., 1965 27 U. S. C, Sup., 205.)
Sec. 1 9.117. ddtona Labe Requrements. Offcers assgned to ta pad
bottng houses w aso see that a abes aff ed to contaners of dsted
sprts sub|ect to the provsons of Reguatons 13 (20 C R, Part 175) conform
to the requrements of such reguatons. The methods prescrbed n secton
1 9.116 w be foowed n makng such determnatons.
Sec. 1 9.11 . Tests of otted Sprts. Offcers assgned to ta -pad bottng
houses w, at frequent. Irreguar ntervas durng the process of bottng, test
am e amne the botted sprts to determne (a) whether the abe attached
Is dentca wth the abe verfed by the Government offcer under secton
1 9.116 (6) whether the botted sprts agree n proof wth the data on the
abe and (c) whether the quantty agrees wth the data on the abe, stamp or
botte, sub|ect to the mtaton prescrbed by secton 1 9.91. The test as to
proof w be made by the use of standard gaugng nstruments n accordance
wth the provsons of the Gaugng Mannua (20 C R, Part 1 6). The test as to
quantty w be made (a) by the utzaton of a gass graduate standardzed
at 60 degrees ahrenhet to be provded by the propretor or (6) by weghng
a gven number of empty bottes and reweghng the same bottes after fng.
The net contents w be computed n accordance wth the provsons of the
Gaugng Manua (26 C R, Part 1 6). If the contents do not agree as to quantty
(sub|ect to the mtaton of secton 1 9.91) or as to proof- (sub| ct to a norma
drop n proof occurrng durng bottng operatons not to e ceed three-tenths
of a degree) wth the respectve data on the abe, stamp or botte, the Government
offcer w wthhod the reease of the botted sprts and requre the propretor
to rebotte, recondton (where permssbe), or reabe the sprts n such manner
that the abe w correcty descrbe the contnts. owvr, th proof at the
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Regs. 23, 197.21.
494
begnnng of the bottng operatons sha aways be set e acty as provded n
secton 1S9.05.
Sec. 1 9.119. Propretor s Responsbty. Notwthstandng that Government
offcers assgned to ta -pad bottng houses are requred to verfy abeng data,
fu responsbty rests upon the propretor to see that the abeng of a sprts
botted at hs pant s n conformty wth the requrements of the edera coho
dmnstraton ct and reguatons ssued thereunder, and Reguatons 13
(20 C R, Part 175).
oseph D. Nunan, r.,
pproved uy 11,1945.
OS PII . O CoNN LL, r.,
ctng Secretary of the. Treasury.
( ed wth the Dvson of the edera egster uy 12, 1945, 4.20 p. m.)
S CTIONS 3259(0(3) ND 4041(a).
Reguatons 29, Secton 197.24: Supportng data. 1945-15-12104
T. D. 5467
TITL 26 INT RN L R NU . C PT R I. SU C PT R C. P RT 197.
DR W C O T ON DISTILL D SPIRITS US D IN T M NU CTUR
O NON R G PRODUCTS.
Washngton 2-5, D. O.
To Coectors of Interna Revenue, Dstrct Supervsors, and Others
Concerned:
Pursuant to sectons 3250(1) (3) and 4041(a), Interna Revenue
Code, secton 197.24(c) of Reguatons 29 (26 C R, Part 197) s
hereby amended by addng at the end thereof two new paragraphs
numbered (3) and (4) readng as foows:
(3) The procedure prescrbed n paragraph (2) w govern the fng of quan-
ttatve formuas for nonbeverage products to be manufactured pror to pr 1,
1941). Manufacturers ntendng to fe drawback cams coverng dsted sprts
used n the manufacture of nonbeverage products produced on and after pr 1,
1946, sha submt new quanttatve formuas coverng a such preparatons drect
to the Deputy Commssoner, coho Ta Unt, Washngton 25, D. C, on or
before anuary 1, 1940, on orm No. 167 , n trpcate e cept that quanttatve
formuas need not be submtted f the products are medcna preparatons, tnc-
tures, or fud e tracts produced under formuas prescrbed by the Unted States
Pharmacopea, the Natona ormuary, or the mercan Insttute of ome-
opathy, and such products are dentfed n the supportng data by name and
foowed by the etters U. S. P., N. ., or . I. ., as the case may be.
In the case of food products, suc as preserved fruts, cakes, buns, soups, etc., t
w be suffcent f the formuas therefor show the quantty of proof gaons of
dsted sprts used n the producton of a gven quantty of fnshed product.
new seres of numbers w be gven the new formuas commencng wth No. 1
and contnung thereafter n numerca sequence. mended or revsed formuas
w be consdered as new formuas and seray numbered accordngy. Manu-
facturers camng drawback on dsted sprts used n nonbeverage products
produced durng the perod from anuary 1, 1946, to March 31, 1946, ncusve,
for whch quanttatve formuas have not been fed under these reguatons, w
observe the procedure prescrbed n paragraph (2), and f such products are to
be manufactured on or after pr 1, 1946, new formuas therefor sha be sub-
mtted on orm No. 167 n accordance wth ths paragraph.
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495
Msc.
(4) On and after pr 1, 1946, formuas for nonbeverage products sha be
submtted to the Deputy Commssoner, coho Ta Unt, Washngton 25, D. 0.,
before or at the tme of manufacture of the products. Upon recept by the
Deputy Commssoner, the formuas w be e amned and f found to be med-
cnes, medcna preparatons, food products, favors or favorng e tracts whch
re unft for beverage purposes, they w be approved. If the formuas do not
meet the requrements of the aw for drawback products, they w be dsapproved.
No drawback w be aowed on dsted sprts used n a dsapproved product,
uness such product s ater used In the manufacture of an approved nonbeverage
product. One copy of each formua w be retaned by the Deputy Commssoner,
one copy returned to the manufacturer, and one copy w be sent to the dstrct
sup rvsor for tng. The formuas returned to manufacturers sha be fed In
sera order by the manufacturer and made avaabe for e amnaton by nterna
revenue offcers n the nvestgaton of drawback cams. The copes sent to
dstrct supervsors sha kewse be fed n sera order, avaabe for e amna-
ton by drawback audt cerks and aboratory chemsts.
Wm. T. Sherwood,
1945-19-12146
T. D. 5477
TITL 20 INT RN L R NU . C PT R I, P RT 1 6. G UGING M NU L.
mendng the Gaugng Manua.
Offce of Commssoner of I tkrna Revenue,
Washngton 2o, D. C.
Pursuant to the provsons of sectons 2 0 and 317G, Interna
Revenue Code, the Gaugng Manua, approved November 21, 193
(secton 1 (, Tte 20, C ), s hereby amended as foows:
Paragraph 13(a) s amended to read as foows:
Par. 13. (a) The proof of acoho In recevng csterns of ndustra acoho
pants and the proof of sprts n csterns of dsteres sha be ad|usted to a
whoe or compete degree of proof before beng removed therefrom: Provded,
That the proof of acoho transferred by ppe ne from recevng csterns of
ndustra acoho pants to ndustra acoho bonded warehouses or denaturng
pants, and the proof of sprts transferred by ppe ne from cstern rooms of
frut dsteres to fortfyng rooms of bonded wneres need not be so ad|usted.
The proof of acoho or other sprts at ndustra acoho bonded warehouses,
bottng-n-bod departments of nterna revenue bonded warehouses, rectfyng
pants, and ta -pad bottng houses sha be ad|usted to n whoe degree of proof
preparatory to fng contaners such as tank cars, barres, drums, or bottes.
d|ustng the proof to tenths of a degree, ether above or beow the whoe or
compete degree, w not be permtted: Provded, That when ta -pad sprts at
rectfyng pants and ta -pad bottng houses and unta -pad sprts for bottng
n bond for e port at bottng-n-bond departments of nterna revenue bonded
warehouses are beng prepared for bottng and are to be botted and abeed n
tenths of a degree of proof, such as 6.6, the proof of the sprts sha be ad|usted
to such tenths of a degree of proof. The restoraton to the orgna proof and
voume of rectfed sprts upon whch the rectfcaton ta has b en pad, by the
addton of water, preparatory to bottng, sha not be deemed a reducton n
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496
proof or nn ncrease n voume wthn the meanng of secton 2 01(b) of the
oseth D. Nu an, r.,
os r- . O Conne, r.,
Gaugng Manua (193 ), Paragraphs 13, GO. 1945-14-12091
T. D. 5406
TITL 2C INT RN L R NU . C PT R I, P RT ISO. G UGING M NU L.
mendng the Gaugng Manua.
Washngton 25, D. C.
Pursuant to the provsons of sectons 2 0 and 3176, Interna Reve-
nue Code, the Gaugng Manua, approved November 21, 193 (secton
1 6, Tte 26, C R), s hereby amended as foows:
Paragraph 13(a) s amended to read as foows:
Pab. 13. (a) The proof of acoho n recevng csterns of ndustra acoho
pants and the proof of sprts n csterns of dsteres sha be ad|usted to a
whoe or compete degree of proof before beng removed therefrom. The proof
of acoho or other sprts at ndustra acoho bonded warehouses, bottng-n-
bond departments of nterna revenue bonded warehouses, rectfyng pants, and
ta -pad bottng houses sha be ad|usted to a whoe degree of proof preparatory to
tng contaners such as tank cars, barres, drums, or bottes. d|ustng the
proof to tenths of a degree, ether above or beow the whoe or compete degree,
w not be permtted: Provded. That when ta -pad sprts at rectfyng pants
and ta -pad bottng houses and unta -pad sprts for bottng n bond for e port
at bottng-n-bond departments of nterna revenue bonded warehouses are beng
prepared for bottng and are to be botted and abeed n tenths of a degree of
proof, suc as 0.6, the proof of the sprts sha be ad|usted to such tenths of a
degree of proof. The restoraton to the orgna proof and voume of rectfed
sprts upon whch the rectfcaton ta has been pad, by the addton of water,
preparatory to bottng, sha not be deemed a reducton n proof or an ncrease
n voume wthn the meanng of secton 2 01(b) of the Interna Revenue Code.
Paragraph 60 s amended by the addton of a new subparagraph,
ettered (k), readng as foows:
Pab. 60. (k) Where sprts are quck-aged, by any process, n packages at any
tme pror to ta -payment, the etters . . w be burned, cut, or stenced
upon the head of the package when such quck-agng s competed.
oseph D. Nunan, r.,
( ed wth the Dvson of the edera Regster uy 12, 1945, 4.19 p. m.)
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497
Msc.
OL OM RG RIN .0
1945-1-11925
MS. 2 2
Schedue of oeomargarne produced and materas used durng the month of
November, 1944, compared wth November, 19 S.
November,
1 44.
Nove her.
1943.
Pounds.
52. 0 . 592
Poundt.
60.555,025
Ingredent schedue of unooored oeomargarne:
51. 930.662
4 . 15 . 24
utter favor - - .
34
231
5
Cottonseed fakes
4 . 424
1.229.970
45.915
25,711.9 3
.010
,295
103
Cottonseed o .
22.709.775
Cottonseed stearne
Dervatve of gycerne
6.030
Dacety
stearne
.937
61. 153
9.21 .963
43. 09
711.529
623. 023
22 .05
S . 2 5
Lecthn
49.942
. 10. 25
3 ,129
905. 177
1. 114. 279
27 ,003
99.202
346.250
1,622. 240
30.124
11,3 7,93
Mk
Monostearfne .
Neutra ard
Oeo of
Oeo stearne .
Sat
1, 622 4 0
33.235
17, 125. 97
12. 10
Soda (benzonte of)
Soya bean o.
oy a bean stearne .
Taow - -
25.220
10, 4 7
tamn concentrate
9.744
Tota
54. 005. 064
51. 01, 55
Tota producton of coored oeomargarne..
12,463.049
1. 60. 315
Tota wthdrawn ta -pad
1. 93. 420
55. 305
utter favor t
6
3
Coor
701
Z022
7,497
4 3.922
2,005
1
Corn o
Cottonseed o -
Dervatve of gycerne

1 3
1.235
362. 925
1.630
51. 674
37. 634
400
41 1
0. 65
1. 1-
1, 2 6, 533
366
steftrne
Lecthn
91
305. .319
9 6
45, 490
1,691
1,763
5, 025
63,316
907
7, 02
404
Mk
Monostearne
Neutra ard
Oeo o
Sat
2. 43S, 753
1, S, 327
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
1 Of the amount produced, 5,f21 pounds were reworked.
10f the amount produced, 4,46 pounds were reworked.
Of the amount produced, 0,003 pounds were reworked.
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Msc.
49
1945-4-11976
MS. 2 3
December, 19P a compared wth December, W /S.
December,
1944.
December,
1943.
Pount.
I 49.413.5 5
Pound).
37,794. 44
Ingredent schedue of uncoorcd oeomargarne:
50, 237, 466
39.573,554
utter cuture
43
192
I
utter favor
1, 933
243
1,011,630
21, 521, 723
45
7,356
99
7.79
57, 1
, 773. 2 3
35. 692
634, 173
562, 340
215, 476
5.366
440, 119
1,560.966
29.923
15.612,513
2.922
Ctrc acd
Corn o..
OS), 363
: . 2n M .
11,570
Dervatve of gycerno

Dacety
39.449
6, 559,417
34,2 7
674,030
757,33S
205,350
49,5 7
441.279
1, 190, 732
24.794
7,355.094
Mk
Neutra ard
Ocoo
Peanut o
Sat
42,92
14.657
7,770
Taow
,364
Tota
50.649, 15
3 ,664,072
3,010,200
11,946,90
Ingredent schedue of coored oeomargarne:
Coor
2, 169,94
1, 752,125
23
5.043
2,36
26, 715
79
20,4 0
11,1 0
67 ,739
2
2, 14
4
a w
1 4
Mk
1, 19
517,211
1.645
52, 243
30.645
1.500
15.950
401
9 ,333
1,5 5
1,4 1,371
400
350
3,9 9
1. 2. 6
4 2
103.359
134,9 2
Oeoo
Orc- st arne .
127,392
11 0
414,141
10,074
, 761, 335
Soda (ben oateof)
Sova fakes
2.S79
Tota
3,040,604
12,051.04
Of the amount produced, 7.354 pounds were reworked.
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499
Msc.
1945-5-119 6
MS. 2 4
anuary, 1945, as compared wth anuary, 1944.
anuary, 1945.
anuary, 1944.
Pounds.
1 55, .112
Pounds.
43, 07, 39
56, 56,676
43, 730, 190
492
17
137
1
Coor
173
35. 42
25, 221, 499
5,517
21, 59S, 44
,013
79, 946
76
stearne - ................. ........
9, 3
3
.707
6 ,302
9, 977. 203
1,2.
752, 6
63 ,931
1 7. 9
120. 3 0
1, 473. 91
1,691.050
34. 535
16,097. 24
9,31
2,945
6.040
44,171
7,627,511
33,513
635. 3 0
659,067
296. 7 6
61, 36
1, 200. 213
1,3 7. 44
27, 52
10,307, 4
Peanut o
Sat
Soya bean o ... . .
Soya bean stearne .....
Soya fakes . -
5, 106
Sunfower o
Taow
,633
22.630
, 56
Tota
57,2 , 939
44, 90, 04
3, 462,079
11.425,439
2, 573, 255
1,03 ,336
15
123
6.630
1,097
654. 4
19. 679
14
Coor -
34.206
6,216
1, 109. 307
2,969
16
225
3.393
559.905
6, 541
94. 933
7. 003
23. 650
12,666
105,2 1
3. 027
1, 453. 344
3,570
436
Dacety
stearne
Lecthn
3,647
1, 7 2, 246
MDt
5. 342
437,0 7
412. 967
360, 4
Neutra ard.
Oeo o
Oeostock
Peanut o
4. 7
392, 075
Sat
7, 421
7.493, 06
oya bean o..
Soya fakes
, 14
1,929
Tota
3, 506, 763
11,493, 10
1 Of the amount produced, 3R.902 pounds were reworked.
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Msc.
500
1945-7-12009
MS. 2 5
ebruary, 1945, as compared wth ebruary, 1944.
obruary,
1945.
Tota producton of uncoorcd oeomargarne.
Tota wthdrawn ta-pad
utter cuture
utter favor
Ctrc ncd
Corn o.
Cottonseed o -
Cottonseed stearno
Dervatve of gycerne
Dncety.
.stearno
Lecthn
Mk
Monostearno
Nutrn ard
Oco o
Oeo stearno
01(h) stock _
I eanut o
Sat
Soda (benoate of)
Soya bean o -
Soya bean stearne
Sova fakes
Taow
tamn concentrate
Tota.
Tota producton of coored oeomargarne.
utter favor
Ctrc acd
Coor
Corn o
Cottonseed o
Dervatve of gycerne
Dacety
stcarne
Lecthn
Mk
Monostearne.-
Neutra ard
Oeo o
Oeo stearne - -
Oeo stock
Peanut o
Pat
Soda (benoate of)
Soya bean o
Soya fakes
tamn concentrate
Tota....
Pound .
47, 772. 532
4 .491,201
31
3 1
n
79,3 4
22, 949, 725
02,374
74
7.31S
5 ,531
, 410. 107
33,54
590. 526
695,037
216, 4 2
63.057
1,05 .2 3
1. 477. 5 2
29.3 2
12,411. 151
1, 512
356
10,273
4S. 9 3. 312
3,979. 779
2, 556, 71
21
4.967
,007
L 49 .576
4,34
2.679
660, 292
1.292
104.065
92. 90
209
21.750
7.303
131.231
1.542
1.471.311
2, 0
615
4,014. 139
1 Of the amount produced, ,9 0 pounds were reworked.
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501
Msc.
1945-9-1203
MS. 2 6
March, 1945, as compared wth March, 1944.
March, 1645.
March, 1944.
Tota producton of uncoored oeomargarne
Tota w thdraw n ta -pad
Ingredent schedue of uncoored oeomargarne:
utter cuture
utter favor
Ctrc acd
Corn o
Cottonseed o...
Cottonseed stearne
Dervatve of gycerne
4.N, 11 ,312
Ocoo.
Oeo stearne
Oeo stock ,
Peanut o
Sat
Soda (bentoatc of)
Soya hoan o
Soya bean stearne
Soya fakes
Taow
tamn concentrate..
Tota
utter favor
Ctrc acd
Coor
Corn o
Cottonseed o
Dervatve of gycerno
Dacety
stearne.
Lecthn
Mk
Monostcarne
Neutra ard
Lard fakes...:
Oeo o
Oeo stearne
Oeo stock
Peanut o
Sat.
Soda (benroatc of)
Soya benn o
Soya bean stearne
concentrate. .
Tota..
1,00.1
ua
M, 175
22, 26,313
92, 731
65
7.50
54. 924
, 21 I), 5 2
29,452
624. 731
767,41
141, 220
72 773
639 6
1,443.5 3
2 . 4 2
12, 30 . 0
1. 50
1,4 1
. 370
4 , 201, 330
1 7, 56 .046
2, 343. 512
15
5,1133
13.447
1, 659. 2 7
6. 394
2
119
4, 115
1, 253.049
7, 059
222. 454
397, 34
1.306
54. 000
. 2,6 1
261. 440
6. 101
3, 702, 359
2, 050
1,043
7, 059, 9 4
1 oundf.
39, 413.912
40.075. 225
1, 527
73
1.06 , 52
a 13 , 4
3,02
62, 059
4
. 766
37. 997
6, 39, 622
2 . 460
597,712
1. 235
26. 137
1.209.039
I, 290. 609
23,960
10,024. 056
39, 460
46.312
7, 421
40, SSI. 214
1 .444, 2 7
1, 239. 93
521
13
9. 57
1. 240
51.907
20, 560
24
1. 323
4,6 3
2, 25, 597
5, 913
370, 257
166
465, 405
1 9. 070
6.032
61 . 5 3
12,550
13,025,772
7. 055
14.3 O
2,972
1 ,433, 11
1 Of the amount produced, 19,446 pounds were reworked.
1 Of the amount produced, 36 pounds were reworked.
Of the amount produced, 376 pounds were reworked.
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#
p
d
-
g
o
o
g
e
Msc.
502
1945-11-12054
MS. 2 7
pr, 19- 5, OS compared wth pr, 1944.
pr. 1945.
Tota producton of uncoored oeomargarne..
Pounds.
46. 367.061
utter cuture .
utter favor
Ctrc acd
Com o
Coto fakes
Cottonseed o
Dervatve of gycerne
Dacety
stearnc
Lecthn
Mk
Monostearnc - _
Neutra ard...
Oeo o -
Oco stearne
Oeo stock _
Peanut o
Sat.
Soda (benzoatc of) _
Soya bean o
Sova bean stearne
Taow
tamn concentrate
Tota..
utter favor
Coor
Corn o
Cottonseed o
Dervatve of gycerne
Dacety
stearnc _
Lecthn
Mk
Monostearnc - -
Neutra ard
Lard fakes
Oco o
Oeo stearne
Oeo stock
Peanut o
Sat
Soda fbenzoatc of)
Soya bean o - ---
Soya bean stearne
Soya fakes
tamn concentrate
44, 700,514
624
193
772,09
3.500
24, 720. 93
76,102
76
,695
55,239
7, 973, 792
42,135
3M.404
497, 321
233,050
2 .92
494, 955
1,427,114
30.662
10, 51 ,647
. . .
11, 720
47,251, 52
9,2 2,616
2,131, 237
43
6.0 7
3.66S
1,103,071
,63
25
953
4.0 0
1. 514, 513
5, 147
230, 069
570, 1 3
5_744
14,500
10
301,997
6,166
6, 4 7, 302
Tota..
12,474
1,314
9, 2S2,079
1 Of the amount produced, ,100 oounds were reworked.
1 Of the amount produced, 1.910 pounds were reworked.
1 Of the amount produced. 44 pounds were reworked.
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#
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o
o
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e
503 Msc.
1945-13-1207
MS. 2
May, 1945, as compared th May, 1944.
May, 1945.
May, 1944.
Pound).
42, DM, 12
Pound .
30.071,31
40.04 ,67
0, 34.215
269
17
0 ,410
22,601,430
72
77,164
2
6,226
4 , 70
7, 02,092
34,302
233,644
314,63
212, 19
24,966
325,943
1,347.442
27,950
10,556, 62
672
9,226
6
132
2
1,036,3011
13,342, 597
Mk
46,123
71
6,791
32, 775
5,2 4,941
26.9 5
439. 507
446,069
297, 44S
44,061
245,31
96 , 371
1 .956
,6 7,149
tamn concentrate _
,4 1
Tota
4-1.(133. 15
30, 90. 0f 3
11,339,645
14,40 ,209
1,42 .033
1,011,3 4
16
7.907
4. 47
503.302
6,47
12,09
24
1.569
5,650
1,900, 09
,562
347,014
114
731, 09
643
124. 500
1.34
3 2. 539
.457
7,421. 47
4.177
2,6 1
,423
649
3 5,654
60
1 ,45
23
242
3. 51
2,155, 35
3.560
465,006
49.991
1,209,414
211,443
40
503, 326
,796
9,350.917
5,400
3.0 5
11,476,229
14, 374. 655
Of the amount produced, 2,fG2 pounds were reworked.
Of the amount produced, 45,0 5 pounds were reworked.
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#
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g
o
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Msc.
504
1945-16-12112
MS. 2 9
une, 1945, as compared wth une, 1944.
udo, 1945.
Tota producton of uncoorcd oeomargarne
utter cuture.. _
utter favor..
Ctresck ,
Corn o -
Pounds.
35.043.447
372 I
Cottonseed fakes..
Cottonseed o..
Cottonseed stearne
Dervatve of gycerne.
Dacety
stc rne
Lecthn
Mk
Monostcarne
Neutra ard I
Oeo o
Oeo stearn
Oeo stock-
Peanut o.
237
121
C22.474
3.7M
19,299.015
at
Soda (bonoate of)--
Soya fcean o
Soya ean stearne..
Taow.....

_ r
67,324
53
,117
37.61S
6,046, 167
26, n
152. 64
19 , 29
76.239
22.070
25a 109
1,031.121
24,437
7, 56,600
44
1. 00
7,017
Tota producton of coored
Tota wthdrawn ta -pad..
Ingredent schedue of coored
utter favor
Coor
Com o
Cottonseed fakes
Cottonseed o -
Dervatve of gycerne.
Dacety.
steanne ..
Lecthn
Lnseed o
Mk.
Monostcarne
Neutra ard
Lard fakes
Oeo o
Oeo stearne
Oeo stock
Peanut o
at ---
Soda (benoate of).
Soya bean o
Soya fakes.
tamn concentrate.
Tota.
13,152
25
. S
5,65
2,301,395
10,23
243.664
442,454
712
133.600
434
44 . 20
.536
9,626, 1
4.950
2,027
13,7 2,035
1 Of the amount produced, 1.217 pounds were reworked.
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#
p
d
-
g
o
o
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505
Msc.
1945-17-12126
MS. 290
uy, 1945, as compared wth uy, 1944.
uy, 1945.
Tota producton of uncoored oeomargarne.
utter cuture.
utter favor
Ctrc acd
Corn o
Cottonseed fakes
Cottonseed o
Cottonseed stearne..
Dervatve of gycerne
Dacety
stearne -
Lecthn
Mk
Monostearne
Neutra ard
Oeoo
Oeo stearne
Oeo stock
Peanut o
at
Soda (benoate of)
Soya en o..
Soya bean stearne
Sova II
Taow
tamn concentrate.
Tota.
Tota producton of codred oeomargarne..
Tota wthdrawn ta -pad..
utter favor
Coor..
Corn o
Cottonseed fakes
Cottonseed o
Dervatve of gycerne..
stearfne..
Lecthn.
Lnseed o
Mk....
Monostearne .
Neutra ard
Lard fakes
Oeo o
Oeo stearne
Oeo stock
Pcnut o
Sat
Soda (bentoate of) .
Soya ean o
Soya fakes
tamn concentrate..
Tota.
Pound .
.ra, us
36.617,996
65
2,52
116
6. 261
24. 73
375, 29
63
73.962
64
6. 30
4 .235
040, 90
35. 076
150.264
216.706
1 9, 402
15.456
420,7 3
. -.. . dw
26,547
s. s::a
, 100
,002
41, 933, 4
12.623.762
1.227.997
170
5,327
1,573
4.390
000,505
17.377
12
3.442
5, 1 3
1,091.639
6, 674
202,725
445, 739
923
123,400
3,696
420, 6
9,232
I, 79 ,723
7.I1S2
1,722
12. 756. 402
Of the amount produced, 2, 2 pounds were reworked.
Of the amount produced, 65,194 pounds wcro reworked.
C 4354 46 S
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#
p
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g
o
o
g
e
Msc.
1945-19-12147
MS. 291
ugust, 1945, as compared cth ugust, 1944.
ugust, 1945.
ugust, 1944.
Pounds.
1 3 .169. 5 7
Pounds.
33.263,077
Tota wthdrawn tu-pad
3 , 75 , 791
S3,2 4 071
16
227
97
SO
1, 39
297
Ctrc acd
759,413
19,629,40
99
64,979
61
6 ,479
13.372.4W
54 :
Dacey

11. 100
46,0 0
6, 434, 73
33. 32
12 .095
m
Lecthn
35.634
5,961.295
32.063
434,926
Mk
1
Sat
197,23
159,209
1 ,990
621,414
1,1 4,649
25. 50
9, 532. 90
924
496.361
216,572
45.999
1,503.7(1
1,6 2 93
24. 7W
10,112 735
2,475
9, 201
5 400
5,54
3 . 61.246
34.S64.305
Tota producton of coored oeomargarne
12,029. 90
4,401,603
Tota wthdrawn ta -pad .
1.02 .644
1,067, 32
752
7,569
403
493. 091
3,770
14,769
42
4,347
3, 20
2,001, 9
.524
292, 145
625,07
691
1 7. 100
44.04
427.4 0
. 69
, 120. 349
9.717
1, 72
4
Coor
S.S90
1,707
3 2.705
Mk
3,353
2
207
.25-3
7S2.9S
1,205
7,9 7
209,704
400
3,247
146.496
2,531
2 5.064
10,000
1,525
12,256,337
4.479,095
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#
p
d
-
g
o
o
g
e
507
Msc.
1945-22-12170
MS. 292
September, 19|5, as compared wth September, 10 .
September,
1945.
September,
1944.
utter favor
Ctrc acd
Corn o
Cottonseed o
Dervatve of gycerne
Daccty
stearne..
Oeo stearno
Oco stock
Peanut o
Sat
Soda (benzoate of)..
Soya bean o
Soya bean stearne..
Taow.
tamn concentrate
Tota
Tota producton of coored oeomargarne
Ingredent schedue of coored
utter favor
Coor
Corn o
Cottonseed o
Cottonseed fakes
Dervatve, of gycerne.
Dacety
stearne
Lecthn
Mk
Monostearne..
Neutra ard
Oco o.
Oeo stock
Peanut o
Sat
Soda (benzoate of)
Soya bean o
tamn concentrate..
Tota
1 33. 765. 620
4 , 21.030
33, 7 1, 790
47. US, 234
5 7
243
4
454
5 3,2 5
1, 264. 0 2
17, 2 3, 442
19, 234. 547
04,069
5,069
r
100
,20
10.266
41, 701
45,925
6,734, 113
, 5 1. 427
26.506
39, 17
75.42
64 .419
M. m
652,127
199,564
229,209
16,2 0
36.941
753.6
1. 51,923
1,039,243
1, 643. 51
22,3 9
30.122
,506,004
15, 647. 792
3,024
1, 00
7,041
,151
34, 565, 164
49, 910, 137
10, 96, 4
1 2 262 02
774,270
1.364,000
22
11
,327
1,465
602
1,2 0
624.222
393,993
6.266
15,601
2,197
45
4
209
162
4,3 3
um
1. 0 .3 9
366.269
10. 474
1.4 3
203,064
0,623
395,656
1. 30
167,925
6,109
11,413
2 42
374.647
72 6 5
7,665
1,221
7,604.413
I, 235, 732
1,402
360
11.034, 30
2 249,290
Of the amount produced, ,474 pounds were reworked.
1 Of the amount produced, 17,334 pounds were reworked.
G
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3
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2

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6

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50
1945-21-12196
MS. 293
Sccduc of oeomargarne produced and materas used durng the month of
October, 1945, as compared wth October,
Tota producton of uncoored oeomargarne.-.
Ingredent schedue of uuooorcd oeomargarne:
utter cuture
utter favor ,..
Ctrc acd
Cora o
Cottonseed fakes
Cottonseed o
Cottonseed stcorne
Dervatve of gycerne
Dao ty
.ste nno .
U
Mk
Monostonrne
Neutra ard
Oeo o
Oeo strarno
Oeo stock
Peanut o.
Sat
Soda fbcnr.oatc of)
Soya bean o
Soya bean stcarnc
Taow
tamn concentrate..
Tota.
Ingredent scheduo of coored oeomargarne:
utter favor
Coor
Com o
Cottonseed o
Dervatve of gycerne
Daccty
stearno .
Lecthn
Mk
Monostearne
Neutra ard
Oeo o
Oeo stock
Peanut o
Sat
Soda (benzoate of)
Soya bean o
Soya fakes
tamn concentrate
Tota.
October, 1945.
Ponndf.
1 45. 724.
44. m. 240
11
6 5
99
26.9 4
2.450
17, 7(10. 259
747
3.102
5
11.506
50.1 2
7.77 .900
32.910
155. 4 1
30.1. 652
29 .563
19.000
723. 401
. 3 2. 94
29.237
1 ,124.213
1.224
3,600
7, 40
1,
October, 1944.
53,742.019
54. 726.412
294
297
951. S26
.236
65
0. 917
62.0TIS
9,631.623
41.7 4
724.097
724,331
214.944
56. aw
1,31 .109
1.695.307
34,211
16.234.790
0,057
9.316
5 462, 979
3, 43S. 9 6
Z 30 . 759
22
2.360
67
950,2f5
4 764
9
5SS
1.7 4
634,7 0
2.235
31.331
411.961
17.600
11,2 7
12 5 2
2.619
2,203,372
4,033, 73
Z291
1.051
4 a 5S
2,723
20
1 9
1.356
575 94
2.274
77.9 6
50.432
4,749
Z54I
117,171
1.526
Z1 7, 993
.100
434
3,504.3 3
1 Of the amount produced, 16, 34 pounds were reworked.
1 Of the amount produced, 24. 669 pounds were reworked.
Of the amound produced, 1 0 pounds were reworked.
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509 (Msc.
CIG RS, TO CCO, ND CIG R TT S.
INT RN L R NU COD .
1945-4-11974
T. D.543
TITL 26 INT RN L R NU . C PT R 1, SU C PT R C, P RT 142.
T - R WIT DR W LS O CIG RS ROM CUSTOMS OND D W R -
OUS S, CL SS 6.
Reguatons reatng to the wthdrawa of cgars from customs
bonded manufacturng warehouses, cass 6, wthout payment of n-
terna revenue ta , for shpment to the Terrtores of the Unted
States for the use of members of the mtary and nava forces
theren, or for e port to foregn countres or shpment to possessons
of the Unted States.
Washngton 25, D. G.
Tabe of Contents.
S ton.
142.0. Scope of reguatons.
142.1. Defntons.
142.2. Shpment and use restrcted.
142.3. ond.
142.4. Packng, markng, or brandng.
142..r . Shppng contaners.
142.6. ppcaton for wthdrawa.
142.7. Inspecton and verfcaton of shpment.
142. . Report of nspectng offcer.
142.9. Deay n wthdrawa of shpment canceaton of shpment.
142.10. Change n consgnee.
142.11. Wthdrawa of shpment and dsposton of orgna of appcaton, orm
550.
142.12. Return of shpment to warehouse.
142.13. Ta abty.
142.14. Credt for shpment.
142.15. Penates.
Secton 142.0. Scope of Reguatons. These reguatons reate to
the wthdrawa wthout payment of ta from customs bonded manu-
facturng warehouses, cass G, for shpment to Terrtores of the
Unted States for the use of members of the mtary and nava forces
theren or for e port to foregn countres or shpment to possessons
of the Unted States, of cgars produced n such warehouses of m-
ported tobacco on whch the dutes have been pad. Dutes pad on
tobacco used n the manufacture of cgars wthdrawn under these
reguatons may not be recovered. owever, these reguatons are
e cusve ony wth respect to the wthdrawa of cgars for shpment to
a Terrtory of the Unted States for the use of the armed forces of the
Unted States. They are not e cusve as to wthdrawas for e port
to foregn countres or shpment to some possessons of the Unted
States, whch wthdrawas may be accompshed n accordance wth
customs reguatons and procedure regardess of these reguatons.
These reguatons do not reate to any wthdrawa of cgars made of
mported tobacco on whch the customs dutes have not been pad.
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510
whch wthdrawas must aways be made n accordance wth customs
reguatons and procedure.
Sec. 142.1. Defntons. s used n these reguatons
(a) The term coector means the coector of nterna revenue
for the dstrct n whch s ocated the customs bonded manufacturng
warehouse, cass 6, from whch wthdrawa of cgars under these
reguatons s made or ntended to be made.
(b) The term manufacturer means the propretor of a customs
bonded manufacturng warehouse, cass 6.
(c) The term warehouse means a customs bonded manufacturng
warehouse, cass 6, where cgars wthdrawn, or ntended to be wth-
drawn, under these reguatons, are made.
(d) The term Commssoner means the Commssoner of
Interna Revenue.
S C. 2135 INT RN L R NU COD . MPTION ROM
T ( S M ND D Y CT PPRO D M RC 23, 1943, 57
ST T. 42).
(a) Shpments to oregn Countres and Possessons of the Unted
States.
(1) Manufactures. Manufactured tobacco, snuff, cgars or cga-
rettes may be removed for e port to a foregn country or for shp-
ment to a possesson of the Unted States (or, unt the date on
whch the Presdent procams that hosttes n the present war
have termnated, to a terrtory of the Unted States for the use
of members of the mtary or nava forces of the Unted States)
wthout payment of ta under such rues and reguatons and the
makng of such entres, and the fng of such bonds and bs of
adng as the Commssoner, wth the approva of the Secretary,
sha prescrbe.
Sec. 142.2. Shpment and Use Restrcted. The wthdrawa of
cgars under these reguatons wthout payment of ta may be made
ony for shpment to the Terrtores of aska and awa, and
then ony for the use of members of the mtary and nava forces
theren, or for e port to foregn countres or shpment to possessons
of the Unted States. Wthdrawas for the use of the mtary or
nava forces n such Terrtores wthout payment of ta are authorzed
ony unt the Presdent procams that hosttes n the present war
have termnated.
Sec. 142.3. ond. efore or at the tme of fng hs frst appca-
ton, a manufacturer who desres to wthdraw cgars from hs ware-
house wthout payment of ta under these reguatons, sha furnsh
to the coector a bond, n dupcate, n such form as the Comms-
soner sha prescrbe, wth surety satsfactory to the coector. The
pena sum of the bond sha be suffcent to cover the estmated amount
of ta whch sha at any tme consttute a charge aganst the bond,
and n no case ess than 5,000. When the bond, n dupcate, s
receved by the coector, he sha, f the bond meets wth hs ap-
prova, make ndorsement to that effect on both the orgna and
dupcate of the bond and forward the dupcate to the Commssoner.
The abty under such bond sha be a contnung one, and w be
sub|ect to ncrease or decrease as wthdrawas are made and com-
peted. When the mt of abty under such bond has been reached,
further wthdrawas may not be made thereunder. Instead, a new
bond, n dupcate, must be fed by the manufacturer, under whch
subsequent wthdrawas sha be made.
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511
Msc.
Sec. 142.4. Packng, Markng, or randng. Cgars when wth-
drawn under these reguatons sha be put up n packages of the
same szes and descrptons as prescrbed by the aw and reguatons
for ke cgars removed for domestc consumpton. ach bo or
package of cgars sha have aff ed n pace of the nterna revenue
stamp a abe, whch abe sha be yeow n coor and on whch sha
be prnted n red the foowng egend:
ree of Ta or use ony of Unted States mtary or nava
forces n aska and awa, or for use outsde the |ursdcton of
the nterna revenue aws of the Unted States.
Sec. 142.5. Shppng Contaners. ach shppng contaner n
whch cgars are to be wthdrawn under these reguatons sha be
pany numbered by the manufacturer, the number to be a consecutve
one of a seres adopted by the manufacturer for wthdrawas under
these reguatons, to begn wth No. 1, and begn agan wth No. 1 on
uy 1 of each subsequent year.
Shppng contaners sha not be cosed and fastened unt ther
contents have been nspected and verfed by a customs offcer at the
warehouse, as herenafter prescrbed.
Sec. 142.6. ppcaton for Wthdrawa. n appcaton on nter-
na revenue orm 550, appropratey modfed, sha be fed for each
shpment ntended to be wthdrawn under these reguatons. Such
appcaton sha be e ecuted and fed n trpcate by the manufac-
turer wth the coector. ach appcaton sha bear a sera number,
such number to be a consecutve one of a seres adopted by the manu-
facturer for wthdrawas under these reguatons, to begn wth No. 1
to cover the frst shpment, and commencng agan wth No. 1 on
uy 1 of each year thereafter. Copes of each appcaton sha bear
the same sera number as the orgna. ach appcaton sha be
competey and egby modfed and fed n. The cgars descrbed n
the appcaton sha not be wthdrawn from the warehouse unt after
nspecton and verfcaton by the customs offcer as herenafter
requred.
Upon recept of each appcaton, propery e ecuted, the coector
sha, f the ta abty on the partcuar shpment does not ncrease
the outstandng abty n e cess of the pena sum of the bond under
whch the wthdrawa s to be made, mmedatey after sgnng each
copy of the appcaton, forward the orgna and two copes of the
appcaton to the customs offcer n charge of the warehouse from
whch the shpment s to be wthdrawn, n order that the customs offcer
can make proper nspecton and verfcaton of the cgars descrbed n
the appcaton.
Sec. 142.7. Inspecton and erfcaton of Shpment. It sha be
the duty of the customs offcer n charge of the warehouse from whch
the shpment of cgars s to be wthdrawn under these reguatons, to
nspect the shpment and determne defntey that the shpment con-
tans the e act cass and quantty of cgars specfed n the appcaton,
and that the bo es or packages of such cgars meet the requrements
of these reguatons. The packng of the shppng contaners sha be
under the supervson of the customs offcer who w see that the num-
ber requred by these reguatons s propery nscrbed on each shppng
contaner.
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512
Cgars wthdrawn under these reguatons may be stored wthn the
|ursdcton of the nterna revenue aws of the Unted States ony
under Government contro and supervson, or wth the approva of
the Commssoner. Cgars wthdrawn and otherwse hed n such
|ursdcton sha be sub|ect to sezure by and forfeture to the Unted
States.
Sec. 142. . Report of Inspectng Offcer. fter nspecton and
verfcaton of the shpment have been competed and the shppng
contaners have been made ready for wthdrawa and the customs off-
cer has fed n and sgned hs report on the orgna and each copy
of the appcaton, the shpment sha be reeased for wthdrawa by
the manufacturer. One copy of the appcaton s to be retaned for
customs purposes, the other copy forwarded mmedatey to the co-
ector and the orgna devered to the manufacturer to go forward
wth the shpment and be dsposed of as herenafter prescrbed.
Sec. 142.9. Deay n Wthdrawa of Shpment Canceaton of
Shpment. In case a shpment s not wthdrawn from the warehouse
wthn 10 days after nspecton and verfcaton as provded n these
reguatons, the manufacturer must advse the coector as to the prob-
abe date or wthdrawa. If the order for the shpment has been can-
ceed, the manufacturer shoud so advse the coector and request per-
msson to return the shpment to stock n the warehouse under the
supervson of the customs offcer n charge of the warehouse.
Sec. 142.10. Change n Consgnee. If, after nspecton and verf-
caton, but before wthdrawa of the shpment, the manufacturer for
good and suffcent reasons desres to change the consgnee or the
address of the orgna consgnee shown by the appcaton, the manu-
facturer sha forward to the coector for correcton and ndorsement
the orgna of the appcaton devered to hm by the nspectng off-
cer wth a etter settng forth hs reasons for the change. The coec-
tor, after makng correcton and ndorsement of the change, sha
forward the orgna of the appcaton to the customs offcer n charge
of the warehouse wth a etter nstructng the customs offcer to make
smar change n the copy of the appcaton whch he retaned after
nspecton and verfcaton of the shpment, and to dever the orgna
of the appcaton to the manufacturer.
Sec. 142.11. Wthdrawa of Shpment and Dsposton of the
Orgna ppcaton, orm 550. fter the shpment has been re-
eased for wthdrawa, the manufacturer sha enter on the orgna
of the appcaton the actua date of wthdrawa of the shpment from
the warehouse, after whch the shpment may go forward to the con-
sgnee. The orgna of the appcaton sha then be dsposed of by
the manufacturer as herenafter prescrbed.
(a) Shpments other than by parce post. If the shpment s to
be made drecty to the consgnee outsde of the contnenta Unted
States, the orgna of the appcaton on orm 550 sha be forwarded
by the manufacturer drecty to the consgnee. If the shpment s
made to an rmy port of embarkaton or Navy suppy depot for
transshpment outsde of the Unted States, the orgna orm 550
sha be forwarded by the manufacturer to the rmy port transporta-
ton offcer or Navy suppy offcer, as the case may be.
The manufacturer sha nsert on the back of the orgna orm 550
mmedatey precedng the Certfcate of Mang by Parce Post
a Certfcate of Recept as foows:
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513
Msc.
C RTI IC T O R C IPT.
I hereby certfy that the cgars heren descrbed, e cept for the
dscrepances noted beow, were devered to rue for shpment or
devery ony for consumpton or use beyond the |ursdcton of the
nterna revenue aws of the Unted States, or for devery to a
Terrtory of the Unted States for the use of the mtary or nava
forces theren. Dscrepances:
(Date.) (Name and Tte or Rank.)
Upon recept and verfcaton of the shpment, the consgnee to -whom
the orgna orm 550 was forwarded by the manufacturer sha e e-
cute the Certfcate of Recept appearng thereon, notng any ds-
crepances n the shpment, and return the e ecuted form to the
manufacturer, who sha mmedatey fe the form wth the coector.
(b) Shpment by parce post. If the shpment s to be made by
parce post, the manufacturer sha e ecute on each shppng con-
taner or parce a waver of hs rght to wthdraw the contaner or
parce from the mas, and then at the tme of mang present the
orgna orm 550 coverng the shpment to the postmaster or hs
agent for e ecuton of the certfcate of mang provded on the back
of the form. The orgna orm 550 so e ecuted sha be fed
prompty thereafter by the manufacturer wth the coector.
Sec 142.12. Return of Shpment to Warehouse. If, after wth-
drawa, the manufacturer desres to return a shpment to the ware-
house, he must make appcaton to the Commssoner for permsson
to do so. The manufacturer must dentfy the shpment, and show
where t has been snce t eft the factory, where hed and n whose
custody t s at the tme of makng appcaton, and the reasons
for returnng the shpment. fter recept of such appcaton, the
Commssoner w ssue approprate nstructons. The return of
cgars to the warehouse w operate ony to reeve the manufacturer
of abty to nterna revenue ta . Cgars so returned may not there-
after be wthdrawn wth beneft of refund of dutes on the tobacco
of whch the cgars were made. (Secton 55 , Tarff ct of 1930, as
amended.)
Sec. 142.13. Ta Labty. The responsbty for the devery to
the consgnee of cgars wthdrawn under these reguatons sha rest
upon the manufacturer makng the wthdrawa, who w be abe for
the nterna revenue ta on any cgars wthdrawn or devered other-
wse than n accordance wth these reguatons.
Sec 142.14. Credt for Shpment. Upon recept of the orgna of
the appcaton on orm 550 wth the prescrbed Certfcate of Re-
cept or Certfcate of Mang by Parce Post propery e ecuted
wth no shortage reported, the coector sha enter the proper credt
n the account, orm 94, whch he sha keep wth the bond under
whch the shpment vas made. In case a shortage s reported, the
coector sha enter credt for the cgars actuay devered and re-
qure the manufacturer to pay the amount of ta due on the shortage.
Sec. 142.15. Penates. arous sectons of the Interna Revenue
Code mpose severe penates for the unawfu wthdrawa of cgars
from the pace of manufacture and for the possesson, use, or devery
wthn the Unted States (ncudng ts Terrtores) of manufactured
cgars upon whch the ta has not been pad. These sectons appy
to cgars wthdrawn wthout the payment of ta under these regua-
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514
tons, and, accordngy, any person wthdrawng, possessng, usng, or
deverng any such cgars otherwse than as authorzed by these regu-
atons may be sub|ect to the penates prescrbed by these sectons of
the Code.
secton 2135(a) (1) of the Interna Revenue Code (53 Stat., 467), as
amended by ct approved March 23,1943 ( 57 Stat., 42).)
oseph D. Nt| an, r.,
W. R. ohnson,
Commssoner of Customs.
pproved ebruary 7,1945.
( ed wth the Dvson of the edera Regster ebruary , 1945, 3.41 p. m.)
TO CCO.1
1945-1-11926
T. 127
(Statement of manufactured tobacco produced, by casses, durng the month of
October, 944, as compared wth October, 19 S.
October,
1944.
October,
1943.
Twst
Pounds.
,365. 1 2
609. 13
347,590
,014,670
15, 490, 617
3. 0 , 35
Pounds.
4,911.425
514.506
434. 177
4.631,362
15,410,346
3.446,700
ne-cut chewng
Snuff
Tota
30, 636, 707
29,34 ,516
1945-3-11959
T. 12
Statement of manufactured tobacco produced, by casses, durng the month of
November, kh. as compared wth November, 19 3.
November,
1944.
November,
1943.
Snuff
Pounds.
,6 7,205
666,641
370,62
4,720,304
16,973,140
3, 49,754
Pounds.
,079,942
629.551
3 0,720
4, 52.374
16,10 ,3 4
3,460, 3S
Tota .
32,167, 672
30,411,409
1 fgures are sub|ect to revson unt pubshed a the Commssoner s annua report.
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515 Msc.
1945-5-119
T. 131
December, 1944, as compared tcth December, 1943.
December,
1944.
December,
1943.
Pug
Poundt.
4.776.167
499.4 3
341.326
4. 207, 457
13, 933, 506
3, 2 0.915
Poundt.
4,3 6.912
515.376
373, 915
4,6 3, 30
12, 002, 942
3.721.467
Twst
Smokng
Snuff
Tota
27.03 , 54
.26, 2 4. 442
1945-7-1200
T. 134
anuary, 1945, as compared wth anuary, 194. /.
anuary,
1945.
anuary,
1944.
Pound .
6,114,500
5 2,209
372. 5
4.531, 54
15.095.743
4,072,336
Poundt.
5,077, 707
510,977
31 , 155
4, 472.919
11.017.793
3, 075. 53
Png
29, 709, 500
25.073,404
1945-9-12040
T. 137
ebruary, 1945, as compared wth ebruary, 1944-
ebruary,
1945.
ebruary,
1944.
Pug
Poundt.
4,449,921
Pounds.
4, 5 ,037
497,905
31 , 091
4,119,432
, 45,477
3,64 ,099
Tw|t
625,779
309,2 3
Scrap chewng - ._ .
4,216, 235
13, 404, 196
6nuff.
3,516,03
Tota..
26,421,452
22, 2 , 241
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#
p
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g
o
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Msc.
516
1945-11-12055
T. 13
March, 1945, as compared wth March, 1944.
March, IMS.
March, 1944.
Pug
Pounds.
5,41 ,450
623,617
329.66ft
4.663, 7 2
14. 757, S 3
4. 213. 34
Poundt.
5.494.937
5 7. m
339.916
4.195.522
,379.9 2
3.923,227
Twst .
Scrap chewng
Snuf
Tota
29,004, 31
22,921,572

1945-13-12079
T. 140
pr, 1945, as compared wth pr, 1944-
prU. 1945.
pr. 1944
Pounds.
Poundt.
Pug -
6,011,197
573. 735
323,266
4.705.651
514,031
310.9 7
3,6 1.513
352,361
3,33 ,222
4. 267, 572
13, 769,160
nuf
3, 75.655
Tota
27, 20, 5S5
30,902,765
1945-15-12102
T. 142
May, 1945, as compared wth May, 1944-
May, 1945.
May, 1944.
Pounds.
Pounds.
Pug
5,273. 54
60S. 646
32 .
, 217,499
561.392
364.631
4.322.7W
10.720.2M
3,675,102
Twst
ne-cut chewng ._
Scrap chewng
4,3 3. 421
15.106. 06S
SuufI
4,075.M 1
Tota
29, 773,96S
24, 61,652
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-
517 Msc.
1945-17-12127
T.144
une, 1945, as compared wth une, 1944-
uno, 1945.
une, 1944.
Pounds.
5,059, 509
605,435
332,676
4,311,150
14, 19. 5U5
3,400, 291
Pounds.
Pug
5, 405, 576
530, 033
370, 721
4, 507, 552
9, 34. 733
3,19 ,009
Twst
Smokng
Snuff
Tota
2 , 62 , 602
23, 47, 27
1945-1S-12136
T. 146
uy, 1945, as compared wth uy, 4k-
uy, 1945
uy, 1944
Pounds
6, 019. 1 1
623, 20
300,903
4, 094, 374
13, 1 5, 155
3, 153, 392
Pound
4,0 2, 72
4 0,477
2 ,351
4, 1 7, 257
10, 092. 004
3, 122.070
26, 276, 213
22, 53,091
Pug
Twst
ne-cut ohewng-
Scrap chewng
Smokng
So.uf
Tota
1945-21-1215
T. 14
ugust, 1945, as compared uth ugust, 1944-
ugust, 1945.
ugust, 1944.
Pug
Pounds.
5,719,015
622, 3
300, 406
4,271,022
IS, 401.14
3,673,902
Pounds.
5,495, 596
504,315
373, 777
5,010,5 1
13,290, 2 7
3,207,1 7
Twst
ne-cut chewng
Scrap chewng
Smokng
Snuff
TotaL
30,049,051
27,977,743
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#
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Msc.
51
1945-23-121 6
T. 150
September, 1945, as compared wth September, 1944.
September,
IMS.
September,
1944.
Pug -
Pound.
6, 197, 740
546.502
337, 707
3. M5. 99
14.670. U0
3,461, 14
Poundt.
4, 9. 59
543,295
349.030
4.403,534
12.944.209
3, 231. 225
Twst
ne-cut chewng
Smokng
Tota
27.729, 59
26,364,252
CIG R TT S.
1945-3-11960
T. 129
Premnary statement of cgarettes removed for consumpton durng the months
of uy, ugust, September, and October, 1944, as compared wth removas
for smar months of 1943.
Removas.
uy, 1943.
uy, 1944.1
ugust, 1943.
ugust, 1944.
Ta -pad
Number.
23,0 5, 45.263
3, 446, 207, 320
Number.
20.269,03 . 137
6. 67 . 24 . 2 0
Number.
23,925. 92. 204
3.699. 466, 906
Number.
22,431,061.447
6.66 . 7 . 77
Totas
26, 532.052,5 3
25, 47,2 6.417
27,625,359,110
29.100.u3S.225
Removas.
September,
1943
September,.
1944.
October,
1943.
October,
1944.
Number .
22,311,209,40
4,660. 1 6.027
Number.
19, 774,410,713
7. 44. 17 , 650
Number.
23, 206, 64 .457
4,463,356.64
Number.
20.35 .761, 93
, 07 . 353. 502
26, 971,455.435
27,61 ,5 9,363
27,670.005. 105
29.047,115,395
Revsed.
1945-4-11975
T. 130
Premnary statement of sma cgarettes removed for cons-umpton durng the
month of November, 1944, a compared wth removas for the same month of
1943.
Removas.
November,
1943.
November,
1944.
Ta -pad
Number.
24. 619, 13, 795
2, 930,454, 315
Number.
20. 461, 6 . 61
9, 35 , 727,29
Ta -free
Totas
27, 550, 26 ,110
29, 20.595. 16
fgures are sub|ect to revson unt pubshed In the Commssoner s annua report.
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#
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g
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519
Msc.
1945-5-119 7
T. 132
Premnary statement of sma cgarettes removed for consumpton durng the
month of December, 1944, as compared wth removas for the same month of
1943.
Removas.
December, 1943.
December, 1944.
Ta -pad
Number.
22,913,3 ,396
3,206,074,046
Number.
17,3 7,713,573
, 03, 414, 7 0
Totas
26,119,462,442
26,191,12 , 353
1945-6-12000
T. 133
Premnary statement of sma cgarettes removed for consumpton durng the month
of anuary, 1945, as compared wth removas for the same month of 1944.
Removas.
anuary, 1945.
anuary, 1944.
Number.
20,419. 93 ,567
9,507, 0S, 960
Number.
1 , 214. 776, 104
5,241,660,573
Totas
29,927,74 ,527
23,456,436,677
1945- -12026
T. 135
Premnary statement of sma cgarettes removed for consumpton durng the month
of ebruary, 1945, as compared wth removas for the same month of 1944-
Removas.
ebruary, 1945.
ebruary, 1944.
Ta -free
Numer.
16, 705. 0 , 6 5
10,0 7, 711, 34
Number.
1 , 1 4, 696. 9 0
6,560,346,09
Totas
26, 792. 0 , 519
24,745,043,07
1945-9-12039
T. 136
month of March, 1945, as compared wth removas for the same month of 1944-
Removas.
March, 1915.
March, 1944.
Ta -pad
Number.
1 ,154.656,5
11,59 ,367,919
Number.
19, 955, 661, 500
6,1 1, 291, 303
Ta -free
Totas
29,763,024,507
26,136, 952, 03
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s
_
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#
p
d
-
g
o
o
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e
Msc.
520
1945-11-12056
T. 139
month of pr, 1945, as compared wth removas for the same month of 1944-
Removas.
pr, 1945.
pr, 1944.
nfo MS, 3 4
9.601.979. 02
Numtr.
1 , 495, 64. 23S
5. 375, 143, 6 0
Totas
27.014, 326,276
23. 70.997, 9
1915-13-120 0
T. 141
month of May, 1945, as compared cth removas for the same month of 1944.
Removas.
May, 1945.
May, 1944.
Number.
21,165,72 .692
, 3 , 59,454
Number.
21,579,425, 36
6, 57,371, ISO
Totas -
30,004,5 ,146
2 ,436,706,516
1945-15-12103
T. 143
month of une, 1945, as compared wth removas for the same month of 1944.
Removas.
une, 1945.
une, 1944.
Ta -pad
Number.
24,16 , 650,170
4. 43, 475. 212
Number.
20.729, 3.747
6, 55. 641, 94
Ta -free
Totas
29,010,125,462
27,5 5,176,695
month of uy, 1945, as compared wth removas for the same month of 1944.
1945-17-12130
T. 145
Removas.
uy, 1946.
uy, 1944.
Ta -pad
Number.
22.313,479, 1
3.202,143.0 5
Number.
20,269.03 .137
5.57 ,24 ,2 0
Ta -free
Totas
25,515,022,903
25. 47,2 6,417
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521
Msc.
1945-20-12152
T. 147
month of ugust, 1945, as compared wth removas for the same month of 1944.
Removas.
ugust, 1946.
ugust, 1944.
Ta-pad.
Number.
27, 713, U27, 100
2,05 ,545.762
Number.
22,431.0 1, 447
6,66 , 1)76, 77
Totas
29, 01, 572,5 2
29,100,03 ,226
1945-21-12159
T. 149
Premnary statement of smn cgarettes removed for consumpton durng the
month of September, 1945, as compared wth removas for the same month
of 1944-
Removas.
September, 1945.
September, 1944.
Ta-pad
Number.
26,724.02 ,164
01, 04,066
Number.
19, 774, 410, 713
7, 44, 17 ,660
Ta -free
Totas
27,625, 32,229
27,61 ,5 9,363
1945-23-121
T. 151
month of October, 1945, as compared wth removas for the same month of
1944-
Removas.
October, 1945.
October, 1944.
T-pad
Number.
31, 25 , 7, 532
1, 269, 31 ,346
Number.
20.36 ,701, 93
, 67 ,353,502
Ta-free
Totas
32,52 ,205, 7
29,047,115,395
6 4354 46 4
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MISC LL N OUS.
1945- -12025
Doube ta aton. Conventon and protoco between the Unted
States of merca and the rench Repubc Sgned at Pars uy
25, 1939 ratfcaton advsed by the Senate of the Unted States of
merca December 6, 1944 ratfed by the Presdent of the Unted
States of merca December 15, 1944 ratfed by the Presdent of
the Provsona Government of the rench Repubc December 29,
1944 ratfcatons e changed at Pars December 30, 1944 pro-
camed by the Presdent of the Unted States of merca anuary 5,
1945 effectve anuary 1, 1945.
Y T PR SID NT O T UNIT D ST T S O M RIC PROCL M TION .
Unted States of merca and the rench epubc for the avodance
of doube ta aton and the estabshment of rues of recproca admn-
stratve assstance n the case of ncome and other ta es were sgned
by ther respectve penpotentares at Pars on the 25th day of uy,
1939, the orgnas of whch conventon and protoco, beng n the
ngsh and rench anguages, are word for word as foows:
Conventon fob the vodance of Doue Ta aton and the stabshment
of Rt.es of Recpboca dmnstratve ssstance n the Case of Income
and Otheb Ta es.
The Presdent of the Unted States of merca and the Presdent of the rench
Repubc, beng desrous of avodng doube ta aton and of estabshng rues of
recproca admnstratve assstance n the case of Income and other ta es, have
decded to concude a conventon and for that purpose have apponted as ther
respectve penpotentares:
The Presdent of the Unted States of merca:
Mr. Wam Chrstan utt, mbassador traordnary and Penpotentary
of the Unted States of merca to rance
The Presdent of the rench Repubc:
M. Georges onnet, Member of the Chamber of Deputes, Mnster for oregn
ffars,
who, havng communcated to one another ther fu powers found n good and
due form, have agreed upon the foowng artces:
The ta es referred to n ths conventon are:
(a) In the case of the Unted States of merca:
The edera ncome ta es, ncudng surta es and e cess-profts ta es
(b) In the case of rance:
(1) The rea estate ta
(2) The ndustra and commerca profts ta
(3) The annua ta on undstrbuted profts
(4) The agrcutura profts ta
(5) The ta on saares, aowances and emouments, wages, pensons
and annutes
(6) The professona profts ta
(7) The ta on Income from securtes and movabe capta
( ) The genera ncome ta .
rotocb between the
TITL I. DOU L T TION.
rtce 1.
rtce 2.
Income from rea property, Incudng Income from agrcutura undertakngs,
sha be ta abe ony n the State n whch such rea property s stuated.
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rtce 3.
n enterprse of one of the contractng States Is not sub|ect to ta aton by
the other contractng State n respect of ts ndustra and commerca profts
e cept n respect of such profts aocabe to ts permanent estabshment n,
the atter State.
No account sha be taken, n determnng the ta n one of the contractng
States, of the purchase of merchandse effected theren by an enterprse of the
other State for the purpose of suppyng estabshments mantaned by such
enterprse n the atter State.
The competent authortes of the two contractng States may ay down rues
by agreement for the apportonment of ndustra and commerca profts.
The term ndustra and commerca prcfts sha not ncude the foowng:
(n) Income from rea property
(b) Income from mortgages, from pubc funds, securtes (ncudng mort-
gage bonds), oans, deposts and current accounts
(c) Dvdends and other ncome from shares n a corporaton
(d) Rentas or royates arsng from easng persona property or from any
nterest n such property, ncudng rentas or royates for the use of, or for
the prvege of usng, patents, copyrghts, secret processes and formuae, good-
w, trade marks, trade brands, franchses and other ke property
(e) Proft or oss from the sae or e change of capta assets.
Sub|ect to the provsons of ths conventon the ncome referred to n para-
graphs (a), (6), (c), (d), and (c) sha be ta ed separatey or together wth
ndustra and commerca profts In accordance wth the aws of the contractng
States.
rtce 4.
mercan enterprses havng permanent estabshments In rance are re-
qured to submt to the rench fsca admnstraton the same decaratons and
the same |ustfcatons, wth respect to such estabshments, as rench enterprses.
The rench fsca admnstraton has the rght, wthn the provsons of ts
natona egsaton and sub|ect to the measures of appea provded In such
egsaton, to make such correctons n the decaraton of profts reazed n
Prance as may be necessary to show the e act amount of such profts.
The same prncpe appes mutats mutands to rench enterprses havng
permanent estabshments n the Unted States.
rtce 5.
When an mercan enterprse, by reason of Its partcpaton n the manage-
ment or capta of a rench enterprse, makes or mposes on the ntter, n ther
commerca or fnanca reatons, condtons dfferent from those whch woud
be made wth a thrd enterprse, any profts whch shoud normay have ap-
peared n the baance sheet of the rench enterprse, but whch have been n
ths manner, dverted to the mercan enterprse, are, sub|ect to the measures
of appea appcabe n the case of the ta on ndustra and commerca profts,
Incorporated n the ta abe profts of the rench enterprse.
The same prncpe appes mutats mutands, n the event that profts are
dverted from an mercan enterprse to a rench enterprse.
rtce 6.
Income derved by navgaton enterprses of one of the contractng States
from the operaton of shps documented under the aws of that State sha con-
tnue to beneft n the other State by the recproca ta e emptons accorded
by the e change of notes of une 11 and uy , 1927,1 between the Unted States
of merca and rance.
Income whch an enterprse of one of the contractng States derves from
the operaton of arcraft regstered n that State sha be e empt from ta aton
n the other State.
rtce 7.
oyates from rea property or n respect of the operaton of mnes, quarres
or other natura resourcea sha be ta abe ony n the contractng State In whch
such property, mnes, quarres or other natura resources are stuated.
1 ecutWe greement Seres 12 47 Stat. 2604.
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524
Royates derved from wthn one of the contractng States by a resdent or
by a corporaton or other entty of the other contractng State as consderaton
for the rght to use copyrghts, patents, secret processes and formuae, trade
marks and other anaogous rghts sha be e empt from ta aton In the former
, State, provded such resdent, corporaton or other entty does not have a perma-
nent estabshment there.
rtce .
Wages, saares and smar compensaton and pensons pad by one of the
contractng States or by a potca subdvson thereof to ndvduas resdng
n the other State sha be e empt from ta aton n the atter State.
Prvate pensons and fe annutes derved from wthn one of the contractng
States and pad to ndvduas resdng n the other contractng State sha be
e empt from ta aton n the former State.
rtce 9.
Income from abor or persona servces sha be ta abe ony n the State n
whch the ta payer carres on hs persona actvty.
Ths provson does not appy to the ncome referred to n artce .
rtce 10.
Income from the e ercse of a bera professon sha be ta abe ony n the
State n whch the professona actvty s e ercsed.
There s the e ercse of a bera professon n one of the two contractng States
ony when the professona actvty has a f ed center n that country.
rtce 11.
Gans derved n one of the contractng States from the sae or e change o
stocks, securtes or commodtes by a resdent or a corporaton or other entty
of the other contractng State sha be e empt from ta aton n the former State,
provded such resdent or corporaton or other entty has no permanent estab-
shment n the former State.
rtce 12.
Students from one of the contractng States resdng n the other contractng
State e cusvey for the purpose of study sha not be ta abe by the atter State
n respect of remttances receved from wthn the former State for the purpose
of ther mantenance or studes.
rtce 13.
In the cacuaton of ta es estabshed n one of the contractng States on the
use of property or ncrement of property of an enterprse of the other State,
account sha be taken ony of that porton of the capta stuated or empoyed and
aocabe to a permanent estabshment wthn the former State.
The foregong provson sha appy to the rench patente ta and the
Unted States capta stock ta even though these two ta es have not been
referred to n artce 1 of the present conventon.
In the appcaton of the present artce navgaton enterprses of one of the
contractng States, en|oyng n the other State the benefts of artce 6 of the
present conventon, sha not be consdered as havng a permanent estabshment
n the atter State n so far as shppng actvtes are concerned.
rtce 14.
It s agreed that doube ta aton sha be avoded In the foowng manner:
s regards the Unted States of merca:
Notwthstandng any other provson of ths conventon, the Unted States
of merca n determnng the ncome and e cess-profts ta es, ncudng a
surta es, of ts ctzens, or resdents, or corporatons, may ncude n the bass
upon whch such tn es are mposed, a tems of ncome ta abe under the revenue
aws of the Unted States of merca, as though ths conventon had not come
nto effect. The Unted States of merca sha, however, deduct from the ta es
thus computed the amount of rench ncome ta pad. Ths deducton sha be
made n accordance wth the benefts and mtatons of secton 131 of the
Unted States Interna Revenue Code reatng to credt for foregn ta es.
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s regards rance:
(a) Scheduaf ta es.
Income from securtes, debts and trusts havng ts source n the Unted States
of merca sha be sub|ect n rance to the ta on ncome from securtes but
ths ta sha be reduced by the amount of the ta aready pad n the Unted
States of merca on the same ncome. In consderaton of the fsca regme to
whch the egsaton of the Unted States of merca sub|ects the ncome of
nonresdent aens and foregn corporatons or other enttes, the deducton of
the ta pad In the Unted States of merca sha be effected n a ump sum
through a reducton of 12 n the rate of the ta estabshed by the rench aw.
The ncome other than that ndcated n the precedng paragraph sha not he
sub|ect to any sceduar ta n rance when, accordng to ths conventon, t s
ta abe n the Unted States of merca.
(6) Genera ta on revenue.
Notwthstandng any other provson of the present conventon, the genera
Income ta can be determned, accordng to a the eements of ta abe ncome
as mposed by rench fsca egsaton.
owever, the provsons of the frst paragraph of artce 114 of the rench Code
on drect ta aton reatve to the ta aton of aens domced or resdent n
rance sha contnue to be apped.
rtce 15.
In derogaton of artce 3 of the decree of December 6, 1 72, mercan corpo-
ratons whch mantan n rance permanent estabshments sha be abe to
the ta on ncome from securtes on three-fourths of the profts actuay derved
from such estabshments, the ndustra and commerca profts beng determned
n accordance wth artces 3 and 4 of ths conventon.
The remanng one-fourth sha, n a cases, be taken as the bass of the annua
ta on undstrbuted profts appcabe to the same corporaton.
rtce 16.
n mercan corporaton sha not be sub|ect to the obgatons prescrbed by
artce 3 of the decree of December 6. 1 72, by reason of any partcpaton n the
management or n the capta of, or any other reatons wth, a rench corpora-
ton. In such ease, the ta on ncome from securtes contnues to be eved, n
conformty wth rench egsaton, on the dvdends, nterest and a other ds-
trbutons made by the rench enterprse but t s moreover coectbe, f the
occason arses, and sub|ect to the measures of appea appcabe n the case of
the ta on ncome from securtes, wth respect to the profts whch the mercan
corporaton derves from the rench corporaton under the condtons prescrbed
n artce 5.
btc.e 17.
The mercan corporatons sub|ect to the provsons of artce 3 of the decree of
December G, 1 72, who were not paced under the speca regme estabshed by
artces 5 and 6 of the conventon for the avodance of doube ncome ta aton
between the Unted States of merca and rance, sgned pr 27, 1C32 C. .
I -2, 535 (15135)I,1 may, durng a new perod of s months from the date of
the entry nto force of the present conventon, e ercse wth reference to past
years, the opton provded n those two artces under the condtons whch they
prescrbe.
Moreover, the mercan corporatons contempated n the thrd paragraph of
artce 10 of the conventon of pr 27, 1032, may be admtted to beneft from
the provsons of that paragraph, when the ta has not yet beeu pad, If the
atter was not found to be payabe, pror to May 1, 1930, by a defntve |udca
decson or f such decson has been the sub|ect of an appea n cassaton.
rtce 1 .
ny Unted States ncome ta abty remanng unpad as at the effectve
date of ths conventon for years begnnng pror to anuary 1, 1936, of any nd-
vduas resdent of rance (other than a ctzen of the Unted States of merca)
or of a rench corporaton may be ad|usted by the Commssoner of Interna
Revenue of the Unted States of merca, on the bass of the provsons of the
Unted States Revenue ct of 1936. owever, no ad|ustment w be made more
1 Treaty Seres 5 49 Stat 145.
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526
than two years subsequent to the effectve date of ths conventon uness the ta -
payer fes a request wth the Commssoner of Interna Revenue pror to such
date.
bttce 19.
Notwthstandng any other provson of ths conventon, n order to avod
doube ta aton on pubc servants, empoyees of one of the contractng States
beng ctzens of that State and remunerated by t, who have been receved by
the other State to perform servces n such State sha be e empt n ther prncpa
pace of resdence from drect and persona ta es whether Natona, State or
oca.
Such empoyees who own rea property n the State n whch they perform
servces sha not beneft from the above e emptons wth respect to the ta es
eved on such rea property. mpoyees who engage n any prvate ganfu
occupaton n such State sha not be entted to any e empton under ths
artce.
TITL II ISC L SSIST NC .
rtce 20.
Wth a vew to the more effectve mposton of the ta es to whch the present
conventon reates, the contractng States undertake, on condton of recprocty,
to furnsh nformaton of a fsca nature whch the authortes of each State
concerned have at ther dsposa, or are n a poston to obtan under ther own
aws, that may be of use to the authortes of the other State n the assessment
of the sad ta es.
Such nformaton sha be e changed between the competent authortes of the
contractng States n the ordnary course or on request.
rtce 21.
In accordance wth the precedng artce, the competent authortes of the
Unted States of merca w transmt to the competent authortes of rance,
as regards any person, corporaton or other entty (other than a ctzen, corpo-
raton or other entty of the Unted States of merca) havng an address n
rance and dervng from sources wthn the Unted States of merca rents,
dvdends, nterest, royates, ncome from trusts, wages, saares, pensons,
annutes, or other f ed or determnabe perodca ncome, the name and address
of such person, corporaton or other entty as we as the amount of such
ncome.
The competent authortes of rance w transmt to the competent authortes
of the Unted States of merca, as regards any person, corporaton or other
entty (other than a ctzen, corporaton or other entty of rance) havng an
address n the Unted States of merca and dervng from sources wthn
rance rents, dvdends, nterest, royates, ncome from trusts, wages, saares,
pensons, annutes, or other f ed or determnabe perodca ncome, the name
and address of such person, corporaton or other entty as we as the amount
of such ncome.
The nformaton reatng to each year w be transmtted as soon as possbe
after December 31.
rtce 22.
The competent authortes of each of the contractng States sha be entted
to obtan, through dpomatc channes, from the competent authortes of the
other contractng State, e cept wth respect to ctzens, corporatons or other
enttes of the State to whch appcaon s made, partcuars n concrete cases
necessary for the estabshment of the ta es to whch the present conventon
reates.
owever, the competent authortes of each State sha not be prevented from
transmttng to the competent authortes of the other State nformaton reatng
to ther own natonas (ctzens, corporatons or other enttes) f they deem
It opportune for the preventon of fsca evason.
rtce 23.
ach contractng State undertakes to end assstance and support n the co
ecton of the ta es to whch the present conventon reates, together wth n-
terest, costs, and addtons to the ta es and fnes not beng of a pena character
accordng to the aws of the State requested, n the cases where the ta es are
defntvey due accordng to the aws of the State makng the appcaton.
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527
In the case of an appcaton for enforcement of ta es, revenue cams of
each of the contractng States whch have been fnay determned sha be ac-
cepted for enforcement by the State to whch appcaton s made and coected
n that State n accordance wth the aws appcabe to the enforcement and co-
ecton of ts own ta es.
The appcaton sha be accompaned by such documents as are requred by the
aws of the State makng the appcaton, to estabsh that the ta es have been
fnay determned.
If the revenue cam has not been fnay determned, the State to whch ap-
pcaton s made may, at the request of the State makng the appcaton, take
such measures of conservancy as are authorzed by the aws of the former
State for the enforcement of ts own ta es.
The assstance provded for n ths artce sha not be accorded wth respect
to the ctzens, corporatons or other enttes of the State to whch appcaton
s made.
rtce 24.
In no case sha the provsons of artce 22 reatng to partcuars n con-
crete cases, or of artce 23 reatng to mutua assstance n the coecton of
ta es, be construed so as to mpose upon ether of the contractng States the
obgaton to carry out admnstratve measures at varance wth the regua-
tons and practce of ether contractng State, or to suppy partcuars whch
are not procurabe under the aw of the State to whch appcaton s made, or
that of the State makng appcaton.
The State to whch appcaton s made for nformaton or assstance sha
compy as zoon as possbe wth the request addressed to t. Nevertheess, such
tate may refuse to compy wth the request for reasons of pubc pocy or f
compance woud nvove voaton of a busness, ndustra or trade secret.
In such case t sha nform, as soon as possbe, the State makng the appcaton.
rtce 25.
ny ta payer who shows proof that the acton of the revenue authortes of
the contractng States has resuted n doube ta aton n hs case n respect of
any of the ta es to whch the present conventon reates, sha be entted to
odge a cam wth the State of whch he s a ctzen or, f the ta payer s a
corporaton or other entty, wth the State n whch t s created or organzed.
Shoud the cam be uphed, the competent authorty of such State may come
to an agreement wth the competent authorty of the other State wth a vew
to equtabe avodance of the doube ta aton n queston.
rtce 26.
The competent authortes of the two contractng States may prescrbe regu-
atons necessary to nterpret and carry out the provsons of ths conventon.
Wth respect to the provsons of ths conventon reatng to e change of nforma-
ton and mutua assstance n the coecton of ta es, such authortes may, by
common agreement, prescrbe rues concernng matters of procedure, forms of
appcaton and repes thereto, rates of converson of currences, transfer of
sums coected, mnmum amounts sub|ect to coecton, payment of costs of
coecton, and reated matters.
TITL I G N R L PRO ISIONS.
rtce 27.
The present conventon sha be ratfed, n the case of the Unted States of
merca by the Presdent, by and wth the advce and consent of the Senate,
and n the case of rance, by the Presdent of the rench Repubc wth the
consent of the Parament.
Ths conventon sha become effectve on the 1st day of anuary foowng the
e change of the nstruments of ratfcaton.
The conventon sha reman In force for a perod of fve years and Indefntey
thereafter but may be termnated by ether contractng State at the end of the
5-year perod or at aty tme thereafter, provded s months pror notce of
termnaton has been gven, the termnaton to become effectve on the 1st day
of anuary foowng the e praton of the 6-month perod.
Upon the comng nto effect of ths conventon, the conventon for the avodance
of doube Income ta aton between the Unted States of merca and rance,
sgned pr 27, 1032, sha termnate.
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52
Done at Pars, n dupcate, n the ngsh and rench anguages, ths 25th
day of uy, 1939.
sea Wam C. utt.
PROTOCOL.
t the moment of sgnng the present conventon for the avodance of doube
ta aton and the estabshment of rues of recproca admnstratve assstance
n the case of ncome and other ta es, the undersgned penpotentares have
agreed that the foowng provsons sha form an ntegra part of the
conventon:
I.
The present conventon s concuded wth reference to mercan and rench
aw n force on the day of ts sgnature.
ccordngy, f these aws are apprecaby modfed the competent authortes
of the two States w consut together.
IL
The ncome from rea property referred to n artce 2 of the present conventon
sha ncude profts from the sae or e change of the sad property, but sha not
Incude nterest on mortgages or obgatons secured by the sad property.
III.
s used n ths conventon:
(a) The term permanent estabshment ncudes branches, mnes and o
wes, pantatons, factores, workshops, stores, purchasng and seng and other
offces, agences, warehouses, and other f ed paces of busness but does not
ncude a subsdary corporaton.
When an enterprse of one of the contractng States carres on busness n the
other State through an empoyee or agent, estabshed there, who as genera
authorty to negotate and concude contracts or has a stock of merchandse from
whch he reguary fs orders whch he receves, ths enterprse sha be deemed
to have a permanent estabshment n the atter State. ut the fact that an
enterprse of one of the contractng States has busness deangs n the other
State through a bona fde commsson agent or broker sha not be hed to mean
that such enterprse has a permanent estabshment n the atter State.
Insurance enterprses sha be consdered as havng a permanent estabshment
n one of the States as soon as they receve premums from or nsure rsks n the
terrtory of that State.
(6) The term enterprse ncudes every form of undertakng whether
carred on by an ndvdua, partnershp, corporaton, or any other entty.
(c) The term enterprse of one of the contractng States means, as the case
may be, Unted States enterprse or rench enterprse.
(d) The term Unted States enterprse means an enterprse carred on
n the Unted States of merca by a resdent of the Unted States of merca
or by a Unted States corporaton or other entty.
The term Unted States corporaton or other entty means a partnershp,
corporaton or other entty created or organzed In the Unted States of merca
or under the aw of the Unted States of merca or of any State or Terrtory
of the Unted States of merca.
(e) The term rench enterprse s defned n the same manner, mutats
mutands, as the term Unted States enterprse.
I .
The term fe annutes referred to n artce of ths conventon means
a stated sum payabe perodcay at stated tmes durng fe, or durng a specfed
number of years to the person who has pad the premums or a gross sum for
such an obgaton.
.
Ctzens and corporatons or other enttes of one of the contractng States
wthn the other contractng State sha not be sub|ected as regards the ta es
referred to n the present conventon, to the payment of hgher ta es than are
mposed upon the ctzens or corporatons or other enttes of such atter State.
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529
L
The provsons of the present conventon sha not be construed to restrct n
any manner any e empton, deducton, credt, aowance, or other advantage
accorded by the aws of one of the contractng States n the determnaton of
the ta mposed by such State.
II.
Documents and nformaton contaned theren, transmtted under the provsons
of ths conventon by one of the contractng States to the other contractng State
sha not be pubshed, reveaed or dscosed to any person e cept to the e tent
permtted under the aws of the atter State wth respect to smar documents
or nformaton.
III.
s used n ths conventon the term competent authorty or competent
authortes means, n the case of the Unted States of merca, the Secretary
of the Treasury and n the case of rance, the Mnster of nance.
I .
The term Unted States of merca as used n ths conventon n a geographc
sense ncudes ony the States, the Terrtores of aska and awa, and the
Dstrct of Coumba.
.
The term rance, when used n a geographc sense, ndcates contnenta
rance, e cusve of gera and the Coones.
I.
Shoud any dffcuty or doubt arse as to the nterpretaton or appcaton of the
present conventon, or ts reatonshp to conventons between one of the con-
tractng States and any other State, the competent authortes of the contractng
States may sette the queson by mutua agreement.
Done n dupcate at Pars, ths 25th day of uy, 1030.
W a C. utt.
nd whereas the sad conventon and protoco have been ratfed
on both parts, and the nstruments of ratfcaton of the two Govern-
ments were e changed at Pars on the 30th day of December, 1044
nd whereas t s provded n artce 27 of the sad conventon that
the conventon sha become effectve on the 1st day of anuary foow-
ng the e change of the nstruments of ratfcaton
Now, therefore, be t known that I, rankn D. Roosevet, Pres-
dent of the Unted States of merca, do hereby procam and make
pubc the sad conventon and 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 on and from the 1st day of anuary, 1945.
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 5th day of anuary n the
year of our Lord, one thousand nne hundred forty-fve,
sea and of the Independence of the Unted States of merca
the one hundred s ty-nnth.
rankn D, Roosevet.
y the Presdent:
. R. Stettnus, r.,
Secretary of State.
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L GISL TION.
1945-7-12012
. R. 1429. PU LIC L W 21, S NTY-NINTII CONGR SS C PT R
36, IRST S SSION .
n ct To permt the dmnstrator, War Shppng dmnstra-
ton, and the Unted States Martme Commsson, durng the
natona emergency, to pay the ta mposed under secton 1410 of the
Interna Revenue Code wthout regard to the 3,000 mtaton n
secton 1426(a) (1) of the Interna Revenue Code.
Unted States of merca n Congress assembed, That (a) secton
1426() of the Interna Revenue Code s amended by addng at the end
thereof the foowng: The dmnstrator, War Shppng dmns-
traton, and the Unted States Martme Commsson, and ter agents
or persons actng on ther behaf or for ther account, may, for con-
venence of admnstraton, make payments of the ta mposed under
secton 1410 wthout regard to the 3,000 mtaton n secton 1426(a)
(1), but they sha not be requred to obtan a refund of the ta pad
under secton 1410 of the Interna Revenue Code on that part of the
remuneraton of seamen n ther empoy not ncuded n wages by
reason of secton 1426(a) (1) of the Interna Revenue Code.
(b) The amendments made by ths ct sha be effectve as f made
by secton 1(b) (1) of the ct entted n ct to amend and carfy
certan provsons of aw reatng to functons of the War Shppng
dmnstraton, and for other purposes, approved March 24, 1943
(Pubc Law 17, Seventy-eghth Congress 57 Stat. 45).
1945-14-12092
. . R S. 206. PU LIC L W C5, S NTY-NINT CONGR SS
C PT R 200, IRST S SSION .
ont Resouton tendng the tme for the reease of powers of
nppontment for the purposes of certan provsons of the Interna
Revenue Code.
Resoved by the Senate and Iouse of Representatves of the Unted
States of merca n Congress assembed, That secton 403(d) (3) of
the Revenue ct of 1942 (reatng to the reease of certan powers of
appontment) s amended by strkng out uy 1, 1945 wherever t
appears and nsertng n eu thereof uy 1, 1946 and secton
452(c) of the Revenue ct of 1942 s amended to read as foows:
(c) Reease efore uy 1, 1946.
(1) reease of a power to appont before uy 1,1946, sha not be deemed
a transfer of property by the ndvdua possessng such power.
(2) Ths subsecton sha appy to a caendar years pror to 1946 and
to that part of the caendar year 1946 pror to uy 1,1946.
(530)
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531
Sec. 2. Secton 501(c) of the Revenue ct of 1932 as added by
secton 502(b) of the Revenue ct of 1943, reatng to certan dscre-
tonary trusts, s amended by strkng out the words on or after
anuary 1, 1939, and and nsertng n eu thereof the words on or
after une 7,1932, and .
1945-14-12093
. R. 3395. PU LIC L W 104, S NTY-NINT CONGR SS C PT R
210, IRST S SSION ,
n ct To e tend through December 31, 1945, the termnaton date
under the Renegotaton ct.
Unted States of merca n Congress assembed, That subsecton (h)
of the Renegotaton ct (reatng to the termnaton date) s
(h) Ths secton sha appy ony wth respect to profts derved from contracts
wth the Departments and subcontracts whch are determned under reguatons
prescrbed by the oard to be reasonaby aocabe to performance pror to the
cose of the termnaton date. Notwthstandng the method of accountng em-
poyed by the contractor In keepng hs books, profts determned to be so aocabe
sha be consdered as havng been receved or accrued not ater than the
termnaton date. or the purposes of ths subsecton, the term termnaton
date means whchever of the foowng dates frst occurs
(1) December 31, 1945 or
(2) the date procamed by the Presdent as the date of the termnaton
of hosttes In the present war or
(3) the date specfed n a concurrent resouton of the two ouses of
Congress as the date of the termnaton of hosttes n the present war.
C. 2. T RMIN TION O R PRICING O W R CONTR CTS.
Secton 02(b) of the Revenue ct of 1943 (reatng to reprcng
of war contracts) s amended to read as foows:
(b) Secton 01 sha not appy to any contract wth a Department or any
subcontract made after (1) the date procamed by the Presdent as the date
of the termnaton of hosttes n the present war, or (2) the date specfed n
a concurrent resouton of the two ouses of Congress as the (ate of such term-
naton, or (3) December 31,1945, whchever date s the earer.
1945-14-12094
. . R S. 1 4. PU LIC L W 105, S NTY-NTNT CONGR SS C PT R
211, IRST S SSION .
ont Resouton To contnue the temporary ncreases In posta
rates on frst-cass matter, and for other purposes.
States of merca n Congress assembed, That secton 1001(a), as
amended (reatng to temporary ncrease n frst-cass postage rate),
of the Revenue ct of 1932, and secton 2, as amended (authorzng
the Presdent to modfy certan postage rates), of the ct entted
n ct to e tend the gasone ta for one year, to modfy postage
rates on ma matter, and for other purposes , approved une 16,
1933, are further amended by strkng out uy 1, 1945 wherever
appearng theren and nsertng n eu thereof uy 1, 1947 , and
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532
by strkng out une 30, 1945 wherever appearng theren and
nsertng n eu thereof une 30,1947 .
Sec. 2. Secton 732(d) of the Interna Revenue Code s amended
to read as foows:
(d) Revew by Speca Dvson of oabd. The determnatons and redeter-
mnatons by any dvson of the oard nvovng any queston arsng under
secton 721(a)(2)(C) or secton 722 wth respect to any ta abe year sha be
revewed by a speca dvson of the oard whch sha be consttuted by the
Charman and consst of not ess than three members of the oard. The decsons
of such speca dvson sha not be revewabe by the oard, and sha be
deemed decsons of the oard.
T D USTM NT CT O 1945.
1945-16-12113
. R. 3633. PU LIC L W 172, S NTY-NINT CONGR SS C PT R 340,
IRST S SSION .
n ct To factate reconverson, 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 Ta d|ust-
ment ct of 1945 .
S C. 2. INCR S IN C SS-PRO ITS T SP CI IC MPTION.
(a) In Geneba. Secton 710(b) (1) of the Interna Revenue Code s amended
to read as foows:
(1) Specfc e empton. specfc e empton of 25,000, e cept that
n the case of a ta abe year begnnng n 1945 and endng n 1946, the specfc
e empton sha be an amount equa to the sum of ( ) an amount whch bears
the same reaton to 10,000 whch the number of days n such ta abe year
pror to anuary 1, 1946, bears to the tota number of days n such ta abe
year and ( ) an amount whch bears the same reaton to 25,000 whch
the number of days n such ta abe year after December 31, 1945, bears to
the tota number of days n such ta abe year and n the case of a mutua
nsurance company (other than fe or marne) whch s an nternsurer or
recproca underwrter, a specfc e empton of 50,0C0
(b) Return Requrement. Secton 729(b)(2) of the Interna Revenue Code
Is amended by strkng out 10,000 or, n the case of a mutua nsurance company
(other than fe or marne) whch s an nternsurer or recproca underwrter,
s not greater than 50,000 and nsertng n eu thereof the specfc e empton
provded n secton 710(b)(1) .
(c) Consodated Returns. Secton 141(c) of the Interna Revenue Code s
amended by strkng out of 10,000 and Insertng n eu thereof as .
(d) Ta abe Yeabs to Whch ppcabe, The amendments made by ths
secton sha be appcabe to ta abe years begnnng after December 31, 1945,
nnd to ta abe years begnnng n 1945 and endng n 1 46.
S C. 3. C NG S IN PRO ISIONS R L TING TO POSTW R R UND O
C SS PRO ITS T .
(a) The frst sentence of secton 7 0(a) of the Interna Revenue Code s
amended by strkng out the words the date of cessaton of hosttes n the
present war and substtutng n eu thereof the foowng: December St
1943 .
(b) Secton 7 0(b) of the Interna Revenue Code Is amended by strkng out
the words three months before the date of maturty of bonds for such year under
subsecton (c) and nsertng n eu thereof the foowng: uy 1, 1945 .
(c) Secton 7 0(c) of the Interna Revenue Code s amended (1) by Insertng
n the ast sentence after the words to whch ths secton appes the foowng:
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sha be payabe at the opton of the owner on or after anuary 1, 1946, and ,
and (2) by strkng out the ast two nes from the tabe at the end thereof.
(d) Secton 7 1(a) of the Interna Revenue Code s amended by strkng out
the words three months before the date of maturty of the bonds for such year
and nsertng n eu thereof the foowng: uy 1, 1 45 .
(e) The ast sentence of secton 7 1(b) of the Interna Revenue Code s amended
by strkng out the words the tme of the maturty of bonds ssued wth respect
to such ta abe year and substtutng n eu thereof the foowng: anuary 1,
1U46 .
(f) Secton 7 1 (c) of the Interna Revenue Code s amended to read as foows:
(c) Ta Payments ft-b Cut-Off Date. In the case of a payment of the
ta mposed by ths subchapter shown on the return for any ta abe year for
whch a credt s provded n secton 7 0(a), or the payment of a defcency n
respect of such ta for any such ta abe year, on or after uy 1, 1045, the amount
of the credt under secton 7 0(a) for such ta abe year attrbutabe to such
payment sha be pad the ta payer n cash. No nterest for the perod after
December 31, 194. , sha be assessed or coected on that porton of the ta or
dtfency so pad equa to the credt under secton 7 0(a) attrbutabe to such
payment. If after anuary 1, 1946, there s any credt under secton 7 0(a)
remanng n favor of the ta payer attrbutabe to any ta abe year for whch a
credt s provded In secton 7 0(a), such remander sha be pad to the ta payer
n cash. No amount of any payment made under ths subsecton to a ta payer
sha be Incuded n gross ncome.
(g) Secton 7 3 of the Interna Revenue Code s amended by Insertng at the
end thereof the foowng new subsecton:
(e) Ta abe Years egnnng fteb Decembkb 31, 1943. The provsons of
ths secton sha not appy to ta abe years begnnng after December 31, 1943.
(h) Subchapter of Chapter 2 of the Interna Revenue Code s amended by
addng at the end thereof the foowng new secton:
S C. 7 4. T N P R C NTUM CR DIT G INST C SS PRO ITS T .
(a) owance. ganst the ta mposed by ths subchapter for any ta abe
year begnnng after December 31, 1943, there sha be aowed as a credt an
amount equa to 10 per centum of such ta .
(b) Speca Interest Provson. No nterest sha be aowed or pad upon
any overpayment of ta resutng from the appcaton of subsecton (a) to a
ta abe year endng before December 31, 1945, uness, n the return made for
snch ta abe year, the ta payer cams a credt under such subsecton.
S C. 4. T NSIONS O TIM OR P YM NT O T S Y CORPOR -
TIONS P CTING C RRY- C S, ND T NT TI C RRY- C
D USTM NTS.
(a) Chapter 37 of the Interna Revenue Code s amended by addng at the end
thereof the foowng new sectons:
S C. 3779. T NSIONS O TIM OR P YM NT O T S Y COR
POR TIONS P CTING C RRY- C S.
(a) In Genera. If a corporaton, n any ta abe year endng on or after
September 30, 1945, fes wth the coector a statement, as provded In sub-
secton (b), wth respect to an e pected net operatng oss carry-back or
unused e cess profts credt carry-back from such ta abe year, the tme for
payment of a or part of any ta mposed by chapter 1 or 2 for the ta abe
year mmedatey precedng such ta abe year sha be e tended, to the e tent
and sub|ect to the condtons and mtatons herenafter provded n ths secton.
(b) Contents of Statement. The statement wth respect to an e pected
carry-back referred to n subsecton (a) of ths secton sha be sworn to n
the manner prescrbed by secton 52 n the case of a return and sha be fed
at such tme and n such manner and form as the Commssoner, wth the ap-
prova of the Secretary, may by reguatons prescrbe. Such statement sha
set forth that the corporaton e pects to have a net operatng oss carry-back,
as provded n secton 122(b), or an unused e cess profts credt carry-back, as
provded n secton 710(c) (3), from the ta abe year n whch such statement
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s made, and sha set forth, n such deta and wth such supportng data and
e panaton as such reguatons sha requre
(1) the estmated amount of the e pected net operatng oss or unused
e cess profts credt
(2) the reasons, facts, and crcumstances whch cause the corporaton
to e pect such net operatng oss or unused e cess profts credts
(3) the amount of the reducton, attrbutabe to the e pected carry-
back, n the nggregate of the ta es prevousy determned for a ta abe
years affected by the carry-back pror to the ta abe year of the e pected
oss or unused credt such ta es prevousy determned beng ascertaned
n accordance wth the method prescrbed n secton 3 01(d) and such
reducton beng determned by appyng the e pected carry-back n the
manner provded by aw to the tems on the bass of whch such ta es
were determned but such reducton beng decreased by the amount of any
credts under secton 7 0 propery aocabe to such reducton
(4) the ta or ta es and the amount thereof the tme for payment of
whch s to be e tended and
(5) such other nformaton for the purpose of carryng out the pro-
vsons of ths secton as may be requred by such reguatons.
The coector sha, upon request, furnsh a recept for any statement fed, whch
sha set forth the date of such fng.
(c) mount to Whch tenson Reates and Instament Payments.
The amount the tme for payment of whch may be e tended under subsecton
(a) wth respect to any ta sha not e ceed the amount of such ta shown
on the return, ncreased by any amount assessed as a defcency (or as nterest
or addtons to the ta ) pror to the date of fng the statement and decreased
by any amount pad or requred to be pad pror to the date of such fng,
and the tota amount of the ta es the tme for payment of whch may be e -
tended sha not e ceed the amount stated under cause (3) of subsecton (b).
or the purposes of ths subsecton, an amount sha not be consdered as re-
qured to be pad uness shown on the return or assessed as a defcency (or
ns nterest or addton to the ta ), and an amount assessed as a defcency (or
as nterest or addtons to the ta ) sha be consdered to be requred to be
pad pror to the date of fng of the statement f the tenth day after notce and
demand for ts payment occurs pror to such date. If an e tenson of tme
under ths secton reates to ony a part of a ta , the tme for payment of the
remander sha be consdered to be the dates on whch payments woud have
been requred f such remander had been the ta and the ta payer had eected
to pay the ta n four equa nstaments ns provded n secton 56(b).
(d) Perod of tenson. The e tenson of tme for payment provded
In ths secton sha e pre
(1) on te ast day of the month n whch fas the ast date pre-
scrbed by aw (ncudng any e tenson of tme granted the ta payer)
for the fng of the return for the ta abe year of the e pected net operat-
ng oss or unused e cess profts credt, or
(2) f an appcaton for tentatve carry-back ad|ustment provded n
secton 37 0 wth respect to such oss or unused credt s fed before the
e praton of the perod prescrbed n cause (1), on the date on whch
notce s maed by regstered ma by the Commssoner to the ta payer
that such appcaton s aowed or dsaowed n whoe or n part.
(e) Revsed Statements. ach statement fed under subsecton (a) wth
respect to any ta abe year sha be n eu of the ast statement prevousy
fed wth respect to such year. If the amount the tme for payment of whch
s e tended under a statement fed Is ess than the amount under the ast
statement prevousy fed the e tenson of tme sha be termnated as to the
dfference between the two amounts.
(f) Termnaton by Commssoner. The Commssoner s not requred to
make any e amnaton of the statement, but he may make such e amnaton
thereof as he deems necessary and practcabe. The Commssoner sha term-
nate the e tenson as to any part of the amount to whch t reates whch he
deems shoud be termnated because, upon such e amnaton, he beeves that,
as of the tme such e amnaton s made, a or any part of the statement
ceary s n a matera respect erroneous or unreasonabe.
(g) Payments on Termnaton. If an e tenson of tme s termnated under
subsecton (e) or (f) wth respect to any amount, then
(1) no further e tenson of tme sha be made under ths secton wth
respect to such amount, and
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(2) the tme for payment of such amount sha be consdered to be the
dates on whch payments woud have been requred f there had been no
e tenson wth respect to such amount and the ta payer had eected to pay
the ta n four equa nstaments as provded n secton 56(b).
(h) eopardy. If the Commssoner beeves that coecton of the amount
to whch an e tenson under ths secton reates s n |eopardy, he sha mmed-
atey termnate such e tenson and notce and demand sha be made by the
coector for payment of such amount.
() Interest. In the case of an amount the tme for payment of whch has
been e tended, there sha be coected as part of such amount nterest from the
dates on whch payments woud have been requred f there had been no e tenson
and the ta payer had eected to pay the ta n four equa nstaments as provded
n secton 56(b)
(1) upon so much of such amount ns s satsfed under secton 37 0(b)
by appyng or credtng thereto, wthn the perod of e tenson, a decrease
n ta determned n connecton wth an appcaton under secton 37 0(a),
Interest at the rate of 3 per centum per annum to the date of such satsfac-
ton, e cept that on so much of such satsfed amount as s not n e cess of
the amount of the defcences assessed under secton 3 (b) and whch s not
so satsfed, the rate sha be 6 per centum per annum and
(2) upon the remander of the amount the tme for payment of whch
has been e tended, nterest at the rate of 6 per centum per annum to the date
such amount s pad.
If the Commssoner determnes that durng the perod of e tenson credt or
refund of an overpayment has been aowed or made, or a defcency assessed,
affectng the amount to whch the e tenson reates and that the ta payer coud
not have taken such overpayment or defcency nto account In the statement or
a revsed statement, approprate ad|ustment sha be made n the nterest.
S C. 37 0. T NT TI C RRY C D USTM NTS.
(a) ppcaton for d|ustment. ta payer may fe an appcaton for a
tentatve carry-back ad|ustment of the ta es for pror ta abe years affected by
a net operatng oss carry-back, provded n secton 122(b). or an unused e cess
profts credt carry-back, provded n secton 710(c)(3), from any ta ne year
endng on or after September 30, 1945. The appcaton sha be verfed n the
manner prescrbed by secton 51 or secton 52 In the case of a return of such
ta payer, and sha be fed, on or after the date of fng of the return for the
ta abe year of the net operatng oss or unused e cess profts credt from whch
the carry-back resuts and wthn a perod of tweve months from the end of such
ta abe year, In the manner and form requred by reguatons prescrbed by the
Commssoner wth the approva of the Secretary. The appcaton sha set
forth, n such deta and wth such supportng data and e panaton as such
reguatons sha requre
(1) the amount of the net operatng oss or unused e cess profts credt
(2) the amount of the ta prevousy determned for each pror ta abe
year affected by such carry-back the ta prevousy determned beng ascer-
taned n accordance wth the method prescrbed n secton 3 01 (d)
(3) the amount of ncrease or decrease n each such ta , attrbutabe to
such carry-back such ncrease or decrease beng determned by appyng
the carry-back n the manner provded by aw to the tems on the bass of
whch such ta es were determned. If an appcaton under secton 124(|)
for tentatve ad|ustment of ta wth respect to amortzaton has been prev-
ousy fed but such ad|ustment has not been prevousy determned, then
for the purposes of ths secton the assessments, appcatons, credts, and
refunds provded for n secton 124 (k) sha be consdered as havng prev-
ousy been made upon the bass of such appcaton under secton 124(|)
(4) the amount by whch the aggregate of such decreases e ceeds the
aggregate of such ncreases
(5) the unpad amount of each such ta , not Incudng any amount
requ red to be shown under paragraph (6)
(6) the amount, wth respect to each ta for the ta abe year Immedatey
precedng the ta abe year of such oss or unused credt, as to whch an
e tenson of tme for payment under secton 3779 s In effect and
(7) such other Informaton for the purposes of carryng out the provsons
of ths secton as may be requred by such reguatons.
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n appcaton under ths subsecton sha not consttute a cam for credt or
refund.
(b) owance of d|ustments. Wthn a perod of nnety days from the
date on whch an appcaton for a tentatve carry-hack ad|ustment s fed
under subsecton (a), or from the ast day of the month n whch fas tbv
ast date preserved by aw (ncudng any e tenson of tme granted the ta -
payer) for fng the return for the ta abe year of the net operatng oss or
unused e cess profts credt from whch such carry-back resuts, whchever
s the ater, the Commssoner sha make, to the e tent he deems practcabe
n such perod, a mted e amnaton of the appcaton, to dscover omssons
and errors of computaton theren, and sha determne the amount of the n-
crease or decrease n each ta attrbutabe to such carry-back upon the bass
of the appcaton and the e amnaton, e cept that the Commssoner may ds-
aow, wthout further acton, any appcaton whch he fnds contans errors
of computaton whch he deems cannot be corrected by hm wthn such nnety-
day perod or matera omssons. ach such ncrease sha be deemed deter-
mned as a defcency and sha be assessed, wthout regard to the restrctons
on assessment n secton 272. ach such decrease sha be apped aganst any
unpad amount of the ta decreased (ncudng any amount of such ta as to
whch an e tenson of tme under secton 3779 s n effect) and any remander
sha be credted
(1) aganst the defcences (and addtons to the ta ) assessed under
ths subsecton,
(2) aganst any unsatsfed nmount of any ta for the ta abe year
mmedatey precedng the ta abe year of the net operatng oss or un-
used e cess profts credt the tme for payment of whch ta s e tended
under secton 3779, and
any remander sha, wthn such nnety-day perod, be ether credted aganst
any ncome, war profts, or e cess profts ta or nstament thereof then due
from the ta payer, or refunded to the ta payer. The appcaton, credt or
refund of a decrease determned under ths subsecton sha be deemed a credt
or refund of an overpayment wthn the meanng of sectons 7 1(b) and
3 07(b)(1).
(c) ssessment of rroneous owances. If the Commssoner de-
termnes that the amount apped, credted or refunded under subsecton (b)
Is n e cess of the overassessment attrbutabe to the carry-back wth respect
to whch such amount was apped, credted or refunded, he may assess the
amount of the e cess as a defcency as f t were due to a mathematca error
appearng on the face of the return, as provded n secton 272(f). Upon mak-
ng such assessment, the Commssoner sha schedue as an overassessment the
decrease n any other ta resutng from the ad|ustments refected n the
computaton of the defcency.
S C. 37 1. T NSION O TIM ND T NT TI C RRY- C NT)
MORTIZ TION D USTM NTS IN T C S O CONSOLID T D
R TURNS.
If the corporaton seekng an e tenson of tme under secton 3779, a
tentatve carry-back ad|ustment under secton 37 0, or a tentatve ad|ustment
wth respect to an amortzaton deducton under secton 124 (|) and (k), made
or was requred to make a consodated return, ether for the ta abe year
wthn whch the net operatng oss or the unused e cess profts credt arses
or wthn whch the eecton s made to termnate the amortzaton perod, or
for a precedng ta abe year affected by such oss, credt, or eecton, the pro-
vsons of such sectons sha appy ony to such e tent and sub|ect to such
condtons, mtatons, and e ceptons as the Commssoner, wth the approva
of the Secretary, may by reguatons prescrbe.
(b) Secton 204 of the Interna Revenue Code Is amended by addng at the
(e) Substanta Overstatement of pected Carry- acks. If the tme
for payment of any ta or ta es for any ta abe ear Is e tended under sec-
ton 3779, there sha be added to such ta or ta es an nmount equa to 5 per
centum of the penaty porton, f any, of the amount to whch such e tenson
reates, uness the ta payer estabshes to the satsfacton of the Commssoner
that, as of the end of the ta abe year In whch such e tenson was made,
there was reasonabe cause to e pect there woud be no such penaty porton.
The penaty porton sha be the e cess of the amount to whch such e tenson
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537
reates whch Is not pad by the end of the ta abe year n whch such e -
tenson s made over 125 per centum of the amount to whch such e tenson
reates whch s satsfed by appyng thereto a decrease In ta n respect of
an appcaton under secton 37S0(a) ess any amounts assessed n respect
of such appcaton whch are not so satsfed.
(c) Secton 3777 of the Interna Revenue Code s amended by addng at the
(c) Tentatve Cabby- ack d|ustments. ny credt or refund aowed
or made under secton 37 0(b) sha be made wthout regard to the provsons
of subsecton (a). In any such case, f the credt or refund, reduced by any
defcency n such ta thereafter assessed and by defcences n any other ta
resutng from ad|ustments refected n the determnaton of the credt or re-
fund, s n e cess of 70,000, there sha be submtted to such commttee a re-
port contanng the matter specfed n subsecton (a) at such tme after the
makng of the credt or refund as the Commssoner sha determne the correct
amount of the ta .
S C. 5. P RIOD O LIMIT TION IN C S O C RRY C S.
(a) Secton 322(b)(5) of the Interna Revenue Code s amended by strkng
the words or of a carry-back w here they appear | subparagraph (R) thereof,
and by strkng the ast sentence and nsertng n eu thereof the foowng:
If the cam for credt or refund reates to an overpayment on account of the
effect that the deductbty of such a debt or oss has on the appcaton to the
ta payer of a carry-back, the perod sha be ether seven years from the date
prescrbed by aw for fng the return for the year of the net operatng oss or
the unused e cess profts credt whch resuts n such carry-back or the perod
prescrbed n paragraph (C), whchever e pres the ater. In the case of a cam
descrbed n ths paragraph the amount of the credt or refund may e ceed the
porton of the ta pad wthn the perod prescrbed n paragraph (2) or (3),
whchever s appcabe, to the e tent of the amount of the overpayment attrbut-
abe to the deductbty of tems descrbed n ths pnragraph.
(b) Secton 322(b) of the Interna Revenue Code s amended by nsertng
mmedatey foowng paragraph (5) the foowng new paragraph:
(C) Speca perod of mtaton wth bkspbct to net operatng oss
C Y- C S ND UNUS D C LS PRO ITS C DIT C Y- C S. If the cam
for credt or refund reates to an overpayment attrbutabe to a net operatng
oss carry-back or to an unused e cess profts credt carry-back, In eu of
the three-yenr perod of mtaton prescrbed n paragraph (1), te perod
sha be that perod whch ends wth the e praton of the three-year perod
prescrbed n paragraph (1) or the perod prescrbed n paragraph (3),
whchever e pres ater, wthn whch cam for credt or refund may be fed
wth respect to the ta abe year of the net operatng oss or the unused e cess
profts credt whch resuts n such carry-back. In the case of such a cam,
the amount of the credt or refund may e ceed the porton of the ta pad
wthn the perod provded n paragraph (2) or (3), whchever s appcabe,
to the e tent of the nnount of the overpayment attrbutabe to such carry-
back.
(c) Secton 322(d) of the Interna Revenue Code s amended by strkng the
perod at the end thereof and nsertng n eu thereof the foowng: or (3), f
such porton was not pad wthn the perod descrbed n cause (1), but the notce
of defcency was maed wthn the perod prescrbed n subsecton (b) (6) for
the fng of a cam for credt or refund of an overpayment attrbutabe to a
carry-back, or such a cam was fed, that such porton does not e ceed the amount
of the overpayment attrbutabe to a carry-back .
(d) Secton 322 of the Interna Revenue Code s amended by nsertng Imme-
datey foowng subsecton (f) the foowng new subsecton:
(g) Overpayments ttrbutabe to Net Opebatnq Loss Carry- acks and
Unused cess Profts Credt Carry- acks. If the aowance of a credt or
refund of an overpayment of ta attrbutabe to a net operatng oss carry-back
or to an unused e cess profts credt carry-back Is otherwse prevented by the
operaton of any aw or rue of aw other than secton 3701, reatng to compro-
mses, such credt or refund may be aowed or made, f cam therefor s fed
wthn the perod provded n subsecton (b) (6). If the aowance of an appca-
ton, credt or refund of a decrease In ta determned under secton 37 0(b) Is
otherwse prevented by the operaton of any aw or rue of aw other than secton
0 4334 4(5 33
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53
3761, such appcaton, credt or refund may be aowed or made f appcaton
for a tentatve carry-back ad|ustment s made wthn the perod provded n secton
37 0(a). In the case of any such cam for credt or refund or any such a
caton for a tentatve carry-back ad|ustment, the determnaton by any
ncudng The Ta Court of the Unted States, In any proceedng n wh
decson of the court has become fna, sha be concusve e cept wth respect
to the net operatng oss deducton and the unused e cess profts credt ad|ust-
ment, and the effect of such deducton or ad|ustment, to the e tent that su
deducton or ad|ustment s affected by a carry-back whch was not n ssue
such proceedng,
(e) Secton 276 of the Interna Revenue Code s amended by nsertng
atey foowng subsecton (e) the foowng new subsecton:
(d) Net Operatng Loss Cabby- acks and Unused cess Pboftts Credt
Cabby- acks. defcency attrbutabe to the appcaton to the ta payer of a
net operatng oss carry-back or an unused e cess profts credt carry-back, ncud-
ng defcences whch may be assessed pursuant to the provsons of secton
37 0 (b) and (c), may be assessed at any tme pror to the e praton of the
perod wthn whch a defcency may be assessed wth respect to the ta abe
year of the camed net operatng oss or unused e cess profts credt resutng
n such carry-back.
(f) ffectve Date. The amendments made by ths secton sha be appcabe
wth respect to a ta abe years begnnng after December 31, 1040, e cept that
the amendment made by subsecton (d) sha not be appcabe to any ta abe
year wth respect to whch the ta payer and the Commssoner have entered Into
a cosng agreement under the provsons of secton 3760, pror to the date of
enactment of ths ct, n any case n whch t Is e pressy provded n such cosng
agreement that the ta abty for such ta abe year s not to be affected by a
net operatng oss carry-back or by an unused e cess profts credt carry-back.
S C. 6. INT R ST IN CONN CTION WIT C RRY- C S.
(a) Secton 202 of the Interna Revenue Code s amended by addng at
(c) Defcency Resutng rom Cakby- ack and Reated Mattebs. If any
part of a defcency s determned by the Commssoner to he attrbutabe ( ) to
a carry-back to whch an overpayment descrbed n secton 3771(e). or a decrease
determned under secton 37 0(b), n any other ta s attrbutabe, or ( ) to
an error n the amount or effect of a carry-back whch resuted n a credt or
refund of an overpayment wth nterest computed pursuant to secton 3771(e),
or n a decrease determned under secton 37 0(b), no nterest sha be assessed
or pad under subsecton (a) wth respect to such part of the defcency for any
perod durng whch nterest was not aowed wth respect to such overpayment
or for a perod pror to the appcaton of such decrease.
(b) Secton 3771(e) of the Interna Revenue Code s amended by substtutng
n semcoon for the perod at the end thereof and addng the foowng: nor
for any perod begnnng wth the date of fng of an appcaton under secton
37 0(a) reatng to such part of the overpayment and endng wth the ast date
the Commssoner s determnaton s requred to be made under secton 37 0(b)
nor, n case an appcaton s made under secton 37 0(a), for any perod before
the frst day of the month mmedatey foowng the month n whch fas the
ust date prescrbed by aw (ncudng any e tenson of tme granted the ta -
payer) for fng the return for the ta abe year of the net operatng oss or
unused e cess profts credt, or before the date on whch the return Is fed,
ever s ater.
y a
the
S C. 7. T NT TI D USTM NTS WIT R SP CT TO MOI
TION D DUCTIONS.
Secton 124 of the Interna Revenue Code s amended by Insertng at the
thereof the foowng new subsectons:
(|) ppcaton fob Tentatve d|ustment. ny ta payer who has fed a
statement of eecton as prescrbed n paragraph (4) of subsecton (d) may,
wthn nnety days from the date such statement s fed, or wthn nnety days
t.. . from the date of enactment of ths ct, whchever s the ater, fe an appcaton
by p. for tentatve ad|ustment wth respect to the ta es for ta abe years pror to the
ta abe year n whch such appcaton s fed whch are to be computed as requred
by paragraph (4) of subsecton (d) as the resut of such eecton. Such app-
p bp
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539
caton sha be verfed n the manner prescrbed by secton 51 or secton 52 n
the case of a return of such ta payer and sha be made n such manner and form
as sha be requred by reguatons prescrbed by the Commssoner wth the
approva of the Secretary, and sha set forth, n such deta and wth such
supportng data and e panaton as such reguatons sha requre, the recom-
putaton of such ta es requred n paragraph (4) of subsecton (d) e cept that
the ta for each ta abe year to be recomputed sha be the ta for such year
prevousy determned, ascertaned n accordance wth the method prescrbed
n secton 3 01(d). If an appcaton under secton 37 0(a) for tentatve carry-
back ad|ustment has been prevousy fed, but such ad|ustment has not been
prevousy determned, then for the purpose of subsecton (|) and (k), the assess-
ments, appcatons, credts, and refunds provded n secton 37 0(b) sha be
consdered as havng been prevousy made upon the bass of such appcaton
under secton 37 0(a). Such recomputaton of ta sha be made on the bass
of the tems on the bass of whc the ta to be recomputed was determned.
Such appcaton sha aso set forth the unpad amount of each ta recomputed
and such other nformaton for the purpose of carryng out the provsons of
subsectons (|) and (k) as may be requred by such reguatons. n appcaton
under ths subsecton sha not consttute a cam for credt or refund.
(k) t owance of d|ustment. Wthn a perod of nnety days from the
fng of an appcaton under subsecton (|), the Commssoner sha make, to
the e tent he deems practca In such perod, a mted e amnaton of the app-
caton for omssons and errors of computaton, and sha determne the amount
nf the ncrease or decrease In each ta to whch such appcaton reates, on the
bass of the appcaton and the e amnaton, e cept that the Commssoner may
dsaow, wthout further acton, any appcaton whch he fnds contans matera
omssons, or errors of computaton whch he deems cannot be corrected by hm
wthn such nnety-day perod. ach ncrease sha be deemed determned as
a defcency and assessed, wthout regard to the restrctons on assessment n
secton 272. ach decrease sha be apped aganst any unpad amount of the
ta decreased, and any remander sha be credted aganst the defcences (and
nterest or addtons to the ta ) assessed under ths subsecton, and any reman-
def sha, wthn such nnety-day perod, be ether credted aganst any other
ncome, war profts, or e cess profts ta , or nstament thereof, due from the
ta payer, or refunded to the ta payer. The appcaton, credt, or refund of a
decrease determned under ths subsecton sha be deemed a credt or refund
of an overpayment wthn the meanng of secton 7 1(b).
1945-17-1215
. R 122. PU LIC L W 177, S NTY-NINT CONGR SS C PT R
364, IRST S SSION .
n ct To amend sectons 2720(a) and 3260(a) of the Interna
Revenue Code reatng to the transfer ta , and the ta of manu-
facturers and deaers, n the case of certan sma-game guns.
Unted States of merca n Congress assembed, That secton 2720 (a)
of the Interna Revenue Code s amended to read as foows:
(a) Rate. There sha be eved, coected, and pad upon frearms transferred
In the contnenta Unted States a ta at the rate of 200 for each frearm:
Provded, That the transfer ta on any gun wth two attached barres, tweve
nches or more n ength, from whch ony a snge dscharge can be made from
ether barre wthout manua reoadng, or any gun desgned to be hed n one
hand when fred and havng a barre tweve nches or more n ength from whch
ony a snge dscharge can be made wthout manua reoadng, sha be at the
rate of 1. The ta mposed by ths secton sha be n addton to any mport
duty Imposed on such frearm.
Sec. 2. Sect on 3260(a) of the Interna Revenue Code s amended
by strkng out Provded, That manufacturers and deaers n guns
wth two attached barres from whch ony a snge dscharge can be
made from ether barre wthout manua reoadng sha pay the fo-
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owng ta es: Manufacturers, 25 per year deaers, 1 per year. and
nsertng n eu thereof the foowng: Provded, That manufac-
turers and deaers n guns wth two attached barres, tweve nches
or more n ength, from whch ony a snge dscharge can be made
from ether barre wthout manua reoadng, guns desgned to be
hed n one hand when fred and havng a barre tweve nches or more
n ength from whch ony a snge dscharge can be made wthout
manua reoadng, or guns of both types, sha pay the foowng ta es:
Manufacturers, 25 per year deaers, 1 per year.
Sec. 3. (a) The amendment made by the frst secton of ths ct
sha appy wth respect to any transfer wthn the scope thereof
made on or after uy 1,1945.
(b) The amendment made by secton 2 of ths ct sha appy w
respect to any ta wthn the scope thereof payabe under _
3260(a) of the Interna Revenue Code for any ta abe perod
mencng on or after uy 1,1945.
1945-17-12129
. R 3239. PU LIC L W 1 0, S NTY-NINT CONGR SS C PT R
307, IRST S SSION .
n ct To e empt certan mechanca pencs havng precous
metas as essenta parts from the ta wth respect to |ewery, and
so forth.
Unted States of merca n Congress assembed, That secton 2400
of the Interna Revenue Code (reatng to the retaers e cse ta on
|ewery, etc.) s amended by strkng out to a fountan pen or smok-
ers ppe f the ony parts of the pen or the ppe and nsertng n
eu thereof to a fountan pen, mechanca penc, or smokers ppe
f the ony parts of the pen,-the penc, or the ppe .
Sec. 2. The amendment made by ths ct sha take effect on the
frst day of the frst month whch begns more than ten days after the
date of the enactment of ths ct.
1945-22-12171
. R. 2C0O. PU LIC L W 201, S NTY-NINT CONGR SS C PTS
433, IRST S SSION .
n ct To amend the onneve Pro|ect ct.
e t enacted by the Senate and ouse of Representatves of the Unted State)
of merca n Congress assembed,

Sec. 7. (a) Secton 1426 of the Interna Revenue Code, as amended, s amended
by addng at the end thereof the foowng new subsecton:
( ) Certan mpoyees of onneve Power dmnstrator. The term
empoyment sha ncude such servce as s determned by the onneve
Power dmnstrator (herenafter caed the dmnstrator) to be performed
after December 31, 1045, by a aborer, mechanc, or workman, n connecton
wth constructon work or the operaton and mantenance of eectrca factes,
as an empoyee performng servce for the dmnstrator, but sha not Incude
any servce performed by such a aborer, mechanc, or workman, to whom tbe
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541
ct of May 20, 1930 (40 Stat. 45 ), as amended, appes. The terra wages
means, wth respect to servce whch consttutes empoyment by reason of ths
subsecton, such amount of remuneraton as s determned (sub|ect to the pro-
vsons of ths secton) by the dmnstrator to be pad for such servce. The
dmnstrator s authorzed and drected to compy wth the provsons of the
nterna revenue aws on behaf of the Unted States as the empoyer of nd-
vduas whose servce consttutes empoyment by reason of ths subsecton.

(c) Secton 1G0G of the Interna Revenue Code, as amended, s amended by
addrg at the end thereof the foowng new subsecton:
(e) The egsature of any State may, wth respect to servce to be performed
after December 31, 1045, by a aborer, mechanc, or workman, n connecton wth
constructon work or the operaton and mantenance of eectrca factes
as an empoyee performng servce for the onneve Power dmnstrator
(herenafter caed the dmnstrator), requre the dmnstrator, who for the
purposes of ths subsecton s desgnated an nstrumentaty of the Unted States,
and any such empoyee, to make contrbutons to an unempoyment fund under
a State unempoyment compensaton aw approved by the oard under secton
1603 and to compy otherwse wth such aw. Such permsson s sub|ect to
the condtons mposed by subsecton (b) of ths secton upon permsson to
State egsatures to requre contrbutons from nstrumentates of the Unted
States. The dmnstrator s authorzed and drected to compy wth the pro-
vsons of any appcabe State unempoyment compensaton aw on behaf
of the Unted States as the empoyer of ndvduas whose servce consttutes
empoyment under such aw by reason of ths subsecton.
Id) Secton 1607 of the Interna Revenue Code, as amended, s amended by
addng at the end thereof the foowng new subsecton:
(m) Certan mpoyees of onneve Poweb dm|nstrator. The term
empoyment sha ncude such servce as s determned by the onneve
Power dmnstrator (herenafter caed the dmnstrator) to be performed
after December 31, 1045, by a aborer, mechanc, or workman, n connecton wth
constructon work or the operaton and mantenance of eectrca factes,
as an empoyee performng servce for the dmnstrator. The term wages
means, wth respect to servce whch consttutes empoyment by reason of ths
subsecton, such amount of remuneraton as s determned (sub|ect to the pro-
vsons of ths secton) by the dmnstrator to be pad for such servce. The
dmnstrator s authorzed and drected to compy wth the provsons of the
nterna revenue aws on behaf of the Unted States as the empoyer of nd-
vduas whose servce consttutes empoyment by reason of ths subsecton.
pproved October 23, 1945.
1945-22-12172
S. . R S. 100. PU LIC L W 210, S NTY-NINT CONGR SS C PT R
446, IRST S SSION .
ont Resouton permttng acoho pants to produce sugars or
srups smutaneousy wth the producton of acoho unt uy 1,
1046.
States of merca n Congress assembed, That part II of subchapter
C of chapter 26 of the Interna Revenue Code s amended by addng
at the end thereof the foowng new secton:
S C. 3126. M RG NCY PRODUCTION O SUG RS ND SIRUPS IN
INDUSTRI L LCO OL PL NTS.
(a) In Genera. Notwthstandng the provsons of sectons 2 19 and 3122,
and of any other aw, unt uy 1, 1046, sugars and srups from potatoes and
from hgh mosture or damaged gran may be produced In ndustra acoho
pants smutaneousy wth, or aternatey wth, the producton of acoho.
(b) Reguatons. The Commssoner, wth the approva of the Secretary,
Is authorzed to prescrbe reguatons to carry out the provsons of ths secton.
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1945-1-11927
. R. 5504. PU LIC L W 495, S NTY- IG T CONGR SS C PT R
COO, S COND S SSION .
n ct To f the rate of ta under the edera Insurance Contrbu-
tons ct on empoyer and empoyees for the caendar year 1945.
Unted States of merca n Congress assembed, That (a) causes
(1), (2), (3), and (4) of secton 1400 of the edera Insurance Con-
trbutons ct (secton 1400 of the Interna Revenue Code, reatng
to the rate of ta on empoyees) are amended to read as foows:
(1) Wth respect to wages receved durng the caendar years 1939, 1940,
1941,1942, 1943, 1944, and 19-15, the rate sha be 1 per centum.
(2) Wth respect to wages receved durng the caendar years 1946, 1947,
and 194 , the rate sha be 2 per centunf.
(3) Wth respect to wages receved after December 31, 194 , the rate sha
be 3 per centum.
(b) Causes (1), (2), (3), and (4) of secton 1410 of the edera
Insurance Contrbutons ct (secton 1410 of the Interna Revenue
Code, reatng to the rate of ta on empoyers) are amended to read
as foows:
(1) Wth respect to wages pad durng the caendar years 1939, 1940,
1941. 1942, 1943, 1944, and 1945, the rate sha be 1 per centum.
(2) Wt respect to wages pad durng the caendar years 1946, 1947, and
194 . the rate sha be 2 per centum.
(3) Wth respect to wages pad after December 31, 194 , the rate sha
be 3 per centum.
pproved December 1C, 1944.
1945-1-1192
. R. 5543. PU LIC L W 511, S NTY- IG T CONGR SS C PT
616, S COND S SSION .
n ct tendng the tme for the reease of powers Of appont-
ment for the purposes of certan provsons of the Interna Revenue
Code, and for other purposes.
Unted States of merca n Congress assembed. That secton 403(d)
(3) of the Revenue ct of 1942 (reatng to the reease of certan
powers of appontment) s amended by strkng out anuary 1,1945
wherever t appears and nsertng n eu thereof uy 1, 1945 and
secton 452(c) of the Revenue ct of 1942 s amended to read as
foows:
(c) Reease efoke uy 1, 1945.
(1) reease of a power to appont before uy 1, 1945, sha not be
deemed a transfer of property by the ndvdua possessng such power.
(2) Ths subsecton sha appy to a caendar years pror to 1945 and to
that part of the caendar year 1945 pror to uy 1, 1945.
Sec. 2. (a) Secton 162(d) (1) ( ) of the Revenue ct of 1942 (re-
atng to empoyees trusts) s amended to read as foows:
( ) such a pan sha be consdered as satsfyng the requrements of
secton 165(a) (3), (4), (5), and (6) tor the perod begnnng wth the
begnnng of the frst ta abe year foowng December 1, 1942, and
endng une 30, 1945, f the provsons thereof satsfy such requrements
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543
by une 30, 1945, and f by that tme a provsons of such pan whch
are necessary to satsfy such requrements are n effect and have been
made effectve for a purposes wth respect to the porton of such perod
after December 31,1943.
(b) Secton 162(d)(2) of the Revenue ct of 1942 (reatng to
empoyees trusts) s amended to read as foows:
( ) put Into effect after September 1, 1942, and pror to anuary 1,
1945, sha be consdered as satsfyng the requrements of secton 165(a)
(3), (4), (5), and (6) for the perod begnnng wth the date on whch
t was put nto effect and endng wth une 30, 1945, f a provsons of
the pan whch are-necessary to satsfy such requrements are n effect
by the end of such perod and have been made effectve for a purposes
wth respect to (he porton of such perod after December 31, 10 3
( ) put nto effect after December 31, 1944, sha be consdered as
satsfyng the requrements of secton 165(a) (3), (4), (5), and (0) for
the perod begnnng wth the date on whch t was put nto effect and
endng wth the 15th day of the thrd month foowng the cose of the
ta abe year of the empoyer n whch the pan was put In effect, f a
provsons of the pan whch are necessary to satsfy such requrements
are n effect by the end of such perod and have been made effectve for
a purposes wth respect to the whoe of such perod.
Sec. 3. If a cam for credt or refund under the nterna revenue
aws reates to an overpayment on account of the deductbty, by the
ta payer of a oss n respect of property consdered destroyed or sezed
under secton 127(a) of the Interna Revenue Code (reatng to war
osses) for a ta abe year begnnng n 1941, the three-year perod of
mtaton prescrbed n secton 322(b)(1) of the Interna Revenue
Code sha n no event e pre pror to December 31, 1945. In the
case of such a cam fed on or before December 31, 1945, the amount
of the credt or refund may e ceed the porton of the ta pad wthn
the perod provded n secton 322(b) (2) or (3) of such code, whch-
ever s appcabe, to the e tent of the amount of the overpayment
attrbutabe to the deductbty of the oss descrbed n ths secton.
1945-1-11930
. R. 5565. PU LIC L W 541, S NTY- IG T CONGR SS
C PT R 672, S COND S SSION .
n ct To authorze coectors of nterna revenue to receve cer-
tan checks and money orders n payment of ta es and for revenue
stamps.
Unted States of merca n Congress assembed, That secton 3656
of the Interna Revenue Code (reatng to payment of ta es by check)
S C. 3656. P YM NT Y C C ND MON Y ORD RS,
(a) Cebtoteb. Cashers , and Treasures Checks and Mo.net Order.
(1) uthorty to reckve. It sha be awfu for coectors to receve
for nterna revenue ta es or n payment of stamps to be used n pay-
ment of nterna revenue ta es certfed, cashers and treasurers checks
drawn on Natona and State banks and trust companes, and Unted States
posta, bank, e press, and teegraph money orders, durng such tme and
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under such reguatons as the Commssoner, wth the approva of the
Secretary, may prescrbe.
(2) Dscharge of Labty.
( ) Check Duy Pad. No person who may be ndebted to the
Unted States on account of Interna revenue ta es or stamps used or
to be used In payment of nterna revenue ta es who sha have
tendered a certfed, casher s, or treasurer s check or money order as
provsona payment therefor, In accordance wth the terms of ths
subsecton, sha be reeased from the obgaton to make utmate pay-
ment thereof unt such certfed, casher s, or treasurer s check or money
order so receved has been duy pad.
( ) Check Unpad. If any such check or money order so receved
s not duy pad the Unted States sha, n addton to ts rght to
e act payment from the party orgnay Indebted therefor, have a
en for the amount of such check upon a the assets of the bank on
whch drawn or for the amount of such money order upon a the
assets of the Issuer thereof and such amount sha be pad out of ts
assets n preference to any or a other cams whatsoever aganst sad
bank or ssuer e cept the necessary costs and e penses of admnstra-
ton and the rembursement of the Unted States for the amount e -
pended n the redempton of the crcuatng notes of such bank.
(b) Other Checks.
(1) uthobty to receve. Coectors may receve checks In addton to
those specfed n subsecton (a) n payment of ta es other than those
payabe by stamp durng such tme and under such rues and reguatons
as the Commssoner, wth the approva of the Secretary, sha prescrbe.
(2) Utmate abty. If a check so receved s not pad by the bank
on whch t s drawn the person by whom such check has been tendered
sha reman abe for the payment of the ta and for a ega penates
and addtons to the same e tent as f such check had not been tendered.
1945-1-11931
. . 496 . PU LIC L W 552, S NTY- IG T CONG SS
C PT 714, S COND S SSION .
n ct To amend secton 511(c) of the Merchant Marne ct, 1936,
as amended, reatve to depost of vesse proceeds receved from the
Unted States n certan cases, and for other purposes.
Unted States of merca n Congress assembed, That the frst sen-
tence of secton 511(c) of the Merchant Marne ct, 1936, as amended,
(c) In the case of the sae or actua or constructve tota oss of a vesse, If
the ta payer deposts an amount equa to the net proceeds of the sae or to
the net ndemnty wth respect to the oss In a constructon reserve fund estab-
shed under subsecton (b), then
(1) f the ta payer so eects In hs ncome-ta return for the ta abe
year In whch the gan was reazed, or
(2) n case a vesse Is purchased or requstoned by the Unted States,
or s ost, In any ta abe year begnnng after December 31, 1939, and pror
to anuary 1, 1944, and the ta payer receves payment for the vesse so
purchased or requstoned, or receves from the Unted States ndemnty
on account of such oss, subsequent to the end of such ta abe year, f
the ta payer so eects pror to March 31, 1945, or pror to the e praton
of s ty days after the recept of the payment or Indemnty, whchever s
ater, and In accordance wth a form of eecton to be prescrbed by the
Commssoner of Interna evenue wth the approva of the Secretary
of the Treasury,
no gan sha be recognzed to the ta payer n respect of such sae or Indemnf-
caton In the computaton of net Income for the purposes of edera Income
or e cess-profts ta es. If an eecton s made under subdvson (2) and f
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computaton or recomputaton In accordance wth ths subsecton s otherwse
aowabe but s prevented, on the date of makng such eecton or wthn s
months thereafter, by any statute of mtaton, such computaton or recomputa-
ton nevertheess sha be made notwthstandng such statute If a cam therefor
s fed wthn s months after the date of makng such eecton.
Sec. 2. Secton 511 of the Merchant Marne ct, 1936, as amended,
s amended by addng at the end thereof a new subsecton to read as
foows:
(n) The terms contract for the constructon and constructon contract ,
as used In ths secton, sha ncude, n the case of a ta payer who constructs
a new vesse n a shpyard owned by such ta payer, an agreement between such
ta payer and the Commsson wth respect to such constructon and contanng
provsons deemed necessary or advsabe by the Commsson to carry out the
purposes and pocy of ths secton.
CONCURR NT R SOLUTION.
1945-16-12116
. CON. R S. 50, S NTY-NINT CONGR SS, IRST S SSION1.
Resoved by the owe of Representatves ( the Senate concurrng),
That n the pubc nterest Congress hereby decares that by the
reenactment, n the varous revenue cts begnnng wth the Revenue
ct of 191 , of the provsons of secton 23 of the Interna Revenue
Code and of the correspondng sectons of pror revenue cts aowng
a deducton for ordnary and necessary busness e penses, and by the
enactment of the provsons of secton 711(b)(1) of the Interna
Revenue Code reatng to the deducton for ntangbe drng and
deveopment costs n the case of o and gas wes, the Congress has
recognzed and approved the provsons of secton 29.23(m)-16 of
Treasury Reguatons 111 and the correspondng provsons of pror
Treasury Reguatons grantng the opton to deduct as e penses such
ntangbe drng and deveopment costs.
Passed the ouse of Representatves une 19, 1945.
greed to by the Senate uy 21 (egsatve day, uy 9), 1945.
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R NU CT O 1945.
1945-23-121 7
. . 4309. PU LIC L W 214, S NTY-NINT CONGR SS C PT R
453, IRST S SSION .
n ct To reduce ta aton, and for other purposes.
e t enacted by the Senate and ouse of Representatves of the Unted States
of merca n Congress assembed, That (a) Short Tte. Ths ct may be
cted as the Revenue ct of 1915 .
(b) ct mendatory of Interna Revenue Code. cept as otherwse e -
pressy provded, wherever n ths ct an amendment or repea s e pressed
n terms of an amendment to or repea of a chapter, subchapter, tte, suppe-
ment, secton, subsecton, subdvson, paragraph, subparagraph, or cause, the
reference sha be consdered to be made to a provson of the Interna Revenue
Code.
(c) Meanng of Terms Used. cept as otherwse e pressy provded, terms
used n ths ct sha have the same meanng as when used n the Interna
Revenue Code.
TITL I INCOM ND C SS PRO ITS T .
Part I Indvdua Income Ta es.
S C. 101. R DUCTION IN NORM L T ND SURT ON INDI IDU LS.
(a) Reducton n Norma Ta on Indvduas. Secton 11 (reatng to the
norma ta on ndvduas) s amended to read as foows:
S C. 11. NORM L T ON INDI IDU LS.
There sha be eved, coected, and pad for each ta abe year upon the net
Income of every ndvdua a norma ta determned by computng a tentatve
norma ta of 3 per centum of the amount of the net ncome n e cess of the
credts aganst net ncome provded n secton 25, and by reducng such tentatve
norma ta by 5 per centum thereof. or aternatve ta whch may be eected
f ad|usted gross ncome s ess than 5,000, see Suppement T.
(b) Reducton n Surta on Indvduas. Secton 12(b) (reatng to the
rate of surta on ndvduas) s amended to read as foows:
(b) Rates of Surta . There sha be eved, coected, and pad for each ta -
abe year upon the surta net Income of every ndvdua a surta determned by
computng a tentatve surta under the foowng tabe, and by reducng such
tentatve surta by 5 per centum thereof:
If the surta net ncome s: The tentatve surta sha be:
Not over 2,000 17 of the surta net ncome.
Over 0,000 but not over ,000 1,1 0, pus 27 of e cess over
6 000
Over ,000 but not over 10,000 1,720, pus 31 of e cess over
,000.
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If the surta net ncome s Con. The tentatve surta sha be Con.
Over 10,000 but not over 12,000
2,340, pus 35
10,000.
o
e cess
over
3,040, pus 40
12,0C0.
of
e cess
over
3, 40, pus 44
of
e cess
over
14,000.
Over 16,000 but not over 1 ,000
4,720, pus 47
of
e cess
over
16,000.
Over 1 ,000 but not over 20,000
5,660, pus 50
of
e cess
over
1 ,000.
6,660, pus 53
of
e cess
over
20,000.
7,720, pus 56
of
e cess
over
22,000.
9,060, pus 59
of
e cess
over
26,000.
Over 32,000 but not over 3 ,000
13,500, pus 62
32,000.
of
e cess
over
Over 3 ,000 but not over 44,000
17,220, pus 66
of
e cess
over
3 ,000.
21,1 0, pus 69
44,000.
of
e cess
over
Over 60,000 but not over 60,00 _
25.:20, pus 72
50,000.
of
e cess
over
32,520, pus 75
of
e cess
over
60,000.
40,020, pus 7
of
e cess
over
70,000.
47, 20, pus 1
of
e cess
over
-
0,000.
of
55,920, pus 4
e cess
over
90,000.
Over 100,000 but not over 150,000_
64,320, pus 6
100,000.
of
e cess
over
Over 150,000 but not over 200,000_
107,320, pus 7
of
e cess
over
150,000.
Over 200,000. -
150, 20, pus
200,000.
of
e cess
over
(c) Lmtaton on Ta . Secton 12(g) (reatng to the 90 per centum m-
taton) s amended by strkng out 90 per centum and nsertng n eu
thereof 5 per centum .
(d) Ta abe Years to Whch ppcabe. The amendments made by ths
secton sha be appcabe to ta abe years begnnng after December 31, 1945.
or treatment of ta abe years begnnng n 1945 and endng n 1946, see
secton 131.
S C. 102. LLOW NC O S M MPTIONS O NORM L T S
OR SURT .
(a) In Genera. So much of secton 25(b) (reatng to credts for surta )
as precedes paragraph (2) thereof s amended to read as foows:
(b) CR DITS O OT NORM L T ND SURT .
(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 |ont return Is made by the ta payer and hs spouse
under secton 51, n whch case the aggregate e empton of the
spouses under subparagraph ( ) and ths subparagraph sha bo
1,000, or
() a separate return s made by the ta payer, and hs spouse
has no gross ncome for the caendar year n whch the ta abe
year of the ta payer begns and s not the dependent of another
ta payer
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2
2

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7
6
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1
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4
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#
p
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54
(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 Is ess than 500, e cept that the e empton sha not be aowed
n respect of a dependent who has made a ont return wth hs spouse
under secton 51 for the ta abe year begnnng In such caendar year.
(1) Secton 23( ) (reatng to the deducton for medca e penses) s
amended by strkng out surta wherever appearng theren.
(2) Secton 25(a) (3) (reatng to the norma ta e empton) s repeaed.
(3) Secton 47(e) (reatng to the reducton of certan credts aganst
net ncome) s amended to read as foows:
(e) Reducton of Credts ganst Net Income. In the case of a return
made for a fractona part of a year under secton 146(a)(1), the e emptons
provded n secton 25(b) sha be reduced to amounts whch bear the same
rato to the fu e emptons so provded as the number of months n the perod
for whch return s made bears to tweve months.
(4) Secton 5 (a)(1) (reatng to the requrement of a decaraton of
estmated ta ) s amended by strkng out surta .
(5) Secton 143(a)(2) (reatng to credts aganst net ncome n the
case of Interest on ta -free covenant bonds) s amended by strkng out
norma ta e empton provded n secton 25(a) (3) and the surta .
(0) Secton 163(a)(1) (reatng to credts of estates and trusts aganst
net ncome) s amended to read as foows:
(1) or the purpose of the norma ta and the surta , an estate sha
be aowed, In eu of the e emptons under secton 25(b)(1), a credt of
500 aganst net Income, and a trust sha be aowed, n eu of the
e emptons under secton 25(b) (1), a credt of 100 aganst net Income.
(7) Secton 214 (reatng to credts of nonresdent aens aganst net
ncome) Is amended to read as foows:
S C. 214. CR DITS G INST N T INCOM .
In the case of a nonresdent aen ndvdua who s not a resdent of a
contguous country, ony one e empton under secton 25(b) sha be aowed.
( ) Secton 215(b) (reatng to credts of nonresdent aens aganst net
ncome n case of ta wthhed at source) Is nmended by strkng out the
words norma ta e empton and the surta e emptons and by Insertng
n eu thereof the e emptons under secton 25(b) .
(9) Secton 251(f) (reatng to credts aganst net Income In the case
of ctzens entted to the benefts of secton 251) Is amended to read as
foows:
(f) Credts oanst Net Income. ctzen of the Unted States entted
to the benefts of ths secton sha be aowed ony one e empton under secton
25(b).
(10) Secton 401 (defnng surta e empton for the purposes of
Suppement T) s nmended to read as foows:
S C. 401. D INITION O MPTION .
s used n the tabe n secton 400, the term number of e emptons means
the number of the e emptons aowed under secton 25(b) as credts aganst
net ncome for the purpose of the norma ta and the surta mposed by sectons
11 and 12.
(c) Ta abe Tears to Wncn ppcabe. The amendments and repeas
made by ths secton sha be appcabe wth respect to ta abe years begnnng
after December 31, 1045. or treatment of ta abe years begnnng In 1045 and
endng In 194G, see secton 131.
S C. 103. INDI IDU LS WIT D UST D GROSS INCOM S O L SS
T N 5,000.
(a) In Genera. The ta tabe (Incudng the note at the foot of such
tabe) In secton 400 (reatng to optona ta on Indvduas wth ad|usted
gross ncomes of ess than 5,000) s amended to read as foows:
G
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d

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7
6
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1
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4
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#
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549
If the ad|usted
nd the number or
e emptons s
If the ad|usted
: ncome
s-
ut
ess
than
1
S
4 or
ut
ess
than
1
3
4
I
6
7
9 or
more
t
east
The ta sha be
more
t
east
The ta sha be
0
550
0
to
0
0
2,200
2, 225
2 3
1
93
0
0
to
0
0
0
550
576
1
0
0
0
2.225
2.250
2S
193
9
3
0
0
0
0
0
675
600
5
0
0
0
2. 250
2,275
292
197
102
7
0
0
0
0
0
600
625
10
0
0
0
2.275
2,300
296
201
106
11
0
0
0
0
0
623
650
14
0
0
0
2,300
2.325
300
205
110
16
0
0
0
0
0
650
675
1
0
0
0
2.325
2,3.50
305
210
115
20
0
0
0
0
0
67
700
23
0
0
0
2,350
2,375
309
214
119
24
0
0
0
0
0
700
725
27
0
0
0
2.376
2.400
313
21
123
2
0
0
0
0
0
725
750
31
0
0
0
2.400
2,425
31
223
12
33
0
0
0
0
0
760
775
36
0
0
0
2, 425
2.4.r,(
322
227
132
37
0
0
0
0
0
775
00
40
0
0
0
2,450
2,475
326
231
136
41
0
0
0
0
0
00
25
44
0
0
0
2. 475
2,600
330
235
140
45
0
0
0
0
0
25
50
4
0
0
0
2,500
2,525
335
240
145
60
0
0
0
0
0
50
75
52
0
0
0
2,625
2,650
339
244
149
54
0
0
0
0
0
75
900
67
0
0
0
2.550
2,676
343
24
153
6
0
0
0
0
0
900
925
61
0
0
0
2,575
2,000
347
252
157
62
0
0
0
0
0
925
950
66
0
0
0
2,000
2.625
352
257
162
67
0
0
0
0
0
950
975
70
0
0
0
2,025
2,650
356
261
160
71
0
0
0
0
0
975
1,000
74
0
0
0
2,650
2, 676
360
265
176
75
0
0
0
0
0
1,000
1,025
7
0
0
0
2,675
2,700
365
270
175
0
0
0
0
0
0
1,025
1,050
2
0
0
0
2.700
2,725
369
274
179
4
0
0
0
0
0
1,050
1,075
7
0
0
0
2,725
2,750
373
27
1 3

0
0
0
0
0
1,076
1,100
91
0
0
0
2,750
2,775
377
2 2
1 7
92
0
0
0
0
0
1,100
1,125
95
0
0
0
2,775
2, 00
3 2
2 7
192
97
2
0
0
0
0
1,125
1,1 0
100
6
0
0
2, 00
2. 25
3 7
291
196
101
6
0
0
0
0
1,150
1,175
104
9
0
0
2, 25
2, 50
391
295
200
105
10
0
0
0
0
1,175
1,200
10
13
0
0
2, 50
2, 75
396
299
204
109
14
0
0
0
0
1,200
1,226
112
17
0
0
2, 75
2,900
401
304
209
114
19
0
0
0
0
1,225
1,250
117
22
0
0
2,900
2,925
405
303
213
11
23
0
0
0
0
1,250
1,276
121
26
0
0
2. 925
2,950
410
312
217
122
27
0
0
0
0
1,275
1,300
125
30
0
0
2.950
2,975
415
317
222
127
32
0
0
0
0
1,300
1,325
129
34
0
0
2,976
3,000
419
321
226
131
36
0
0
0
0
1,325
1,350
134
39
0
0
3,000
3,050
427
327
232
137
42
0
0
0
0
1,350
1,375
13
43
0
0
3,050
3, 100
436
330
241
146
61
0
0
0
0
1,375
1,400
142
47
0
0
3,100
3,150
445
344
249
164
59
0
0
0
0
1,400
1,42
147
52
0
0
3,150
3,200
455
353
25
163
6
0
0
0
0
1,425
1,450
151
66
0
0
3,200
3, 250
464
361
2 0
171
76
0
0
0
0
1.450
1,475
165
60
0
0
3,250
3,300
474
370
276
1 0
5
0
0
0
0
1,476
1,500
159
64
0
0
3,300
3,360
4 3
379
2 4
1 9
94
0
0
0
0
1,600
1,625
164
69
0
0
3, 350
3,400
492
3
292
197
102
7
0
0
0
1,626
1,660
16
73
0
0
3,400
3,450
602
397
301
206
111
16
0
0
0
1,660
1,676
172
77
0
0
3, 450
3,500
611
407
309
214
119
24
0
0
0
1,675
1,600
17
1
0
0
3,500
3,550
521
416
31
223
12
33
0
0
0
1,600
1.625
1 1
6
0
0
3, 560
3,000
530
426
326
231
136
41
0
0
0
1,625
1,650
1 5
90
0
0
3,600
3,660
639
435
335
240
145
60
0
0
0
1,650
1,676
1 9
94
0
0
3,650
3,700
649
444
343
24
153
5
0
0
0
1,675
1,700
194
99
4
0
3,700
3,750
65
454
362
267
162
67
0
0
0
1,700
1,725
19
103
0
3,750
3, 00
5C
463
361
266
171
76
0
0
0
1,725
1,750
202
107
12
0
3, 00
3, 50
677
472
369
274
179
4
0
0
0
1,750
1,776
206
111
16
0
3, 50
3. 900
5 6
4 2
37
2 3
1
93
0
0
0
1,775
1, 00
211
e
21
0
3,900
3,9 0
696
491
317
291
196
101
6
0
0
1, 00
1. 25
216
120
26
0
3,950
4,000
606
501
396
300
205
110
16
0
0
1, 25
1, 60
219
124
29
0
4,000
4,050
16
510
406
30
213
11
23
0
0
1, 50
1, 76
223
12
33
0
4,050
4, 100
624
520
416
317
222
127
32
0
0
1, 76
1,900
22
133
3
0
4,100
4,160
633
529
424
325
230
135
40
0
0
1,900
1,925
232
137
42
0
4,150
4,200
643
63
434
334
239
144
49
0
0
1,925
1,050
236
141
46
0
4,200
4,250
652
54
443
342
247
152
67
0
0
1,950
1,975
241
146
61
0
4,250
4,300
662
657
453
351
256
161
66
0
0
1,976
2,000
246
150
65
0
4,300
4,350
671
667
462
360
265
170
75
0
0
2,000
2,025
249
154
69
0
4,350
4,400
6 0
676
471
36
273
17
3
0
0
2.025
2,050
253
15
63
0
4,400
4,450
690
5 5
4 1
377
2 2
1 7
92
0
0
2,050
2,075
25
163
6
0
4,450
4,500
699
595
490
3 6
290
195
100
6
0
2,076
2.100
262
167
r
0
4,600
4,5.50
709
604
500
395
299
204
109
14
0
2.100
2,125
266
171
76
0
4,550
4,600
71
614
609
405
307
212
117
22
0
2,125
2,150
271
176
1
0
4,600
4,050
727
623
51
414
316
221
126
31
0
2,150
2. 17. .
275
1 0
5
0
4,650
4,700
737
632
62
423
324
229
134
39
0
2,175
2,200
279
1 4
9
0
4,700
4,750
746
642
637
433
333
23
143
4
5
4,760
4, 00
756
651
547
442
342
247
162
67
0
4, 00
4, 60
765
661
656
452
350
255
160
66
0
4, 50
4,900
774
670
566
461
359
264
169
74
0
4,900
4,950
7 4
679
675
470
367
272
177
2
0
4,950
6,000
793
6 9
6 4
4 0
376
2 1
1 6
91
0
nd the number of e empt ons s
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3
-
0
1
-
2
2

0
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4
6

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2
7
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9
0
1
5
0
7
6
0
3
1
6
4
3
P
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,

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d

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s
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#
p
d
-
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g
e
550
(b) Ta abe Years to Whch ppcabe. The amendment made by ths
secton sha be appcabe wth respect to ta abe years begnnng after December
31, 1945. or treatment of ta abe years begnnng n 1945 and endng In 1946,
see secton 131.
S C. 104. R DUCTION IN WIT OLDING O T T SOURC ON
W G S.
(a) Percentage Method.
(1) In genera. Secton G22(a) (reatng to the percentage method of
wthhodng) s amended by strkng out paragraph (1) thereof, by nsertng
17 per centum n eu of 1 per centum n paragraph (2), by Insertng
19 per centum n eu of 19. per centum n paragraph (3), and by
renumberng paragraphs (2) and (3) as (1) and (2) respectvey.
(2) Technca amendment. Secton 1622(b)(1) (percentage method
wthhodng tabe) s amended by strkng out 1 per centum In the ast
coumn of the tabe theren, and nsertng n eu thereof 17 per centum .
(b) Wage racket Wthhodng. The tabes contaned n secton 1022(c) (1)
(reatng to wage bracket wthhodng) are amended to read as foows:
If the pay-ro perod wth respect to an empoyee s weeky.
nd the wages
nd the number of wthhodng e emptons camed s
ut ess
than
0
1
2
3
4
6
6
7
9
10 or
more
17 of
to
0
0
0
0
0
0
to
to
to
2.00
.10
0
0
0
0
0
0
0
0
0
2. 10
.30
0
0
0
0
0
0
0
0
0
2.30
.50
0
0
0
0
0
0
0
0
0
2.50
.70
0
0
0
0
0
0
0
0
0
2.70
. 0
0
0
0
0
0
0
0
0
0
2. 0
1.00
0
0
0
0
0
0
0
0
0
3.00
1.20
0
0
0
0
0
0
0
0
0
3.20
1.30
0
0
0
0
0
0
0
0
0
3.30
1.60
0
0
0
0
0
0
0
0
0
3.50
1.70
0
0
0
0
0
0
0
0
0
3.70
1. 0
0
0
0
0
0
0
0
0
0
3. 0
2.00
.20
0
0
0
0
0
0
0
0
4.00
2.20
.40
0
0
0
0
0
0
0
0
4.20
2.40
.60
0
0
0
0
0
0
0
0
4.40
2.60
.70
0
0
0
0
0
0
0
0
4.50
2.70
.90
0
0
0
0
0
0
0
0
4.70
2.90
1.00
0
0
0
0
0
0
0
0
4.90
3.00
1.20
0
0
0
0
0
0
0
0
6.00
3.20
1.40
0
0
0
0
0
0
0
0
6.20
3.40
1.60
0
0
0
0
0
0
0
0
6.40
3.60
1.70
0
0
0
0
0
0
0
0
5.60
3.70
1.90
. 10
0
0
0
0
0
0
0
5.70
3.90
2. 10
.20
0
0
0
0
0
0
0
6.90
4. 10
2.20
.40
0
0
0
0
0
0
0
6.10
4.20
2.40
.60
0
0
0
0
0
0
0
6.20
4.40
2.60
. 0
0
0
0
0
0
0
0
6.40
4. CO
2. 0
.90
0
0
0
0
0
0
0
6.60
4. 0
2.90
1.10
0
0
0
0
0
0
0
6. 0
4.90
3. 10
1.30
0
0
0
0
0
0
0
6.90
5.10
3.30
1.40
0
0
0
0
0
0
0
7. 10
6.30
3.40
1.60
0
0
0
0
0
0
0
7.30
5.40
3.60
1. 0
0
0
0
0
0
0
0
7.40
5.60
3. 0
2.00
.10
0
0
0
0
0
0
7.60
5. 0
4.00
2.10
.30
0
0
0
0
0
0
7. 0
6.00
4.10
2.30
.50
0
0
0
0
0
0
.00
6. 10
4. 30
2.60
.60
0
0
0
0
0
0
20
6.30
4.50
2.60
. 0
0
0
0
0
0
9
.40
6.60
4.60
2. 0
1.00
0
0
0
0
0
0
.60
6.60
4. 0
3.00
1.20
0
0
0
0
0
0
. 0
6. 0
6.00
3.20
1.30
0
0
0
0
0
0
.90
7.00
6.20
3.30
1.50
0
0
0
0
0
0
9.10
7.20
6.30
3.60
1.70
0
0
0
0
0
0
9.30
7.30
5.53
3.70
1. 0
0
0
0
0
0
0
9.60
7.60
5.70
3. 0
2.00
.20
0
0
0
0
0
9.70
7.70
5. 0
4.00
2.20
.40
0
0
0
0
0
9.90
7.90
6.00
4.20
2.40
.60
0
0
0
0
0
10. 10
.10
6.20
4.40
2.50
.70
0
0
0
0
0
10.30
.30
6.30
4.60
2.70
.90
0
0
0
0
0
10.60
.40
6.50
4.70
2.90
1.00
0
0
0
0
0
10.70
.70
6. 0
6.00
3.10
1.30
0
0
0
0
11
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14
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551
If the pay-ro perod wth respect to an empoyee s weeky Contnued.
nd tre wages are
nd tho number of wthhodng e emptons camed s
ut ess
than
1
2
4
5
6
7
9
tM
11.10
9.10
7.10
3.30
3.50
1.60
0
0
0
0
0
6
11.50
9 . SO
7.50
6.60
3. 0
2.00
.20
0
0
0
0
5
11.90
9.90
7. 0
6.00
4.10
2.30
.50
0
0
0
0
70
12.20
10.20
.20
6.30
4.50
2.70
. 0
0
0
0
0
73
12. 0
10.60
.60
6.70
4. 0
3.00
1.20
0
0
0
0
74
13.00
11.00
9.00
7.00
5.20
3.30
1.50
0
0
0
0
7
13.40
11.40
9.40
7.30
5.50
. 70
1.90
0
0
0
0
7
13.70
11.70
9.70
7.70
5.90
4.00
2.20
.40
0
0
0
-
14.10
12. 10
10.10
. 10
6.20
4.40
2.50
.70
0
0
0
2
14.50
12.50
10.50
.50
.50
4.70
2.90
1.10
0
0
0
4-
14.90
12.90
10.90
. 0
6.90
6.10
3.20
1.40
0
0
0

15.30
13.20
11.20
9.20
7.20
6. 40
3.60
1.70
0
0
0
.
15. 0
13.60
11.60
9.60
7.60
5.70
3.90
2.10
.30
0
0
9
16.00
14.00
12.00
10.00
.00
6.10
4.30
2.40
.60
0
0
92
16.40
14.40
12.40
1 .40
.30
6.40
4.60
2. 0
.90
0
0
94.
16. SO
14.70
12.70
10. 70
.70
6. 0
4.90
3.10
1.30
0
0
N
17. 10
15.10
13.10
11.10
9.10
7.10
5.30
3.50
1.60
0
0
9
17.50
15.50
13.50
11.50
9.50
7.50
6.60
3. 0
2.00
. 10
0
10
17.9
15.90
13.90
11.90
9.90
7. 0
6.00
4.10
2.30
.50
0
1 5
1 .50
16.5
14.50
12.60
10.50
.50
6.60
4.70
2.90
1.10
0
110
19.50
17. 0
15.50
13.50
11.40
9. 40
7.40
6.60
3. 0
1.90
.10
115
2 .40
1 .40
16.40
14.40
12.40
10.40
.40
.40
4.60
2. 0
1.00
12
21.40
19.40
17.30
15.30
13.30
11.30
9.30
7.30
5.50
3.70
1. 0
125
22.30
20.30
1 .3
16.30
14.30
12.30
10.30
.4)
6.30
4.50
2.70
13
23.20
21.20
19.20
17.20
15.20
13.20
11.20
9.20
7.20
5.40
3.50
135
24. 2U
22.20
20.20
1 .20
16.20
14.10
12.10
10.10
.10
6.20
4. 40
140
25.10
23.10
21.10
19.10
17.10
16.10
13.10
11.10
9.10
7.10
5.20
145
2 .10
24.10
22.00
20.00
1 .00
1 .00
14.00
12.00
10.00
.00
6.10
15
27.00
25.00
23.00
21.00
19.00
17.00
15.00
12.90
10.90
.90
7.00
1 0
2 .40
2 . 40
24.40
22.4
20.40
1 .40
1 .40
14.40
12.30
10.30
.30
170
30.30
2 .30
26.30
24.30
22.30
20.30
1 .20
16.20
14.20
12.20
10.20
1
32.20
30.20
2 .20
26.20
24.10
22.10
20. 10
1 .10
16.10
14.10
12. 10
190
34.10
32.10
30.00
2 .00
26 00
24.00
22 00
20.00
1 .00
1 .00
14.00
3 0
35.90
33.90
31.90
29.90
27.90
25.90
23.90
21.90
19.90
17.90
15. 0
19 per cent of the e cess over 200 pus
1200 and over..
36.90
34.90
32.90 30.90 2 . 0 26. 0 24. 0 22. 0
20. 0 1 . 0 16. 0
If the pay-ro perod wth respect to an empoyee s bweeky.
nd the wages are
nd the number of wthhodng e emptons camed Is
ut ess
than
20
17 of
0
0
0
0
0
0
0
0
0
So
22
3.60
0
0
0
0
0
0
0
0
0
0
24
3.90
.30
0
0
0
0
0
0
0
0
0
2
4.30
.60
0
0
0
0
0
0
0
0
0
2
4.60
1.00
0
0
0
0
0
0
0
0
0
30
6.00
1.30
0
0
0
0
0
0
0
0
32
5.30
1.60
0
0
0
0
0
0
0
0
0
34
5.60
2.00
0
0
0
0
0
0
0
0
0
36
6.00
2.30
0
0
0
0
0
0
0
0
0
3
.30
2.70
0
0
0
0
0
0
0
0
0
40
6.70
3.00
0
0
0
0
0
0
0
0
0
42
7.00
3.40
0
0
0
0
0
0
0
0
0
44
7.40
3.70
0
0
0
0
0
0
0
0
0
46
7.70
4.00
.40
0
0
0
0
0
0
0
0
4
.00
4.40
.70
0
0
0
0
0
0
0
0
M
.40
4.70
L 10
0
0
0
0
0
0
0
0
52
a 70
5.10
1.40
0
0
0
0
0
0
0
0
6.40
1. 0
0
0
0
0
0
0
0
0
. 0
2.10
0
0
0
0
0
0
0
0
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#
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552
If the pay-ro perod wth respect to an empoyee s bweeky Contnued.
nd the wages are
t east
at ess
than
0
1
2
3
4
6
6
7
9
10 or
more
The amount of ta to be wthhed sha be-
ta 70
6.10
2.40
0
to
0
0
SO
to
0
0
10.10
6.40
2. 0
0
0
0
0
0
0
0
0
10.40
6. 0
3.10
0
0
0
0
0
0
0
0
10. 0
7.10
3.60
0
0
0
0
0
0
0
0
11.10
7.60
. 0
.20
0
0
0
0
0
0
0
11. to
7. 0
4.10
.60
e
0
0
0
0
0
0
11. 0
.10
4.60
. 0
0
0
0
0
0
0
0
12.10
.60
4. 0
1.20
0
0
0
0
0
0
0
12.60
. 0
6.20
1.60
0
0
0
0
0
0
0
12. 0
9.20
6.50
1.90
0
0
0
0
0
0
0
13.20
9.60
6.90
2.20
0
0
0
0
0
0
0
13.60
9.90
6.20
2.50
0
0
0
0
0
0
0
13.90
10.20
6.60
2.90
0
0
0
0
0
0
0
14.20
10.60
6.90
3.20
0
0
0
0
0
0
0
14.60
10.90
7.20
3.60
0
0
0
0
0
0
0
14.90
11.20
7.60
3.90
.30
0
0
0
0
0
0
16.30
11.60
7.90
4.30
.60
0
0
0
0
0
0
16.60
11.90
. 30
4.60
.90
9
0
0
0
0
0
16.00
12.20
. 60
4.90
1.30
0
0
0
o
0
0
16.40
12.60
.90
6.30
1.60
0
0
0
0
0
0
16 0
12.90
9.30
6.60
ZOO
0
0
0
0
0
0
17.20
13.30
9.60
6.00
230
0
0
0
0
0
0
17.60
13.60
10.00
6.30
2.70
0
0
0
0
0
0
17.90
14.00
10.30
6.70
3.00
0
0
0
0
0
0
1 .30
14.30
10.60
7.00
3.30
0
0
0
0
0
0
1 . 70
14.60
11.00
7.30
3.70
0
0
0
f
0
0
19.00
15.00
11.30
7.70
4.00
.40
0
0
0
0
0
19.40
16.40
11.70
.00
4.40
.70
0
0
0
0
0
19. 0
15. 0
12.00
.40
4.70
1.10
0
0
0
0
0
20.20
16.20
12.40
-70
6.00
1.40
0
0
0
0
0
20.60
16.60
12.70
9.00
5.40
1.70
0
0
0
0
0
20.90
16.90
13.00
9.40
6.70
2.10
0
0
0
0
0
21.60
17.60
13.60
9.90
6.20
2.60
0
0
0
0
0
22.20
1 .20
14.20
10.60
6.90
3.30
0
0
0
0
0
23.00
19.00
1 .00
11.30
7.60
4.00
.30
0
0
0
0
23.70
19.70
1 .70
12.00
. 30
4.60
1.00
0
0
0
0
24.50
20.60
1 .60
12.60
9.00
6.30
1.70
0
0
0
0
26.20
21.20
17.20
13.30
9.70
6.00
2.40
0
0
0
0
26.00
22.00
1 .00
14.00
10.40
6.70
3.00
0
0
0
o
26. 0
22.70
1 .70
14.70
11.00
7.40
.70
.10
0
0
0
27.60
23.60
19.50
16.40
11.70
.10
4.40
. 0
0
0
0
2 .30
24.20
20.20
16.20
12.40
.70
.10
1.40
0
0
0
29.00
26.00
21.00
16.90
1 .10
9.40
6. 0
2.10
0
0
0
29. 0
26.70
21.70
17.70
13. 0
10.10
(.60
2. 0
0
0
e
30.60
26.60
22.60
1 .40
14.50
10. 0
7.10
3.60
0
0
0
1.30
27.20
23.20
19.20
15.20
11.60
7. 0
4.20
.60
0
0
32.00
2 .00
24.00
20.00
15.90
12.20
. 0
4.90
L20
0
0
32. 0
2 .70
24.70
20.70
16.70
12.90
9.20
6.60
1.90
0
0
33.60
29.50
26.60
21.60
17.40
13.60
9.90
6.20
2.60
0
0.
34.30
30.30
26.20
22.20
1 .20
14.20
10.60
6.90
3.30
0
0
35.00
31.00
27.00
23.00
19.00
14.90
11.30
7.60
3.90
.30
0
36. 0
31. 0
27.70
23.70
19.70
15.70
11.90
.30
4.60
1.00
0
7.10
33.10
29.10
26.00
21.00
17.00
13.10
9.60
6. 0
2.20
0
39.00
35.00
30.90
2 .90
22.90
1 .90
14.90
11.20
7.60
.90
.20
40.90
36. 0
32. 0
2 . 0
24. 0
20. 0
1 .70
12.90
9.20
6.60
1.90
42.70
3 .70
34.70
0.70
26.70
22.60
1 .60
14.60
11.00
7.30
60
44.60
40.60
36.60
32.60
2 .60
24.50
20.60
16.60
12.70
9.00
5.40
46.50
42.50
3 .60
34.40
0.40
26.40
22.40
1 .40
14.40
10.70
7.10
4 .40
44.40
40.30
6. 0
32.30
2 .30
24.30
20.20
16.20
12.40
0
60.30
46.20
42.20
.20
34.20
30.20
2 .10
22.10
1 .10
14.10
10. O
62.10
4 .10
44.10
40.10
36.10
2.00
2 .00
24.00
20.00
16.00
1220
64.00
50.00
46.00
42.00
37.90
33.90
29.90
25.90
21.90
17.90
13 90
66. 0
52. 0
4 . 0
44. 0
40. 0
36.70
32.70
2 .70
24.70
20.70
1 . 70
60.60
66.60
62.60
4 .60
44.60
40.60
36.60
32.50
2 .60
24.40
20.40
64.40
60.40
56. 0
62.30
4 . 0
44.30
40.30
36.20
32.20
2 .20
24. O
6 .10
64.10
60.10
66.10
62.10
4 .00
44.00
40.00
36.00
32.00
27.90
71.90
67.90
63.90
69. 0
65. 0
51. 0
47. 0
43. 0
39.70
36.70
1.70
19 per cent of the e cess over 400 pus
73. 0
69. 0
65.70
61.70 57.70
1
63.70 1
49.70
1
33.60
45.60
41.60
7. 0
56-
5 -
60..
f2._
64-
66-
6 -
70-
72-
74-
76..
7 ..
0-
2..
4..
6-
-
90-
02-
94-
96..
9 -
100
S102.
104.
10 .
10 .
110.
112.
114.
11 .
11 -
120.
124-
12 .
132.
136.
140.
144.
14 .
152-
156.
160.
164.
16 -
172.
176.
1 0.
1 4-
1 .
192.
196-
200.
210.
220.
230-
240.
250.
260.
270-
2 0.
290-
300.
320.
340.
.160.
3 0.
66..
6 ..
70-.
72..
74..
76-
7S..
0-
2..
4
S6..
6 ..
90-.
92..
94..
96..
9 ..
100
102
104.
1C )
105
110
112
114
116
11
120
124
12
132
130
140.
144
14
152.
156
160
164
SUM
172
176
1 0.
1 4
1.
132
1U6
200
S210
230
230
2(0
250
260
270
2 0

300
320
340
360
.ISO
400
400 and over..
1
1
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553
If the pay-ro perod wth respect to an empoyee s semmonthy.
nd the wages are
ut ess
than
1
2
3
4
5
6
7
9
0
0
O
0
0
O
O
0
0
0
0
0
0
0
0
0
0
0
.30
0
0
0
0
0
0
0
0
.70
0
0
0
0
0
0
0
0
1.00
0
0
0
0
0
0
0
0
1.30
0
0
0
0
0
0
0
0
1.70
0
0
0
0
0
0
0
0
2.00
0
0
0
0
0
0
0
0
2.40
0
0
0
0
0
0
0
0
2 70
0
0
0
0
0
0
0
0
3.10
0
0
0
0
0
0
0
0
3.40
0
0
0
0
0
0
0
0
3.70
0
0
0
0
0
0
0
0
4.10
.10
0
0
0
0
0
0
0
4.40
.60
0
0
0
0
0
0
0
4. 0
. 0
0
0
0
0
0
0
0
M0
1.10
0
0
0
0
0
0
0
6.40
1.50
0
0
0
0
0
0
0
6. 0
1. 0
0
0
0
0
0
0
0
6.10
2.20
0
0
0
0
0
0
0
6.50
2.50
0
0
0
0
0
0
0
6. 0
2.90
0
0
0
0
0
0
0
7.20
3.20
0
0
0
0
0
0
0
7.60
3.50
0
0
0
0
0
0
0
7. 0
3.90
0
0
0
0
0
0
0
.20
4.20
.30
0
0
0
0
0
0
.60
4.60
.60
0
0
0
0
0
0
.90
4.90
1.00
0
0
0
0
0
0
9.20
6.30
1.30
0
0
0
0
0
0
9.60
6.60
1.60
0
0
0
0
0
0
9.90
6.90
200
0
0
0
0
0
0
10.20
6.30
2 30
0
0
0
0
0
0
10.00
6.60
2.70
0
0
0
0
0
0
10. 0
7.00
3.00
0
0
0
0
0
0
11.30
7.30
3.30
0
0
0
0
0
0
11.60
7.60
3.70
0
0
0
0
0
0
11.90
.00
4.00
.10
0
0
0
0
0
12 30
.30
4.40
.40
0
0
0
0
0
12.60
.70
4.70
. 0
0
0
0
0
0
13.00
9.00
6.10
1. 10
0
0
0
0
0
13.30
9.40
6.40
1.40
0
0
0
0
0
13.70
9.70
5 70
1. 0
0
0
0
0
0
14.00
10.00
6.10
2.10
0
0
0
0
0
14.30
10.40
6.40
250
0
0
0
0
0
14.70
10.70
6. 0
2. 0
0
0
0
0
0
16.00
11.10
7.10
3.10
0
0
0
0
0
IS. 40
11.40
7.40
3.60
0
0
0
0
0
16.70
11.70
7. 0
3. 0
0
0
0
0
0
16.10
12.10
.10
4.20
.20
0
0
0
0
16.40
12.40
.60
4.50
.60
0
0
0
0
17.00
12.90
9.00
6.00
1.10
0
0
0
0
17. 0
13.60
9.70
6.70
1. 0
0
0
0
0
1 .50
14.30
10.40
6. 40
2.40
0
0
0
0
19.30
16.00
11.00
7.10
3. 10
0
0
0
0
20.00
1 .70
11.70
7. 0
3. 0
0
0
0
0
20. 0
16.40
12.40
.40
4.50
.50
0
0
0
21.60
17.20
13. 10
0.10
5.20
1.20
0
0
0
22.30
17.90
13. 0
9. 0
6. 90
1.90
0
0
0
23.00
1 . 70
14.50
10.50
6.50
2.60
0
0
0
23. 0
19.40
15. 10
11.20
7.20
3.30
0
0
0
24.60
20.20
15. 0
11.90
7.90
4.00
0
0
0
25.30
20.90
10.60
12.60
.60
4.60
.70
0
0
26.00
21.70
17.30
13. 20
9.30
5.30
1.40
0
0
20. 0
22.40
1 . 10
13.90
10.00
6.00
2.00
0
0
27.50
23.20
1 . 0
14.60
10.60
6.70
2. 70
0
0
2 .30
23.90
16.60
15. 30
11.30
7.40
3.40
0
0
29.00
24.70
20.30
16.00
12.00
. 10
4. 10
. 10
0
29. 0
25.40
21.10
16.70
12.70
.70
4. 0
. 0
0
30.60
26.20
21. 0
17.50
13. 40
9. 40
6.60
1.60
0
31.30
27.00
22.60
1 .20
14.10
10. 10
6.10
2.20
0
32.60
2 .30
23.90
19.60
15.30
11.30
7.30
3.40
0
34.50
30. 10
25. 0
21.40
17. 10
13.00
9.10
6.10
1.10
56.40
32.00
27.70
23.30
19.00
14.70
10. 0
6. 0
2.90
3 .30
33.90
29.60
25.20
20. 0
16.50
12.50
.60
4.60
40.10
35. 0
31.40
27. 10
22.70
1 .40
14. 20
10.20
6.30
42.00
37.70
33.30
29.00
24.60
20.30
15.90
11.90
.00
43.90
39.50
35.20
30. 0
26.50
22. 10
17. 0
13.60
9.70
45. 0
41. 40
37.10
32.70
2 .40
24.00
19.70
15.40
11.40
22..
24..
2 ._
2 ..
30--
32,.
34..
36..
3 -.
40..
42..
44..
46..
4 ..
50..
52..
54..
56-.
5 ..
C0-
62..
64..
66..
6 ..
70-
72..
74..
76..
7 ..
2....
4...
6...
S _._
90...
92...
94
96...
0 ...
100..
102..
104..
106..
10 ..
110..
112..
114..
116..
11 ..
120..
124..
12 -.
132..
136..
140..
144..
14 ..
152..
156..
160..
164..
16 ..
172..
176..
1 0..
1 4..
1 ..
192..
19 ..
210..
220.
230.
240.
250.
260.
270.
....I 230.
6 4354
3.90
4.30
4.60
5.00
6.30
5.60
6.00
6.30
6.70
7.00
7.40
7.70
.00
.40
.70
9.10
9.40
9.70
10.10
10.40
a so
11.10
11.60
11. 0
12. 10
1Z50
12. 0
13.20
13.50
13.90
14.20
14.50
14.90
15.20
16.60
16.90
16.30
16.70
17.00
17. 40
17. 0
1 .20
1 .50
1 .90
) . SO
16.70
20.00
20.40
20. 0
21.40
22.10
22.60
23.60
24.40
25. 10
25.90
26.60
27.40
2 .10
2 .90
29.60
30.40
31.10
31.60
32.60
33.40
34.20
34.90
35.70
37.00
3 .60
40.70
42.60
44.60
46.40
4 .30
60.10
G
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1
5
0
7
6
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3
1
6
4
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#
p
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554
If the pay-ro perod ch respect to an empoyee s semmonthy Contnued.
nd the wages arc
ud the number of wthhodng e emptons camed 1
ut ess
than
The amount of ta to be wthhed sha 1
52.00
53.90
56.70
60.50
64. 20
6 .00
71. 0
75.50
79.30
I 10
. 0
90.60
47.70
49 0
52.40
56. 10
59.90
63.70
67. 40
71.20
74
7 .70
2.50
0.20
500 and over.
92.50
43.30
45.20
4 .00
51. 0
55.00
59.30
63. 10
. 0
70.60
74.30
7 . 10
1.90
39.00
40. 0
43.70
47.40
51.20
54.90
5 .70
62.50
6.20
70.00
73. 9
77.50
34.60
36.50
39.30
43.10
46. O
50. 0
54.40
5 . 10
61.90
5.60
69. 40
73.20
30. 20
32. 10
35.00
3 .70
42.50
46.20
60.00
53. 0
57.60
61.30
65.00
6 . 0
25.90
27. 0
30.60
34.40
3 . 10
41.90
45.00
49.40
53.20
56.90
60.70
64.50
21.50
23.40
2 .20
30.00
33. 0
37.50
41.30
45. 10
4 . 0
52.60
56.30
0. 10
17.20
19.10
21.90
25.70
29.40
33.20
36.90
40.70
44.50
4 .20
52.00
55.70
13. 10
14. 0
17.50
21.30
25. 10
2 . s
32. 0
36.30
40. 10
43.90
47.60
51.40
19 per cent of the e cess over 500 pus-
. 10
3. 0
79.40
75.10
70.70
66.30
2.00
57.60
53.30
If the pay-ro perod wth respect to an empoyee s monthy.
nd the wages are
nd the number of wthhodng e emptons camed s-
t east
ut ess
than
0
1
2
3
4
5
6
7
9
10 or
more
SO
44
17 .:
0
0
0
0
0
0
0
0
0
0
0
WMTC
44
4
7.91)
0
0
0
0
0
0
0
0
0
4
52
.60
.60
0
0
0
0
0
0
0
0
0
52
56
9.20
1.30
2.00
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
56 -
t
0.90
o
0 .
64
10.60
2.70
0
0
0
0
0
0
0
0
0
64
6
11.30
3.40
0
0
0
0
0
0
0
0
0

72
12.00
4. 10
0
0
0
0
0
0
0
0
0
72
76
12. 70
4.70
0
0
0
0
0
0
0
0
0
7
0
13. 30
5.40
0
0
0
0
0
0
0
0
0
6
4.
14.00
6.10
0
0
0
0
0
0
0
0
0
4

14.70
6. 0
0
0
0
0
0
0
0
0
0

02
15. 40
7.50
0
0
0
0
0
0
0
0
0
92
6
16. 10
.20
.20
0
0
0
0
0
0
0
0
96
100
16. 0
. 0
.90
0
0
0
0
0
0
0
0
100
104
17.40
9.50
1.60
0
0
0
0
0
0
0
0
104
10
1 .10
10.20
2.30
0
0
0
0
0
0
0
0
10
112
1 . 0
10.90
3.00
0
0
0
0
0
0
0
0
112
116
19.50
11 611
3.70
0
0
0
0
0
0
0
0
116
120
20.20
12.30
4.30
0
0
0
0
0
0
0
0
120
124..
20.00
12.90
5.00
0
0
0
0
0
0
0
0
124
12 ..
21..50
13. 0
6.70
0
0
0
0
0
0
0
0
12
132
22.20
14.30
6.40
0
0
0
0
0
0
0
0
132
136
22.90
15.00
7.10
0
0
0
0
0
0
0
0
136
140
23.60
15.70
7. 0
0
0
0
0
0
0
0
0
140
144
24.30
16.40
.40
.60
0
0
0
0
0
0
0
144
14
25.00
17.00
9.10
1.20
0
0
0
0
0
0
0
14
152
25.70
17.70
9. 0
1.90
0
0
0
0
0
0
0
152
15
26.30
1 .40
10.50
2.60
0
0
0
0
0
0
0
150
160
27.00
19.10
11.20
3.30
0
0
0
0
0
0
0
160
164
27.70
19. 0
11.90
4.00
0
0
0
0
0
0
0
164
16
2 .40
20.50
12.60
4. 0
0
0
0
0
0
0
0
16 .
172
29. 10
21.20
13.20
6.30
0
0
0
0
0
0
0
172
176..
29. 0
30.40
21. 0
22.50
13.90
14.60
6.60
6.70
0
0
0
0
0
0
0
0
0
0
0
0
0
0
176.
1 0.
1 0
1 4
31. 10
23.20
16.30
7.40
0
0
0
0
0
0
0
1 4
1
31. 0
23.90
16.00
10
.10
0
0
0
0
0
0
1
192
32.60
24.00
1 .70
a 70
. 0
0
0
0
0
0
0
192
196
33.30
34.10
25.30
25.90
17.30
1 .00
9.40
10.10
1.60
2.20
0
0
0
0
0
0
0
0
0
0
0
196
200
0
200
204
34. 0
2 .60
1 .70
10. 0
2.90
0
0
0
0
0
0
4
20
35.60
27.30
19.40
11.50
3.60
0
0
0
0
0
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3
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#
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555
If the pay-ro perod tdth respect to an empoyee s monthy Contnued.
nd the wages
0
1
2
3
4
6
6
7
9
10 or
Tho amount of ta to be wthhed sha be
more
36.30
2 .00
20.10
12.20
4.20
0
0
0
0
0
0
37.10
2 .70
20. 0
12. 0
4.90
0
0
0
0
0
0
37. 0
29.40
21.40
13.50
5.60
0
0
0
0
0
0
3 .60
30.00
22. 10
14.20
6.30
0
0
0
0
0
0
39.30
30.70
22. 0
14.90
7.00
0
0
0
0
0
0
40. 10
31.40
23.50
15.60
7.70
0
0
0
o -
0
0
40. 0
32.10
24.20
16.30
.30
.40
0
0
0
0
0
41.60
32.90
24.90
16.90
9.00
1.10
0
0
0
0
0
42.70
34.00
25.90
1 .00
10. 10
2. 10
0
0
0
0
0
44.20
35.60
27.30
19.30
11.40
3.60
0
0
0
0
0
45.70
37.00
2 .60
20.70
12. 0
4.90
0
0
0
0
0
47.20
3 .60
30.00
22 10
14.20
6.20
0
0
0
0
0
4 .70
40.00
31.40
23.40
15.60
7.60
0
0
0
0
0
60.20
41.60
32. 0
24. 0
16.90
9.00
1.10
0
0
0
0
61. 0
43.00
34.30
2 .20
1 .30
10.30
2. 40
0
0
0
0
63.30
44.50
35. 0
27.60
19.60
11.70
3. 0
0
0
0
0
64. 0
46. 10
37.30
2 .90
21.00
13.10
6.20
0
0
o
11
66.30
47.60
3 .90
30.30
22.40
14.50
6.50
0
0
0
0
67. 0
49.10
40.40
31.70
23.70
16. 0
7.90
0
0
0
0
59.30
50.60
41.90
33. 20
25. 10
17.20
9.30
1.40
0
0
0
60. 0
52. 10
43.40
34.70
26.50
1 .60
10.60
2.70
0
0
0
62.30
53.60
44.90
36 20
27. 0
19.90
12.00
4.10
0
0
0
63. 0
55.10
46. 40
37.70
29.20
21.30
13. 40
5.50
0
0
0
65.30
56.60
47.90
39. 20
30.60
22. 70
14.70
( ,. -0
0
0
0
66. 0
5 .10
49.40
40.70
32.00
24.00
16 10
.20
.30
0
0
6 .30
59.60
50.90
42. 20
33.50
25.40
17.50
9.60
1.60
0
0
69. 0
61.10
51 40
43.70
35. 00
26. 0
1 . 0
10.90
3.00
0
0
71.30
62.60
63.90
45.20
36.50
2 . 10
20. 20
12.30
4.40
0
0
73.90
65.20
56.50
47. 0
39. 10
30.50
22.00
14.70
6. 0
0
0
77.70
69.00
00.30
61.60
42.90
31. 20
26.00
1 . 10
10.20
2.30
0
1.60
72. 0
64.10
55.30
46.60
37.90
29.50
21.60
13.00
5. 70
0
5.20
76.50
67. 0
69.10
50.40
41. 70
33.00
25.00
17.00
9.10
1. 20
9.00
0.30
71.60
62 90
64.20
45.50
36.70
2a 40
2a 50
12 50
4.60
92. 0
4.10
76.30
60.60
57.90
49. 20
40.50
31. 0
23.90
16.00
.00
96.50
7. 0
79.10
70.40
61. 70
53.00
44.30
35.60
27.30
19.40
11. 60
100.30
91.60
2.90
74.20
65.50
56.70
4 .00
39.30
30.70
22. 0
14.90
104.00
95.30
6.60
77.90
69.20
60.60
51. 0
43. 10
34.40
a. a
1 . 30
107. 0
90.10
90.40
1.70
73.00
64.30
65.00
46.90
3 .10
29.60
21.70
113.40
104.70
96.00
7.30
7 .60
I .U. t
61.20
62.50
4 . 0
35. 10
26.90
121.00
112.30
103.60
94. 0
6.10
77.40
6 .70
60.00
61.30
42.60
33.90
12 .50
119. 0
111. 10
102. 40
03.70
5.00
70.20
67.50
5 . 0
50.10
41.40
136.00
127.30
11 .60
109.90
101.20
92.50
3.60
75. 10
66.40
57.60
4 .90
143.50
134. 0
126. 10
117.40
10 . 70
100.00
91.30
2.60
73.90
65. 20
56.50
151.10
142.40
133. 70
124.90
116.20
107.50
9 . 0
90.10
1.40
72.70
64.00
15 .60
149.90
141. 20
132.50
123. 0
115. 10
106.30
97.60
.90
0.20
71.50
166.10
157.40
14 . 70
140.00
131.30
122.60
113.90
105. 20
90.50
7.70
79.00
173.60
164.90
166.20
147.60
13 . 0
130.10
121. 40
112.70
104.00
95.30
6.60
1 1.20
172.60
163. 0
155.00
146. 30
137.60
12 .90
120.20
111.50
102. 0
94. 10
t east
ut ess
than
214...
22 ...
232...
23 ...
1240...
24 ....
256...
264....
271...
250...
2 ...
04....
ML.
320...
32 ...
33 ...
344...
3S2...
360...
36 ....
376....
3 4...
M...
400...
420...
440....
460._
450...
500...
ao...
540...
560...
5 0...
600...
340...
6 0...
730...
760...
soo...
49.
MM -
240-
24 -
250.
264.
272.
2 0.
2 3-
296.
304.
312.
320-
336.
344.
352.
S360.
36 .
376.
m
392-
400.
420-
440.
460-
0L
500.
520.
540-
560.
peo.
GM_
640.
6 0.
720
760-
00
40-
0.
19 per cent of tho e cess over 1,000 pus
0,000 and over
1 4.90
176.20
167.50
15 . 0
150.10 141.40
124.00
116.30
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#
p
d
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g
e
556
If the pay-ro perod wth respect to an empoyee s a day pay-ro perod or a
msceaneous pay-ro perod.
nd the wages d-
vded by the num-
ber of days In such
perod are
t east
ut ess
than
The amount of ta to be wthhed sha be the foowng amount mutped by
tho number of days In such perod
1.60-
4.75-
5.00-
5.25..
5.50..
5.7 -
6.00-
Sf.26-
6.50-
6.75-
7.00..
7.25-
7.50-
7.75-
.00-
.25 .
.50-
.76-
9.00-
9.25-
9.50-
9.75..
10.00.
10.50.
11.00.
11.50.
12.00.
12.S0.
13.00.
13.50.
14. 00.
14.50.
15.00.
15.50.
16.00.
16.60.
17.00.
17.60.
1 .00.
1 .50.
19.00.
19.50.
20.00.
21.00.
22.00.
23.00.
24.00.
2 .00.
26.00.
27.00.
2 .00.
29.00.
75
.00
25
.60
75
.00
4.25.
4.60.
4.75.
5.00.
5.25.
5.50.
5.75.
.00.
6.25.
6.50.
6.75.
7.00.
7.25.
7.50.
7.75.
.00.
.25.
.50.
S.75
9.00.
9.24.
9.50.
9.75.
10.00
10.50
11.00
11.60
12.00
12.50
13.00
13.50
14.00
14.50.
15.00
15.50.
16.00
16.50
17.00,
17.50.
1 .00.
1 .50.
19.00.
10.50
20.00.
21.00.
522.00
23.00.
24.00.
25.00.
26.00.
27.00.
3 .00.
20.00
30.00.
30.00 and over.
17 of
0
0
0

0
to
0
0
0
0.30
0
0
0
0
0
0
0
0
0
.30
.05
0
0
0
0
0
0
0
0
.35
.10
0
0
0
0
0
0
0
0
.40
.15
0
0
0
0
0
0
0
0
.45
.20
0
0
0
0
0
0
0
0
.50
.25
0
0
0
0
0
0
0
0
.66
.2
0
0
0
0
0
0
0
0
.60
.30
.05
0
0
0
0
0
0
0
.60
.3
.10
0
0
0
0
0
0
0
.65
.40
.16
0
0
0
0
0
0
0
.70
.4
.20
0
0
0
0 .
0
0
0
.7
.60
.2
0
0
0
0
0
0
0
. 0
.66
.25
0
0
0
0
0
0
0
.
.65
.30
.05
0
0
0
0
0
0
.90
.60
.33
.10
0
0
0
0
0
0
.90
.65
.40
.16
0
0
0
0
0
0
.9
.70
.46
.20
0
0
0
0
0
0
1.00
.7
.50
.20
0
0
0
0
0
e
1.0
. 0
.56
.26
0
0
0
0
0
0
1.10
. 5
.66
. 0
.05
0
0
0
0
0
1.15
. 5
.60
.35
.10
0
0
0
0
0
1.20
.90
.65
.40
.16
0
0
0
0
0
1.2
.95
.70
.45
.20
0
0
0
0
0
1.30
1.00
.75
.50
.20
0
0
0
0
0
1.35
1.05
. 0
.60
.25
0
0
0
0
0
1.40
1.10
.
.65
.30
.05
0
0
0
0
1.40
1.15
.
.60
.35
.10
0
0
0
0
1.45
1.20
.90
.6
.40
.1
0
0
0
0
1.50
1.25
.9
.70
.45
.16
0
0
0
0
1.65
1.30
1.00
.76
.60
.20
0
0
0
0
1.60
1.35
1.05
. 0
.60
.2
0
0
0
0
1.65
1.35
1.10
. 0
.56
.30
.05
0
0
0
1.70
1.40
1.15
.
.60
.3
.10
0
0
0
1.75
1. 45
1.20
.90
.66
.40
.15
0
0
0
1. 0
1.55
1.25
.9
.70
.45
.20
0
0
0
1.90
1.65
1.35
1.05
. 0
.6
. 0
0
0
0
2.00
1.75
L45
1.1
.60
.60
.35
.10
0
0
210
1. 0
1.55
1.25
.9
.70
.4
.20
0
0
2.20
1.90
1.65
1.3
1.06
. 0
.6
.25
0
0
2.30
2.00
1.70
1. 45
1.15
.90
.60
.35
.10
0
2 40
210
1. 0
1.65
1.25
.9
.70
.45
.20
0
250
2.20
1.90
1.60
1.35
1.0
. 0
.56
.25
0
2.60
2.30
2.00
1.70
1.45
1.16
.90
.60
.35
.10
2.65
240
210
1.60
1.60
1.2
.96
.70
.4
.20
2 75
2.50
2.20
1.90
1.60
1.35
1.05
. 0
.
.2
2. 5
2.65
2.30
200
1.70
1. 45
1.15
. 5
.60
.35
2.95
265
2.40
2.10
1. 0
1.50
1.25
.96
.70
.45
3.05
2.75
2 45
2.20
1.90
1.60
1.35
1.05
. 0
.50
3.15
2. 5
2.55
2.30
200
1.70
1.40
1.15
.
.60
3.25
2 95
265
2.40
2.10
1. 0
1.50
1.2
.9
.70
.35
3.05
2. 75
2 45
2.20
1.90
1.60
1.30
1.05
. 0
3.40
115
2 5
255
2.30
2.00
1.70
1.40
1.1
. 5
3.50
3.25
2.95
5.65
2.35
2.10
1. 0
1. 0
L26
.95
3.60
3.30
3.05
2.76
2.45
2.20
1.90
1.60
1.30
1.05
3.75
3.45
3.20
2.90
260
2.30
2.05
1.7
1.45
1.20
3.95
3.65
3.35
3.10
2 0
2.50
2.20
1.95
1.6
1. 5
4.15
3. 5
3.55
3.25
3.00
2.70
2.40
210
1.
1.55
4.30
4.05
3.76
3.45
3.15
290
2.60
2 30
20
1.75
4.50
4.20
3.95
3.65
3.35
3.05
2 0
2.50
220
1.95
4.70
4.40
4.10
3. 5
3.65
3.25
2 95
2.70
240
210
4.90
4.60
4.30
4.00
3. 75
3.45
3.16
2.90
260
230
5.05
4. 0
4.60
4.20
3.90
3.65
3. 5
3.05
2 0
250
6.25
4.95
4.70
4.40
4.10
3. 0
3.65
3.25
29
2 70
6.46
5.15
4. 5
4.60
4.30
4.00
3.75
3.45
.1
2 5
19 per cent of tho e cess over 30 pus
6. 6.2 4.96 4.70 4.40 1 4 10 3. 0 3.5 .25 2 95 2 70
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(c) Technca mendment. Secton 1622(h) (1) (C) (reatng to e emptons
for wthhodng) s amended by strkng out the words a surta e empton under
secton 25(b) (3) and by nsertng n en thereof an e empton under secton
25(b)(1)(C) .
(d) Wthhodng Statements.
(1) Secton 1625(a) (reatng to wthhodng recepts) s amended by n-
sertng after requred to deduct and wthhod a ta n respect of the wages
of an empoyee the foowng: , or who woud have been so requred f
the empoyee had camed no more than one wthhodng e empton, .
(2) Secton 1626 (a) and (b) (reatng to penates n connecton wth
wthhodng recepts) are amended ( ) by strkng out n respect of ta
wthhed pursuant to ths subchapter n each of such subsectons, and ( )
by strkng out recept wherever appearng theren and nsertng n eu
thereof statement .
(e) ffectve Date. The amendments made by ths secton sha be appcabe
ony wth respect to wages pad on or after anuary 1,1046.
Part II Corporaton Ta es.
S C. 121. D CR S IN CORPOR TION SURT .
(a) In Genera. Secton 15(b) (reatng to the corporaton surta ) s
(b) Imposton of Ta . There sha be eved, coected, and pad for each
ta abe year upon the corporaton surta net ncome of every corporaton (e cept
a Western emsphere trade corporaton as defned In secton 109, and e cept
a corporaton sub|ect to a ta Imposed by secton 231(a), Suppement G or Sup-
pement ) a surta as foows:
(1) Surta net ncomes not over 25,000. Upon corporaton surta net
ncomes not over 25,000, 6 per centum of the amount thereof.
(2) Surta net ncomes over 25,000 but not over 50,000. Upon cor-
poraton surta net ncomes over 25,000, but not over 50,000, 1,500 pus
22 per centum of the amount of the corporaton surta net Income over
25,000.
(3) Surta net ncomes over 50,000. Upon corporaton surta net n-
comes over 50,000,14 per centum of the corporaton surta net ncome.
(b) Mutua Insurance Companes Othee Than Lfe on Mabne.
(1) Secton 207(a) (1) ( ) (reatng to surta on mutua Insurance com-
panes, other than fe or marne) s amended to read as foows:
( ) Surta . surta on the corporaton surta net Income, com-
puted at the rates provded n secton 15(b), e cept that If the corporaton
surta net ncome s not more than 6,000 the surta sha be 12 per
centum of the amount by whch the corporaton surta net Income e -
ceeds 3,000.
(2) Secton 207(a) (3) ( ) (reatng to surta on Internsurers or recp-
roca underwrters) s amended by strkng out 32 per centum and
nsertng n eu thereof 2 per centum .
(c) Reguated Investment Companes. Secton 62(b)(4) (reatng to the
surta on reguated nvestment companes) s amended by strkng out 10 per
centum and Insertng In eu thereof 14 per centum .
(d) Ta abe Years to Whch ppcabe. The amendments made by ths
secton sha be appcabe wth respect to ta abe years begnnng after December
31,1945. or treatment of ta abe years begnnng In 1045 and endng n 1046,
see secton 131.
S C. 122. R P L O C SS PRO ITS T IN 1046.
(a) In Genera. The provsons of subchapter of chapter 2 sha not appy
to any ta abe year begnnng after December 31, 1945.
(b) Carry-backs from Tears fter 1945, tc. Despte the provsons of sub-
secton (a) of ths secton the provsons of subchapter of chapter 2 sha
reman n force for the purposes of the determnaton of the ta es Imposed by
such subchapter for ta abe years begnnng before anuary 1, 1946, such de-
termnaton to be made as f subsecton (a) had not been enacted but wth the
appcaton of the amendments made by subsecton (c) of ths secton and secton
131 of ths ct
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(c) Unused cess Profts Credt fob Ta abe Yeab egnnng fter De-
cember 31, 1945. Secton 710(c) (2) (defnng the unused e cess profts credt)
s amended by nsertng at the end thereof a new sentence readng as foows:
There sha be no unused e cess profts credt for a ta abe year begnnng after
December 1,1946. The unused e cess profts credt for a ta abe year begnnng
- n 1946 and endng n 1947 sha be an amount whch s such part of the unused
e cess profts credt determned under the precedng provsons of ths paragraph
as the number of days n such ta abe year pror to anuary 1,1947, s of the tota
number of days n such ta abe year.
(d) ffated Groups. Subsecton (b) sha be apped n the case of cor-
poratons makng or requred to make a consodated return under chapter 1 for
any ta abe year begnnng after December 31, 1945, and n the case of a
corporaton makng a separate return for any such ta abe year whch was a
member of a group whch made or was requred to make a consodated return
for any pror ta abe year, n such manner as may be prescrbed In reguatons
prescrbed by the Commssoner wth the approva of the Secretary pror to the
ast day prescrbed by aw for the makng of the return for the year begnnng
(e) Cams for Refund ased on Carry- acks.
(1) In genera. The frst sentence of secton 322(b) (6) (reatng to
perods of mtaton wth respect to cams for refund based on carry-backs)
s amended to read as foows: If the cam for credt or refund reates to
an overpayment attrbutabe to a net operatng oss carry-back or to an
unused e cess profts credt carry-back, n eu of the three-year perod of
mtaton prescrbed n paragraph (1), the perod sha be that perod whch
ends wth the e praton of the ffteenth day of the thrty-nnth month
foowng the end of the ta abe year of the net operatng oss or the unused
e cess profts credt whch resuts n such carry-back, or the perod prescrbed
n paragraph (3) n respect of such ta abe year, whchever e pres ater.
(2) Ta abe tears to whch appcabe. The amendment made by ths
subsecton sha be appcabe to cams for credt or refund wth respect to
ta abe years begnnng after December 31, 1940.
(f) Defcences ttrbutabe to Carrt- acks.
(1) Secton 276(d) s amended to read as foows:
(d) Net Operatng Loss Caret- acks and Unused cess Profts Credt
Oabrt- acks. In the case of a defcency attrbutabe to the appcaton to the
ta payer of a net operatng oss carry-back or an unused e cess profts credt
carry-back, ncudng defcences whch may be assessed pursuant to the prov-
sons of secton 37 0 (b) or (c), such defcency may be assessed
(1) n case a return was requred under subchapter of chapter 2 for
the ta abe year of the net operatng oss or unused e cess profts credt
resutng n the carry-back, at any tme before the e praton of the perod
wthn whch (under secton 275 or subsecton (a) or (b) of ths secton) a
defcency (wth respect to ta mposed ether by chapter 1 or by subchapter
or of chapter 2) for such ta abe year (whchever s the onger perod)
may be assessed or
(2) n case a return was not requred under subchapter of chapter 2
for the ta abe year of the net operatng oss or unused e cess profts credt
resutng n the carry-back, at any tme before the e praton of the perod
wthn whch (under secton 275 or subsecton (a) or (b) of ths secton) a
defcency (wth respect to ta mposed ether by chapter 1 or by subchapter
or of chapter 2) for such ta abe year (whchever s the onger perod)
may be assessed.
(2) ffectve date. The amendment made by ths subsecton sha be
appcabe wth respect to a ta abe years begnnng after December 31,1940.
(g) Technca mendments. ffectve wth respect to ta abe years begn-
nng after December 31, 1945
(1) Secton 26(e) (reatng to the credt for ncome sub|ect to the e cess
profts ta ) s repeaed.
(2) Secton 13(a)(2) (defnng norma ta net Income ) s amended
by strkng out mnus the credt for ncome sub|ect to the ta mposed by
Subchapter of Chapter 2 provded n secton 26(e) and .
(3) Secton 15(a) (defnng corporaton surta net ncome ) s amended
( ) by strkng out mnus the credt for ncome sub|ect to the ta mposed
by Subchapter of Chapter 2 provded n secton 26(e) and and ( ) by
strkng out (computed by mtng such credt to 5 per centum of the net
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Income reduced by the credt for ncome sub|ect to the ta mposed by Sub-
chapter of Chapter 2 In eu of 5 per centum of the ad|usted net ncome
so reduced), .
(4) Secton 2 (b) (reatng to the credt for dvdends receved) Is amended
by strkng out reduced by the credt for Income sub|ect to the ta mposed
by Subchapter of Chapter 2 provded n subsecton (e) .
(5) Secton 102(d) (1) (defnng terms for the purposes of the ta mposed
by secton 102) Is amended by strkng out subparagraph (D) thereof.
(C) Secton 131(b) (prescrbng certan mtatons on the foregn-ta
credt) s amended by strkng out paragraph (3) thereof.
(7) Secton 204(a)(2) (reatng to foregn mutua nsurance companes
other than fe or marne) s amended to read as foows:
(2) NO M L-T ND CORPOR TION SURT N T INCOM O OR IGN INSUR-
NC COMP NI S OT T N LI O MUTU L ND OR IGN MUTU L M RIN .
In the case of a foregn nsurance company (other than a fe or mutua
nsurance company) and a foregn mutua marne nsurance company and
a foregn mutua fre nsurance company descrbed n paragraph (1) of ths
subsecton, the norma ta net ncome sha be the net ncome from sources
wthn the Unted States mnus the credt provded In secton 26(a) and the
credt provded n secton 26(b), and the corporaton surta net ncome sha
be the net ncome from sources wthn the Unted States mnus the credt
provded n secton 26(b).
(h) sca Year Ta payers. or ta abe years begnnng n 1945 and endng
n 1946, see secton 131.
Part III sca Year Ta payers.
S C. 131. ISC L Y R T P Y RS.
(a) Income Ta es. Secton 10 of the Interna Revenue Code s amended by
strkng out (c) at the begnnng of subsecton (c) and. nsertng n eu thereof
(d) , and by Insertng after subsecton (b) the foowng:
(c) Ta abe Years egnnng n 1945 and ndng n 1940. In the case of
a ta abe year begnnng n 1945 and endng n 1946, the ta mposed by sectons
11,12,13,14,15, and 400 sha be an amount equa to the sum of
(1) that porton of a tentatve ta , computed as f the aw appcabe to
ta abe years begnnng on anuary 1, 1945, were appcabe to such ta abe
year, whch the number of dnys n such ta abe year pror to anuary 1, 1946,
bears to the tota number of days In such ta abe year, pus
(2) that porton of a tentatve ta , computed as If the aw appcabe to
years begnnng on anuary 1, 1946, were appcabe to such ta abe year,
whch the number of days n such ta abe year after December 31, 1945,
bears to the tota number of days In such ta abe year.
(b) cess Profts Ta .
(1) In genera. Secton 710(a) (Imposng the e cess profts ta ) Is
amended by Insertng at the end thereof the foowng:
(7) Ta abe years begnnng n b46 and endng n 1946. In the case
of a ta abe year begnnng n 1945 and endng In 1946, the ta sha be an
amount equa to that porton of a tentatve ta , computed as f the aw
appcabe to ta abe years begnnng on anuary 1, 1945, were appcabe to
such ta abe year, whch the number of days In such ta abe year pror to
anuary 1,1946, bears to the tota number of days n such ta abe year.
(2) Technca amendments.
( ) Secton 2(a) of the Ta d|ustment ct of 1945 (reatng to the
specfc e empton) Is repeaed as of the date of Its enactment.
( ) Secton 710(b) (1) (reatng to the specfc e empton) Is restored
to read as such paragraph read Immedatey pror to the enactment of
the Ta d|ustment ct of 1945, to be effectve, as so restored, ns f
secton 2(a) of the Ta d|ustment ct of 1945 had not been enacted.
Part I eterans and Servcemen s Provsons.
C. 141. DDITION L LLOW NC OR MILIT RY ND N L
P RSONN L.
(a) In Genera. Secton 22(b) (13) (reatng to the e cuson from gross
Income for mtary and nava personne) Is amended to read as foows:
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(13) ddtona aowance for mtary and nava personne.
( ) In the case of compensaton receved durng any ta abe year
and before the termnaton of the present war as procamed by the
Presdent, for actve servce as a commssoned offcer (or a comms-
soned warrant offcer) n the mtary or nava forces of the Unted
States durng such war, or, n the case of a ctzen or resdent of th :
Unted States, as a member of the mtary or nava forces of any of th:
other Unted Natons durng such war, so much of such compensaton
as does not e ceed 1,500.
( ) Compensaton, receved durng any ta abe year and before tho
termnaton of the present war as procamed by the Presdent, for ac-
tve servce as a member beow the grade of commssoned offcer (or
commssoned warrant offcer) n the mtary or nava forces of the
Unted States durng such war.
(b) Ta abe Years to Whch ppcabe. Subparagraph ( ) of secton
22(b) (13), as amended by subsecton (a) of ths secton, sha be appcabe wth
respect to ta abe years begnnng after December 31, 1942 subparagraph ( )
thereof sha be appcabe wth respect to ta abe years begnnng after De-
cember 1, 1040.
(c) Credts or Refunds for 1941 and 1942. If at any tme pror to anuary
1, 1947, the aowance of a credt or refund of an overpayment of the ta for any
ta abe year begnnng after December 31, 1940, and before anuary 1, 1943, s
otherwse prevented by the operaton of any aw or rue of aw (other than sec-
ton 3761, reatng to compromses), a credt or refund of the overpayment of
such ta to the e tent that the overpayment Is attrbutabe to the enactment of
ths secton may, nevertheess, be aowed or made f a cam therefor s fed
before anuary 1, 1947.
S C. 142. D RM NT O C RT IN T S O T R NS ND
S R IC M N.
(a) In Genera. Chapter 3 (msceaneous provsons) s amended by n-
sertng at the end thereof a new secton readng as foows:
S C. 3 0 . D RM NT O T TTRI UT L TO S R IC P T
OR COMMISSION D S R IC ND O T TTRI UT L TO
PR -S R IC RN D INCOM ,
(a) Defntons. s used n ths secton
(1) Ta attrbutabe to servce pay. The term ta attrbutabe to
servce pay means
( ) In the case of a war year for whch the ta payer had no gross
Income other than compensaton for actve servce as a member of the
mtary or nava forces of the Unted States, the ta mposed under
chapter 1 for such year or
( ) n the case of a war year for whch the ta payer had gross n-
come n addton to compensaton for actve servce as a member of the
mtary or nava forces of the Unted States, the e cess of the ta m-
posed under chapter 1 for such year over the ta that woud have been
mposed f such compensaton had been e cuded from gross ncome
e cept that In the case of a commssoned offcer (or a commssoned war-
rant offcer) of the reguar component of the rmy, Navy, Marne Corps, or
Coast Guard, such term sha not appy to any war year uness, at the tme
prescrbed for the payment of the ta under chapter 1 for such year, a pe-
rod of tme was beng dsregarded under secton 3 04.
(2) War year. The term war year
( ) when used wth respect to the ta attrbutabe to servce pay
means any ta abe year begnnng after December 1, 1939, and before
anuary 1, 1947 and
( ) when used wth respect to the ta attrbutabe to pre-servee
earned Income means any ta abe year begnnng after December 31,
1939, but before anuary 1, 1942, and before the ta payer entered upon
actve servce as a member of the mtary or nava forces of the Unted
States, but does not ncude any year uness part of the ta mposed by
chapter 1 for such year became due and payabe after the ta payer
entered upon such actve servce.
(3) Ta attrbutabe to pbe-servcb earned ncome. The term ta
attrbutabe to pre-servee earned ncome means the e cess of the ta m-
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posed by chapter 1 for any war year over the ta that woud have been Im-
posed for such year If there had been e cuded from the net Income for such
year the amount of the earned net Income (as such term was defned In sec-
ton 25(a) (4) as In force wth respect to such year, e cept that In computng
such earned net Income, compensaton for actve servce In such forces sha
be dsregarded).
(4) rst nstament date. The term frst nstament date means
May 15,1946, n the case of ta payers reeased from actve duty n the m-
tary or nava forces of the Unted States pror to December 1, 1945 and n
other cases une 15, 1947, or the ffteenth day of the s th month whch
begns after the date of the ta payer s reease from actve duty In such forces,
whchever s the earer e cept that, f the frst nstament date wth re-
spect to any war year woud otherwse occur earer than the ffteenth day
of the thrd month foowng the cose of such year, the frst nstament
date wth respect to such year sha be the ffteenth day of such thrd month.
(b) tenson of Tme fob Payment. Upon appcaton wth respect to any
war year, made pror to the frst nstament date, and under reguatons pre-
scrbed by the Commssoner wth the approva of the Secretary
(1) the tme for payment of an amount of the ta under chapter 1 for
such year whch s equa to the ta attrbutabe to servce pay for such year
and whch has not been pad before the fng of such appcaton and
(2) the tme for the payment of an amount of the ta under chapter 1 for
such year whch s equa to the ta attrbutabe to pre-servce earned ncome
for such year and whch has not been pad before the fng of such
appcaton,
sha, n eu of the tme otherwse appcabe, be as foows: one-twefth thereof
on the frst nstament date and an addtona twefth thereof every three months
thereafter unt such ta s pad.
(c) Suspenson of Perod of Lmtaton. The runnng of the perod of m-
taton provded In secton 270(c) (reatng to the coecton of the ta after assess-
ment) n respect of any ta the tme for the payment of whch s prescrbed
under subsecton (b), sha be suspended for the perod begnnng wth the date
of the fng of the appcaton under such subsecton and endng s months after
the date prescrbed theren for the payment of the ast nstament of such ta .
(d) stmated Ta . If the ta payer s egbe for the benefts of subsecton
(b) wth respect to any war year
(1) for the purposes of the appcaton of secton 5 wth respect to such
year, compensaton for actve servce as a member of the mtary or nava
forces of the Unted States may be dsregarded n determnng the gross
ncome reasonaby e pected for such year, and n determnng the estmated
ta for such year and
(2) for the purposes of secton 294(d) the ta for such year sha be
determned f such compensaton were e cuded from gross ncome.
Ths subsecton sha not appy wth respect to a ta payer for any war year who
at the tme prescrbed for makng the decaraton of estmated ta for such year
s a commssoned offcer (or a commssoned warrant offcer) of the reguar
component of the rmy, Navy, Marne Corps, or Coast Guard.
(b) Refund of Interest Pad. ny Interest pad pror to the date of the
enactment of ths ct wth respect to ta attrbutabe to servce pay for any
war year, or wth respect to ta attrbutabe to pre-servce earned ncome for
any war year, sha be credted or refunded f cam therefor Is fed wth the
Commssoner pror to anuary 1,1947.
Part Msceaneous.
C. 151. R PORTS O R UNDS ND CR DITS TO OINT COMMITT
ON INT RN L R NU T TION.
Secton 3777(c) (reatng to refunds and credts wth respect to tentatve carry-
back ad|ustments) s amended by strkng out n the headng Carry- ack , and
by nsertng after secton 37 0(b) the foowng: or under secton 124(k) .
S C 152. T NSION O TR TM NT O INCOM R SULTING ROM
DISC RG O IND T DN SS.
Secton 22(b) (9) and (10) (reatng to the e cuson of Income from the
dscharge of ndebtedness) are amended by strkng out 1945 In each of such
paragraphs and nsertng In eu thereof 1946 .
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562
S C. 153. LOST POSTW R CR DIT ONDS.
Secton (c) of the Government Losses n Shpment ct, as amended, s amended
by nsertng before the perod at the end thereof the foowng: , and aso means
any bond ssued under secton 7 0 of the Interna Revenue Code .
TITL II R P L O C PIT L STOC T ND D CL R D LU
C SS PRO ITS T .
S C. 201. R P L O C PIT L STOC T .
ffectve wth respect to years endng after une 30, 1945, chapter 6 (mposng
the capta stock ta ) s repeaed.
S C. 202. R P L O D CL R D LU C SS PRO ITS T .
ffectve wth respect to ncome-ta ta abe years endng after une 30, 1946,
subchapter of chapter 2 (mposng the decared vaue e cess profts ta ) s
repeaed.
S C. 203. LT RN TI T W R W R LOSS R CO RI S IN-
CLUD D IN N T INCOM .
ffectve wth respect to ncome-ta ta abe years endng after une 30, 1945,
and before uy 1, 1946, secton 600 s amended by nsertng before the frst
paragraph thereof (a) In Genera. and by nsertng at the end of such
secton a new subsecton readng as foowng:
(b) ternatve Ta . If the net ncome for the ta abe year ncudes any
amount on account of war oss recoveres under secton 127(c), then, n eu
of the ta computed under subsecton (a), the ta sha be a ta computed as
foows:
(1) n amount computed under subsecton (a), after e cudng from
net ncome the amount of the war oss recoveres, pus
(2) One and one-quarter per centum of the amount of the war oss
recoveres ncuded n the net ncome or of such porton of the net ncome
as woud be sub|ect to the ta mposed by subsecton (a) n the absence of
ths subsecton, whchever s the esser.
TITL III CIS T S.
S C. 301. R P L O US T ON MOTOR ICL S ND O TS.
ffectve wth respect to the perod after une 30, 1946, chapter 33 (mposng
a ta on the use of motor vehces and boats) s repeaed.
S C. 302. LOOR STOC S R UNDS ND T C NIC L PRO ISIONS
R L TING TO R DUCTION O COMMUNIC TIONS T .
Chapter 9 (reatng to war ta es and war ta rates) s amended by nsertng
at the end thereof the foowng:
S C. 1056. LOOR STOC S R UNDS ON DISTILL D SPIRITS, WIN S,
ND CORDI LS, ND RM NT D M LT LI UORS.
(a) In Genera. Wth respect to any artce upon whch ta s mposed
under secton 2 00, 3030, or 3150, upon whch nterna revenue ta (ncudng
foor stocks ta es) at the rate prescrbed n secton 1650 has been pad, and whch,
on the rate reducton date (as defned n secton 1659), s hed by any person and
ntended for sae or for use n the manufacture or producton of any artce
ntended for sae, there sha be credted or refunded to such person (wthout
nterest), sub|ect to such reguatons as may be prescrbed by the Commssoner
wth the approva of the Secretary, an amount equa to the dfference between the
ta so pad and the ta that woud have been pad f secton 1650 and the 1944
foor stocks ta es had not been appcabe, f cam for such credt or refund s
ted w,th the Commssoner wthn thrty days after the rate reducton date.
(b) Lmtatons on gbty for Credt or Refund. No person sha
be entted to credt or refund under subsecton (a) uness (1) such person, for
such perod or perods both before and after the rate reducton date (but not
e tendng beyond one year thereafter), as the Commssoner wth the approva
of the Secretary sha by reguatons prescrbe, makes and keeps, and fes wth
the Commssoner, such records of nventores, saes, and purchases as may be
prescrbed In such reguatons and (2) such person estabshes to the satsfacton
of the Commssoner, wth respect to each knd of artce for whch refund s
camed by hm under ths secton, that on and after the rate reducton date and
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5G3
unt the e praton of three months thereafter, the prce at whch artces of
snch knd were sod (unt a number equa at east to the number on hand on
the rate reducton date were sod) refected, n such manner as the Commssoner
may by reguatons prescrbe wth the approva of the Secretary, the amount of
the ta reducton.
(c) provsons of aw, ncudng penates, appcabe n respect of nterna
revenue ta es on dsted sprts, wnes, queurs and cordas, mported per-
fumes contanng dsted sprts, and fermented mat quors sha, nsofar as
appcabe and not nconsstent wth ths secton, be appcabe n respect of the
credts and refunds provded for n ths secton to the same e tent as f such
credts or refunds consttuted credts or refunds of such ta es.
S C. 1657. LOOR STOC S R UNDS ON L CTRIC LIG T UL S.
(a) In Genera. Wth respect to any artce upon whch ta s mposed
under secton 3400(a) (10), upon whch nterna revenue ta at the rate pre-
scrbed u secton 1650 has been pad, and whch, on the rate reducton date, s
hed by any person and ntended for sae, or for use n the manufacture or
producton of any artce ntended for sae, there sha be credted or refunded
to the manufacturer or producer of such artce (wthout nterest), sub|ect to
such reguatons as may be prescrbed by the Commssoner wth the approva
of the Secretary, an amount equa to so much of the dfference between the ta
so pad and the ta that woud have been pad f secton 1050 had not been
appcabe, as has been pad by such manufacturer or producer to such person
as rembursement for the ta reducton on such artces, f cam for such credt
or refund s fed wth the Commssoner pror to the e praton of three months
after the rate reducton date.
(b) LMrr ToNS on gbty for Cbedt or Refund. No person sha be
entted to credt or refund under subsecton (a) uness he has n hs possesson
such evdence of the nventores wth respect to whch he has made the remburse-
ments descrbed n subsecton (a) as the reguatons under subsecton (a)
prescrbe.
(c) provsons of aw, Incudng penates, appcabe n respect of the
ta mposed under secton 3400(a) (10) sha, nsofar as appcabe and not
nconsstent wth ths secton, be appcabe n respect of the credts and refunds
provded for In ths secton to the same e tent as f such credts or refunds
consttuted credts or refunds of such ta es.
S C. 165 . T L GR P , T L P ON , R DIO, ND C 3L CILITI S.
Notwthstandng secton 1650, the rates theren prescrbed wth respect to
the ta es mposed by secton 3465(a) (1), (2), and (3) sha contnue to appy
wth respect to amounts pad pursuant to bs rendered pror to the rate reduc-
ton date and, In the case of amounts pad pursuant to bs rendered cn or
after the rate reducton date for servces for whch no prevous b was rendered,
the decreased rates sha appy e cept wth respect to such servces as were
rendered more than two months before such date and, n the case of servces
rendered more than two months before such date, the provsons of sectons
1650 and 3465 In effect at the tme such servces were rendered sha be appcabe
to the amounts pad for such servces.
C. 1659. D INITION O R T R DUCTION D T .
or the purposes of ths chapter the term rate reducton date means the
frst day of the frst month whch begns s months or more after the date of the
termnaton of hosttes In the present war.
S C. 303. CONTINU TION O TOW R O S CR T RY O T TR S-
URY TO UT ORIZ GO RNM NT MPTION ROM C RT IN
CIS T S.
Secton 307(c) of the Revenue ct of 1943 (reatng to power of Secretary
wth respect to Government e empton from certan, e cse ta es) Is amended
by trkng out the ast sentence thereof.
TITL I SOCI L S CURITY T S.
S C. 401. UTOM TIC INCR S IN 1946 R T NOT TO PPLY.
(a) Causes (1) and (2) of secton 1400 of the edera Insurance Contrbu-
tons ct (Interna Revenue Code, sec. 1400) are amended to read as foows:
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564
(1) Wth respect to wages receved durng the caendar years 1939,
1940, 1941, 1942, 1943, 1944, 1945, and 1940, the rate sha be 1 per centum.
(2) Wth respect to wages receved durng the caendar years 1947 and
194 , the rate sha be 2 per centum.
(b) Causes (1) and (2) of secton 1410 of such ct (Interna Revenue Code,
sec. 1410) are amended to read as foows:
(1) Wth respect to wages pad durng the caendar years 1939, 1940,
1941, 1042,1943, 194-1,1945, and 1946, the rate sha be 1 per centum.
(2) Wth respect to wages pad durng the caendar years 947 and 194 ,
the rate sha be 2 per centum.
pproved November ,1945, 5.17 p. m.
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COMMITT R PORTS.
1945-2-11945
P YM NT O T S Y C C ND MON Y ORD R.
Senate Report No. 1357, Seventy-eghth Congress, Second Sesson. Caendar No. 13 5.
December 7 (egsatve day, November 21), 1944.
Mr. George, from the Commttee on nance, submtted the foowng report
to accompany . R. 5565 :
The Commttee on nance, to whom was referred the b ( . R. 5565) to
authorze coectors of Interna revenue to receve certan checks and money
orders n payment of ta es and for revenue stamps, havng consdered the same,
report favoraby thereon wthout amendment and recommend that the b
do pass.
The b authorzes coectors of nterna revenue to accept not ony certfed
checks but aso cashers and treasurers checks and certan money orders n
payment for nterna-revenue stamps. It has the approva of the Treasury
Department.
It w be recaed that on une 22, 1944, the Senate passed a b (S. 1419),
reported by your commttee, deang wth the same sub|ect matter and n fact
very smar to the ouse b. The ouse has, however, made sght changes n
the draft wth respect to the acceptance of money orders, whch your commttee
beeves are desrabe.
The report of the ouse Commttee on Ways and Means on . R. 5565 s
appended hereto.
ouse Report No. 201 , Seventy-eghth Congress, Second Sesson.
December 4, 1944.
The Commttee on Ways and Means, to whom was referred the b ( . R.
5565) to authorze coectors of nterna revenue to receve certan checks and
money orders n payment of ta es and for revenue stamps, havng consdered the
same, report favoraby thereon wthout amendment and recommend that the
b do pass.
The b authorzes coectors of Interna revenue to accept not ony certfed
checks but aso cashers and treasurers checks and certan money orders n pay-
ment for nterna-revenue stamps. s reported by the commttee, t meets wth
the approva of the Treasury Department.
Secton 3656 of the Interna Revenue Code now authorzes coectors to receve
certfed checks n payment for nterna-revenue ta es and makes provson for
dscharge of ta abty where such checks are tendered. Uncertfed checks
may be receved by coectors under ths secton for ta es payabe other than by
stamp. The b amends secton 3656 to e tend the provsons concernng cert-
fed checks to cashers and treasurers checks and Unted States posta, bank,
e press, and teegraph money orders.
Unted States posta money orders have aways been accepted for Interna-
revenue ta es and In payment for stamps. y makng cashers and treasurers
checks, bank money orders, whch have the same characterstcs as cashers
checks but aso bear the name of the purchaser, and e press and teegraph money
orders acceptabe for stamps, t s beeved that the b woud afford ta payers
Increased convenence. The coecton of ta es w not be mpared nasmuch
as a the nstruments have the common characterstc that once n the hands of
the coector they can not be revoked and ther acceptance woud be sub|ect to
reguatons prescrbed by the Commssoner of Interna Revenue wth the ap-
prova of the Secretary of the Treasury.
Other checks reman acceptabe for any ta es payabe other than by stamp.
Necessary changes are made n the aw reatng to dscharge of abty cor-
respondng to the change n authorty to receve checks and money orders.

565)
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566
1945-16-12114
T D USTM NT ILL O 1945.
ouse of Representatves Report No. 49, Seventy-nnth Congress, rst Sesson.
uy 2, 1945.
Mr. Doughton of North Carona, from the Commttee on Ways and Means,
submtted the foowng report to accompany . R. 3633 :
3633) to factate reconverson, and for other purposes, havng had the same
under consderaton, report t back to the ouse wthout amendment and rec-
ommend that the b do pass.
G N R L ST T M NT.
The ma|or purpose of . R. 3633 Is to factate reconverson by mprovng
the cash poston of busness enterprses and by reevng smaer busnesses
from some of the burdens of the e cess-profts ta .
In the consderaton of ths b, your commttee have had the beneft of the
studes made by the ont Commttee on Interna Revenue Ta aton for Post-
war Ta aton.
To accompsh these desrabe resuts, severa mmedate changes n the op-
eraton of ta es affectng busness are provded n the b. These changes,
for the most part, do not affect utmate ta abtes. Specfcay, these
changes woud:
1. Increase the e cess-profts ta specfc e empton from 10,000 to 25,000,
effectve after December 31, 1945.
2. Provde that the postwar credt of 10 per cent of the e cess-profts ta
be taken currenty wth respect to ta abtes of 1944 and subsequent years.
3. Provde that outstandng postwar refund bonds be made payabe, at the
opton of the owner, on or after anuary 1, 1946.
4. Provde for speed-up of refunds resutng from carry-backs of net operat-
ng osses and of unused e cess-profts credts.
5. Provde for speed-up of refunds resutng from the recomputaton of de-
ductons for amortzaton of emergency factes.
The ncrease of the specfc e empton to 25,000 woud reduce the repressve
effect of the e cess-profts ta upon smaer corporatons wth ony a rea-
tvey sma revenue oss.
The other four changes woud mprove the cash poston of busness durng
the perod of reconverson and read|ustment to peacetme producton wthout
decreasng utmate ta abtes.
Ths b does not reduce e stng ta rates for the foowng reasons:
1. edera e tendtures w reman at a hgh eve durng the war wth
apan. It has been estmated that the edera Government w spend for
war aone at the annua rate of about 70 bon doars.
2. The perod of the war wth apan can bo e pected to be one of reasonaby
fu empoyment, snce the pent-up demand for goods and servces s e pected
to offset the antcpated cut-back n war producton. Such unempoyment as
may e st w be caused argey by unavodabe deays In the reconverson of
pants to peacetme producton. It Is key to be nted to a few areas n
whch arge cut-backs In war producton w be made. Genera ta reductons
coud do tte to hep these sonted areas.
3. Ta reductons at ths tme mght be an Important factor n startng a
runaway nfaton, snce they mght ncrease the demand for cvan goods
and servces whch s nready n e cess of mted producton. urthermore,
ta reductons at ths tme mght weaken other ant-nfatonary contros.
4. The. armed forces are st caed upon to endure persona and economc
hardshps.
TII N D OR T R COMM ND D T D USTM NTS.
n Important purpose of ths b s to mprove the cash poston of busness
by advancng the tme of payment of postwar ta refunds and credts pro-
vded under e stng aw. Ths w reduce the danger that reconverson mght
be mpeded by shortages of cash.
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567
arous studes of the fnanca condton of mercan busness have n-
dcated arge ncreases durng the war perod n the aggregate amount of cash
and n the net workng capta of busness enterprses as a whoe. owever,
aggregate fgures tend to obscure the fnanca poston of many companes
whch have e panded n response to war needs wthout an adequate base of
workng capta. In addton to the companes whose fnanca poston w
ceary be straned durng the reconverson perod, there are others whose
poston, though apparenty good at present, may deterorate as a resut of
osses from the qudaton of nventores and dsposton of other assets.
It Is true that not a busnesses w need the cash obtanabe from these
refunds durng reconverson. owever, to dstngush those frms whch do
not need cash from those whch do woud present a serous and unnecessary
admnstratve probem. Your commttee does not beeve that the reease of
cash n some cases where t s not needed, or before t s needed, woud ead
to serous consequences. The system of prorty and prce contros and other
reated measures shoud effectvey mtgate the effect of any Increase of n-
fatonary pressures that mght resut from addtons to e stng cash baances
n such cases.
second mportant purpose of ths b s to provde ncentves to sma busness
to enter peacetme producton. It s beeved that the ncrease n the specfc
e empton for 1 M6 w contrbute materay toward the accompshment of
ths purpose.
T D SIR ILITY O RLY N CTM NT.
Wth the steady ncreasng tempo of cut-backs and war contract canceatons,
many busnesses w need cash mmedatey. Prompt enactment of ths b Is
necessary f busness s to be aowed to take fu advantage ths year of the
provsons for speed-up of refunds and credts.
1 Wth mmedate enactment, t woud be possbe for corporatons antcpat-
ng osses or unused credts for 1945 to defer payment of the September 15 nsta-
ment of ther 1044 ta abtes. or e ampe, the September 15 nstament of
Corporaton w amount to 100,000. Due to canceaton of contracts on
uy 1, the corporaton e pects an unused credt for 1045 whch w resut In a
refund of 200,000 wth respect to pror years ta es. Ths corporaton w be
abe to defer the September 15 nstament and utze the 100,000 for purposes
of reconverson when t s needed. On the other hand, f the passage of the
egsaton were postponed, the corporaton woud be requred to pay out the
100,000 nstament, and recovery of ths sum woud be accompshed ony after
deay of severa months.
2. Wth Immedate enactment, It woud be possbe for e cess-profts ta payers
to reduce the amount of the September 15 nstament of ther 1944 ta abtes
by takng the postwar credt currenty. or e ampe, Corporaton reported
an e cess-profts ta abty of 1,000,000 for 1944 and pad nstaments of
1250,000 each on March 15 and une 15, 1945. If ths b s prompty enacted,
Corporaton s September 15 nstament w be reduced by one-haf of ts post-
war credt of 100,000. It w, therefore, have Immedatey avaabe at that
tme 50,000 of addtona cash.
Wth mmedate enactment, refunds arsng from the recomputaton of
amortzaton deductons on emergency factes certfed to be no onger necessary
for natona defense w become avaabe n 1945 and eary 1946. or e ampe,
Corporaton C, ownng emergency factes for whch a certfcate of nonnecessty
has been granted, fed a cam on une 15, 1945, for recomputaton of ta es for
1943 and 1944 whch w resut n refunds of 50,000. Upon the enactment of ths
b, ths company can fe a cam for quck refund, payment of whch must be
made wthn DO days. The company woud thus be abe to antcpate the recept
of 50,000 of cash refunds, durng the fa.
usnessmen are now pannng for reconverson and read|ustment to peacetme
operatons. The Immedate enactment of ths b woud factate ths pannng.
Deay In the enactment of ths b woud contnue the present uncertanty and
woud therefore render pannng more dffcut.
Speedy enactment of the b woud be favorabe to busness confdence. It
woud be nterpreted as an Indcaton of the desre of Congress to encourage
tmey reconverson and vgorous busness e panson.
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5C
Inevtaby, there must be some apse of tme between the date of enactment
and the tme when the ureau of Interna Revenue can ave ts admnstratve
machnery set up to hande cams for ta deferments and current credts.
Wth mmedate enactment of the b, the ureau shoud be n a poston to hande
these matters by September 15.
G N R L D SCRIPTION O R COMM ND D C NG S.
INCR S IN C SS-PRO ITS T SP CI IC MPTION.
The b provdes that after December 31, 1945, the specfc e empton be n-
creased from 10,000 to 25,000. Ta payers wth fsca years begnnng n 1045
and endng n 194(5 woud en|oy a pro rata porton of the ncrease for the part
of the year fang n 1046. Ths woud gve ncreased ncentves for the e pan-
son of sma and the creaton of new enterprses. perence wth the e cess-
profts ta has shown that t tends to be especay burdensome for many sma
corporatons. The ncrease n the specfc e empton woud-(a) remove n argo
number of these smaer corporatons from abty under the e cess-profts ta
and (6) reduce the burden on those corporatons st sub|ect to the ta , the
reducton beng reatvey more mportant to smaer corporatons.
It has been estmated that for the caendar year 1940 an ncrease n the specfc
e empton from 10,000 to 25,000 woud resut n a net revenue oss of about
160,000,000 or ess than 2 per cent of the tota revenue from the corporate ncome
and e cess-profts ta es.
Your commttee recommends that the specfc e empton be ncreased to 25,000
for 1940. It beeves ths change shoud not appy to 1945 ta es for the foowng
reasons:
1. Increasng the specfc e empton to 25,000 for 1945 woud sacrfce much-
needed revenue. It s estmated that the revenue oss from ths ncrease n the
specfc e empton woud be about 235,000,000 for 1045 and about 100,000,000
for 1940. Thus the oss for the two years woud be neary 400,000,000.
2. The ncrease n the specfc e empton s the ony eement n the fve-pont
program whch nvoves a reducton n ta abtes. To that e tent, It Is a
departure from the hod-the-Une pocy. though there are suffcent reasons
for rasng the specfc e empton ate n the war at a tme of wdespread recon-
verson, any rea aton of the hod-the-ne pocy effectve as eary as 1945 s
undesrabe.
3. Durng 1945, most sma busnesses w st be engaged n war work or
w be producng for abnorma war demands. The resutng profts are propery
sub|ect to the e cess-profts ta . It s beeved that any such ncrease of the
specfc e empton woud be unduy generous n 1945 whe producton s st
prmary geared to war needs.
4. Increasng the specfc e empton for 1945 woud resut n substanta wnd-
fas, because, n some cases, the e cess-profts ta has entered nto seng prces
and thus has not burdened the corporaton.
5. Increasng the specfc e empton for 1945 woud be n arge part retroactve
and coud have tte effect upon busness pannng for ths year. It woud be
unkey to provde much addtona encouragement for sma busnesses to go
ahead wth peacetme pans over what woud be provded by an ncrease n the
specfc e empton for 1946.
C NG S IN PRO ISIONS R L TING TO T POSTW R CR DIT.
Under present aw, corporatons whch pay e cess-profts ta es are credted
wth an amount generay equa to 10 per cent of the e cess-profts ta . Ths
credt may be taken currenty to the e tent of 40 per cent of net debt retre-
ment. To the e tent that the credt s not taken currenty, bonds are ssued
by the Government to the ta payer. These bonds bear no nterest. They
are nonnegotabe unt after the cessaton of hosttes. They are redeemabe
before maturty at the opton of the Unted States on three months notce. If not
redeened, they mature n from two to s years after cessaton of hosttes, the
ength of tme dependng upon the year for whch Issued.
It s the vew of your commttee that the present aw fas to meet ade-
quatey one of the prncpa purposes for the aowance of postwar credts,
namey, to provde a fund that w be avaabe for the converson of produc-
ton factes to peacetme demands. corporaton now facng reconverson
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569
woud not be abe to negotate any of Its bonds unt after the end of the war.
veD then not a of Its bonds woud be Immedatey avaabe.
To make the postwar credts fuy avaabe when they are needed, the b
provdes that (a) the postwar credt of 10 per cent of e cess-profts ta es
pad be taken currenty wth respect to ta abtes of 1044 and subsequent
years, and (6) outstandng postwar refund bonds be made payabe at the opton
of the owner on or after anuary 1, 1046.
The change makng the postwar credt avaabe currenty aganst the ta
abtes of 1044 and subsequent years woud nvove no serous admnstratve
or mechanca dffcutes.
The amount of postwar credt (after credt for debt retrement) appcabe
to 1044 abtes has been estmated at about 30,000,000 and the amount ap-
pcabe to 1045 abtes at about 710,000,000.
The estmated net amount of bonds ssued or to be ssued wth respect to
postwar credts s 4 0,000,000 for 1042 and 20,0000,000 for 1943, or a tota
of about 1.3 bons for the two years.
SP DING UP R UNDS ROM C RRY- C S.
Under e stng aw, refunds resutng from the carry-back of net operatng
osses and unused e cess-profts credts can not be mnde unt a consderabe
ength of tme after the oss or unused credt arses. The cam can not be
fed unt after the year n whch the oss or unused credt arses for e ampe,
a cam arsng from a oss In 1945 can not be made unt after the cose of the
year, when the amount of the oss has been determned. Moreover, foowng
the fng of the cam, many months are usuay requred for audtng the
returns for a years affected and for revewng the cam before a refund can
be fnay made.
To speed up the operaton of the carry-back refund procedure, so that ta -
payers may have the benefts of a currenty mproved cash poston for recon-
verson, the b provdes (1) deferment of current ta payments on the bass
of antcpated osses and unused credts and (2) prompt payment of refunds
after the oss or unused credt has occurred.
In order to provde a more equtabe and adequate operaton of the pro-
vsons for carry-back ad|ustments, the b amends the provsons of e stng
aw reatng to the statute of mtatons and computaton of Interest charges
as apped to ta ad|ustments due to carry-backs. In genera, these amendments
are ntended to assure that ta payers w have an opportunty to cam carry-
back ad|ustments n some Instances where, under e stng aw, they woud
be prevented by the statute of mtatons. The amendments aso provde that
the varous nterest charges n connecton wth ta ad|ustments due to carry-
backs w, n genera, be made on a comparabe bass for both the ta payers
and the Government.
The amount of the future ta refunds resutng from the operaton of the
carry-backs of net operatng osses and unused credts w depend argey upon
the future pattern of busness earnngs. It has been estmated that the amount
of refunds resutng from osses and unused credts for 1945 and 1946 woud
amount to perhaps 1,000,000,000. Presumaby most of ths woud be ad|usted
under the speed-up procedure, but the e act proporton can not be estmated.
SP MN UP R UNDS RISINO ROM COMPUT TION O MORTIZ TION D DUCTIONS.
Under e stng aw emergency factes certfed as necessary for natona
defense may be amortzed over a 5-year perod. If, wthn that perod, the
emergency s termnated, or a partcuar ta payer s factes are certfed to be
no onger necessary for natona defense, the ta payer may eect to have the
amortzaton deductons recomputed on the bass of the shorter perod. Short-
enng the perod of amortzaton w resut In addtona deductons In returns
prevousy fed, and, consequenty, w gve rse to ta refunds. Under pres-
ent aw, these cams for refunds must be handed through the usua admn-
stratve procedure, nvovng unavodabe deay at a tme when the ta payer
nwy be n need of funds for reconverson.
The b provdes that appcatons for tentatve ad|ustment on account of
recomputaton of amortzaton aowances may be fed and sha be acted upon
wthn 90 days from the fng of the appcaton. Ths procedure s smar
to that recommended In the case of carry-backs.
6 43 4 46 37
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570
It has been estmated that the Increased aowances for the years 1941 through
1945 woud amount to 2.9 bons out of a tota cost of certfed factes of
appro matey 6. bons. The resutng ta refunds for the read|usted years
have been estmated at 1.7 bons.
C RRY-O RS ND C RRY C S IN C S S OP R ILRO D R ORG NIZ TION.
Under e stng aw, f a raroad corporaton s reorganzed n a recevershp
proceedng or n a proceedng under secton 77 of the Natona ankruptcy ct,
as amended, and the reorganzaton s effected through the organzaton of a
new corporaton, any carry-overs of net operatng osses or unused e cess profts
credts of the od corporaton can not e used by the new corporaton, and any
carry-backs of such osses or uuused credts arsng from the operatons of the
new corporaton can not be used to obtan refunds of ta es pad by the od cor-
poraton. The reorganzed company s regarded as a dfferent ta payer from
the od company. Consequenty, raroads comng out of recevershp are treated
dfferenty n reaton to carry-backs and carry-overs, such treatment beng de-
pendent upon whether they can be reorganzed under the same charter or under
a new charter. The b removes ths dscrmnaton by treatng a raroad,
reorganzed by securng a new charter, as the same ta payer as the od raroad
n so far as the net oss and unused e cess profts credt carry-overs and carry-
backs are concerned. or other purposes of ta aton, such a raroad Is treated
as a dfferent ta payer because of the fact that t had acqured a new charter.
Ths new treatment s retroactvey apped to e tend the beneft to raroads
whch have aready competed ther reorganzaton. It appes to a ta abe
years begnnng after December 31, 19 , In the case of the net oss, and to
ta abe years begnnng after December 31, 1939, wth respect to the unused
e cess profts credt.
CTS O T ILL ON T C S POSITION OP USIN SS.
The provsons of the b reatng to the speed-up of refunds and postwar
credts woud acceerate the payment to ta payers of a tota sum of about
5.5 bons. Such eary payment of refunds and credts woud not ater the
ta abtes of busness frms but merey advance the date on whch refunds
and credts, whch ta payers woud utmatey receve under present aw, woud
be avaabe.
ULTIM T R NU CTS O T ILL.
The utmate revenue effects of ths b can not be estmated wth any cer-
tanty, but they apparenty woud not be arge n reaton to present ta revenues.
The ncrease n the specfc e empton woud reduce the recepts n 1947 (for
1946 ta abtes) by about 100,000,000. The effects of the other changes
woud be argey n connecton wth nterest pad or saved by the Government
and such factors as oss through uncoectbe ta accounts. The Government
tv necessary mke addtona nterest payments by reason of the Increase In
Interest-bearng debt concdenta wth the emnaton of postwar credts and
bonds. On the other hand, n connecton wth the program for the prompt pay-
ment of carry-back and amortzaton refunds, the Government w save nterest
otherwse payabe. Takng nto account the uncertantes of oss through un-
coectbty, tgaton, and smar factors, t Is mpossbe to state what the
net cost n Government revenues woud be. owever, your commttee beeves
that the net cost woud be sma n comparson wth the benefts to be derved
under ths b.
D T IL D DISCUSSIONS O T T C NIC L PRO ISIONS O T
ILL.
Secton 2. Increase n cess Profts Ta Specfc empton.
Ths secton amends secton 710(b) (1) of the Code to ncrease from 10,000
to 25,000 the specfc e empton appcabe In the computaton of ad|usted e -
cess profts ta net ncome. Correspondng amendments are made to secton
729(b)(2), reatng to the e cess profts ta return requrement, and secton
141(c), reatng to the computaton of ta n case consodated returns are fed.
The amendments are made appcabe to ta abe years begnnng after Decem-
ber 31, 1945. owever, n the case of ta abe years begnnng n 1945 and end-
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571
ng In 1946, the specfc e empton w be prorated, so that for the porton of
the year fang n 1945 the e empton w be computed at the rate of 10,000
and for the porton of the year fang n 1946 at the rate of 25,000.
Secton 3. Changes n Provsons Reatng to Postwar Refund of cess
Profts Ta .
Ths secton amends sectons 7 0, 7 1, and 7 3 of the Code, reatng to postwar
refund of e cess profts ta mposed by Subchapter of Chapter 2 of the Code,
and adds a new secton 7 4, whch provdes for a current credt aganst such
ta for certan ta abe years. The prncpa purposes of ths secton of the b,
are to make the postwar credt aganst e cess profts ta avaabe currenty
for 1944 and subsequent years and to make the amount of the postwar refund
bonds avaabe on anuary 1, 1946. Ths secton seeks to accompsh these
ob|ectves by repeang the postwar credt and credt for debt retrement for
certan ta abe years and n eu thereof provdng for a new current credt, and
by permttng the owners of postwar refund bonds at ther opton to obtan
payment of such bonds on or after anuary 1,1946.
Subsecton (a) of ths secton amends the frst sentence of secton 7 0(a) of
the Code, whch authorzes and drects the Secretary of the Treasury to estabsh
a postwar credt, for each of certan specfed ta abe years, to the account of each
ta payer sub|ect to the e cess profts ta . The ta abe years so specfed under
e stng aw are those endng after December 31, 1941 (e cept n the case of a
ta abe year begnnng In 1941 and endng before uy 1, 1942), and not be-
gnnng after the date of cessaton of hosttes n the present war, as defned
n secton 7 0(e) of the Code. The amendment strkes out the words quoted n
the precedng sentence and substtutes therefor December 31, 1943. Thus,
under ths amendment no postwar credt w be aowabe for a ta abe year
Subsecton (b) of ths secton amends secton 7 0(b) of the Code, reatng
to the appcaton of the postwar credt to the purchase of bonds of the Unted
States. Under e stng aw, f the amount of the e cess profts ta shown
on the return for a ta abe year for whch a postwar credt s provded Is
pad n fu before three mouths before the date f maturty of bonds for
uch year under secton 7 0(c) of the Code, bonds are requred to be ssued
for the postwar credt attrbutabe to the payment. The amendment strkes
out the words three months before the date of maturty of bonds for such
year under subsecton (c) and Inserts n eu thereof uy 1, 1945. Thus,
under ths amendment no bonds w be requred to be ssued wth respect to
the e cess profts ta shown on the return for a ta abe year for whch a
postwar credt s avaabe under secton 7 0(a), as amended, uness the ta
s pad n fu before uy 1,1945.
Subsecton (c) of.ths secton amends secton 7 0(c) of the Code, reatng
to the terms and maturty of the bonds. onds purchased wth the postwar
credt for ta abe years begnnng wthn the caendar years 1941 and 1942
mature on the ast day of the second caendar year begnnng after the date
of cessaton of hosttes n the present war, as defned In secton 7 0(e) of
the Code. onds purchased for any ta abe year begnnng wthn the caendar
year 1943 mature on the ast day of the thrd caendar year begnnng after
the date of cessaton of hosttes n the present war. No change Is made
wth respect to the maturty date of the bonds for these years. owever,
the amendment made by ths subsecton of the b provdes that these bonds
sha, be payabe at the opton of the owner thereof on or after anuary 1, 1946.
Snce under the amendment to secton 7 0(a) of the Code, made by subsecton
(a) of ths secton of the b, no postwar credt Is provWed for ta abe years
begnnng after December 31, 1943, subsecton (c) of ths secton of the b
strkes out those provsons of secton 7 0(c) of the Code reatng to the
maturty date of the bonds purchased wth the postwar credt for those ta abe
years begnnng wthn or after the caendar year 1944.
Subsecton (d) of ths secton amends secton 7 1(a) of the Code, reatng
to the effect of the payment of a defcency n respect of the e cess profts ta
for a ta abe year for whch a postwar credt Is provded. Under e stng
aw, f such payment s made before three months before the date of maturty
of the bonds for such year, bonds are requred to be ssued for the postwar
credt attrbutabe to such payment. The amendment strkes out the words
quoted In the precedng sentence and Inserts In eu thereof uy 1, 1945.
Thus, under ths amendment no bonds w be requred to be ssued wth
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572
respect to the postwar credt attrbutabe to the payment of a defcency n
respect of the e cess profts ta for a ta abe year for whch a postwar credt
s avaabe under the amendment to secton 7 0(a), uness such payment s
made before uy 1, 1945.
Subsecton (e) of ths secton amends the ast sentence of secton 7 1(b)
of the Code, reatng to the reducton, n certan cases, n the amount of the
credt or refund of an overpayment of the e cess profts ta for a ta abe
year for whch a postwar credt s provded. or the purpose of the com-
putaton of nterest upon such an overpayment, the ast sentence of 7 1(b)
of e stng aw provdes that such reducton sha be made at the tme of
the credt or refund or as of the tme of the maturty of bonds Issued wth
respect to the ta abe year for whch the overpayment was made, f that tme s
earer. Snce under the amendment to secton 7 0(c) of the Code, made by
subsecton (c) of ths secton of the b, the bonds purchased wth the postwar
credt for any ta abe year for whch such credt s provded are payabe at the
opton of the owner on or after anuary 1, 1946, subsecton (e) of ths secton
of the b substtutes anuary 1, 1940, for the tme of the maturty of the bonds
n the parenthetca cause In the ast sentence of secton 7 1(b). Under ths
amendment, f the credt or refund s made after anuary 1, 1946, the reduc-
ton n the amount of the credt or refund w, for the purpose of computng
the nterest upon the overpayment, be made as of anuary 1, 1946.
Subsecton (f) of ths secton amends secton 7 1(c) of the Code, reatng
to the postwar credt n the case of a payment of e cess profts ta for a ta abe
year for whch a postwar credt s provded, on or after the date whch Is
three months before the maturty date of the bonds for such year. The e stng
secton 7 1(c) provdes, n part, that, n case of a payment of the e cess profts
ta shown on the return for any ta abe year for whch a postwar credt s
provded, or the payment of a defcency In respect of such ta for any such
ta abe year, wthn three months before the maturty date of bonds for such
year, the amount of the postwar credt attrbutabe to such payment sha, so far
as practcabe, be avaabe for the purchase of bonds, and there sha be ssued
to the ta payer bonds wth the same maturty as bonds ssued wth respect
to such ta abe year and that, to the e tent that t s not practcabe to Issue
bonds aganst such amount of the postwar credt, the ta payer sha be pad n
cash. In eu of those provsons, the amendment provdes that, In case of a pay-
ment of the e cess profts ta shown on the return for any ta abe year for
whch a postwar credt s provded, or the payment of a defcency In respect of
such ta for any such ta abe year, on or after uy 1, 1945, the amount of the
postwar credt attrbutabe to such payment sha be pad to the ta payer In
cash. The Commssoner of Interna Revenue may, f he deems t advsabe,
permt the ta payer to offset aganst the payment of ta or defcency the
postwar credt attrbutabe to such payment n en of requrng fu payment
of the ta or defcency and returnng the amount of the postwar credt
attrbutabe to such payment to the ta payer n cash. The amendment aso
adds a new provson to secton 7 1(c), reatng to nterest. The amendment
provdes that no nterest for the perod after December 31,1945, sha be assessed
or coected on that porton of the e cess profts ta for a ta abe year for
whch a postwar credt Is provded, or of the defcency In respect of such
ta for any such ta abe year, equa to the postwar credt attrbutabe to
the payment of such ta or defcency, after approprate reducton of snch
credt under secton 7 3(c) In cases where credt for debt retrement s aowed.
The e stng secton 7 1(c) further provdes that, In case after the maturty
date of the bonds for any ta abe year there s any postwar credt remanng
n favor of the ta payer, attrbutabe to such year, such remander sha be
pad to the ta payer In cash and that no amount of any payment made under
such secton to a ta payer sha be ncuded In gross ncome. The amendment
substtutes anuary 1, 1946, for the maturty date of the bonds. s under
e stng aw, the postwar credts upon whch payments to ta payers under
secton 7 1(c) of the Code are based may be reduced under the provsons
of secton 7 3(c) of the Code n cases n whch a credt for debt retrement
s aowed, thereby reducng the amount of the cash payment to the ta payer
under secton 7 1(c) n such cases. Lkewse, as under e stng aw, no nterest
s aowabe for any perod wth respect to any payment made to a ta payer
under secton 7 1(c).
Secton 7 1(d) (1), reatng to the mtaton on the postwar credt for ta -
abe years begnnng after December 31,1943, Is rendered obsoete by the amend-
ment to secton 7 0(a) of the Code, made by subsecton (a) of ths secton of the
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573
b, Whch provdes n effect that no postwar credt w be aowabe for any
ta abe year begnnng after December 31, 1943. The appcabe mtatons on
the postwar credt for ta abe years for whch such credt s provded under
secton 7 0(a) of the Code, as so amended, are prescrbed by secton 7 1(d) of
the Code, as added by secton 230 of the Revenue ct of 1942, and by secton 7 1 (d)
(2) and (3), as added by secton 250(f) of the Revenue ct of 1943.
Subsecton (g) of ths secton adds to secton 7 3 of the Code, reatng to the
credt aganst the e cess profts ta for debt retrement, a new subsecton (e).
Correspondng to the mtaton of the postwar credt by subsecton (a) of ths
secton, subsecton (e) provdes that none of the provsons of secton 7 3 sha
appy to ta abe years begnnng after December 31,1943.
Subsecton (h) of ths secton adds secton 7 4 to the Code. Secton 7 4(a)
provdes that, aganst the e cess profts ta mposed by Subchapter of Chapter
2 of the Code for any ta abe year begnnng after December 31,1943, there sha
be aowed as a credt an amount equa to 10 per cent of such ta . The credt
provded n secton 7 4(a) for ta abe years begnnng after December 31, 1943,
s n substtuton for the postwar credt provded n the e stng secton 7S0 of
the Code and the credt for debt retrement provded n the e stng secton 7 3
of the Code for such ta abe years. or the purposes of sectons 7 0, 7 1, and
7 3 of the Code, ta mposed under ths subchapter or ta Imposed by ths
subchnpter, n the case of ta abe years begnnng after December 31, 1941, s
the amount of ta determned under Subchapter of Chapter 2 of the Code pror
to (1) any credt under secton 131 of the Code, as made appcabe by secton 729
of the Code, for ta pad or accrued to a foregn country or possesson of the
Unted States, (2) any credt for debt retrement under secton 7 3 of the Code,
and (3) any ad|ustment under secton 734 of the Code on account of poston n-
consstent wth pror ncome ta abty. Lkewse, for the purposes of secton
7 4, ta mposed by ths subchapter s the amount of ta determned under
Subchapter of Chapter 2 of the Code pror to (1) any credt under secton 131,
as made appcabe by secton 729, for ta pad or accrued to a foregn country or
possesson of the Unted States, and (2) any ad|ustment under secton 734 on
account of poston nconsstent wth pror ncome ta abty. The credt
aganst e cess profts ta for ta pad or accrued to a foregn country or posses-
son of the Unted States s to be determned wthout regard to the credt provded
for n secton 7 4.
Secton 7 4(b) of the Code, as added by subsecton (h) of ths secton of the
b, provdes that no nterest sha be aowed or pad upon any overpayment of
ta resutng from the appcaton of secton 7 4(a) to a ta abe year endng
before December 31, 1945, uness, n the return made for such ta abe year, the
ta pay r cams a credt under such secton. In genera, the purpose of secton
7 4(b) s to deny nterest upon that porton of the overpayment for ta abe years
begnnng after December 31, 1943, and endng before December 31, 1945, whch
Is attrbutabe to the substtuton of the credt under secton 7 4 for the postwar
credt under secton 7 0 of the Code or the credt for debt retrement under sec-
ton 7 3 of the Code. Thus, where the ta payer fed ts e cess profts ta re-
turn for any such ta abe year, wthout camng a credt under secton 7 4, no
nterest s aowabe upon that porton of any overpayment whch resuts from the
aowance of the credt under secton 7 4. On the other hand, where the
ta payer fed Its e cess profts ta return for a ta abe year begnnng after
December 31, 1943, and camed n the return a credt under secton 7 4 n an
amount ess than the amount of the credt aowabe under secton 7 4, nterest
s aowabe upon that porton of the overpayment resutng from the aowance
of the proper credt under secton 7 4. The term the return, as used n secton
7 4(b), means the e cess profts ta return, or an amended e cess profts ta
return, fed by the ta payer on or before the due date for such return that s,
the ast day prescrbed by aw for fng the return (Incudng the perod of any
e tenson of tme for fng the return granted pursuant to secton 53 of the Code),
or, f the ta payer fas to fe an e cess profts ta return on or before the due
date, the frst return thereafter fed by the ta payer.
Secton 4. tensons of Tme for Payment of Ta es by Corporatons pect-
ng Carry- acks, and Tentatve Carry- ack d|ustments.
Secton 4 of the b deas wth two prncpa sub|ects: (1) the e tenson of tme
for payment of ta es by corporatons e pectng net operatng oss carry-backs
or unused e cess profts credt carry-backs and (2) tentatve carry-back ad|ust-
ments n the case of both corporatons and other ta payers. Subsecton (a) of
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secton 4 adds three new sectons to the Interna Revenue Code: Secton 37TO
deang wh the e tenson of tme for payment of ta es by corporatons e pectng
carry-backs secton 37 0 deang wth tentatve carry-back ad|ustments and
secton 37 1 deang wth the appcaton of such sectons, and aso of secton 7 of
the b whch reates to tentatve ad|ustments wth respect to amortzaton de-
ductons, to cases nvovng consodated returns. Subsecton (b) of secton 4
adds a new subsecton (e) to secton 204 of the Code to provde for a 5 per cent
penaty n the case of a substanta error n the estmate of the amount of ta
the tme for payment of whch mght propery have been e tended under secton
3779. Subsecton (c) of secton 4 adds a new subsecton (c) to secton 3777
of the Code to provde that reports of credts or refunds In e cess of 75,000
made n connecton wth tentatve carry-back ad|ustments under secton 37 -0
are not requred to be submtted to the ont Commttee on Interna Revenue
Ta aton pror to the tme such credts or refunds are made, but that a re-
port of net credts or refunds of more than 75,000 sha be submtted to tbe
ont Commttee at such tme after the makng of the credt or refund as the
Commssoner sha determne the correct amount of the ta . Subsectons (d)
and (f) of secton 4 amend secton 122(b) of the Interna Revenue Code, re-
atng to net operatng oss carry-overs and carry-backs, and secton 710(c) (3)
of the Code, reatng to unused e cess profts credt carry-overs and carry-backs,
n the case of certan reorganzed raroad corporatons. Subsectons (e) and
(g) of secton 4 provde appcabe dates for the amendments made by sub-
sectons (d) and (f).
S CTION 3779 T NSIONS O TIM O P YM NT O T S Y CORPOR TIONS
P CTING C RRY C S.
The basc purpose of secton 3779 s to permt corporatons to e tend the tme
for payment of ta es otherwse due n any ta abe year endng on or after Sep-
tember 30, 1945, n case the corporaton e pects that ts operatons for such ta -
abe year w resut n a net operatng oss or an unused e cess profts credt.
net operatng oss or unused e cess profts credt may be carred back to the two
precedng ta abe years and resut In an overpayment of ta , or an overassess-
ment, for such pror years.
The genera operaton of secton 3779 may be ustrated as foows: Corpora-
ton , whch keeps ts books and makes ts ta returns on the caendar year
bass, fes ts ncome and e cess profts ta returns for 1945 on March 15, 946.
Such returns show that Corporaton owes 10,0 ) ncome ta and 15,000
e cess profts ta for 1945. Corporaton , however, e pects that ts operatons
for 1946 w resut In an unused e cess profts credt of 20,000 for that year.
The corporaton further determnes that such unused e cess profts credt, f t
n fact arses, when carred back to 1944 w resut In a decrease of 9,100 n
the aggregate of ts ta es for 1944 and w not affect the amount of ta for
any other year. Corporaton , therefore, may e tend the tme for payment of
9,100 of the ta es whch t owes for 1945 and whch woud otherwse have to
be pad on March 15 and on subsequent nstament dates n 1946. Such e -
tenson n genera w run unt March 31, 1947 or, f Corporaton fes an ap
pcaton for a tentatve carry-back ad|ustment, pursuant to the provsons of
secton 37 0, wth respect to the unused e cess profts credt of 1946, unt the
date on whch notce s maed by regstered ma by the Commssoner to the
ta payer thut such appcaton Is aowed or dsaowed. Provsons are made
for the payment of nterest on the ta the tme for payment of whch was
e tended. In genera, such nterest w bo at the rate of 3 per cent per annum
upon an amount e tended equa to the net reducton In Corporaton s ta es for
1944 and 1945 attrbutabe to any carry-backs from 1946, as determned under an
appcaton fed under secton 37 0(a) for a tentatve carry-back ad|ustment,
and at the rate of 6 per cent per annum upon the remander of the amount the
tme for payment of whch was e tended. If Corporaton e pected to have
both a net operatng oss and an unused e cess profts credt n 1946, t coud
have taken nto account the effect of both the resutng net operatng oss
carry-back and the resutng e cess profts credt carry-back n determnng the
amount of ts 1945 ta es, the tme for payment of whch t mght have e tended
under secton 3779. It s to be noted that f the net operatng oss carry-back
from 1946 produced an unused e cess profts credt n 1944 the overpayment
of e cess profts ta wth respect to 1942 attrbutabe to the unused e cess
profts credt carry-back from 1944 kewse woud be deemed to be attrbutabe
to the net operatng oss carry-back from 1946.
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575
corporaton must e pect that It w have a net operatng oss or an unused
e cess profts credt before t may propery obtan an e tenson under secton
3779. Subsecton (a) of secton 3779 provdes that upon the fng, n any ta -
abe year endng on or after September SO, 1945, of a statement wth respect
to the carry-back that w resut from such oss or unused credt, the tme for
payment of the ta es mposed by Chapter 1 or 2 of the Code for the year mmed-
atey precedng the year of the e pected oss or unused credt sha be e tended,
to the e tent provded n the other subsectons of secton 3779. corporaton
may not have an e tenson by reason of a oss or unused credt occurrng n any
ta abe year endng pror to September 30, 1945. The ony ta es the tme for
payment of whch may be e tended are those of the year mmedatey precedng
the year of the e pected oss or unused credt whch are assessed wthn the
ta abe year of the e pected oss or unused credt. Thus, f the year of the e -
pected oss or unused credt s 1945, the tme for payment of the ta es for 1944, and
for no other year, may be e tended. The tme for payment of ta es for 1943 and
pror years may not be e tended, even f defcences wth respect to such years are
assessed and payabe In 1945. Smary, the tme for payment of a defcency wth
respect to 1944 may be e tended f the defcency s assessed n 1945 but not If t s
assessed In 194 . n e tenson of tme pursuant to secton 3779 s automatcay
granted upon the fng of the necessary statement wth the coector, and s not,
as In the case of e tensons granted under secton 56(c) of the Code, depend-
ent on further acton by the Commssoner.
The statement to be fed by the corporaton s to be sworn to In the same
manner as n the case of a corporaton ncome ta return and must be fed at
such tme and n such manner and form as the Commssoner, wth the approva
of the Secretary, may by reguatons prescrbe. Subsecton (b) of secton 3779
drects that certan nformaton sha be shown on such statement and provdes
that such nformaton sha be shown n such deta and wth such supportng
data as the reguatons sha requre. The statement must set forth the amount
of the e pected net operatng oss or the unused e cess profts credt, and the
reasons, facts, and crcumstances whch cause the corporaton to e pect the oss or
unused credt.
Secton 3779 contempates that the statement w contan suffcent nforma-
ton to show that the corporaton mght reasonaby have e pected to have a net
operatng oss or unused e cess profts credt. Such Informaton mght ncude,
for e ampe, the number and doar amounts of the ta payer s Government con-
tracts whch have been canceed, the amount of reconverson e pendtures made
n the ta abe year whch represent deductbe tems, proft-and-oss statements,
and the corporaton s baance sheets.
The statement must aso show the ta effect of the e pected carry-back that
s, the amount of the reducton attrbutabe to the e pected carry-back n the
aggregate of the ta es prevousy determned for a ta abe years affected by
the carry-back pror to the ta abe year of the e pected oss or unused credt,
decreased by any postwar credts under secton 7 0(a) of the Code attrbutabe
to so much of the ta es, prevousy determned for such years, as s affected by
the carry-back. In determnng the amount of the aggregate of the ta es prev-
ousy determned for a ta abe years affected by the carry-back pror to the
ta abe year of the e pected oss or unused credt, the ta prevousy determned
s to be ascertaned n accordance wth the method prescrbed In secton 3 01(d)
of the Code. In genera, the ta prevousy determned, therefore, w be the
ta shown on the return Increased by any amounts assessed (or coected wthout
assessment) as defcences pror to the date of the fng of the statement and
decreased by any rebates, credts, or refunds aowed or made pror to such
date. Moreover, the reducton attrbutabe to the e pected carry-back Is to be
determned on the bass of the tems whch entered nto the computaton of such
ta es as prevousy determned. Thus, for e ampe, f the ta payer camed a
deducton for deprecaton of 10,000 on ts return and the Commssoner asserts
that ony 4,000 s propery deductbe, no change s to be made n the 10,000
deprecaton deducton as shown by the ta payer on hs return uness a defcency
resutng from a change In the amount of deprecaton has been assessed pror
to the fng of the statement. Deductons whch are mted, for e ampe, by net
Income, such as the deducton for chartabe contrbutons, however, are to be
recomputed on the bass of net Income as reduced by operaton of the carry-back.
In determnng the net operatng oss deducton the ad|ustments requred by
sectons 122(c), 711(a) (1) ( ), and 711(a) (2) (L), of course, w kewse be
made. It s to be noted that the reducton n the aggregate of the ta es s a
net reducton, I. e., n determnng the reducton n the aggregate of the ta es.
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576
a decrease In any one ta , for e ampe, the e cess profts tu , w be offset by
an ncrease n any other tu , for e ampe, the ncome ta , resutng from such
decrease.
The statement must aso set forth the ta or ta es and the amount thereof the
tme for payment of whch s to be e tended. If the reducton In the aggregate
of a ta es affected by the carry-back s ess than the ta es owed by the ta payer
for the year mmedatey precedng the year of the e pected oss or unused credt,
the ta payer s to specfy the ta or ta es wth respect to whch he wshes to
e tend the tme for payment. The ta payer may choose to e tend the tme
for payment of a of one or more ta es, or t may choose to e tend the tme
for payment of portons of severa ta es. The ta es chosen by the ta payer need
not be those ta es whch are affected by the carry-back. The statement sha aso
contan such other Informaton for the purposes of carryng out the provsons
of secton 3779 as may be requred by the reguatons.
The coector, upon request, w furnsh a recept for any statement fed.
The recept w show the date the statement was fed.
Two mtatons are mposed by subsecton (c) of secton 3779 upon the amount
of ta the tme for payment of whch may be e tended
(1) The amount the tme for payment of whch may be e tended wth
respect to any snge ta may not e ceed the amount of such ta shown
on the return, ncreased by any amount assessed as a defcency (or as n-
terest or addtons to the ta ) pror to the fng of the statement and de-
creased by any amount pad or requred to be pad pror to the date of such
fng
(2) The tota amount of a ta es the tme for payment of whch may be
e tended s not to e ceed the amount of the reducton n the aggregate of
the ta es prevousy determned for a ta abe years affected by the carry-
back pror to the year of the e pected oss or unused credt, decreased by
the amount of any credts under secton 7 0 propery aocabe to such
reducton.
The frst mtaton mposed by subsecton (c) of secton 3779 provdes, n
effect, that there may be no e tenson of the tme for payment of any ta , or
part thereof, f the ta payer s denquent wth respect to the payment of such
ta , or part thereof, at the tme of fng the statement. There may be an e -
tenson wth respect to ony such ta es as the ta payer was not requred to
pay pror to the date of the fng of the statement. or the purposes of determn-
ng whether a defcency was requred to be pad pror to the date of the fng
of the statement, t Is to be consdered that such defcency was requred to be
pad on the tenth day after notce and demand was made for the payment of
such defcency. or the purposes of determnng whether any ta was requred
to be pad pror to the fng of the statement, ony the ta shown on the return
and defcences actuay assessed sha be taken nto account. Smary, f the
ta payer has been granted an e tenson pursuant to secton 56(c) of the Code,
such ta sha not be deemed requred to be pad pror to the end of such e tenson.
If an e tenson of tme reates to ony a part of a ta , the tme for payment
of the remander of the ta shn be consdered to be the dates on whch payments
woud have been requred f such remander had been the ta and the ta payer
had eected to pay the ta n four equa nstaments. Ths rue may be Iustrated
as foows: The ta payer showed a tn of 1,000 on ts 1945 ncome ta return
and pnd one-quarter of such ta , or 250, on March 15, 1946. On une 1, 1W6,
the ta payer pursuant to the provsons of secton 3779 e tends the tme for pay-
ment of 600 of such ta . The remander of the tn the tme for payment of
whch was not so e tended, . e., 400, s to be consdered the ta and s to be
pad n four equa nstaments on each of the norma nstament dates. Snce
the ta payer has aready pad 250 on March 15, 1946, t w have nothng to
pay on une 15,1946, t w pay 50 on September 15,1946, and 100 on December
15, 1946.
Subsecton (d) of secton 3779 provdes that f the tme for payment of a ta
has been e tended pursuant to secton 3779, such e tenson sha e pre
(1) on the ast day of the month n whch fas the ast date prescrbed
by aw (Incudng any e tenson of tme granted the ta payer) for the fng
of the return for the ta abe year of the e pected net operatng oss or un-
used e cess profts credt or
(2) f an appcaton for a tentatve carry-back ad|ustment provded n
secton 7 0 of the Code wth respect to such oss or unused credt s fed
before the e praton of the perod prescrbed In cause (1), on the date on
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577
whch notce Is maed by regstered ma by the Commssoner to the ta -
payer that such appcaton s aowed or dsaowed n whoe or n part.
tensons of tme under secton 3779, uness sooner termnated by ether the
ta payer or the Commssoner, thus w run unt at east the ast day of the
month n whch fas the date prescrbed by aw (Incudng any e teuson of
tme granted the ta payer) for fng the return for the year of the e pected
oss or unused credt, and, f an appcaton for a tentatve carry-back ad|ust-
ment under secton 37 0 s fed pror to such ast day, the e tenson w run
unt the Commssoner mas to the ta payer notce of hs acton wth respect
to such appcaton.
Subsecton (e) of secton 3779 n effect provdes that the ta payer may fe
severa statements each year under secton 3779. ach such statement s to
be consdered a new statement and not an amendment of any pror statement.
ach new statement s to be n eu of the ast statement prevousy fed wth
respect to the ta abe year of the statement, but the tme for payment of any
amount the tme for payment of whch has aready been e tended under a pror
statement may contnue to be e tended under the new statement. The regua-
tons of the Commssoner may provde for such ncorporaton by reference as
Is compatbe wth admnstratve effcency of materas used n earer state-
ments n new statements. If the amount the tme for payment of whch s
e tended under the new statement s ess than such amount under the ast
statement prevousy fed, the e tenson of tme sha be termnated on the date
the new statement s fed as to the dfference between the two amounts.
Subsecton (f) of secton 3779 e pressy recognzes that n ght of the nature
of the statements fed under secton 3779 and the tme and admnstratve fac-
tes avaabe, the Commssoner s under no duty to make any e amnaton
of such statements. The Commssoner, however, s authorzed to make such
e amnaton as he deems necessary and practcabe. If upon such e amnaton
as he may make, the Commssoner beeves that, as of the tme he makes the e -
amnaton, a or any part of the statement ceary s n a matera respect
erroneous or unreasonabe, he Is to termnate the e tenson as to any part of the
amount to whch such e tenson reates whch he deems shoud be termnated.
ny such acton by the Commssoner sha be concusve.
The Commssoner s kewse drected under subsecton (h) of secton 3779
to termnate any e tenson f he beeves that the coecton of the amount to
whch such e tenson reates s In |eopardy. In the case of such a termnaton,
notce and demand s to be made by the coector for payment of such amount.
Subsecton (g) of secton 3779 provdes that f an e tenson of tme s
termnated wth respect to any amount ether (1) by the fng of a new state-
meat by the ta payer e tendng the tme for payment of a esser sum than
was e tended n a pror statement or (2) .by acton of the Commssoner under
subsecton (f), no further e tenson of tme sha be made under secton 3779
wth respect to such amount. The tme for payment of such amount sha be
the dates on whch payments woud have been requred If there had been no
e tenson wth respect to such amount and the ta payer had eected to pay the
ta n four equa Instaments. The provsons of subsecton (g) may be Ius-
trated as foows: Corporaton . , whch keeps ts books and makes Its ta
returns on the caendar year bass, fed ts 1945 ncome ta return, showng a
ta of 1,000, on March 15, 1946. t the same tme Corporaton fed a
statement under secton 3779 e tendng the tme for payment of the entre
1,000 on the bass of an e pected unused e cess profts credt for 1946. On
uy 1, 1946, Corporaton fed a new statement ndcatng that the reducton
n the aggregate of ts ta es for years pror to 1946 attrbutabe to the unused
e cess profts credt carry-back from 1946 woud be ony 600 and thus term-
nated the above e tenson to the e tent of 400. The tme for payment of
such 400 may not be e tended agan, and such 400 s payabe as f t were the
ta for 1945 and Corporaton had eected to pay such ta n four equa
nstaments. That s, 100 s payabe on March 15, 1946, 100 on une 15,
1946, 100 on September 15, 1946, and 100 on December 15, 1946, and nterest
at the rate of 6 per cent payabe under paragraph (2) of subsecton () of
secton 3779 s to be computed on such amounts from such dates. Inasmuch
as the March 15 and une 15 dates had aready passed when Corporaton
termnated the e tenson wth respect to the 100, 200 s payabe mmedatey
upon such termnaton and 100 s payabe on September 15, 1946, and 100 on
December 15, 1946. The fact that Corporaton dd not pay the 100 on
March 15, 1946, and the 100 on une 15, 1946, s not to be consdered such a
faure to pay an Instament on or before the date f ed for Its payment as
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57
woud make the entre ta become due under the provsons of secton 56(b)
of the Code. If Corporaton had shown 1,200 of ta on ts return and,
accordngy, had pad 50 on March 15, 1946, and 50 on une 15, 1946, the
other facts beng the same, then upon the above termnaton as to 400, 200
woud be payabe mmedatey (that s, 100 whch n the ght of the term-
naton shoud have been pad March 15, 1946, and 100 whch shoud have been
pad une 15, 1946), and two nstaments of 150 each woud be payabe on
September 15, 1946, and December 15, 1946.
The above Iustratons woud aso appy f the e tenson of tme for the
payment of the 400 were termnated by the Commssoner because he beeved
that the statement fed by Corporaton was erroneous or unreasonabe n a
matera respect. If, however, the Commssoner termnated the e tenson wth
respect to such 400 because he beeved the coecton of such amount was In
|eopardy, the entre 400 woud be payabe mmedatey on notce and demand
by the coector.
Subsecton (1) of secton 3779 provdes for the payment of Interest on
amounts the tme for payment of whch s e tended under secton 3779. The
nterest, whch s to be coected as part of such amounts s to be computed
from the dates on whch payments woud have been requred f there had been
no e tenson and the ta payer had eected to pay the ta n four equa nsta-
ments at the foowng rates:
(1) t the rate of 3 per cent per annum upon so much of such amount as
s satsfed by appyng or credtng thereto, wthn the perod of e tenson,
a decrease n ta determned n respect of an appcaton for a tentatve
carry-back ad|ustment, as provded n secton 37 0(a), to the date of such
satsfacton, e cept that the rate s to be 6 per cent per annum on so much
of the satsfed amount as does not e ceed the amount of the defcences
nssessed under secton 37 0(b) n respect of such appcaton whch Is not
so satsfed and
(2) t the rate of 6 per cent per annum upon the remander of the
amount the tme for payment of whch has been e tended to the date such
amount s pad.
The effect of cause (1) of subsecton (I) n genera s that Interest sha be
coected at the rate of 3 per cent per annum on any amount the tme for payment
of whch has been e tended under secton 3779 to the e tent that such amount
s satsfed by appyng or credtng thereto, wthn the perod of e tenson, a de-
crease n ta determned In respect of an appcaton under secton 37S0. In
determnng whether an amount has been so satsfed, however, the net effect of
the carry-back, ncudng any resutng defcences, must be taken Into account.
Ths may be ustrated as foows: Corporaton C, whch came nto e stence on
anuary 1, 1945, and whch keeps ts books and makes ts ta returns on the
caendar year bass, e tended the tme for payment of 55 of ts e cess profts
ta for 1945 on the bass of an e pected unused e cess profts credt for 1946.
Corporaton C n fact had an unused e cess profts credt n 1946 and It fed an
appcaton for a tentatve carry-back ad|ustment under secton 37 0 on March
31, 1947. Such appcaton showed a decrease n e cess profts ta for 1945 of
55 and a resutng ncrease n ncome ta for 1945 of 400. Corporaton C s
appcaton was aowed n fu by the Commssoner on une 15, 1947, and the
resutng decrease of 55 In e cess profts ta for 1945 was apped aganst the
55 of e cess profts ta for 1945 the tme for payment of whch had been e -
tended. The Commssoner, however, smutaneousy assessed and made notce
and demand for the 400 ncrease wth respect to Corporaton C s ncome ta
for 1945, and, nasmuch as the entre decrease In e cess profts ta had been
apped aganst the unpad amount of e cess profts ta for 1945, Corporaton C
pad such 400 Increase n ncome ta n cash wthn 10 days after notce and
demand. The reducton In the aggregate of Corporaton C s ta es for 1945
attrbutabe to the unused e cess profts credt carry-back from 1946 was ony
455, and Corporaton C therefore shoud not have e tended the tme for payment
of more than 455 of ts 1945 ta es. Inasmuch as n effect ony 455 of the
amount the tme for payment of whch had been e tended was satsfed by
reason of the carry-back, subsecton () provdes that nterest sha be coected
at the rate of per cent per annum on the 455 and that nterest sha be
coected at the rate of 6 per cent per annum on the remanng 400 of the e cess
profts ta the tme for payment of whch was e tended. The nterest sha be
computed on the 455 and on the 400 at the rates of 3 per cent and 6 per cent,
respectvey, as f one-quarter of each such amount were payabe on March 15,
1946, one-quarter on -une 15, 1946, one-quarter on September 15, 1946, and one-
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579
quarter on December 15, 194 Interest on the 455 s to run unt the date the
reducton In e cess profts ta , determned n respect of the above appcaton for
a tentatve carry-back ad|ustment, s apped aganst the e cess profts ta for
1945 the tme for payment of whch had been e tended, and nterest on the
400 sha run unt the date t s pad. Under the provsons of proposed secton
292(c) of the Interna Revenue Code, added by secton 6 of ths b, no nterest
w be payabe n ths case on the above 400 Increase n ncome ta resutng
from the decrease n e cess profts ta .
It s to be partcuary noted that nterest on amounts the tme for payment
of whch s e tended under sectou 3779 w be payabe at the rate of 3 per cent
per annum ony f such amounts are satsfed by appyng or credtng thereto,
wthn the perod of e tenson, a decrease n ta determned n respect of an
appcaton for a tentatve carry-back ad|ustment. To the e tent that such
amounts are not so satsfed, Interest s payabe at the rate of 6 per cent per
annum. Thus, f an e tenson s termnated ether by acton of the ta payer or
the Commssoner, nterest Is payabe on the amount to whch such termnaton
reates at the rate of 6 per cent per annum to the date of payment. Lkewse, f
the ta payer pays some porton of the ta , the tme for payment of whch has
been e tended, pror to the termnaton of the e tenson, or f the ta payer fas
to fe an appcaton for a tentatve carry-back ad|ustment pror to the ast
day of the month In whch fas the date prescrbed by aw (ncudng any e -
tenson of tme granted the ta payer) for fng the return for the year of the
e pected oss or unused credt, nterest s payabe at the rate of 6 per cent per
annum to the date of payment. If part of an amount the tme for payment of
whch has been e tended s satsfed by appyng or credtng thereto a decrease
determned n respect of an appcaton for a tentatve carry-back ad|ustment
and part s not so satsfed, Interest s to be payabe on the frst part at the
rate of 3 per cent and on the second part at the rate of 6 per cent per annum.
The acton of the Commssoner n aowng or dsaowng an appcaton under
secton 37 0 for a tentatve carry-back ad|ustment s to be concusve wth respect
to the nterest payabe on amounts the tme for payment of whch has been
e tended under secton 3779 such nterest s not to be affected by a ater de-
termnaton by the Commssoner or any court, ncudng The Ta Court.
If, however, the Commssoner determnes that durng the perod of e ten-
son a credt or refund of an overpayment has been aowed or made or a de-
fcency assessed affectng the amount to whch the e tenson under secton 3779
reates and that the ta payer coud not have taken such overpayment or defcency
Into account n the statement or n a revsed statement, an approprate ad|ust-
ment s to be made n determnng whether nterest sha be payabe at the
rate of 3 per cent or 6 per cent per annum.
Subsecton (b) of the b adds.a new subsecton (e) to secton 294 of the
Oode. Such subsecton (e) provdes a penaty of 5 per cent In case the amount
of ta the tme for payment of whch has been e tended under secton 3779
Is substantay n e cess of the amount the tme for payment of whch shoud
have been e tended. Subsecton (e) defnes as the penaty porton the
e cess of an amount to whch an e tenson reates whch Is not pad by the end
of the ta abe year n whch the e tenson s made over 125 per cent of the
amount to whch such e tenson reates whch s satsfed by appyng thereto
a decrease n ta determned In respect of an appcaton for a tentatve carry-
back ad|ustment under secton 37 0 ess any amounts assessed In respect of such
appcaton whch are not so satsfed. The penaty porton n effect s there-
fore the e cess of the amount of ta the tme for payment of whch has been
e tended over 125 per cent of the net amount to whch such e tenson reates
whch Is satsfed by appyng thereto a decrease n ta determned n respect of an
appcaton for a tentatve carry-back ad|ustment. In the case of any e ten-
son under secton 3779 n whch t s determned that there s such a penaty
porton, an amount equa to 5 per cent of the penaty porton Is to be added to
the ta uness the ta payer estabshes to the satsfacton of the Commssoner
that, as of the end of the ta abe year In whch such e tenson was made, there
was reasonabe cause to e pect that there woud be no such penaty porton. Such
amount s n addton to nterest payabe under subsecton (1) of secton 3779.
If more than one ta Is nvoved, the penaty s to be added to one ta or pro-
rated among two or more, wthn the dscreton of the Commssoner. It s to be
noted that a ta payer may aways avod the penaty Imposed under secton
(e) by payng the ta , the tme for payment of whch has been e tended, at
any tme pror to the cose of the ta abe year n whch the e tenson was made.
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In such case, nterest w be payabe at tbe rate of 6 per cent per annum but
there w be no penaty of 5 per cent
T NT TI C RY-f C D USTM NTS.
Secton 4(a) of the b, n addton to addng to the Interna Revenue Code,
secton 377a, reatng to e tensons of tme for payment of ta es by corpora-
tons e pectng carry-backs, woud kewse add a new secton 37 0 to the Code
Secton 37 0 s compementary to secton 3779. The frst part of the pan, em-
boded n secton 3779, provdes for the deferment of current ta payments on
the bass of antcpated net operatng osses and unused e cess profts credts
the second part of the pan, emboded n secton 37 0, provdes for prompt
payment of refunds attrbutabe to net operatng oss carry-backs or unused
e cess profts credt carry-backs after the oss or unused credt has occurred.
It Is to be noted that secton 37 0, unke secton 3779, appes to ta payers
other than corporatons as we as to corporatons. Secton 37 9 n genera has
two man purposes: (1) the satsfyng of any ta es the tme for payment of
whch has been e tended under secton 3779 and (2) the prompt refund of cash
to ta payers. In many cases ony the second of such purposes w be n-
voved. Ts w be true n the case of any ta payer other than a corporaton,
and aso n the case of a corporaton f such corporaton has not avaed tsef
of the rght to an e tenson under secton 3779, or does not owe any ta ,
the tme for payment of whch has been e tended under secton 3779, at the tme
t fes an appcaton for a tentatve carry-back ad|ustment under secton 37 0.
Subsecton (a) of secton 37 0 provdes that a ta payer may fe an appca-
ton for a tentatve carry-back ad|ustment of the ta es affected by a net oper-
atng oss enrry-bnek or by an unused e cess profts credt carry-back from any
ta abe year endng on or after September 30, 1945. Thus, f a ta payer has
a net operatng oss or an unused e cess profts credt n any ta abe year end-
ng on or after September 30, 1045, he may fe an appcaton for a tentatve
ad|ustment of the ta es for a pror ta abe years affected by the net operatng
oss carry-back or the unused e cess profts credt carry-back resutng from
such oss or unused credt. decrease n e cess profts ta resutng from an
unused e cess profts credt carry-back whch tsef resuts from, or s ncreased
n amount by, a net operatng oss carry-back sha be consdered to be attrb-
utabe to such net operatng oss carry-back. If a corporaton has, e. g., a net
operatng oss n the caendar year 1945 whch when carred back to 1943 resuts
In an unused e cess profts credt, the decrease In e cess profts ta for 1941
resutng from the unused e cess profts credt carry-back from 1943 sha be
consdered to be attrbutabe to the net operatng oss carry-back from 1945. If
a corporaton has both a net operatng oss and an unused e cess profts credt
n any ta abe year begnnng after December 31, 1944, It may fe an appca-
ton for a tentatve carry-back ad|ustment n respect of both the net operatng
oss carry-back and the unused e cess profts credt carry-back resutng from
such oss and unused credt.
The appcaton for a tentatve carry-back ad|ustment n the case of a cor-
poraton s to be sworn to n the manner prescrbed by secton 52 of the Code
for the fng of a corporaton ncome ta return and n the case of ta payers
other than corporatons s to be verfed In the manner prescrbed by secton 51
of the Code. Such appcaton s to be fed on or after the date of the fng of
the return for the ta abe year of the net operatng oss or the unused e cess
profts credt from whch the carry-back resuts and must be fed wthn a
perod of 12 months from the cose of such ta abe year. ny appcaton fed
pror to the date the return for the ta abe year of the oss or the unused credt
s fed sha be consdered to have been fed on the date the return s fed.
The appcaton for a tentatve carry-back ad|ustment must be fed n such
manner and form as may be requred by reguatons prescrbed by the Com-
mssoner wth the approva of the Secretary. The appcaton sha set forth,
n such deta and wth such supportng data and e panaton as the reguatons
sha requre
(1) the amount of the net operatng oss or unused e cess profts credt
(2) the amount of each ta prevousy determned for each pror ta abe
year affected by the carry-back
( ) the amount of the Increase or decrease n each such ta attrbutabe
to such carry-back
(4) the amount by whch the aggregate of such decreases e ceeds the
aggregate of such ncreases
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(5) the unpad amount of each such ta , not ncudng any amount wth
respect to a ta for the ta abe year mmedatey precedng the year of the
oss or unused credt as to whch an e tenson of tme for payment under
secton 779 s n effect
(6) the amount wth respect to each ta for the ta abe year mmedatey
precedng the ta abe year of the oss or unused credt as to whch an
e tenson of tme under secton 3779 s n effect and
(7) such other nformaton for the purpose of carryng out the prov-
sons of secton 37 0 as may be requred by the reguatons.
In determnng the amount of the ta prevousy determned for each pror
ta abe year affected by the carry-back, such ta sha be ascertaned n ac-
cordance wth the method prescrbed n secton 3 01(d) of the Code. In gen-
era, therefore, such ta w be the amount of the ta shown on the return
ncreased by any amounts assessed (or coected wthout assessment) as a de-
fcency pror to the date of the fng of th appcaton and decreased by any
rebates, credts, or refunds aowed or made pror to such date. ny Items as
to whch the Commssoner and the ta payer are n dsagreement at the tme
of the fng of the appcaton sha be taken nto account ony f, and to the
e tent that, they were shown on the return or were refected In any amounts
assessed (or coected wthout assessment) as defcences or n any amounts
aowed as rebates, credts, or refunds pror to the date of the fng of the
appcaton for a tentatve carry-back ad|ustment.
The ncrease or decrease n each ta affected by the carry-back s to be de-
termned on the bass of the tems whch entered nto the computaton of the
ta prevousy determned, such ta prevousy determned beng ascertaned n
the manner descrbed above. In determnng an ncrease or decrease n ta ,
tems accordngy sha.be taken nto account ony to the e tent that they appear
on or were refected n the return or were refected n amounts assessed (or
coected wthout assessment) as defcences or n amounts aowed as rebates,
credts or refunds pror to the date of the fng of the appcaton for a tenta-
tve carry-back ad|ustment. If the Commssoner and the ta payer are n
dsagreement as to the proper treatment of any tem, t sha be assumed for
purposes of determnng the ncrease or decrease n each ta that such tem
was correcty reported by the ta payer uness the dsagreement has resuted
n assessment of a defcency or aowance of a credt or refund. Thus, If the
ta payer camed a deducton on ts return of 50,000 for saares pad ts
offcers, but the Commssoner asserts that such deducton shoud not e ceed
20,000, and the Commssoner and the ta payer have not been abe to agree on
the amount propery deductbe pror to the tme the appcaton for a tentatve
carry-back ad|ustment s fed, 50,000 sha be consdered as the amount prop-
ery deductbe for purposes of determnng the ncrease or decrease n each ta
affected by the carry-back n respect of whch the appcaton s fed. In de-
termnng the ncrease or decrease In any ta affected by the carry-backs, the
ta prevousy determned, however, sha be ncreased or decreased by the
amount of any Increase or decrease n such ta shown on an appcaton under
secton 124(|) of the Code, reatng to an appcaton for a tentatve ad|ust-
ment wth respect to amortzaton deductons, fed pror to the fng of the
appcaton for a tentatve carry-back ad|ustment, where the ncrease has not
been assessed or the decrease aowed at the tme of the fng of such appca-
ton for a tentatve carry-back ad|ustment and the tems enterng nto the
computaton of the ta prevousy determned are to be ad|usted n conformty
wth such ncrease or decrease shown n such appcaton. or the purpose of
determnng the ncrease or decrease n each ta affected by the carry-back, any
deducton mted, for e ampe, by net Income or ad|usted gross ncome, such
as the deducton for chartabe contrbutons, sha be recomputed on the bass
of the net ncome as affected by the carry-back. In computng the net operat-
ng oss deducton for purposes of determnng the Increase or decrease n each
ta affected by the carry-back, proper ad|ustments as requred by sectons
122(c), 711(a) (1) ( ), or 711(a) (2) (L) sha be made.
n appcaton for a tentatve carry-back ad|ustment s not to consttute a
cam for credt or refund. If such appcaton Is re|ected n whoe or In part,
therefore, no sut may be mantaned n any court for the recovery of any ta
based on such appcaton. The ta payer, however, as under e stng aw, may
fe a reguar cam for credt or refund under secton 322 of the Code at any tme
before the e praton of the appcabe perod of mtaton, f such a cam has
not aready been fed, and may mantan sut on such cam f t s re|ected
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or f the Commssoner does not act on such cam wthn s months after the
date of the fng of the cam.
Subsecton (b) of secton 37 0 provdes that the Commssoner s to act upon
any appcaton for a tentatve carry-back ad|ustment wthn 00 days of whch-
ever of the foowng two dates s the ater:
(1) The date the appcaton s fed
(2) The ast day of the month n whch fas the ast date prescrbed
by aw (ncudng any e tenson of tme granted the ta payer) for fng the
return for the ta abe year of the net operatng oss or unused e cess profts
credt from whch the carry-back resuts.
Wthn such perod of 90 days the Commssoner Is to make such mted
e amnaton of the appcaton as he deems practcabe for omssons and errors
of computaton theren. The Commssoner s then to determne the Increase
or decrease n any ta affected by the carry-back upon the bass of the appcaton
and such e amnaton. The Commssoner s to determne such ncreases and
decreases n the same manner as that provded by subsecton (a) of secton
37 0 for the determnaton by the ta payer of the ncreases and decreases n
ta whch must be set forth n the appcaton for a tentatve carry-back ad|ust-
ment. The Commssoner, however, may correct any errors of computaton or
omssons he may dscover upon whatever mted e amnaton he may make of
the appcaton. In determnng the ncrense or decrease n each ta affected by
the carry-back, the Commssoner accordngy may correct any mathematca
errors appearng on the appcaton and he may kewse correct any ad|ustments
.requred by aw and ncorrecty made by the ta payer n computng ts net oper-
atng oss, ts unused e cess-profts credt, the resutng carry-backs, or- Its net
operatng oss deducton or unused e cess-profts credt ad|ustment. If the re-
qured ad|ustment has not been made and the Commssoner has avaabe the
necessary Informaton to make such ad|ustment wthn the above 90-day perod,
he may do so. Thus, f the ta payer s appcaton fas to take nto account
certan ta -free nterest whch he receved n the year of the net operatng oss,
or In a pror year the ta es for whch are nffected by the carry-back, the Com-
mssoner, f he knows the amount of such ta -free nterest receved by the ta -
payer n such year, may take such ta -free nterest nto account n determnng
the ncreases and decreases n the ta es affected by the carry-back. The Com-
mssoner, however, w not change a deducton for deprecaton because he
beeves that the ta payer has camed an e cessve amount kewse, the Com-
mssoner w not ncude n gross ncome any amount not so ncuded by the
ta payer even though the Commssoner beeves that such amount s sub|ect
to ta and propery shoud be reported as gross ncome.
If the Commssoner fnds that an appcaton for a tentatve carry-back ad|ust-
ment contans matera omssons or errors of computaton, he may dsaow such
appcaton n whoe or n part wthout further acton. If, however, the Com-
mssoner fnds that any error of computaton can be corrected by hm wthn
the above 90-dny perod, he may do so and may aow the appcaton n whoe
or n part The Commssoner s determnaton as to whether he can correct
any error of computaton wthn the 90-day perod sha be concusve. Smary,
the Commssoner s acton In dsaowng any appcaton In -whoe or In part
sha be fna and may not be chaenged n any proceedng. The ta payer s rem-
edy es n the usua cam for credt or refund as under e stng aw.
In the case of any appcaton whch the Commssoner aows n whoe or n
part, any Increase determned by the Commssoner n any ta affected by the
carry-back sha be deemed to have been determned as a defcency and 6ha be
assessed wthout regard to the restrctons on assessment provded In secton 272
of the Code. Thus, the ta payer w not have a rght to contest such assessment
before The Ta Court. ach decrease determned by the Commssoner n any
ta affected by the carry-back sha frst be apped aganst any unpad amount
of the ta wth respect to whch such decrease was determned. Such unpad
amount may ncude both an amount of ta wth respect to the payment of whch
the ta payer s denquent and an amount of ta the tme for whch s e tended
under secton 3779. In such case the Commssoner sha determne aganst
whch amount the decrease s frst to be apped. The unpad amount of ta
aganst whch a decrease may be apped, however, s not to Incude any amount
of ta for any ta abe year other than the year of the decrease. fter makng
such appcaton, the Commssoner sha credt any remander of the decrease
as foows: ,
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(1) ganst any ncrease (ncudng addtons to the ta ) determned n
any ta , other than the ta decreased, whch s attrbutabe to the carry-back
and whch has been assessed as provded above and then
(2) aganst any unsatsfed amount of any ta , other than the ta decreased,
for the ta abe year Immedatey precedng the ta abe year of the net operat-
ng oss or the unused e cess profts credt the tme for payment of whch
s e tended under secton 3779.
ny remander of the decrease after such appcaton and credts may, wthn
the above 90-day perod, n the dscreton of the Commssoner, be credted aganst
any Income, war profts, or e cess profts ta or Instament thereof then due
from the ta payer, or, If not so credted, s to be refunded to the ta payer wthn
such 90-day perod.
The appcaton, credt, or refund of a decrease n ta determned under secton
7 0 sha consttute a credt or refund wthn the meanng of sectons 7 1(b)
and 3 07(b) (1) of the Code, reatng, respectvey, to postwar credts or postwar
bonds n the case of refunds and to the perod of mtaton n case of reated
ta es under Chapter 1 and Chapter 2.
In recognton of the fact that, due to the short perod of tme aowed,
the Commssoner necessary w act upon an appcaton for a tentatve carry-
back ad|ustment ony after a very mted e amnaton, subsecton (c) of secton
37 0 provdes a summary procedure whereby the Commssoner and the ta -
payer each may be restored to the same poston occuped pror to the approva
of such appcaton. Subsecton (c) provdes that f the Commssoner deter-
mnes that the amount apped, credted, or refunded wth respect to an ap-
pcaton for a tentatve carry-back ad|ustment Is In e cess of the overassess-
ment propery attrbutabe to the carry-back upon whch such appcaton was
based, he may assess the amount of the e cess as a defcency as f such de-
fcency were due to a mathematca error appearng on the face of the return.
That Is, the Commssoner may assess an amount equa to the e cess, and
such amount may be coected, wthout regard to the restrctons on assess-
ment and coecton mposed by secton 272 of the Code. ther before or after
assessng such amount, the Commssoner w notfy the ta payer that he
has made or w make such assessment. Such notce, however, s not to
consttute a notce of defcency and the ta payer may not fe a petton wth
The Ta Court based on such notce. The ta payer wthn the appcabe
perod of mtaton may fe a reguar cam for credt or refund under secton
322 of the Code based on such carry-back, f he has not aready fed such a
cam, and may sue on such cam If It s re|ected by the Commssoner or
not acted up n wthn s months after the date of the fng of the cam.
Upon assessng any defcency under subsecton (c) of secton 37 0, the
Commssoner Is further drected to schedue as an overassessment the decrease
n any other ta resutng from the ad|ustments refected In the computaton
of the defcency so assessed. Thus, If the Commssoner determnes that 55
of e cess profts ta for 1944 was apped, credted or refunded In respect
of an appcaton for a tentatve carry-back ad|ustment In e cess of the amount
whch propery shoud have been so apped, credted, or refunded, the Comms-
soner may assess such 55 as a defcency wthout regard to the restrctons
Imposed on assessment by secton 272 of the Code. Generay, however, such
defcency w resut In a decrease of Income ta for 1944 In the amount of 400,
and subsecton (c) provdes that upon assessng the 55 of e cess profts
ta the Commssoner sha schedue such decrease of 400 n ncome ta as
an overassessment whch w be credted aganst the defcency.
It Is to be noted that the method provded n subsecton (c) of secton 37S0
to recover any amounts apped, credted, or refunded under secton 37 0 whch
the Commssoner determnes shoud not have been so apped, credted, or
refunded s not an e cusve method. It Is contempated that the Commssoner
w usuay proceed by way of a defcency notce In the ordnary manner, and
the ta payer may tgate any dsputed ssues before The Ta Court The Com-
mssoner may aso proceed by way of a sut to recover an erroneous refund.
S CTION 37 1 T NSION O TIM ND T NT TI O T- C: ND MORTIZ TION
D USTM NTS IN T C S OP CONSOLID T D R TURNS.
Secton 3779 and 37 0, reatng to e tensons of tme for the payment of the
ta and to tentatve carry-back ad|ustments, as we as secton 124 ( ) and ( ),
reatng to amortzaton deductons, w appy n the case of a corporaton
Invoved In the fng of consodated returns to the e tent and In the manner
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prescrbed by the Commssoner n reguatons approved by the Secretary, and
sub|ect to such condtons, mtatons, and e ceptons as may be prescrbed n
such reguatons.
Under secton 141 of the Code, the Commssoner s requred, wth the approva
of the Secretary, to prescrbe such reguatons as are deemed necessary to
the admnstraton of consodated return cases. The Commssoner s regu-
atory authorty pertans equay to consodated return perods and to those
aspects of separate return computatons for other perods affected by the fng
of consodated returns. It s the ntenton of your commttee that the same
prncpe sha appy wth respect to proposed e tensons of tme, tentatve
carry-back ad|ustments, and amortzaton deductons n the case of any corpora-
tons whch have once oned n the fng of consodated returns. It s ntended
that a condtons, mtatons, and e ceptons deemed by the Commssoner
to be reasonaby necessary n ths respect sha be deveoped n the reguatons,
and that the provsons of the proposed enactment sha be appcabe sub|ect
to such reguatons.
C RRY-O RS ND C RRY- C S IN T C S O CURT IN ILRO D CORPOR TIONS.
Subsecton (d) of secton 4 of the b adds paragraph (3) to secton 122(b) of
the Code reatng to the net operatng oss deducton. Under ths provson If a
raroad corporaton (as defned n secton 77m of the Natona ankruptcy ct
as amended) acqures property from another raroad corporaton (as so de-
fned) In a recevershp proceedng or n a proceedng under secton 77 of the
Natona ankruptcy ct, as amended, and f the bass of the property so acqured
s determned under secton 113(a) (20) of the Code, then, for the purposes of
secton 122, the corporaton whch acqured the property and the corporaton
from whch the property was acqured are deemed to be the same ta payer. If
the acqurng corporaton receves the property wth such a bass from more than
one such raroad corporaton, then a such corporatons are for the purposes
of secton 122 deemed to be the same ta payer. The effect of ths amendment s
to make avaabe to a successor raroad corporaton the carry-overs of net
operatng osses ncurred by ts one or more predecessor raroad corporatons
pror to the effectuaton of the pan of reorganzaton. Smary where the one
or more predecessor raroad corporatons have Incurred ta on ther net ncomes
pror to reorganzaton and the successor raroad corporaton suffers net operat-
ng osses, the amendment makes the carry-back of such net operatng osses
avaabe as a deducton aganst the net ncome of the one or more predecessor
raroads. In ths regard t shoud be noted that where more than one raroad
company Is Invoved n the reorganzaton and under the order of the court a
combnaton nto a snge successor corporaton s effected, probems of aoca-
ton of a carry-back of the net operatng oss of the successor to the respectve
predecessor corporatons are presented. In some cases one or more of such prede-
cessor companes may have fed consodated returns wth another of the
predecessor companes whereas there may be addtona companes nvoved whch
were not so consodated. It s contempated that, because of hs e perence n
makng proper aocatons n connecton wth smar stuatons occurrng where
corporatons fe consodated returns, and because of the probabe varaton n
the crcumstances presented n each case, the Commssoner of Interna Revenue
s best quafed to promugate rues for the aocaton of the deducton. The
amendment, therefore, s sent as to the bass for aocaton, and t w be neces-
sary for the Commssoner to appy the statute n these cases under reguatons
prescrbed by hm wth the approva of the Secretary.
Thus for ta abe years endng after December 31, 193 , predecessor and suc-
cessor raroad corporatons whch meet the condtons of the statute w be
treated as the same ta payer for the purpose of the net operatng oss deducton.
The method of computaton of the deducton tsef as we as the years for whch
t s avaabe w, of course, be governed by the provsons of the aw otherwse
appcabe to such years. or e ampe, there Is no ntenton by ths amendment
to create for any year a oss carry-back where the aw otherwse appcabe to
such year provdes no such deducton.
Subsecton (e) of secton 4 of the b provdes that the amendment made by
subsecton (d) sha be appcabe to ta abe years begnnng after December 1,
1941 and that In the case of ta abe years begnnng pror to anuary 1, 1942,
and after December 1, 193 , provsons havng the effect of such amendment
sha be deemed to be Incuded n the revenue aws respectvey appcabe to
such ta abe years.
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Subsecton (f) of secton 4 adds subparagraph (C) to secton 710(c) (3) of the
Code. Ths amendment makes the same provson wth respect to the unused e -
cess profts credt as subsecton (d) of the b makes wth respect to the net operat-
ng oss. Under ths provson f a raroad corporaton (as defned In secton
77m of the Natona ankruptcy ct, as amended) acqures property from an-
other raroad corporaton (as so defned) n a recevershp proceedng or n a
proceedng under secton 77 of the Natona ankruptcy ct, as amended, and If
the bass of the property so acqured Is determned under secton 113(a) (20), then
for the purposes of secton 710(c) the corporaton whch acqured the property
and the corporaton from whch the property was so acqured are deemed to be
the same ta payer. If the acqurng corporaton receved the property wth such
a bass from more than one such raroad corporaton, then n such corporatons
are for the purposes of secton 710(c) deemed to be the same ta payer. s n
the case of the net operatng oss carry-back where more than one predecessor
raroad s combned n the reorganzaton n a snge successor, t s contempated
that approprate rues for the aocaton of the unused e cess profts credt
carry-back among the predecessors w have to be formuated under reguatons
of the Commssoner.
Subsecton (g) provdes that the amendment made by subsecton (f) sha be
appcabe to ta abe years begnnng after December 1, 1941 and that n the
case of ta abe years begnnng pror to anuary 1, 1942, and after December 31,
1939, provsons havng the effect of such amendment sha be deemed to be n-
cuded n the revenue aws respectvey appcabe to such ta abe years. The
effect of ths amendment Is smar to that stated above wth respect to subsecton
(e) of ths secton, provdng appcabe dates for the amendment to the net operat-
ng oss deducton. owever, snce the amendment made n subsecton (f) of
ts secton reates e cusvey to the e cess profts ta , retroactve effect s
gven to such amendment ony wth respect to years n whch the e cess profts ta
was appcabe.
Secton 5. Perod of Lmtaton n Case of Cabby- acks.
In genera, a credt or refund of an overpayment of ta may not be aowed or
made after three yeas from the tme the return s fed uness a cam s fed
wthn such 3-year per od. There are severa e ceptons to such genera rue:
or e ampe, If the (Commssoner and the ta payer agree to e tend the tme
wthn whch the ta may be assessed, the tme for the aowance of a credt or
refund Is e tended beyond the usua 3-year perod kewse, cam for credt or
refund may be fed at any tme wthn two years after a payment of ta , but n
such event the amount that may be credted or refunded can not e ceed the
amount of ta pad wthn (uch 2-year perod.
The 3-year perod wthn whch credts or refunds normay may be aowed
or made frequenty s nsuffcent n the case of an overpayment attrbutabe to a
net operatng oss cary-back or to an unused e cess proft credt carry-back.
Ths arses from the fact that the events whch gve rse to overpayments or to
defcences attrbutabe to carry-backs do not occur unt after the cose of the
ta abe year, and n some cases may not occur unt a consderabe number of
years thereafter. The ta payer, accordngy, does not have avaabe, under
present aw, the necessary Informaton upon whch to make cams for credt
or refund of overpayments resutng from carry-backs durng part or a of
the 3-year perod wthn whch such cams may be fed. The Inadequacy of
the present provsons of aw may be ustrated by the foowng e ampe:
ampe. Corporaton , whch keeps Its books and fes Its ta returns
on a caendar year bass, fed ts ncome ta return for 1943 on March 15,
1944, and ts return for 1945 on March 15, 1946. Corporaton s 1945 ncome
ta return showed a net ncome of 10,000. On pr 1, 194 , Corporaton ,
contendng that It faed to deduct certan ordnary and necessary busness
e penses n computng ts net ncome for 1945, fed a cam for credt or refund
of ts entre 1945 ncome ta such cam was aowed on December 1, 194 .
Upon takng such e penses Into account, It further deveoped that Corporaton
n fact sustaned a net operatng oss In 1045. Such net operatng oss, when
carred back to 1943, produced an overpayment of Corporaton s ncome
ta for 1943. In the ordnary course of events, the tme for fng a cam for
credt or refund of an overpayment of Corporaton s ncome ta for 1943
e pres on March 15, 1947. Corporaton , however, does not know that t has
6 4 54 46
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an overpayment of ncome ta for 1043 unt some tme n 194 . Inasmuch as
Corporaton does not know unt 194 that t has overpad ts ncome ta
for 1943 and nasmuch as the perod for fng a cam for credt or refund
of ts ncome ta for 1943 e pres on March 15, 1947, Corporaton under
present aw w not be abe to receve credt or refund of Its overpayment
of ncome ta for 1943.
In genera a ta must be assessed wthn three years from the date the re-
turn for a ta abe year s fed. Such perod under present aw Is sometmes,
and as a resut of the amendments made by secton 5 of the b n the case
of credts or refunds w be frequenty, nsuffcent n the case of defcences
attrbutabe to net operatng oss carry-backs or to unused e cess profts credt
carry-backs.
The amendments made by secton 5 of the b, accordngy, provde a new
perod of mtaton for the aowance of a credt or refund of an overpayment of
ta , and the assessment of a defcency, whch s attrbutabe to a net operatng
oss carry-back or to an unused e cess profts credt carry-back. Subsecton (b)
of secton 5 adds a new paragraph (6) at the end of secton 322(b) of the
Code to provde that n the case of an overpayment attrbutabe to a net
operatng oss carry-back or to an unused e cess profts credt carry-back, n
eu of the norma 3-year perod of mtaton, there sha appy whchever of the
foowng two perods e pres ater:
(1) The 3-year perod provded In secton 322 (b)(1) for the fng of a cam
for credt or refund, or the aowance of a credt or refund wth respect
to the year of the net operatng oss or the unused e cess profts credt
(2) The perod wthn whch cam for credt or refund may be aowed
or made, or cam for credt or refund fed, wth respect to the year of net
operatng oss or the unused e cess profts credt f such perod s e tended
pursuant to the provsons of secton.322(b) ( ) of the Code as a resut of
the e ecuton of an agreement e tendng the tme wthn whch the Com-
mssoner may make an assessment wth respect to such year.
n the case of such a cam, that porton of the overpayment whch s attrbutabe
to a carry-back may be credted or refunded wthout regard to the date of pay-
ment of the ta . It s to be noted that the perod provded n secton 322(b) (6)
Is to be n eu of the 3-year perod provded n secton 322(b)(1). Secton
322(b) (6), however, s not to affect any other perod, such as the 2-year perod
after the payment of the ta , wthn whch under present aw cam for credt
or refund may be fed or credt or refund aowed or made.
or purposes of secton 22 (b) (6), as we as for purposes of a other amend-
ments made by the b, an overpayment of e cess profts ta resutng from an
unused e cess profts credt carry-back whch tsef s produced, or whch s n-
creased n amount, by a net operatng oss carry-back, s to be consdered as at-
trbutabe to the net operatng oss carry-back to the e tent It s produced or
ncreased. In such case, therefore, the perod wthn whch cam for credt or
refund of e cess profts ta may be fed, or credt or refund aowed or made,
w be coe tensve wth the perod wthn whch cam for credt or refund
may be fed, or credt or refund aowed or made, wth respect to the year
of the net operatng oss.
Subsecton (a) of secton 5 of the b amends secton 322(b) (5) of the Interna
Revenue Code further to carry out the above pocy wth regard to the effect that
the deductbty of a debt whch had become worthess or the oss from worthess-
ness of a securty has on the appcaton to the ta payer of a carry-back. Under
present aw, such a debt or oss may be deducted at any tme wthn seven years
from the tme the return was fed, and accordngy t s kewse provded that a
cam for credt or refund of an overpayment of a ta attrbutabe to the effect that
the deductbty of such a debt or oss has on the appcaton of the ta payer of a
carry-back may be fed at any tme wthn seven years from the date prescrbed
by aw for fng the return for the ta abe year of the asserted overpayment
Under the amendment made by subsecton (a) such 7-year perod w begn to
run from the date prescrbed by aw for fng the return for the ta abe year of
the net operatng oss or the unused e cess profts credt. In such case, kewse,
the credt or refund may be aowed or made wthout regard to the date when the
ta was pad. If the perod prescrbed n secton 322(b) (6) for the fng of a
cam for credt or refund attrbutabe to a carry-back e pres ater than the
perod prescrbed n secton 322(b) (5), the provsons of secton 322(b) (6) sha
appy even though the carry-back resuted from, or the amount of such carry-back .
was Increased by, the deductbty of a bad debt or a oss from the worthessness
of a securty.
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5 7
Subsecton (c) of secton 5 of the b amends secton 322(d) of the Code In
effect to provde that n any case n whch The Ta Court of the Unted States
determnes that there s an overpayment of ta whch s attrbutabe to a net
operatng oss carry-back or to an unused e cess profts credt carry-back, such
overpayment may be credted or refunded wthout regard to the date of payment
of the ta f The Ta Court determnes as part of ts decson that the notce
of defcency was maed before the e praton of the perod prescrbed n secton
322(b) (6) for the fng of a cam for credt or refund of an overpayment of ta
attrbutabe to a carry-back or that n fact such a cam was fed wthn such
perod.
In further recognton of the fact that the events whch resut n a net operatng
oss carry-back or an unused e cess profts credt carry-back may not occur unt
a number of years after the cose of the ta abe year of the overpayment, subsec-
ton (d) of secton 5 of the b adds a new subsecton (g) to secton 322 of the
Code. Subsecton (g) n effect provdes that a credt or refund of an overpay-
ment of ta attrbutabe to a net operatng oss carry-back or to an unused e cess
profts credt carry-back may be aowed or made f cam therefor s fed wthn
the perod prescrbed-n secton 322(b) (6) for the fng of such a cam, wthout
regard to whether any aw or rue of aw (other than secton 3761 of the Code,
reatng to compromses) woud otherwse, but for the provsons of such subsec-
ton (g), bar such credt or refund. Subsecton (g) makes smar provson n the
case of an appcaton, credt, or refund of a decrease n ta determned under
secton 37 0(b) f appcaton for a tentatve carry-back ad|ustment s made
wthn 12 months from the end of the ta abe year of the net operatng oss or
unused e cess profts credts. (See secton 4 of the b.) Secton 322(c) of the
Code n effect provdes that where a ta payer has fed a petton wth The Ta
Court for a redetermnaton of a ta for a ta abe year, no credt or refund of an
overpayment of such ta for such year, e cept as determned by The Ta Court
and wth certan other mted e ceptons, may be aowed or made. owever,
under the proposed subsecton (g) of secton 322 of the Code, even though
the ta abty for a gven ta abe year, for e ampe, has aready been tgated
before The Ta Court, credt or refund of an overpayment attrbutabe to a carry-
back may be aowed or made, f cam for credt or refund s fed wthn the
perod prescrbed n secton 322(b) (6), or f an appcaton for a tentatve carry-
back ad|ustment s fed wthn the perod prescrbed n secton 37 0(a). Sub-
secton (g), however, s not to appy to any ta abe year wth respect to whch
the Commssoner and the ta payer have entered Into a cosng agreement, pror
to the date of enactment of ths b nto aw, n whch t s e pressy provded
that the ta abty for such ta abe year s not to be affected by a net operatng
oss carry-back or by an unused e cess profts credt carry-back.
Though t s the purpose of subsecton (g) to permt ta payers to receve
credt or refund of an overpayment of ta resutng from a carry-back, even though
such credt or refund normay woud be barred by the doctrne of res |udcata or
by some other aw or rue of aw, t Is not ntended that any determnaton of
Issues, ncudng carry-back ssues, made by any court n a proceedng n whch
the decson has become fna sha be open for reconsderaton. Subsecton (g)
provdes that In, the case of a cam for credt or refund of an overpayment
attrbutabe to a carry-back, or n the case of an appcaton for a tentatve carry-
back ad|ustment, the determnaton of any court, ncudng The Ta Court, n
any proceedng n whch the decson of the court has become fna, sha be con-
eusve e cept wth respect to the net operatng oss deducton and the unused
e cess profts credt ad|ustment, and the effect of such deducton and ad|ustment,
to the e tent that such deducton or ad|ustment s affected by a carry-back whch
was not n ssue n such proceedng. The operaton of subsecton (g) may be
ustrated by the foowng e ampe:
ampe. Corporaton , whch keeps ts books and fes Its tn returns on the
caendar year bass, fed ts Income and e cess profts ta returns for 1044 on
March 15, 1945. Corporaton camed 100,000 as a deducton for deprecaton
on such returns. The Commssoner asserted that ony 6),000 was propery
aowabe as a deducton for deprecaton, and he further asserted that Cor-
poraton had reazed certan ong-term capta gans n 1044 whch t m-
propery faed to ncude In ts gross ncome. These ssues were tgated before
The Ta Court, whch sustaned the Commssoner s determnatons wth respect
to both the deducton for deprecaton and the capta gans. Pursuant to the
decson of The Ta Court, whch became fna on December 15, 1946, defcency
|udgments were entered for the Commssoner wth respect to both the ncome ta
and the e cess profts ta of Corporaton for the year 1944. In computng the
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defcency n e cess profts ta , proper ad|ustment was made by The Ta Court
for an unused e cess profts credt carry-back from the year 1945 to 1944. In
a decson whch became fna on May 1, 1947, the Supreme Court decded that
gans of the type hed ta abe as ong-term capta gans by The Ta Court n the
above proceedng are not sub|ect to ta . Corporaton sustans net operatng
osses n both 194 and 1947, and the oss t sustans n 1947, when carred back
to 1945, produces an ncreased unused e cess profts credt for 1945. If proper
cams for credt or refund are fed wthn the perod provded n secton
322(b) (6), Corporaton may receve a credt or refund of overpayments of both
ts ncome ta and ts e cess profts ta for 1944. In computng such overpay-
ments, no ad|ustments may be made wth respect to the gan hed ta nbe as
ong-term capta gan by The Ta Court or wth respect to any other tem, e cept
the net operatng oss deducton and the unused e cess profts credt ad|ustment,
whch entered nto the determnaton of the ncome or e cess profts ta abty
for 1944. Overpayments attrbutabe to the net operatng-oss deducton and
unused e cess profts credt ad|ustment may be credted or refunded.
Subsecton (e) of secton 5 of the b adds a new subsecton (d) to secton
276 of the Code, reatng to the perod wthn whch assessments may be made.
Such new secton 276(d) provdes that a defcency attrbutabe to a net operatng
oss carry-back or an unused e cess profts credt carry-back, ncudng those
amounts whch may be assessed pursuant to the provsons of secton 37 0(b) and
(c), may be assessed at any tme pror to the e praton of the perod wthn
whch a defcency may be assessed wth respect to the ta abe year of the
camed net operatng oss or unused e cess profts credt resutng n such carry-
back. Thus, as n the case of credts or refunds, the perod for makng assess-
ments s made coe tensve wth the perod wthn whch assessments may be
made wth respect to the ta abe year of the camed oss or unused e cess profts
credt. In the usua case, such perod w be three years from the date the
return for the ta abe year of the camed oss or unused e cess profts credt
was fed, but f the perod wthn whch a defcency may be assessed wth
respect to such year s onger than such three years (due, e. g., to the e ecuton of
an agreement e tendng such perod, or to the fng of a frauduent return, or to
the substanta understatement of gross ncome), the perod wthn whch a
defcency wth respect to a pror ta abe year attrbutabe to a carry-back from
the year of the camed oss or unused e cess profts credt w be correspondngy
onger. In determnng whether there s a defcency attrbutabe to a carry-back,
proper ad|ustment sha be made n computng the net operatng oss or unused
e cess profts credt, n computng the carry-backs, and n computng the amount
of the net operatng oss deducton or unused e cess profts credt ad|ustment.
It s to be noted that t s Immatera whether the net operatng oss or the unused
e cess profts credt as camed by the ta payer s dfferent from or s e acty
equa to the amount of the actua net operatng oss or unused e cess profts
credt. ny defcency attrbutabe to a carry-back resutng from such oss or
unused e cess profts credt may be asserted at any tme pror to the e praton
of the perod wthn whch a defcency may be assessed wth respect to the ta abe
year of the camed or actua net operatng oss or unused e cess profts credt.
The amendments made by secton 5 of the b are to be appcabe wth respect
to a ta abe years begnnng after December 31, 1940, . e., to a ta abe years
whch may be affected by net operatng oss carry-backs or by unused e cess profts
credt carry-backs, e cept, as noted above, that secton 322(g) of the Code Is
not to be appcabe to any ta abe year wth respect to whch the Commssoner
and the ta payer have entered nto a cosng agreement, pror to the date of
enactment of ths b nto aw, n whch t s e pressy provded that the ta
abty for such ta abe year s not to be affected by a net operatng oss carry-
back or by an unused e cess profts credt carry-back.
Secton 6. Interest n Connecton Wth Cakry- acks.
Secton 6 of the b makes certan changes n the nterest provsons of the
aw so far as they reate to defcences or overpayments attrbutabe to net
operatng oss carry-backs or to unused e cess profts credt carry-backs.
Under present aw nterest on an overpayment attrbutabe to a net operatng
oss carry-back or to an unused e cess profts credt carry-back may be aowed
ony from the date of the fng of a cam for credt or refund of such overpay-
ment or from the date of the fng of a petton wth The Ta Court, whchever
ts earer. Overpayments n one ta , however, frequenty resut n defcenc es
n another ta . Thus, an overpayment of e cess profts ta generay resuts
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n a defcency In Income ta . Interest on such defcency, under present aw,
s payabe from the date prescrbed for the payment of the ta or, If the ta s
pad n nstaments, from the date prescrbed for the payment of the frst n-
stament. The provsons of present aw may be ustrated as foows: Cor-
poraton , whch keeps ts books and fes ts returns on the caendar-year
bass, has an unused e cess profts credt of 1,000 n 1940. Such unused e cess
profts credt, when carred back to 1944, produces an overpayment of e cess
profts ta for 1944 of 55. There Is a resutng defceucey n ncome ta for
1944. however, of 400. If Corporaton on March 15, 1947, fes a cam for
credt or refund of ts overpayment of 55 of e cess profts ta for 1944, attrb-
utabe to the e cess profts credt carry-back from 1946, nterest on such over-
payment w be aowed ony from March 15, 1947_ nterest on the resutng
defcency of 400 n ncome ta for 1944, however, w be computed from March
15, 1945. The nterest aowabe on the credt or refund and the Interest pay-
abe on the defcency w each be computed at the rate of 6 per cent per annum.
If a credt or refund of an overpayment of ta attrbutabe to a carry-back
s aowed or made, and t Is subsequenty determned that the amount so
aowed as a credt or refund was In e cess of the amount that propery shoud
have been aowed, the amount of such e cess generay w be assessed as a
defcency. Under present provsons of aw, Interest on the amount credted
or refunded w be aowed ony from the date the cam for credt or re-
fund was fed or from the date a petton was fed wth The Ta Court, whch-
ever s earer, but nterest on the defcency w be payabe from the date pre-
scrbed by aw for the payment of the ta for the ta abe year of the defcency
or, f such ta s pad In nstaments, from the date prescrbed for the payment
of the frst nstament. Ths may be ustrated as foows: Corporaton ,
whch keeps ts books and fes ts returns on the caendar year bass, sustans
a net operatng oss n 1945 whch when carred back to 1943 resuts n an over-
payment of ncome ta for 1943. Corporaton on March 15, 1946, fes a cam
for refund of 1,000 of ts ncome ta for 1943, and such cam s aowed. In-
terest Is pad by the Government on such 1,000 from March 15, 1946, at the
rate of 6 per cent per annum. It Is ater determned, however, that the over-
payment of Corporaton s ncome ta for 1943 attrbutabe to the net operat-
ng oss carry-back from 1945 was ony 900, and 100 consequenty s assessed
as a defcency In Corporaton s Income ta for 1943. Interest w be payabe
on such defcency from March 15, 1944, at the rate of 6 per cent per annum.
To correct the above stuaton, subsecton (a) of secton 6 of the b adds a
new subsecton (c) to secton 292 of the Interna Revenue Code. Such new
subsecton (c) provdes that f any part of a defcency n ta resuts from an
overpayment or a decrease, attrbutabe to a net operatng oss carry-back or
to an unused e cess profts credt carry-back, In any other ta , no Interest sha
be assessed or pad wth respect to such part of the defcency for any perod
durng whch Interest was not aowed wth respect to such overpayment or
decrease. Subsecton (c) kewse provdes that f any part of a defcency s
attrbutabe to an error n the amount or effect of a carry-back whch resuted
n a credt or refund of an overpayment of ta or In a decrease n ta , no n-
terest sha be assessed or pad wth respect to such part of the defcency for any
perod durng whch Interest was not aowed wth respect to such overpayment
or decrease. The decrease n ta referred to Is a decrease determned under
secton 37 0 of the Code wth respect to an appcaton for a tentatve carry-
back ad|ustment The effect of the amendment s that nterest on any de-
fcency resutng from an overpayment or a decrease, attrbutabe to a carry-
back, n any ta other than the ta In respect of whch such overpayment or
decrease was aowed and Interest on any defcency resutng from the aowance
of an appcaton, credt or refund of an e cessve amount as an overpayment
or a decrease, attrbutabe to a carry-back, w not be payabe for any perod
of tme pror to the date from whch Interest was aowed on such overpay-
ment or decrease. In the above e ampes, therefore, Interest on Corporaton
s defcency of 400 In Income ta for 1944 w be computed from March 15,
1947, the date from whch nterest s aowed n respect of the overpayment of
Corporaton s e cess profts ta for 1944 and Interest on Corporaton s
defcency n ncome ta for 1943 w be computed from March 15, 1946, the
date from whch nterest Is aowed n respect of the overpayment of Corporaton
s Income ta for 1943.
s ndcated above, secton 3771(e) of the Code provdes that no Interest may
be aowed or pad on any part of an overpayment attrbutabe to a net operat-
ng oss carry-back or to an unused e cess profts credt carry-back for any perod
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590
pror to the fng of a cam for credt or refund of such part of the overpayment
or pror to the fng of a petton wth The Ta Court, whchever s earer.
Subsecton (b) of secton 6 of the b amends secton 3771(e) to provde n ad-
dton that f an appcaton for a tentatve carry-back ad|ustment s fed under
secton 37 0 of the Code, no nterest may be aowed or pad wth respect to any
part of an overpayment attrbutabe to a net operatng oss carry-back or to an
unused e cess profts credt carry-back wth respect to whch such appcaton
was fed
(1) for any perod pror to the frst day of the month mmedatey foow-
ng the month In whch fas the ast date prescrbed by aw (ncudng any
e tenson of tme granted the ta payer) for fng the return for the ta abe
year of the net operatng oss or the unused e cess profts credt, or pror
to the date on whch the return s fed, whchever s ater and
(2) for the perod begnnng wth the date such appcaton s fed and
endng wth the ast date the Commssoner s determnaton wth respect to
such appcaton s requred to be made under secton 37 0 of the Code.
The amendments to secton 3771(e) appy ony to cases n whch an appcaton
for a tentatve carry-back ad|ustment under secton 37 0 s fed. If no such
appcaton s fed, the present provsons of secton 3771(e) w contnue to
govern, and nterest accordngy w be aowed from the date of the fng of
the cam or the date of the fng of the petton wth The Ta Court, whchever
s earer.
The effect of the amendments to secton 3771(e) may be Iustrated as foows:
Corporaton C, whch keeps ts books and fes ts returns on the caendar year
bass, sustaned a net operatng oss n 1945. It fed ts ncome ta return
for 1945 on March 15, 1946, and on the same date fed both a cam for credt
or refund of an overpayment of ts ncome ta for 1943 based on the net operatng
oss carry-back resutng from such net operatng oss sustaned n 1945 and an
appcaton for a tentatve carry-back ad|ustment under secton 37 0 of the
Code wth respect to such net operatng oss carry-back. No Interest may be
aowed or pad on any overpayment aowed n Tespect of such cam or on any
decrease aowed In respect of such appcaton for any perod endng pror to
une 30, 1946, whch s the ast date on whch the Commssoner s determnaton
s requred to be made n respect of such appcaton. Interest, however, w be
aowed wth respect to any such overpayment or decrease for the perod begnnng
wth une 30,1946, and endng on the approprate date provded n secton 3771(b)
of the Code.
If Corporaton C fed ts cam for credt or refund on March 20, 1946, and
ts appcaton for a tentatve carry-back ad|ustment on December 1, 1946, no
nterest on any overpayment aowed n respect of such cam or on any decrease
aowed In respect of such appcaton may be aowed or pad for any perod
endng pror to pr 1, 1946, whch s the frst day of the month mmedatey
foowng the month n whch fas the ast date prescrbed by aw for fng
Corporaton C s Income ta return for 1945 and no nterest may be aowed or
pad for the perod begnnng on December 1, 1946, and endng on March 1,1947,
whch Is the ast date on whch the Commssoner s determnaton s requred
to be made n respect of such appcaton. Interest, however, s to be aowed on
any such overpayment or decrease for the perod begnnng on pr 1, 1946,
and endng on November 30, 1946, and for the perod begnnng on March 2, 1947,
and endng on the approprate date provded n secton 3771(b) of the Code.
If Corporaton C had been granted an e tenson of 30 days for the fng of Its
1945 ncome ta return and had fed such return on pr 14, 1946, no nterest
woud be aowed or pad for any perod endng pror to Say 1, 1946. If Corpora-
ton C had not been granted any e tenson of tme for fng ts 1945 ncome ta
return, but fed such return on pr 15, 1946, nterest woud not be aowed
or pad for any perod endng pror to pr 15, 1946.
If an appcaton for a tentatve carry-back ad|ustment s fed, but no cam
for credt or refund s fed, nterest w not be aowed or pad on any decrease
aowed In respect of such appcaton for any perod endng pror to the day
after the ast date on whch the Commssoner s determnaton wth respect to
such appcaton Is requred to be made under secton 37 0 of the Code. Interest,
however, may be aowed on such decrease for a perod begnnng wth the day
after the ast date on whch the Commssoner s determnaton s requred to
be made and eudng on the approprate date prescrbed n secton 3771(b) of the
Code.
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591
Secton 7. Tentatve d|ustments Wth Respect to mortzaton Deductons.
Secton 7 of the b provdes for prompt ta ad|ustments n the case of the
recomputaton of the amortzaton deductons as provded n secton 124 of the
Code. Under secton 124, emergency factes certfed as necessary n the Interest
of natona defense may be amortzed over a perod of 60 months. If, wthn
such tme, the emergency perod s termnated or a partcuar ta payer s factes
are certfed to be no onger necessary, the ta payer may eect, under secton
124(d), to recompute hs ta es for the ta abe years affected on the bass of
amortzaton over the shorter perod. The prncpa purpose of ths secton of
the b s to acceerate the credtng or payment of refunds arsng from the
recomputaton of ta es refectng such ncreased amortzaton deductons. Ths
provson s fundamentay smar to secton 37 0 of the Code, added by secton
4 of ths b.
Secton 7 adds subsectons (|) and (k) to secton 124 of the Code. Subsecton
(|) provdes that a ta payer who has fed, a statement of eecton to recompute
hs ta es as provded n secton 124(d) may fe an appcaton for a tentatve
ad|ustment wth respect to the ta es so affected for ta abe years pror to the
ta abe year n whch such appcaton s fed. Ths appcaton must be fed
wthn 90 days from the date of the fng of the statement of eecton under secton
124(d), or wthn 90 days from the date of enactment of ths b n the case of
ta payers whose factes have aready been certfed as no onger necessary and
who have fed the statement of eecton pror to the date of enactment.
The appcaton s to be verfed n the manner prescrbed n the case of a
ta return of the appcant and s to set forth the recomputaton of the ta es
requred by secton 124(d)(4), n such manner and wth such supportng data
and e panatory matera as the reguatons prescrbed by the Commssoner
wth the approva of the Secretary sha requre. The recomputaton of each
such ta for the purposes of ths appcaton must be made, e cept for the
changed amortzaton deducton, on the bass of the varous tems enterng
nto the computaton of the ta shown on the return, ncreased by amounts
assessed as defcences and decreased by rebates, credts or refunds aowed
or made, pror to the fng of the appcaton, n accordance wth the method
prescrbed n secton 3 01(d). ny tems as to whch the Commssoner and
the ta payer are n dsagreement at the tme of the fng of the appcaton
are to be taken nto account ony to the e tent that they were shown on the
return or were refected n any amounts assessed (or coected wthout assess-
ment) as defcences or n any amounts aowed as rebates, credts or refunds
pror to the date of the fng of the appcaton. In addton, effect must be
gven to ad|ustments to tems resutng n any ncrease or decrease n each
such ta shown and to changes n the ta prevousy determned, n an appca-
ton for 41 tentatve carry-back ad|ustment prevousy fed under secton 37 0
of the Code (as added by secton 4 of the b) whch have not been determned
by the Commssoner pror to the tme of fng the appcaton under secton
124(|). There sha aso be set forth n the appcaton the unpad amount
of each ta recomputed as provded by ths subsecton and such addtona n-
formaton as may be requred n the reguatons for the purpose of carryng
out the provsons of ths subsecton and subsecton (k).
The appcaton s not to consttute a cam for credt or refund. If such
appcaton s re|ected n whoe or n part, therefore, no sut based on such
appcaton may be mantaned n any court for the recovery of any ta . The
ta payer, however, may fe the usua cam for credt or refund under secton
322 of the Code at any tme before the e praton of the appcabe perod of
mtaton, f such a cam has not aready been fed, and may mantan sut
on such cam f t s re|ected.
Subsecton (k) provdes that the Commssoner sha dspose of the appca-
ton under subsecton (|) wthn a perod of 90 days from the date of fng.
Wthn such perod he s requred to make ony such mted e amnaton of
the appcaton for omssons and errors n computaton as he may deem
practcabe under the crcumstances. On the bass of the appcaton so e -
amned, he sha determne the ncrease or decrease n each ta to whch the
appcaton reates. In makng the e amnaton he sha foow the method
of computaton specfed n subsecton ( ) for the purposes of the appcaton.
The Commssoner may make whatever ad|ustments to, or correctons In, the
computatons, of the ta payer shown n the appcaton as he deems proper,
wthn the scope of the prescrbed bass of computaton, and may re|ect any
appcaton contanng matera omssons, or contanng errors of computaton
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592
whch he deems to be of such magntude that he can not ad|ust or correct
for them wthn the 90-day perod. The Commssoner s determnaton on these
matters s fna. If the ta payer s dssatsfed wth the determnaton of the
Commssoner upon hs appcaton, hs remedy s the usua cam for credt
or refund on whch sut may be mantaned as provded n the revenue aws.
In the case of appcatons whch the Commssoner aows n whoe or n
part, any ncrease n any ta determned by the Commssoner s to be deemed
determned as a defcency and s to be assessed wthout regard to the restrctons
on assessment provded In secton 272 of the Code. Under ths provson the
ta payer w not be permtted to contest the assessment of such a defcency
before The Ta Court. ach decrease n ta determned under ths subsecton
by the Commssoner s to be apped frst aganst any unpad amount of the
ta decreased. The baance, f any, s to be credted aganst the defcences
(and Interest or addtons to the ta ) assessed wth respect to ncreases n the
ta es recomputed. ny remander of the decrease after such appcaton and
credts have been made s ether to be credted aganst any other ncome, war
profts, or e cess profts ta or nstament of such ta es whch s then due
and payabe by the ta payer or to be refunded to the ta payer. Ths credtng
or refundng of the decrease s to be competed wthn the 90-day perod from
the date of fng of the appcaton.
The appcaton, credt, or refund of a decrease s to be regarded as a credt
or refund of an overpayment wthn the meanng of secton 7 1(b) reatng
to the postwar credt In the case of credts or refunds.
1945-16-12115
T D USTM NT ILL O 1945.
Senate Report No. 45 , Seventy-nnth Congress, rst Sesson (Caendar No. 457).
uy 12 (egsatve day, uy 9), 1945.
factate reconverson, and for other purposes, havng consdered the same,
report favoraby thereon wth an amendment and recommend that the b, as
amended, do pass.
ST T M NT.
/
or many months the ont Commttee on Interna Revenue Ta aton for Post-
war Ta aton has been consderng ta probems deang wth the nterm perod
between the end of hosttes In urope and the end of ma|or hosttes wth
apan as we as ta probems reatng to the transton and postwar perods.
Its report No. 1 contaned recommendatons for egsatve acton mmedatey
foowng the end of hosttes n urope. The b carres out a of the recom-
mendatons contaned In that report. The ma|or purpose of the b s to fac-
tate reconverson by mprovng the cash poston of busness enterprses and by
reevng smaer busnesses of some or a of the burdens of the e cess-profts ta
The foowng summary states the recommendatons of the ont Commttee on
Interna Revenue Ta aton for Postwar Ta aton and the partcuar provsons
of the b desgned to carry them Into effect:
Recommendaton No. 1.
Increase the e cess-profts ta specfc e empton from 10,000 to 25,000, effec-
tve begnnng cth the ta year 1046.
Secton 2 of the b carres out ths recommendaton. It ncreases the specfc
e empton for e cess-profts ta purposes from 10,000 to 25,000, for ta abe
years begnnng after December 31, 1945. pro rata porton of the ncrease
n e empton s provded for corporatons wth fsca years begnnng In 1945
and endng n 1946. stng aw provdes that no e cess-profts ta return s
requred f the e cess-profts net ncome s not more than 10,000 the b ncreases
the mtaton to accord wth the Increase n the specfc e empton.
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Provde that the postwar credt of 10 per cent of the e cess-profts ta be taken
currenty tcth respect to ta abtes of 19-U ad subsequent years.
Subsecton (h) of secton 3 of the b (page 5, begnnng wth ne 4) carres out
ths recommendaton. It provdes that for ta abe years begnnng after Decem-
ber 31, 1943, a credt of 10 per cent sha be deducted n computng the ta cur-
renty payabe. In the case of corporatons whch have fuy pad ther 1944 ta es
cash refunds of the amount of the credt w be made. Other corporatons w
reduce unpad 1944 ta nstaments to refect the aowance of the credt.
dvance to anuary 1, 191/6, the maturty date of outstandng postwar refund
bonds.
Subsecton (c) of secton 3 of the b, begnnng on page 3, ne 13, carres out
ths recommendaton. It provdes that bonds aready ssued for ta abe years
begnnng pror to anuary 1, 1944, sha be payabe at the opton of the owner
on or after anuary 1, 1946.
Provde for speed-up of refunds resutng from carry-backs of net operatng
osses and of unused e cess-profts credts.
Ths recommendaton s carred out n subsecton (a) of secton 4. That porton
begnnng wth ne 1, page 6, and endng wth ne 5, page 12, provdes for the
deferment of current ta payments on the bass of antcpated osses and unused
credts and that porton begnnng wth ne 6, page 12, and endng wth ne 12,
page 16, provdes for the prompt payment of refunds after the oss or unused
credt has occurred. The provsons reate to osses or unused credts antcpated
or arsng n ta abe years endng on or after September 30,1945.
Provde for speed-up of refunds resutng from the recomputaton of deductons
for amortzaton of emergency factes.
Ths recommendaton s carred out n secton 7 of the b, begnnng on page 25,
at ne 2. The secton provdes for prompt ta ad|ustments wth respect to ta es
of pror years recomputed to refect an acceerated amortzaton perod n the
case of emergency factes whch cease to be necessary for war purposes n ess
than the orgna 5-year perod.
ve of the proposed changes woud Improve the cash poston of busness
durng the perod of reconverson and read|ustment to peacetme producton.
The ncrease of the specfc e empton to 25,000 woud, n addton, reduce the
repressve effect of the e cess-profts ta upon smaer corporatons. Wth ths
change, a arge number of smaer corporatons woud be freed from abty
under the e cess-profts ta and the burden for the smaer corporatons st sub-
|ect to ths ta woud be substantay reduced.
or the ta abe year 1943, when the specfc e empton was 5,000, appro -
matey 6 ,000 corporatons fed returns showng e cess-profts ta abty. or
the year 1944, when the specfc e empton was Increased to 10,000, It has been
estmated that the number of corporatons abe for the e cess-profts ta was
reduced by about 17,000 to a tota of 51,000.
It has been estmated that, for the ta abe year 1946, wth the present e -
empton of 10,000, appro matey 31,000 corporatons woud be abe for e -
cess-profts ta . y ncreasng the specfc e empton to 25,000, ths number s
reduced by an estmated 12,000 to a tota of about 19,000. Thus, the proposed
ncrease n the specfc e empton s e pected to free from abty under the
e cess-profts ta about one-thrd to one-haf of a corporatons otherwse
sub|ect to the ta . It has been estmated that for the ta abe year 1946 an
ncrease In the specfc e empton from 10,000 to 25,000 woud resut n a
reducton n e cess-profts-ta abtes of about 300,000,000. Snce the Income
thus reeased from e cess-profts-ta abty woud become sub|ect to the norma
ta and surta , the net oss of revenue woud be about 160,000,000, or ess than
2 per cent of the tota revenue from the corporate ncome and e cess-profts
ta es.
The b as reported by your commttee contans provsons (whch are the
me as n the b as passed by the ouse) desgned to factate the admns-
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594
tratve operaton of the recommendatons dscussed above. Secton 5 makes cer-
tan changes n the perod of mtatons wth respect to carry-backs and -secton
6 contans speca nterest provsons. detaed dscusson of the technca pro-
vsons of the b w be found n the report of the ouse Commttee on Ways
and Means (Rept No. 49, Seventy-nnth Congress, frst sesson page 566, ths
uetn ), whch descrbes wth some partcuarty the operaton and effect of
a of the provsons of the b.
The commttee recommends that the b as passed by the ouse be amended
by strkng out subsectons (d), (e), (f), and (g) of secton 4. The provsons
emnated woud have granted to certan reorganzed raroads speca reef
n reaton to the carry-overs and carry-backs. In effect such provsons woud
have treated an acqurng raroad as the same corporaton as the od raroad
for the purposes of the operatng oss and unused e cess-profts credt carry-
overs and carry-backs.
Ths new treatment woud have been retroactvey apped to e tend the bene-
ft to raroads whch have aready competed ther reorganzaton and woud
have nvoved an mmedate oss of revenue of appro matey ,500,000. It
woud have apped to a ta abe years begnnng after December 31, 193 . n
the case of the net oss and to ta abe years begnnng after December 31, 1939,
n the case of the unused e cess-profts credt. The provsons strcken out are
outsde the scope of the purposes of the b. They woud materay affect the
ta abtes of many raroads and woud present probems that shoud receve
more carefu study than Is possbe If ths b s to be prompty enacted.
Your commttee s therefore of the opnon that the provsons shoud not be In-
cuded as part of ths b, but shoud be the sub|ect of further consderaton and a
pubc hearng. ccordngy, your commttee has emnated the provsons
wthout pre|udce to ther future consderaton.
T D SIR ILITY O RLY N CTM NT.
Wth the steady ncreasng tempo of cut-backs and war-contract cancea-
tons, many busnesses w need cash mmedatey. Prompt enactment of ths
b s necessary f busness s to be aowed to take fu advantage ths year of
the provsons for speed-up of refunds and credts.
1. Wth Immedate enactment, It woud be possbe for corporatons an-
tcpatng osses or unused credts for 1945 to defer payments of the September
15 nstament of ther 1944 ta abtes. or e ampe, the September 15
nstament of Corporaton w amount to 100,000. Due to canceaton of
contracts on uy 1, the corporaton e pects an unused credt for 1945 whch
w resut n a refund of 200,000 wth respect to pror years ta es. Ths
corporaton w be abe to defer the September 15 Instament and utze the
100,000 for purposes of reconverson when t Is needed. On the other
hand, f the passage of the egsaton were postponed, the corporaton woud
be requred to pay out the 100,000 nstament, and recovery of ths sum
woud be accompshed ony after deay of severa months.
2. Wth mmedate enactment, t woud be possbe for e cess-profts ta -
payers to reduce the amount of the September 15 nstament of ther 1944
ta abtes by takng the postwar credt currenty. or e ampe, Cor-
poraton reported an e cess-profts ta abty of 1,000,000 for 1944 and
pad nstaments of 250,000 each on March 15 and une 15, 1945. If
ths b s prompty enacted, Corporaton s September 15 nstament w be
reduced by one-haf of Its postwar credt of 100,000. It w, therefore, have
mmedatey avaabe at that tme 50,000 of addtona cash.
3. Wth mmedate enactment, refunds arsng from the recomputaton
of amortzaton deductons on emergency factes certfed to be no onger
necessary for natona defense w become avaabe n 1945 and eary 1946.
or e ampe, Corporaton C, ownng emergency factes for whch a cer-
tfcate of nonnecessty has been granted, fed a cam on une 15, 1945, for
recomputaton of ta es for 1943 and 1944 whch w resut In refunds of
50,000. Upon the enactment of ths b, ths company can fe a cam
for quck refund, payment of whch must be made wthn 99 days. The
company woud thus be abe to antcpate the recept of 50,000 of cash
refunds, (urng the fa.
usnessmen are now pannng for reconverson and read|ustment to peace-
tme operatons. The mmedate enactment of ths b woud factate ths pan-
nng. Deay n the enactment of ths b woud contnue the present uncertanty
and woud therefore render pannng more dffcut.
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Speedy enactment of the b woud be favorabe to busness confdence. It
woud be nterpreted as an ndcaton of the desre of Congress to encourage
tmey reconverson and vgorous busness e panson.
Inevtaby, there must be some apse of tme between the date of enact-
ment and the tme when the ureau of Interna Revenue can have ts admn-
stratve machnery sot up to hnnde cams for ta determents and current
credts. Wth mmedate enactment of the b, the ureau shoud be n a
poston to hande these matters by September 15.
1945-21-12161
T R NU ILL O 1945.
ouse of Representatves Report No. 1106, Seventy-nnth Congress, rst Sesson.)
October 9, 1945.
Mr. Doughton of North Carona, from the Commttee on Ways and Means,
submtted the foowng report to accompany II. R. 4309 :
4309) to reduce ta aton, and for other purposes, havng had the same under
consderaton, report t back to the ouse wthout amendment and unanmousy
recommend that the b do pass.
G N R L ST T M NT.
The b has been desgned to ad both ndvduas and busnesses n the dff-
cut perod of transton from war to peace. To accompsh ths your commttee
beeves that t s necessary to reduce the hgh wartme ta rates to provde
ncentves for busness to e pand and to ncrease consumer purchasng power.
Certan e pendtures necessary after the end-of a war, however, w keep ed-
era revenue requrements at a hgh eve durng 1946 f a arge defct s to be
avoded. edera e pendtures for the fsca year 1940 have been estmated
by the ureau of the udget at 00.4 bon doars and the defct for fsca year
11)40 at 20.4 bon doars. edera e pendtures for caendar year 1940 are
e pected to be much ower, but t s antcpated that the defct w st be
szabe. In vew of the probabe e tent of the defct n 1940 t s necessary to
mt the over-a reducton Zn ta es. Your commttee beeves that wth ony
a mted ta reducton possbe n 1946, moderate ta reef for a groups woud
be preferabe to the compete emnaton of a few wartme ta es affectng ony
a reatvey sma number of ta payers.
SUMM RY O C NG S IN ISTING L W.
The b makes the foowng changes In e stng aw:
INDI IDU L INCOM T S.
1. The present surta e emptons are made appcabe to the norma ta .
ccordngy the norma ta e empton of 500 for each ncome recpent s
emnated, and there are aowed n ts pace e emptons of 500 each for the
ta payer, hs spouse, and each of hs dependents. Ths change w be effectve
on and after anuary 1, 1946.
2. The rate appcabe to each surta bracket Is reduced by 4 percentage ponts
effectve on and after anuary 1, 1940. The combned norma ta and surta
startng rate thus becomes 19 per cent nstead .of the present 23 per cent.
3. The surta rates are further revsed, effectve anuary 1, 1046, so that
generay the reducton of norma ta and surta combned for any ta payer
w not be ess than 10 per cent.
CORPOR T T S.
1. The e cess-profts ta rate s set at 60 per cent for the caendar year 1946.
The present e cess-profts ta net rate s 5 per cent.
2. The entre e cess-profts ta s repeaed, effectve December 31, 1946.
3. The corporate surta rate s reduced 4 percentage ponts as of anuary 1,
194G. Ths resuts n a mnmum combned corporate norma ta and surta
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rate of 21 per cent n pace of the present 25 per cent and a ma mum combned
rate of 36 per cent In pace of the present 40 per cent.
4. The capta stock ta s repeaed begnnng wth the capta stock ta pay-
abe on uy 31, 1946. The decared vaue e cess-profts ta begnnng wth the
reated year s aso repeaed.
CIS T S.
1. The e cse war ta rates are reduced to the 1942 rates effectve uy 1,
1946. These are the war ta rates mposed by Tte III of the Revenue ct
of 1943 to be effectve unt s months after the termnaton of hosttes as
procamed by the Presdent or specfed n a concurrent resouton of Congress.
2. Ta refunds, to the e tent of the e cse ta rate reductons, are to be made
on a foor stocks of dsted sprts, wnes, and fermented mat quors, hed
for sae or use n producton on uy 1, 1946, on whch the wartme e cse ta
rates had been pad. Smar refunds are to be made wth respect to the reduc-
ton n the manufacturers e cse ta on eectrc ght bubs.
3. The ta on the use of motor vehces and boats s repeaed, effectve uy
1, 1946.
MPLOYM NT T S.
1. mpoyment ta es for the od-age and survvors nsurance program are
contnued through 1946 at the present rate of 1 per cent on wages pad by
empoyers and 1 per cent on wages receved by empoyees, Instead of ncreasng
n 1946, as provded by present aw, to 2 per cent for each of these groups.
SUMM Y O STIM T D R NU CT O T R DUCTIONS.
The estmated ta abtes and reductons under the commttee b are
shown n tabe 1. Tota ta abtes under the commttee b for 1946 are
estmated at 27,140,000,01)0 5,350,000,000 ess than the estmate for e stng
aw n 1946. Of ths 5,350,000,000 reducton, 2,627,000,000 s attrbutabe to
reductons n ndvdua ncome ta es, 1, ,000,000 to reductons In corporate
ta es, 535,000,000 to the return of certan e cse ta es to ther 1942 rates, 140,-
000,000 to the repea of the ta on the use of motor vehces and boats, and 160,-
000,000 to ta refunds to be made of the war e cse ta es of foor stocks of acohoc
beverages and ght bubs.
In 1947, ta abtes under the commttee b woud be 7,252,000,000 ower
than estmates under e stng nw for 1947 If genera condtons reman the same
as n 1946. Ths Is a 1,902,000,000 addtona oss over that of 1946. Most of
the addtona reducton n 1947 arses from the repea of the e cess-profts ta
and a fu year s operaton of e cse ta es at the 1942 rates. owever, the
repea of the e cess-profts ta aso ncreases somewhat the osses under the
reducton of the corporate surta rates, snce the repea of the e cess-profts ta
ncreases the base for corporate surta es. n ncreased oss aso resuts n 1947,
for smar reasons, from the capta stock and decared vaue e cess-profts
ta es. The ta refunds on foor stocks of certan goods s a nonrecurrng tem
and thus offsets n a sma degree the ncreased osses n 1947 over 1946. To
make ths comparson between the revenue effect of the commttee b n 1946 and
1947 possbe, t was arbtrary assumed that genera condtons n 1947 woud
be the same as n 1946. Ths ncudes the assumpton that the suppy of goods
and servces sub|ect to e cse ta es w reman constant.
The dstrbuton of ta abty reductons among the varous corporate ta es
n whch reductons are made Is based on the sequence of the acton of your
commttee, whch was: rst, to reduce the e cess-profts ta rate and repea
the ta second, to reduce corporate surta rates and, thrd, to repea the
capta stock and decared vaue e cess-profts ta es. If these ta es had been
acted upon In a dfferent order, the osses from each corporate ta woud have
been dfferent athough the tota oss woud have remaned the same. Ths dffer-
once n ndvdua tems can be accounted for by the fact that varous corporate
ta es are nterreated, and acton on one ta frequenty changes the sze of the
base of another tar.
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Tabe L stmated ta abty under the commttee h for caendar years
1946 and 191ft,1 as compared wth ta abty under present aw.
In mon of doars.
Source.
stmated yeds.
Decrease, Commtteo
b.
L Interna revenue:
Present
aw.
Commt-
tee b.
1946
1947
(1) Income, e cess profts, and capta stock ta es
(a) Corporaton ta es1
cess profts ta . _
4, 47
3,547
3,451
1,300
405
2,555
646
Norma ta and surta
3, 56
Capta stock and decared vaue e cess profts
351
16
1 3
243
Tota corporaton ta es
9,054
7,166
1,
3, 444
(W Indvdua ncome ta es-
Norma ta
2,0 5
11,255
1,303
9,410
7 2
1, 45
7 2
1. 45
Surta and aternatve ta on capta gans
Tota ndvdua ncome ta es
13,340
10,713
2,627
2,627
Tota ncome and e cess profts ta es and
capta stock ta
22,394
17, 79
4,515
6.071
(2) Msceaneous nterna revenue e cudng capta stock

(a) cse ta es affected by reducton n wartme
rates
Lquor ta es-
Dsted sprts
1,473
545
47
1,224
613
249
32
11
472
63
1
ermented mat quors
Wnes
6
Tota quor ta es
2,065
1,773
292
553
Retaers e cse ta es-
201
90
79
62
153
65
61
47
4
25
1
15
90
44
urs
Toet preparatons
39
30
Luggage, etc
Tota retaers e cse ta es
432
326
111. ,
212
Teephone, teegraph, rado, and cabe factes, etc.
126
12S
1
26
14
11
4
111
107
160
203
10
9
2
15
21
2
65
4
2
2
29
41
60
129
10
6
2
dmssons _
ectrc ght bubs and tubes
Cub dues and Intaton fees
Tota e cse ta es affected by reducton In war-
3,236
140
2,97
2,701
2,97
535
140
1,041
140
( ) Use ta on automobes and boats
(c) other
Tota msceaneous nterna revenue ecudng
capta stock ta ,
6,354
392
450
5,679
392
450
675
1,1 1
. mpoyment ta es (net)-
2,900
2,900
Net recepts, genera and speca accounts
32,400
27,300
160
5,190
160
7,252
Refunds on foor stocks
Net recepts ess refunds on foor stocks
32,490
27,140
5,350
7,252
1 ssumes, for comparatve purposes, the same genera condtons In 1947 as n 1946.
Takes nto account the foowng sequence n ta reducton or repea: rst, acton on the e cess-profts
ta second, acton on the corporate surta rate and, thrd, acton on the capta stock and decared vaue
cess-profts ta es.
1 Ta refunds are cassfed by the edera Government as e pendtures but are ncuded here as reducton
In tar abty snce they arse drecty from the commttee buL
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59
Genera Dscusson of Recommended Indvdua Income Ta Reductons.
1. provdng same persona e emptons for norma ta as fob surta .
Ths b makes the present surta e emptons appcabe to the norma ta ,
effectve anuary 1, 1946. Thus the norma ta e emptons of 500 for each
Income recpent are emnated,1 and there are aowed for both norma ta and
surta e emptons of 500 each for the ta payer, hs spouse, and each of hs
dependents.
Ths provson woud reeve from ta appro matey 12,000,000 of the 4 ,000,000
persons recevng ncome now sub|ect to ta . Ths provson woud resut n a
revenue oss of appro matey 7 0,000,000 of whch 310,000,000 represents the
oss from removng the 12,000,000 persons from the ta ros. Those removed
from the ncome ta ros woud be ta payers n the ower Income groups who at
prasent are sub|ect to the norma ta but not the surta . ampes of persons n
ths cass at the present tme are ta payers wth one dependent1 and wth net
Income before e emptons rangng from 500 to 1,000 ta payers wth- two de-
pendents and wth net ncome rangng from 500 to 1,500 and ta payers wth
three dependents and net Income rangng from 500 to 2,000. The proposa woud
aso reduce the ta of a marred persons whose spouses have ncomes of ess than
500 and a ta payers wth dependents, snce an addtona e empton of 500
woud be granted to a ta payer for hs spouse and each of hs dependents. Ths
woud n effect grant ta reef of up to 15 per spouse or dependent to every
ta payer.
Your commttee beeves ths change n the ta aw to be desrabe for the
foowng reasons:
(1) The ta payers sub|ect ony to the present norma ta were frst brought
Into the ta base when the vctory ta was enacted In the Revenue ct of 1942.
They were added to the ta ros ony as a wartme measure and wth the end of
the war ths reason for retanng them n the ta base s removed.
(2) Persons reeved from the ta by ths proposa consttute the owest ncome
group now sub|ect to ncome ta es and receve ncome whch s substantay beow
that requred for an adequate standard of vng and therefore do not have the
abty to pay ncome ta es under a peacetme ta structure.
(3) Ths proposa woud be an ad to Income ta smpfcaton by provdng
the same e empton for the norma ta us for the surta , and woud reduce ta
admnstraton costs both for the edera Government and for empoyers wth-
hodng the ta from wages.
2. R DUCING SURT R T S Y 4 P RC NT G POINTS.
The commttee b reduces the rate appcabe to each surta bracket by at
east 4 percentage ponts, effectve on or after anuary 1,1946. Ths woud reduce
the startng rate for the combned norma ta and surta from the present 23 per
cent to 19 per cent. The estmated reducton n ta abtes n 1946 resutng
from ths proposa woud be appro matey 1,740,000,000.
though your commttee does not beeve t Is desrabe to embody a comprehen-
sve revson of the ndvdua Income surta rates n ths b, t does beeve that
some reef shoud be provded to everyone who has been payng hgh wartme
ta es. Ths provson grants substanta ta reef to a ndvduas sub|ect to
the ncome ta at the tme when many of them must shft from wartme to peace-,
tme empoyment. Thus ths provson shoud be an ad n curbng defatonary
tendences of our economy as It shfts from hgh eves of wartme producton to
peacetme eves.
. SSURING T P Y RS G N R LLY T L ST 10 P R C NT T R DUCTION.
In addton to the reducton of 4 percentage ponts n each surta bracket, the
b further revses surta rates so that generay the reducton of the norma ta
and surta combned for any ta payer w not be ess than 10 per cent. eow
the 20,000 to 22,000 surta bracket, the 4 percentage ponts reducton provdes
more than a 10 per cent ta reducton and above that bracket ess than a 10 per
cent reducton. ccordngy, ths provson w requre addtona reductons
beyond the 4 percentage pont reductons n the surta bracket of 20,000 to
1 The present norma ta e empton for the spouse of a ta payer a aowed ony to the
e tent of the ncome of the spouse f the ncome s ess than 500 a year.
Or o spouse wth no ncome.
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599
22,000 and hgher surta brackets. The estmated revenue oss In 1946 from
ths proposa Is about 110,000,000.
Tour commttee beeves that t s desrabe to provde a 10 per cent reducton
n ndvdua ncome ta es to ad unncorporated busnesses.
Present aw mts the aggregate norma ta and surta to 90 per cent of the
net ncome of the ta payer. To assure ta payers sub|ect to the mt a 10 per cent
reducton n ta , ths 90 per cent mtaton s decreased to 1 per cent of the
net ncome of the ta payer. Generay, ths mt affects ta es ony when net
ncome e ceeds t 0,000.
The proposed new surta rates and the ta burdens for each bracket compared
wth present rates and burdens are shown In tabe 2. The data shown n ths
tabe ncude both the effect of the 4 percentage ponts reducton and the mnmum
10 per cent reducton. comparson of Indvdua ncome ta burdens under
present aw and under the commttee b are shown n tabes 3, 4, and 5. Tabe 3
shows the burden on snge persons wth no dependents at varous ncome eves
tabe 4, the burden on macred persons wth no dependents and tabe 5, the burden
on marred persons wth two dependents.
Tabe 2. Comparson of ndvdua surta rates and cumuatve surta under
present aw and under the commttee b.
Surta net ncome.
Surta rates.
Cumuatve surta .
Reducton under com-
mttee b.
ceedng
Not e ceed-
ng
Present
aw.
Com-
mttee
b.
Present
aw.
Com-
mttee
b.
Percent-
age
ponts.
Cumu-
atve
surta .
0
2.000
Per cent.
20
22
26
30
34
3
43
47
50
53
56
59
62
65
69
72
75
7
1
4
7
9
90
91
Per cent.
1
22
26
30
34
39
43
46
49
60
63
55
5
62
65
67
70
72
76
7
79.5
1
4
2,000
4.000
400
10
1,360
1,960
2. 6111
3,400
4,260
5,200
6,200
7,260
,3 0
10,740
14.460
1 ,360
22,500
26. 20
34.320
42. 120
60,220
5 .620
07,320
111, 20
. 156, 20
320
4
4
4
4
4
4
4
4
4
6
6
7
7
7
7
9
0
4,000
6,000
6 0
1, 120
1,640
2,240
2.920
3,700
4,560
6,4 0
6,460
7,460
. SO
12 0
16. 360
20.0 0
23.9 0
30.6 0
37.0 0
44, 0
62. 4 0
00. 2 0
100.030
140,530
160
240
320
400
4 0
660
640
720
00
920
1,160
1.5 0
2.000
2.420
2. 40
3.640
4,440
6,340
6,140
7,040
11,790
16,290
6,000
,000
.000
10,000
12,000
12,000
14,000
14.000
16,000
16,000
1 ,000
1 ,000
20.000
20,000
22.000
22.000
26,000
26,000
32.000
32,000
3 ,000
3 ,000
14,000
44.000
50,000.. .
50,000
60,000
90,000
70,000
70,000
0.000
0,000
90,000
90,000
100,000
150,000
200,000
100,000
9.5
9
1.5
9.5
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Tabe 3. Comparson of ndvdua ncome-ta burden on specfed net ncome
under present aw and under the commttee b.
IN L P RSON, NO D P ND NTS.
Net Income before persona
e empton.
Income ta burden.
ffectve ta rate
(per cent).
Reducton under
commttee b.
.500
Present aw.
Commttee
b.
Present
aw.
Commt-
tee b.
mount.
Percent,
23.00
19.00
3. 3
3.17
4.00
17.39
46.00
3 .00
6.57
5.43
aoo
17.39
750
57.50
47.50
7.67
6.33
10.00
17.39
00
69.00
67.00
. 62
7.12
12.00
17.39
92.00
76.00
10.22
.44
16.00
17. M
1,000
115.00
95.00
11.50
9.50
20.00
17.39
1.200
161.00
133.00
13.42
11.0
2 .00
17.39
1. 00
230.00
190.00
15.33
12.67
40.00
17.39
.soo
299.00
247.00
16.61
13.72
62.00
17.39
2.000
345.00
2 5.00
17.25
14.26
60.00
17.39
2.500
460.00
360.00
1 .40
15.20
0.00
17.39
3,000
6 5.00
4 5.00
19.50
16.17
100.00
17.09
4,000
35.00
695.00
20. 7
17.37
140.00
16.77
5,000
1. 105 I )
925. U0
22.10
1 .50
1 0.00
16.29
6.000
1, 395. 00
1,176.00
23.25
19.5
22O.00
16 77
7,000
1, 705.00
1, 445.00
24.36
20.64
260.00
15.25
,000
2,035.00
1, 735. 00
25.44
21.69
300.00
1174
9,000
2,3 5.00
2,045.00
26.60
22.72
340.00
14.26
10,000
2,755.00
2. 375. 00
27.56
23.75
3 0.00
1179
11,000
3. 145. 00
2, 725.00
2 .69
24.77
420.00
1135
12,1 10
3. 555.00
3,095.00
29.62
26.79
460.00
1294
13,000
3, 990.00
3,490. 00
30.69
26. 6
600.00
12.53
14,000
4, 450.00
3,910.00
31.79
27.93
640.00
1213
15,000
4,930.00
4,350. 00
32. 7
29.00
5 0.00
11.76
20,000
7,5 0.00
6, 00.00
37.90
34.00
7 0.00
10.29
25.000
10, 590. 00
9,520.00
42.36
3 .0
1,070.00
10.10
30,000
13, 795.00
12, 390.00
45.9
41.30
1,405.00
10.1
40,000
20, 6 0.00
1 , 475. 00
51.46
46.19
2,106.00
10.23
50,000
27, 945. 00
26,140.00
65. 9
50.2
2, 05.00
10.04
35, 730.00
32,130.00
69.56
53.55
3,600.00
10.0
70,1 10
43, 16.00
39,415.00
62.59
66.31
4,400.00
10.04
1 0,000
62, 200.00
46,905. 00
65.25
6 .63
5, 295.00
10.14
00,000
00, 5.00
64.7 5.00
67. 65
60. 7
6,100.00
10.02
100,000
69, 70.00
62, 75.00
69. 7
62. 7
6,995. 00
10.01
150.000
115, 60.00
104,117.50
77.24
69.41
11,742.50
10.14
200.000
162, 355. 00
146,110.00
1.1
73.05
16, 245.00
10.01
250.000
209,350.00
1 ,357. 50
3.74
76.34
20,992.50
10.03
300,000
256,360.00
230, 607. 50
5.45
76. 7
25, 742 60
10.04
400,000
350, 350.00
316,107. 50
7.69
, 7 .7
35,24160
10 06
500.000
444. 350. 00
399, 607. 0
. 7
79. 92
44, 742. 50
10.07
750.000
675,000. 00
607. 500. 00
90.00
1.00
67. 500. 00
16 00
1.000.000
900.000.00
10.000. 00
90.00
1.00
90,000.00
10 00
2,000.000
1, 00, 000. 00
1,620,000.00
90.00
1.00
1 0,000.00
10.00
5,000,000
4, 500,000.00
4,050,000.00
90.00
1.00
450,000.00
10.00
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601
Tabe 4. Comparson of ndvdua ncome ta burden on specfed net ncomes
M RRI D P RSON, NO D P ND NTS.
Net Income before persona
e empton.
Incomo ta burden.
ffectve ta rate
(per cent).
Reducton under
commttee b.
Present aw.
Commttee
b.
Present
aw.
Commt-
tee b.
mount.
Per cent.
600
3.00
0.50
3.00
100 1)0
700
6 00
. 6
6.00
100.00
7. 50
1. 00
7.50
1I I ( I
ta )
9.00
1. 12
9.00
100.00
teoo
12.00
1.33
12.00
100. 00
1,000
15.00
3 .00
1. 50
Y
16.00
100.00
1.200
61.00
5.0
23.00
37.70
s.son
130.00
95.00
.67
6.33
35.00
26 92
199.00
152. 00
11.06
. 44
47.00
23.62
245. 00
190.00
12.25
9. 50
55.00
22 45
2,500
360.00
2 5.00
14.40
11. 40
75.00
20. 3
3,000 -
475.00
3 0.00
15. 3
12.67
95.00
20.00
4.000
725.00
500.00
IS. 12
14.75
135.00
1 . 62
3,000
975. 00
00. 00
19. 50
16.00
175.00
17.95
M
1, 20.5. 00
1.050 00
21.0
17. 50
215.00
17 ( I
S7.000
1.556.00
1,300.00
22. 21
1 . 57
255.00
16.40
.000-
. 3 5.00
1.590.00
23.56
19. 7
295.00
15.65
9,000,
, 215. 00
1. 0.00
24. r.
20. 9
335. 00
15. 12
10,000 -
2. 5 5. 00
2. 210. 00
25. 5
22 10
375.00
14.51
11,000
2. 540. 00
26. 6
23 09
415.00
14.04
12,000.
3,3 5.00
2.910.00
2 .04
24.25
455.00
13.52
13.000
3, 775. 00
3, 2 0. 00
29.04
25.23
495.00
13. 11
14.000
4. 235.00
3. 700. 00
30. 25
26 43
535. 00
12.63
4.695. 00
4. 120.00
31.30
27.47
675.00
12.25
7.315.00
6, 540. 00
36. 57
32. 70
775.00
10.59
30,000
10, 295. 00
9. 240.00
41. 1
36.96
1,055.00
10.25
13.4 5.00
12,100 00
44. 95
40.33
1.3 5.00
10.27
40.000.
20. 235. 00
1 .150.00
60.59
45. 37
2.0 5.00
10 30
50.000
27, 5 5. 00
24, 00.00
55. 17
49.60
2, 7 .5. 00
10.10
60,000
35,355.00
31, 7 0. 00
5 . 92
52. 97
3, 575. 00
10.11
70,000
43.425. 00
39,050. 00
62.04
55.79
4,375.00
10.07
pe.ooo
61,795 00
46, 530. 00
64.74
5 .
6, 265 00
10.16
90.ono
60.465.00
54,390. 00
67. 1
60.43
6,075.00
10.05
100.000
69,435.00
62. 470. 00
69.43
62.47
6,965.00
10.03
1 0,000
115,415.00
103.705 00
76.94
69. 14
11,710 00
10. 15
200.000
161,905.00
145,690. 00
0.95
72. 4
16,215.00
10.02
250,000
20 . 95.00
1 7,935. 00
3. 56
75.17
20.960.00
10.03
300.1)00
255, 95.00
230. 1 5. 00
5.30
76. 73
25, 710.00
10.05
400.000
349, 95. 00
314.6 5.00
7. 47
7 .67
35. 210. 00
10.06
500,000
443, 95.00
399, 1 5. 00
7
7 M
44. 710.00
10.07
750.000
675.000.00
607.500.00
m
1.00
67. 500. 00
10.00
1.000.000
900,000.00
10,000.00
90.00
1.00
90.000. 00
10.00
2.000,000
1. 00,000.00
1,620,000.00
90.00
1.00
1 0.000.00
10.00
5.000,000
4,500,000.00
4,050,000.00
90.00
1.00
450, 000. 00
10.00
4354 46 39
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Tabe 5. Comparson of ndvdua ncome ta burden on specfed net ncomes
M RRI D P RSON, 2 D P ND NTS.
Net ncome before persona
e empton.
600
700
750
00
00
1,000
1,200
1,500
1, 00
2,000
2,500
3,000
4,000
5,000
6,000
7,000
,000
0,000
10,000-...
11,000
12,000....
13,000....
14,000....
16,000....
20,000....
25,000....
30,000....
40.000....
50,000....
60,000....
70,000-...
0,000..-.
90,000....
100.000...
150,000...
200,000...
250,000...
300.000...
400,000...
500,000...
750,000...
1,000,000.
2,000,(100.
5,000,( ).
Income ta burden.
Present aw.
3.00
6.00
7.50
.00
12.00
15.00
21.00
30. W
3(1. ( )
45.00
100. 00
275. 00
605. 00
755. 00
1.005.00
1, 295. 00
1, 6 5. 00
1,915.00
2, 245. 00
2,615. 00
2,9 5.00
3,395. 00
3, 05.00
4, 265.00
6. 7 5. 00
9, 705. 00
12, 65. 00
19, 545. 00
26, 65 on
34.605. 00
42.645. 00
60,9 5. 00
69,625.00
6 , 565. 00
114, 525. 00
161. 005. 00
207.9 5.00
254, 9 5. 00
34 . 9 5. 00
442, 9 5.00
675,000.00
900,000. 00
00.000. ( )
500, ( ). 00
Commttee
b.
95. 00
190.00
3 0.00
590.00
00.00
1, 050. 00
1,300. 00
1, 590.00
1, 0.00
2, 210. 00
2. .540. 00
2.910.00
3.2 0.00
3, 700. 00
6,020. 00
.6 0.00
11.520.00
17, 500. 00
24,120.00
31. (INI. I )
3 , 321) 00
45, 7 0. 00
53,600.00
61,660. 00
102. 0. 00
144. 50. ( )
1 7, 090.00
229. 340. 00
313. 40. 00
39 , 340. 00
607, 500. 00
10.000.00
1,620,000.00
4,050,000.00
ffectve ta rate
(per cent).
Present
aw.
0. 50
. 6
1.00
1. 12
1.33
1.50
1.75
2.00
2.17
2.25
6.40
9.17
12.62
15. 10
16.75
1 .50
19. M
21. 2S
22. 45
23.77
24. 7
26. 12
27. 1
2 .43
33.92
3 . 2
42.
4 . 6
53.73
57. 67
60. 92
63.73
66.25
6 .56
76.35
0.50
3. 19
4.99
7.25
. I )
90.00
90.00
90.00
90.00
Commt-
tee b.
3. 0
6.33
9.50
11. 0
13.:
16.00
16.25
17.67
1 . 0
20.09
21. 17
22.3
23. 43
24.67
30. 10
34. 72
3 .40
43.75
4 .24
51. 0
54. 74
57. 22
59.56
61.66
6 .59
72.42
74. 4
76.45
7 .46
79.67
1.00
1.00
1.00
1.00
Reducton under
commttee b.
mount.
3.00
6.00
7. 50
9.00
12.00
15.00
21.00
30.00
39.00
46.00
65.00
5.00
125.00
165.00
205.00
245.00
2 5.00
325.00
365.00
405. ( )
445.00
4 5.00
525. 00
665.00
765.00
1.025.00
1,345. 00
2,045.00
2. 745.00
3. 525. 00
4. 325. 00
5. 205. 00
6,025. 00
905. 00
11.645.00
16, 155. 00
20. 0S. 00
25. 645. 00
35. 145. ( )
44,645. 00
67. 500.00
9a 000.00
1 0.000.00
450.000.00
Genera Dscusson of Recommended Corporate Reductons.
1. R DUCING ND R P LING T C SS-PRO ITS T .
Ths b sets the e cess-profts ta rate at 60 per cent for the caendar year
1946 and repeas the entre e cess-profts ta effectve after December 31, 1 46.
It s estmated that the reducton of the e cess-profts ta rate to 60 per cent
for 1946 w reduce net e cess-profts ta abtes In that year by about f 0 per
cent, or by about 1,300,000. The remanng haf of e cess-profts ta abtes
w be removed for 1947 by the repea of the ta n ths b as of the frst
of that year.
The way n whch the 60 per cent rate for 1946 w reduce e cess-profts ta
abtes by one-haf can be shown as foows: The present credt whch, as
a resut of the Ta d|ustment ct of 1945 (approved uy 31, 1945 page 532,
ths uetn ), can be taken currenty. Thus the net e cess-profts ta rate Is
5 per cent. In addton to ths, however, there s an over-a corporate ncome
and e cess-profts ta mtaton n present aw of 0 per cent wth a credt
of 10 per cent of the e cess-profts ta porton. Ths has resuted n an over-a
effectve e cess-profts ta rate for a corporatons taken together of cose to
0 per cent. Snce profts ta ed under the e cess-profts ta woud be sub|ect
to the corporate norma ta and surta rates of 40 per cent If there were no
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e cess-profts ta . these profts are In effect ony sub|ect to an over-a addtona
ta of about 40 per cent as the resut of the e cess-profts ta . Thus a 50 per
cent reducton n ths addtona ta woud reduce the e cess-profts ta by
about 20 percentage ponts beow the present over-a effectve e cess-profts tn
rate of about 0 per ceut, or woud reduce the e cess-profts ta to the 60 per cent
proposed by ths b for 1946. There s, of course, no 10 per cent credt aganst
the tn at the CO per cent rate.
though your commttee recognzes the desrabty of havng no e cess-profts
ta n our peacetme ta structure, as ndcated by the proposed repea of the
e cess-profts ta as of the frst of 1S 47, t dd not beeve that the compete
emnaton of the e cess-profts ta for 1046 was as desrabe as the reducton of
other corporate ta es whch affect a corporatons wth ta abe ncome. It
shoud aso be noted that the contnuaton of the e cess-profts ta for 1946
automatcay makes the unused e cess-profts credt carry-back avaabe from
1 M6 to 1944 nnd 1945. Ths shoud especay ad those frms whch are faced
wth a dffcut reconverson probem.
Tour commttee aso decded that the need of raroads nnd certnn other
Industres for an e tenson of the unused e cess-profts credt carry-back one
year beyond the repea of the e cess-profts ta presents a probem of suffcent
Importance to mert speca consderaton n the ne t ta b.
2. R DUCING CORPOR T SURT R T S Y 4 P RC NT G POINTS.
The corporate surta rates under ths b are reduced 4 percentage ponts,
effectve after December 31, 1945. Ths reduces the present combned norma
ta and surta rate of 40 per cent on corporatons wth net ncomes of 50,OCO
and over to 36 per cent. or corporatons wth net ncomes of ess than r 0,000,
t aso reduces each of the rates 4 percentage ponts. or e ampe, the b pro-
vdes a combned norma ta and surta rate of 21 per cent on the frst 3,000
of ncome nstead of the present 2.r per cent rate. The reducton of 4 percentage
ponts for corporatons wth ncome over 50,000 represents a 10 per cent ta
reducton. or corporatons wth ncome under 0,000 t represents a ta
reducton rangng from 10 per cent to 16 per cent the greatest ta reductons
gong to corporatons wth the smaest ncomes. The estmated revenue oss
n 1 M6 from ths proposa s about 400, 00.000.
Your commttee beeves that the reducton n the corporate surta rate Is
desrabe for the foowng reasons:
(1) Many corporatons not sub|ect to the e cess-profts tn durng the war
w face probems of read|ustment from a wartme to a peacetme economy and
thus w be n need of ta reef. The proposed reducton n the corporate
ncome ta grants reef to n of these corporatons wth ta abe Income.
(2) Corporate ncome-ta rntes have been rased durng the war perod from
a top rate of 24 per cent n 1941 to the present rate of 40 per cent. Thus the
e cess-profts ta s not the ony war mposed corporate tn and shoud not be
the ony one reduced,
(3) Ony about 20,000 corporatons are e pected to have ncome sub|ect to
the e cess-profts ta n 1940 out of a tota of about 260,000 corporatons e pected
to have ta abe ncome. Thus, f the e cess-profts ta were emnated n 1946
Instead of the proposed reducton In both ths ta and the corporate ncome
ta , ess than per cent of a corporatons wth ta abe ncome woud be gven
ta reef. Snce t s beeved to bo especay desrabe to stmuate new and
sma busnesses, t woud seem desrabe to grant a of them wth ta abe
ncome, part of any ta reef gven n 1946.
3. R P LING T C PIT L TOC ND D CL R D LU C SS-PRO ITS T S.
Under ths b, the capta stock ta s repeaed begnnng wth the capta
stock ta payabe on uy 31, 1946, and the decared vaue e cess-profts ta
wth respect to reated years s aso repeaed. The capta stock ta s payabe
n uy of each year and s mposed on the vaue decared by the corporaton.
It s presumaby determned n accordance wth estmates of ncome to be earned
In the current ta abe year, snce the decared vaue e cess-profts ta s eved
on the amount of ncome n e cess of n specfed rato of the decared vaue
of the capta stock. The estmated oss n 1940 from the repea of U ese two ta es
w be 51 0,000.
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Repea of these ta es woud smpfy the corporate ta structure, snce one
return woud be emnated and the present ncome-ta return somewhat con-
densed.
Your commttee beeves that 1946 woud be an especay approprate tme to
repea those ta es because the transton perod w be a more than usuay
dffcut tme n whch to predct corporate ncome and thus the operaton of these
ta es w be more erratc than usua n 1046.
Tabe 6. comparson of the preent corporate ta structure teth changes
whch woud be made by the commttee b.
. INCOM T .
Present aw.
Commttee b.
L Norma ta :
(a) Corporatons wth norma ta net ncomes of not more than
50,000
rst 5,000
5,000 to 20.000
20,000 to 25,000
25,000 to 60,000
(6) Corporatons wth norma ta net ncomes over 50,000
II. Surta :
(o) Corporatons wth surta net ncomes of not more than 50,000
rst 25,000
25,000 to 50,000
(6) Corporatons wth surta net ncomes over 50,000
(c) Consodated returns: Consodated surta net ncomes, add-
tona.
15 per cent.
1 per cent.
I per cent.
31 per cent.
24 per cent.
10 per cent.
22 per cent.
16 per cent.
2 per cent...
No chance.
No change.
No change.
No change.
No change.
6 per cent.
1 per cent
12 pc
No c
D. C SS-PRO ITS T .
(a) Net rate payabe
(6) Over-a ncome and e cess profts ta mted to.
M per cent.
0 per cent of
surta net
ncome.
160 per .
t - peaed
umta-rS,1
I ton. I m-
C. C PIT L STOC ND D CL R D LU C SS-PRO ITS T S.
(o) Capta stock ta
(6) Decared vaue e cess-profts ta :
Porton of net ncome from 10 to 15 per cent of decared vaue.
Porton of net ncome n e cess of 15 per cent of decared vaue
1.25 for each
1,000.
6.6 per cent...
13.2 per cent-
Repeaed.
Repeaed.
Repeaed.
Genera Dscusson of Recommended cse Ta Reductons.
1. R DCC INO W RTIM CIS T R T S.
The e cse war ta rates under the commttee b are reduced to the 1942
rates, effectve uy 1, 1046. These are the war ta rates Imposed by Tte
III of the Revenue ct of 1943. One e cse ta , the uggage ta , woud contnue
to be a reta e cse ta nstead of revertng to a manufacturers e cse ta as
t was n 1942. The ta rate n ths case, however, woud be returned to the 1942
eve of 10 per cent athough contnued on the reta sae vaues rather than on
manufacturers sae vaues. The estmated ta abty oss In 1046 arsng from
the e cse ta rate reductons has been estmated at about 540,000,000 for te
haf of the year n whch the reductons woud be effectve.
The Revenue ct of 1943, n enactng the temporary ncreases n the e cse
ta rates, provded that the addtona wartme ncrease woud be removed ap-
pro matey s months after the termnaton of hosttes n the present war.
Your commttee beeves that t s preferabe to f a specfc date for the remova
of these addtona rates so that both the consumers and busnesses nvoved
woud have advance knowedge of the termnaton date. Your commttee aso
beeves that t s desrabe to assure the remova of these wartme rates n
1940, when the purchasng power of many workers w necessary be mpared
due to read|ustments arsng from shfts from wartme to peacetme empoyment.
The uggage ta s retaned as a retaers ta rather than beng returned to
a manufacturers ta because t s beeved that t w be easer admnstratvey
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to coect ths ta from the retaer who aso pays smar e cse ta es on many
other cosey reated artces whose cassfcaton Is not aways dstngushabe
from uggage.
The changes In wartme e cse ta rates whch woud be made n ths b
are shown In tabe 7.
2. R UNDING W RTIM CIS T S ON LOOR STOC S.
Tour commttee b provdes ta refunds of the addtona wartme e cse
ta es on a foor stocks of dsted sprts, wnes, and fermented mat quors
hed for sae or use n producton on uy 1, 1046, on whch the wartme rates
had been pad. edera Government e pendtures for these ta refunds n 1946
are estmated at 160,000,0(10.
The Revenue ct of 1943 sub|ected foor stocks of such acohoc beverages
hed for sae or use n producton on the effectve date of the wartme e cse
ta rate ncreases to speca ta es whch were the equvaent of the addtona
war rates. Ths b now reverses ths process and provdes refunds on foor
stocks hed at the tme of the repea of the wartme rates. In vew of the sub-
stanta ta reducton, partcuary n the case of dsted sprts, your commt-
tee beeves that ths s necessary to avod sub|ectng retaers and manufacturers
nvoved to an unfar ta burden. Not to do so mght resut n substanta n-
equty, snce those hodng such foor stocks on whch the wartme rates had been
pad mght be forced to reduce ther prces on such stocks and thus absorb
the war ta f n competton wth others obtanng acohoc beverages on whch
the addtona wartme e cse ta rate had not been pad. Therefore, refunds
are granted In those cases where such prce reductons actuay are made.
though no ta was mposed on foor stocks when the ta on eectrc ght
bubs was ncreased, your commttee beeves that refunds on foor stocks of eec-
trc ght bubs are |ustfed by reason of the dfferences n the trade practces
of compettors.
Tabe 7. Comparson of tear ta rates on e cses wth rates to be effectve after
une 30, 191,6.
Descrpton of ta .
War ta rates.
New rates.
dmssons.
Permanent use or ease of bo es or
Saes of tckets outsde bo offce
Cabarets, roof gardens, etc
Dues or membershp fees
Intaton tees _
ewery .
urs
Toet preparatons
Dsted sprts
Imported perfumes contanng dsted
sprts.
St wne
(1) Not over per cent of acoho
(2) Over 14 pt cent and not over 21 per
cent of acoho.
(3) Over 21 per cent and not over 24 per
cent of acoho.
Sparkng wnes, queurs, and cordas:
(1) Champagne or sparkng wne
(2) rtfcay carbonated wne.
(3) Lqueurs, cordas, etc
ermented mat quors
ard and poo tabes and bowng aeys.
Teephone, ong-dstance
Domestc tck graph, cabe, or rado
Patches.
teased wres, etc
re and equpment servce
Loca teephone servce
Transportaton of persons
Seats, berths, etc
ds-
1 cent for each 5 cents or
ma|or fracton thereof.
20 per cent
20 per cent
20 per cent
20 per cent
20 per cent
20 per cent
20 per cent
20 per cent
9 per gaon
per gaon
15 cents per gaon
60 cents per gaon
2 per gaon
U cents per hnf pnt or
fracton thereof.
10 cents par haf pnt or frac-
ton thereof.
10 cents pe haf pnt or
fracton thereof.
per barre
t20 per year per tabe 20
per year per aey.
20 per cent
25 per cent
25 per cent
25 per cent
per cent
15 per cent
15 per cent
15 per cent
20 per cent of reta sate prce
I cent for each 10 cents or
fracton thereof.
II par oent.
11 er cent.
per cent
11 per cent.
11 per cent.
10 per cent.
10 per cent.
10 per cent.
f per gaon.
0 per gaon.
10 cents per gaon.
40 cents per gaon.
1 er gaon.
10 cents per haf pnt or
fracton thereof.
5 cents |er haf pnt or frac-
ton t hereof.
5 cents per haf pnt or frac-
ton thereof.
7 per barre.
10 per year ter tabe 10 per
year per aoy.
5 per cent.
20 per cent.
15 per cent.
11 per cent.
5 per cent.
10 per cent.
10 per cent.
10 per cent.
10 per cent of reta saes prce.
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606
. R P LING T T ON T US O MOTOR ICL S ND O TS.
The ta on the use of motor vehces and boats s repeaed under your com-
mttee b, effectve uy 1, 1916. The ne t use ta s due at that tme. The
ta s an annua stamp ta of 5 on the use of automobes and a stamp ta of
from . 5 to 200 on the use of certan boats, the ta n the atter case varyng wth
the sze of the boat. The estmated revenue oss n 1946 from the repea of ths
ta s 140,00O,0C0.
The use ta was frst enacted n the Revenue ct of 1941 and was ntended
prmary as a source of revenue durng the emergency and war perod. Wth
the war ended, the reason for retanng the ta no onger e sts. Therefore
your commttee beeves that the ta shoud be dscontnued.
Genf:ra Dscusson of Recommended mpoyment Ta Legsaton.
Under your commttee b, empoyment ta es eved on empoyers and empoy-
ees, to fnance the od-age and survvors nsurance program, are contnued
through 19|6 at the present rate of 1 per cent on wages pad by empoyers and 1
per cent on wages receved by empoyees. Present aw provdes that the rates
on each of these groups be ncreased to 2 per cent effectve anuary 1, 1946.
Your commttee at the present tme, wth the ad of a group of e perts, s
studyng the soca securty program, partcuary wth reference to ts fnancng.
It s beeved that t woud be desrabe to awat the competon of ths study
before makng any changes n empoyment ta rates.
Genera Dscusson of Other Proposed Changes.
1. determnng effect ok proposed ta reductons on ndvduas and corpora-
tons usno fsca years.
of the proposed ta reductons n the ndvdua ncome ta as we as the
changes proposed n the e cess-profts ta (both the rate reducton n 1946 and
the repea n 1947) and the corporate ncome ta requre speca egsaton for
ndvduas or corporatons on a fsca-year rather than a caendar-year bass.
Your commttee b provdes that fsca-year ta payers be aowed a pro rata
porton of any ta reducton, determned by the porton of ther ta abe year
fang n the caendar year n whch the ta reductons become effectve.
smar pro rata bass woud be used to determne any unused e cess-profts
credt carry-back avaabe to a fsca-year ta payer wth respect to any fsca
year begnnng n caendar year 1946 and endng n caendar year 1947.
2. e tendng feera government e emptons from certan federa e cse ta es.
Ths b provdes for the contnuaton of the authorty of the Secretary of the
Treasury to e empt from certan edera e cse ta es any artces or servces to
be purchased for the e cusve use of the Unted States, f the Secretary deter-
mnes that the mposton of the ta wth respect to such artces or servces w
cause substanta burden and e pense whch can be avoded by ta e empton.
The Secretary s power, under present aw, to make such e emptons e pres s
months after the cessaton of hosttes.
D T IL D DISCUSSION O T T C NIC L PRO ISIONS O T ILL.
Tte I Income and cess-Profts Ta .
P RT I INDI IDU L INCOM T S.
S CTION 101. R DUCTION IN SURT ON INDI IDU LS.
Under the b reported by your commttee, the surta rates for Indvduas
range from 16 per cent to 1.5 per cent, as compared wth rates of 20 per cent to
91 per cent under e stng aw. The rates appcabe to the surta brackets
from 2,000 through 20,000 have been reduced 4 percentage ponts the rates
appcabe to the hgher brackets have been reduced by amounts varyng from
6 to 9.5 percentage ponts. The new schedue of rates resuts n a reducton of
at east 10 per cent n the tota norma ta and surta rates on ordnary ncome
of a on a ndvduas wth net Incomes beow about 650,000.
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607
Subsecton (b) of ths secton of the b amends secton 12(g) of the Code,
whch mts the present aggregate norma ta and surta to 90 per cent of the
net ncome of the ta payer. Ths 90 per cent mtaton s decreased to 1 per
cent of the net ncome of the ta payer. In genera, ths over-a mtaton
comes nto pay where the net ncome appro mates 650,000.
The reduced rates provded by ths secton w be appcabe to ta abe
years begnnng after December 31, 1945. Speca provson for fsca years
begnnng n 1945 and endng n 1946 s made n secton 131(a) of the b.
S CTION 102. LLOW NC O S M MPTIONS O NORM L T S O SURT .
Under e stng aw, secton 25(a)(3) provdes a snge e empton of 500
for norma ta purposes, e cept that n the case of a |ont return of a husband
and wfe, each havng ad|usted gross ncome of 500 or more, the norma ta
e empton s 1,000. If a |ont return s fed by husband and wfe, one of
whom has an ad|usted gross ncome of ess than 500, the norma ta e empton
s 500 pus the ad|usted gross ncome of such spouse. or surta purposes,
the ta payer s entted to e emptons n the amount of 500 for hmsef, 500
for hs spouse f a |ont return Is ted or f a separate return s fed and the
spouse has no gross ncome and s not the dependent of another, and 5 0 for
each dependent whose gross ncome s ess than 500.
Subsecton (a) of ths secton of the b woud revse secton 25(b) of the
Code to make the present e emptons now aowabe n computng the surta
aso avaabe as credts aganst net ncome for the purpose of the norma ta .
Subsecton (b) contans 11 technca amendments necesstated by the change
In the e emptons for norma ta purposes. These amendments conform sec-
tons 11. reatng to norma ta on ndvduas, 23( ), reatng to the deducton
tor medca e penses, 25(a)(3), reatng to norma ta e emptons, 47(e), re-
atng to the reducton of credts aganst net ncome n the case of returns for
a fractona part of a year under secton 140(a)(1), 5 (a)(1), reatng to
requrement for decaraton of estmated ta , 143(a)(2), reatng to wth-
hodng of ta at source on ta -free covenant bond nterest, 103(a) (1), reatng
to credts of estate am trusts, 214, reatng to credts aganst net Income n
the case of nonresdent aens, 215(b), reatng to aowance of credts In the
case of nonresdent aens where ta s wthhed at source, 251(f), reatng to
credts aganst net ncome n the case of ctzens entted to the benefts of sec-
ton 251, and 401, reatng to e emptons for the purposes of the ta mposed
under Suppement T.
The amendments made by ths secton sha be appcabe to ta abe years
begnnng after December 31, 1945. Speca provson s made n secton 131(a)
of the b for ta abe years begnnng In 1945 and endng In 1946.
S CTION 103. INDI IDU LS WIT D UST D GROSS INCOM S O L SS T N 5,000.
Ths secton amends the ta tabe contaned n secton 400 of the Code, re-
atng to the optona ta on ndvduas wth ad|usted gross ncomes of ess
than 5,000. The schedue of ta es mposed thereunder has been revsed to
gve effect to the reduced rates n the surta as provded by secton 101 of the
b and to the ncrease n the e emptons for the purpose of the norma ta
as made by secton 102 of the b. The new tabe of ta es woud become effec-
tve for ta abe years begnnng after December 31, 1945. Speca provson s
made n secton 131(a) of the b for ta abe years begnnng n )45 and endng
n 1946.
S CTION 104. R DUCTION IN WIT OLDING O T T SOURC ON W G S.
Secton 1622(a) of e stng aw requres the use of three dfferent percentage
rates In computng the amount of ta to be wthhed at the source, If the em-
poyer eects to use the percentage method n eu of the wage-bracket tabes
provded n secton 1622(c). The severa rates are necessary n order to com-
pute the approprate amount of ta to be wthhed n respect of the norma
ta and the frst and second brackets of the surta . The rates provded under
e stng aw for such purpose are 2.7 per cent, 1 per cent, and 19. per cent,
respectvey. The separate rate for computng the amount of ta to be wth-
hed n respect of the norma ta Is occasoned by the dfference In the e emp-
tons provded n secton 25 for norma ta and for surta purposes. s a
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60S
resut of the amendment contaned n secton 102 of the b whch makes the
present surta e emptons avaabe for norma ta purposes, t s possbe to
emnate the 2.7 per cent rate entrey and to combne the norma ta wth the
surta rates. The two rates now correspondng to the frst and second surta
bracket rates are revsed to refect the amendment contaned n secton 101 of
the b reducng the surta rates. ccordngy, subsecton (a) of ths secton
amends secton 1622(a) by emnatng the 2.7 per cent rate and by reducng
the 1 per cent and 19. per cent rates to 17 per cent and 10 per cent, respec-
tvey. These rates take nto consderaton the standard deducton of appro -
matey 10 per cent. technca amendment s aso made to conform the per-
centage method wthhodng tabe to the new rate appcabe to the frst surta -
bracket.
Subsecton (b) of ths secton substtutes for the present wthhodng ta
tabes under secton 1622(c)(1) new ta tabes whch refect the changes made
wth respect to the surta rates n secton 101 of the b and wth respect to the
norma ta e emptons n secton 102 of the b.
Subsecton (c) s a technca amendment to secton 1622(h)(1)(C) to con-
form the reference to e emptons In the case of dependents to the changes made
by secton 102 of the b.
The amendments made by ths secton of the b are made appcabe to wages
pad on or after anuary 1, 1046.
P RT II CORPOR TION T S.
S CTION 121. D Ct S IN CORPOR TION ST7 T .
Ths secton of the b amends secton 15(b) of the Code, reatng to the
surta on corporatons, secton 207(a) of the Code, reatng to certan mutua
nsurance companes, and secton 362(b) (4) of the Code, reatng to reguated
nvestment companes.
The amendments made by ths secton are desgned to effectuate a reducton
of 4 percentage ponts n the surta on corporatons, e cept n the case of Western
emsphere trade corporatons, whch are e empt from surta , and foregn
corporatons not engaged n trade or busness wthn the Unted States, whch
are sub|ect to a speca ta under secton 231(a) of the Code.
In the case of the surta mposed by secton 15(b) of the Code, the amend-
ments made by subsecton (a) reduce the surta rate upon surta net Incomes
not over 25,000, from 10 to 6 per cent, upon surta net ncomes over 25,000
but not over 50,000 from 22 to 1 per cent, and upon surta net ncomes over
50,000 from 16 to 12 per cent. In the case of reguated nvestment companes,
subsecton (c) reduces the surta rate under secton 362(b)(4) of the Code
from 16 to 12 per cent.
Under e stng aw mutua nsurance companes sub|ect to the surtn mposed
by secton 207(a) (1)( ) are not ta abe f ther corporaton surta net ncome
s not over 3,000, and are sub|ect to an aternatve surtn rate of 20 per cent, n
eu of the rate prescrbed by secton 15(b), of the Code on the porton of ther
surta net ncome over 3,000 and not over 6,000. so, under e stng aw.
mutua nsurance companes whch are nternsurers or recproca underwrters
sub|ect to the ta mposed by secton 207(a)(3)( ) are not ta abe f ther
corporaton surta net ncome s not over 50,000, and are sub|ect to on aterna-
tve surta rate of . S2 per cent, n eu of the rate prescrbed by secton 15(b)
of the Code, on the porton of ther surta net ncome over 50,000 and not over
100,000. In order to mantan the breakng ponts for the aternatve ta es nt
6.0 0 and 100,000, respectvey, the 20 per cent rate s reduced to 12 per cent
and the 32 per cent rate to 24 per cent.
The amendments made by ths secton are appcabe to ta abe years begn-
nng after December 31. 1945. Under secton 131(a) of the b, speca treat-
ment s prescrbed n the case of ta abe years begnnng n 1945 and endng n
1946. owever, the fsca year provson n secton 131(a) has no appcaton
to mutua nsurance companes to whch subsecton (b), appes, or to reguated
nvestment companes to whch subsecton (e) appes.
S CTION 122. R DUCTION IN C S-P O ITS T O 1046.
Ths secton amends secton 710(a) (1) of the Code, mposng the e cess-profts
ta , and repeas secton 710(a)(5). permttng deferment of ta n cases of
abnormaty, and secton 7S4 of the Code, provdng a 10 per cent credt aganst
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609
e cess profts ta . It aso makes certan technca amendments necesstated by
these changes.
Under e stng aw, secton 710(a) (1) of the Code mposes nn e cess profts ta
of 93 per cent upon ad|usted e cess profts net Income, or wth certan quafca-
tons, a tn whch when added to the ta mposed for the ta abe year under
Chapter 1 equas 0 per cent of the corporaton surta net ncome. Under the
amendment made by subsecton (a) of ths secton a ta of 60 per cent of the
ad|usted e cess profts net ncome s mposed n eu of the 95 per cent rate and
In eu of the 0 per cent mtaton.
Under e stng aw, secton 710(a) (5) of the Code permts a ta payer to
defer payment of a porton of the e cess profts ta n certan nstances where
the ta payer s camng reef under secton 722 of the Code. In vew of the
reducton of the e cess profts ta rate to 60 per cent, the reasons for ths defer-
ment prvege have argey ceased to be operatve and accordngy the prov-
son s repeaed by paragraph (1) of subsecton (b) of ths secton. Paragraph
(2) of subsecton (b) emnates a cross-reference to secton 710(a)(5) n sec-
ton 722(d) of the Code.
Under e stng aw, secton 7S4 of the Code provdes a 10 per cent credt aganst
e cess profts ta . Tour commttee Intends that the 00 per cent e cess profts ta
rate under the amendment made by subsecton (a) sha be a net rate, and
accordngy secton 7 4 of the ( ode s repeaed by subsecton (c).
Subsecton (d) makes technca amendments to secton 26(e) of the Code reat-
ng to the credt for ncome sub|ect to e cess profts ta , to conform secton 26(e)
to the new rate of 60 per cent and to strke out reference to the 0 per cent m-
taton.
The amendments and repeas made by ths secton are appcabe to ta abe years
begnnng after December 31, 1945. Speca treatment s prescrbed by secton
131 of the b n the case of ta abe years begnnng n 1945 and endng n 1946.
Wth respect to the repea of secton 710(a)(5) of the Code by subsecton (b),
a ta payer wth a fsca year begnnng n 1945 and endng n 1946 w appy sec-
ton 710(a)(5) to ts fna ta computed as prescrbed n secton 710(a)(7) of
the Code, added by secton 131(b). Secton 123 of the b deas wth repea of
the e cess-profts ta for ta abe years begnnng after December 31, 1940.
S CTION 123. R P L O C SS PRO ITS T IN 1947.
Secton 123(a) of the b repeas Subchapter of Chapter 2 of the Code,
reatng to the e cess profts ta , wth respect to ta abe years begnnng after
December 31, 1046. cept as noted beow wth respect to ta abe years begn-
nng n 1946 and endng n 1947, such repea, however, s to have no effect what-
soever wth respect to ta abe years begnnng pror to anuary 1, 1947. ny
abty, penaty, or Interest whch accrues under Subchapter of Chapter 2 wth
respect to a ta abe year begnnng pror to anuary 1, 1947, sha be unaffected by
such repea, and any proceedng necessary to enforce such abty, penaty, or
nterest may be nsttuted at any tme wthn the appcabe perod of mtaton
as f Subchapter of Chapter 2 had not been repeaed. Provson s made under
secton 131(b)(1) of the b for the e cess profts ta n the case of ta abe
years begnnng n 1946 and endng n 1947.
Subsecton (b) of secton 123 makes certan technca amendments wth
respect to ta abe years begnnng after December 31, 1946, to conform other
provsons of the Code to the repea of the e cess profts ta wth respect to
such ta abe years. Secton 26(e) of the Code, reatng to the credt for ncome
sub|ect to e cess profts ta , Is repeaed. Sectons 13(a)(2), 15(a), 26(b),
102(d)(1), 131(b), and 204(a)(2) of the Code, reatng, respectvey, to the
defnton of norma ta net ncome, the defnton of corporaton surta net n-
come, the credt for dvdends receved, the defnton of secton 102 net ncome,
the mtaton on the foregn ta credt, and the defnton of norma ta net
ncome and corporaton surta net ncome of foregn nsurance companes other
than fe or mutua and foregn mutua marne, are amended to conform to the
repea of the credt under secton 26(e).
P RT III ISC L Y R T P Y RS.
S CTION 131. ISC L Y R T P Y RS.
The Code contans n secton 10 speca rues for the computaton of the ta
n the case of ta payers makng returns on a fsca year bass. Secton 131(a) of
the b amends secton 10 of the Code by redesgnatng subsecton (c) as subsec-
ton (e) and addng a new subsecton (c) to provde for the computaton of the
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610
ta mposed by sectons 11, 12, 13, 14, 15, and 400 n the case of ta abe years
begnnng n 1945 and endng n 1946. It provdes that n the case of a corpo-
raton or an ndvdua the ta sha be an amount equa to the sum of (a) that
porton of the tentatve ta (computed as f the aw appcabe to ta abe years
begnnng on anuary 1, 1945, were appcabe to such ta abe year) whch the
number of days n such ta abe year pror to anuary 1, 1946, bears to the tota
number of days n such ta abe year pus (6) that porton of a tentatve ta
(computed as f the aw appcabe to ta abe years begnnng on anuary 1,
1946, were appcabe to such ta abe year) whch the number of days n such
ta abe year after December 31, 1945, bears to the tota number of days n such
ta abe year.
Ths subsecton of the b aso adds a new subsecton (d) to secton 10 of the
Code to provde a smar rue for the computaton n the case of corporatons of
the ta mposed by sectons 13, 14, and 15 for ta abe years begnnng n 1946
and endng n 1947.
Secton 131(b) adds new paragraph (7) to secton 710(a) of the Code to
provde for the computaton of the e cess profts ta n the case of ta abe
years begnnng n 1945 and endng n 1946. The rue so provded s smar to
that provded n secton 710(a)(6) wth respect to ta abe years begnnng n
1943 and endng n 1944.
Secton 131(b) aso adds new paragraph ( ) to secton 710(a) to provde for
the computaton of the e cess profts ta for ta abe years begnnng n 1946 and
endng n 1947. In vew of the amendment made by secton 123 of the b repeang
the e cess profts ta wth respect to ta abe years begnnng after December 31,
1946, paragraph ( ) provdes that the e cess profts ta for such fsca years sha
be an amount equa to that porton of a tentatve ta , computed as f the aw
appcabe to ta abe years begnnng on anuary 1, 1946, were appcabe to such
ta abe year, whch the number of days n such ta abe year pror to anuary 1,
1947, bears to the tota number of days n such ta abe year.
The Ta d|ustment ct of 1945 ncreased the e cess profts ta specfc e emp-
ton from 10,000 to 25,000 for ta abe years begnnng after December 31, 1945,
and provded a speca rue for computng the e empton for ta abe years
begnnng n 1045 and endng n 1946. In vew of the amendment addng para-
graph (7) to secton 710(a) to provde for the computaton of the ta for such
fsca years, ths subsecton contans technca amendments emnatng ths
speca rue.
Ths subsecton of the b aso amends secton 710(c) (2) of the Code to provde
that the unused e cess profts credt for a ta abe year begnnng n 1946 and
endng n 1947 sha be an amount whch bears the same rato to the unused
e cess profts credt for such tn abe year otherwse aowabe as the tota number
of days n such ta abe year pror to anuary 1,1947, bears to the tota number of
days n such ta abe year.
Tte II Repea of Capta Stock Ta and Decared aue cess Profts Ta .
S CTION 201. R P L, O C PIT L STOC T .
Ths secton repeas Chapter 6 of the Code, whch Imposes the capta stock ta .
Ths ta s appcabe wth respect to years endng une 30, and the repea s effec-
tve wth respect to years endng after une 30, 1945 n other words, the repea
s effectve wth respect to the year endng une 30, 1946, and succeedng years.
S CTION 202. R P L O D CL R D LU C SS PRO ITS T .
Ths secton repeas Subchapter of Chapter 2 of the Interna Revenue Code,
whch mposes the decared vaue e cess-profts ta . The repea s technca, snce
the ta appes ony to corporatons sub|ect to capta stock ta , whch ta s
repeaed by secton 201. The decared vaue e cess-profts ta s due wth respect
to the ncome ta ta abe years endng after the cose of the capta stock tn
ta abe year. The repea of Subchapter s accordngy made effectve wth
respect to ncome ta ta abe years endng after une 30, 1946, the frst year wth
respect to whch the repea of the capta stock ta s effectve.
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611
Tte III cse Ta es.
S CTION 301. T RMIN TION O W T R T S T R UN 30,1946.
Ths secton deas wth the e cse ta es mposed, or the rates of whch were
ncreased, by Chapter 9 , added to the Interna Revenue Code by secton 302 of
the Revenue ct of 1943.
Subsecton (a) amends secton 1G50 of Chapter O so as to change and make
more defnte the perod of appcabty of the ncreased e cse-ta rates mposed
by secton 1650. Under present aw the ncreased rates become generay nap-
pcabe on and after the 1st day of the frst month whch begns s months or
more after the date of termnaton of hosttes. Under the amendment made by
subsecton (a) the war ta rates become generay nappcabe on and after uy
1, 1946. The severa war ta rates and the reduced rates are shown n tabe 7 n
the genera dscusson of the e cse ta reductons.
Subsectons (b )and (c) of secton 301 of the b specay f the dates of term-
naton of partcuar war ta rates. Subsecton (b) changes the date of termna-
ton of the war ta rates appcabe wth respect to bard and poo tabes and
bowng aeys. Under secton 302(b) of the Revenue ct of 1943, the war ta
rates are effectve through une 30 ne t foowng the 1st day of the frst month
whch begns s months or more after the date of the termnaton of hosttes.
Under the amendment the war ta rates contnue through une 30, 1940, and thus
are nappcabe on and after uy 1, 1946.
Subsecton (c)(1) makes the decreased rate of ta appcabe wth respect to
cabaret charges appy at 10 a. n., prevang oca tme, uy 1, 1946.
Under subsecton (c)(2) the reducton n the ta es mposed by secton
3465(a) (1) wth respect to teephone to cas and teegraph, cabe, or rado
dspatches or messages s appcabe to amounts pad for servces rendered on or
after uy 1, 1940. The reducton n the ta es mposed by secton 3465(a) (2)
and (3) wth respect to eased wres, wre-equpment servce, and oca teephone
servce are appcabe wth respect to amounts pad pursuant to bs rendered on
or after the 1st day of ugust, 1940, for servces for whch no prevous b was
rendered. Where bs rendered on or after the 1st day of ugust, 1946, ncude
charges for servces prevousy rendered, the reduced rates do not appy to such
servces as were rendered more than two months before such date.
Subsecton (d) (1) amends secton 1651(a) of Chapter 9 of the Interna Reve-
nue Code to reduce from 20 per cent to 10 per cent the rate of the ta on uggage,
etc., sod at reta. Subsecton (d) (2) makes the reta ta permanent by repea-
ng secton 1654 of the Interna Revenue Code under whch the ta termnates
on or after the 1st day of the frst month whch begns s months or more after
the date of termnaton of hosttes n the present war.
Subsecton (d) (2) aso repeas secton 1055, whch, for the purposes of Chapter
9 of the Interna Revenue Code, defnes the term date of termnaton of host-
tes n the present war. Ths defnton s rendered unnecessary by the amend-
ments of the severa sectons of Chapter 9 made by the b under whch the
duraton of the ta es or ta rate ncreases mposed by Chapter O Is no onger
reated to the termnaton of the war.
S CTION 302. R P L O US T ON MOTOR ICL S ND O TS.
Ths secton repeas Chapter 33 , added to the Interna Revenue Code by
secton 557 of the Revenue ct of 1941, ta ng the use of motor vehces and
boats. The repea s effectve wth respect to the perod after une 30, 1940, so
that the ta w be nappcabe wth respect to the use of motor vehces and
boats on and after uy 1, 1946.
S CTION 303. DR W- C ON DISTILL D SPIRITS.
Secton 303 amends secton 309(b) of the Revenue ct of 1943, whch f ed
the rate of draw-back of ta on dsted sprts used for certan nonmedcna
purposes at 0 per proof gaon for the perod begnnng pr 1, 1943, and endng
on the 1st day of the frst month whch begns s months or more after the
ate of termnaton of hosttes n the present war. y the amendment made
by secton 303, the perod durng whch the 6 rate s appcabe runs to uy 1,
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612
S CTION 304. LOO STOC S R UNDS.
Ths secton deas wth the termnaton of the war ta rates appcabe wth
respect to certan acohoc quors and eectrc ght bubs and tubes. It adds
sectons e56 and 1057 to the Interna Revenue Code.
Secton 1656, as added by ths secton, covers acohoc quors, ncudng ds-
ted sprts, mported perfumes contanng dsted sprts, wnes, ncudng
queurs and cordas, and fermented mat quors. It provdes for refund or
credt (wthout nterest) of the e cess of the ta es (ncudng foor stocks
ta es) pad wth respect to such quors on account of the war ta rates over
the ta es that woud have been payabe n the absence of the war ta rates. To
be entted to refund, the quor must, on uy 1, 1946, be hed for sae or use
n the manufacture or producton of an artce hed for sae the person so hod-
ng t must, pror to ugust 1, 1046, fe cam for refund and he must aso make,
keep, and fe records as requred, and must estabsh to the satsfacton of the
Commssoner, wth respect to each knd of artce for whch refund s camed
by hm under ths secton, that after une 30, 1946, and before October 1, 1946,
the prce at whch artces of such knd were sod (unt a number equa at east
to the number on hand on uy 1, 1946, were sod) refected, n such manner
as the Commssoner may by reguatons prescrbe wth the approva of the
Secretary, the amount of the ta reducton. Under ths secton the Commssoner
w be authorzed, under reguatons, to estabsh a system for makng refunds
where the beneft of the ta reducton s passed on to the consumer. The regua-
tons may prescrbe the method of arrvng at the prce at whch the artce
was sod before the ta reducton. The reguatons may aso prescrbe the
method of ascertanng the reduced prce refectng the ta reducton, f a refund
Is to be aowed. Refund s not to be aowed under ths secton wth respect
to any artce uness, wth respect to a the artces of a the knds ns to whch
refund s camed, the requrements of the secton and the reguatons are satsfed.
Secton 1657 as added by ths secton provdes for credt or refund of ta wth
respect to eectrc ght bubs hed n foor stocks on uy 1, 1946, and wth respect
to whch the manufacturers ta under secton 3406(a) (10) was pad at the war
ta rate. The amount of the credt or refund s determned by the dfference
between the war ta rate and the ta that woud have been payabe n the
absence of the war ta rate n other words, the new ta rate. The credt or
refund s to be aowed ony to the e tent that the manufacturer has rembursed
the person hodng the artce n foor stock for the amount of war ta passed
on to such person. The refund provson appes both to eectrc ght bubs hed
for sae on the effectve date of the change n rate and bubs hed for use n the
manufacture or producton of an artce ntended for sae. No nterest s aow
abe on such credt or refund, and cams are requred to be fed pror to October
1, 1946. The Commssoner s authorzed to prescrbe necessary reguatons, am
no manufacturer or producer w be entted to credt or refund uness he has n
hs possesson such evdence respectng nventores of artces as to whch he has
made rembursement of ta as the reguatons prescrbe.
S CTION 305. CONTINU TION O POW R O S CR T RY O T TR SURY TO UT ORIZ
GO RNM NT M ON ROM C RT IN CIS T S.
Ths secton deas wth the authorty conferred by secton 307(c) of the
Revenue ct of 1943 upon the Secretary of the Treasury to authorze e empton
from the ta es mposed by Chapter 19 of the Interna Revenue Code reatng
to retaers e cse ta es, Chapter 29 reatng to manufacturers e cse and m-
port ta es, and Chapter 30 reatng to transportaton and communcatons ta es,
notwthstandng amendments of the Interna Revenue Code made by secton 307
of such ct renderng certan e emptons for beneft of the Unted States. States,
etc., nappcabe wth respect to the Unted States. To make permanent the
authorty thus conferred upon the Secretary, secton 305 of the b strkes out
the ast sentence of secton 307(c), whch now makes the Secretary s authorty
nappcabe to any contract entered nto on or after the 1st day of the frst month
whch begns s mouths or more after the date of termnaton of hosttes n
the present war. It was beeved that admnstratve processes woud be smp-
fed f the person seng artces or renderng servce to the Unted States pad
over to the coector of nterna revenue the ta es on such saes. The Secretary
has authorzed e empton n severa e ceptona stuatons where e empton was
found to be admnstratvey more effcent. It s admnstratvey desrabe
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613
that the authorty granted to the Secretary be contnued. The authorty, as
contnued, woud aso enabe contnued e empton to be granted, shoud t appear
desrabe, n the case of other governmenta e cse ta e emptons whch w
termnate at some perod after the termnaton of hosttes, for e ampe, the
e empton from the ta mposed by secton 3404.
Tte I Soca Securty Ta es.
S CTION 401. UTOM TIC INCR S IN 1SI40 R T NOT TO PPLY.
Ths secton postpones the ncrease n the rates of the ta es mposed by the
edera Insurance Contrbutons ct (Subchaper of Chapter 9 of the Code).
Under e stng aw, the rate of the ncome ta on empoyees mposed by secton
1400 ncreases from 1 to 21/2 per cent on anuary 1, 1940 and the rate of the
e cse ta on empoyers of one or more empoyees mposed by secton 1410 aso
ncreases from 1 to 2 Ms per cent on such date. In the case of each such ta the
amendment provdes that the 1 per cent rate sha reman n force through tbe
caendar year 1946, and that the 2 . per cent rate sha be appcabe to wages
pad and receved durng the caendar years 1947 and 194 .

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614
Tota
Sm
t .
1

s
ter-
natve
tu.

7,34
12, 93
13,042
14,979
6.755
7, 35
10.5 1
73,431
73,431
Norma
ta .
:

1.645,491
151,042
13 ,0 5
6 , 54
44, 99
25. 5
5,970
3.095
2,0 7
2.0 5,102
n#f . -
a
3 6.467
2, 194,663
1.642,217
1,067.971
706,434
9 4.2 3
1,354. 36
1,024,715
75,37
627.731
164, 27
9.399
62,096
11,1 1.017
I

5
Net
capta
gans
sub|ect
to ater-
natve
: ::
ta .

2
Norma
ta
base.
I
I
g
69, 503, 217
am
tmm
29. 7 3. 559
SSSSSsSS
13, 692. 290
1
s
3
Wp
.356, 43
34.310,173
21. 144, 039
9,4 7,006
5,131,106
7 ,429, 767
5,452,000
4. 7 6,000
2,349,000
1, 536,000
97,000
213, 000
119.000
90.79
1
g
Recp-
ents n-
currng
surta .
mm
mm
5
1
5, 452.000
4, 7 6,000
2.349,000
1,536,000
97,000
213.000
119,000
90. 79
77,475. 617
I
s
1

15, 442, 79
5
s
mum
Number of ncome recpents.

10. 12. 700
23. 54 , 700
, 13, 5 0
2, 77 ,160
1, 162,360
47,115,500
g
S

9
Incurrng
surta .
mm
r
1, 246, 972
36,302,04
15. 97,200
1,246,972
53,446, 972
m
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Grand tota
Net ncome cass.
:
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Surta .
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Recp-
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Recp-
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surta .
Z

recp-
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to
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a
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Number
-
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W to M
C 5 3 3 tb
T CN 00 . OC
at) c
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P C f O
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Tabe 10. Ta burden under Suppement T of present aw compared ct that
under commttee b.
SIN fc P RSO WIT NO D P ND NTS.
d|usted gross ncome of Indvduas usng
tne standard deducton.
500--.
600....
700....
00..-
900....
1,000..
11,100..
1.200..
1,300..
1,400..
1,500..
1.750..
2.000..
2,250..
2,500..
2,750..
3,000.
3,250..
3,500.,
3,750.
4,000..
4,250.
4,500.
4,750.
Ta .
Present
aw.
10
12
32
03
71
95
115
136
157
177
19
250
302
353
MS
457
516
. .72
62
6 4
741
797
53
SOS
Commt-
tee b.
ft)
n
27
14
61
7
5
112
UN
117
11
206
M
2S2
335
377
427
471
521
56
616
663
710
757
fectve rate
(per cent).
Present
aw.
0
2.00
4.57
6.63
.22
.50
10.45
11.33
12. as
12.64
13.20
14.2
15. 10
15.6
16.20
16.62
17.20
17.60
17.94
1 .24
1 .53
1 .75
1 .96
19. 14
Commt-
tee b.
0
1.67
3. 6
5.50
6.7
7. 0
.64
9.33
9.92
10.50
10.93
11.77
12.45
12.9
13.40
13.71
14.23
14.5
14. 9
15. 15
15.40
15.60
15. 7
15.94
Reducton over
present aw.
0
2
5
9
13
17
M
24
2
SO
34
41
63
01
70
0
9
03
107
116
125
134
143
152
Per cent.
0
16.67
1563
16.97
17.57
17. 9
17.39
17.65
17. 3
16.95
17.17
17.60
17.55
17.25
17.33
17.51
17.25
17.13
17.04
16 95
16. 7
16 1
16.76
16,72
Tabe 11. Ta burden nder Suppement Tof present aw compared uth that under
commttee b.
M RRI D P RSON WITII NO D P ND NTS.
d|usted f
oss ncome of Indvduas usng
I ttmdard deducton.
Ta.
Present
aw.
Commt-
tee b.
ffectve rato
(per cent).
Present
aw.
Commt-
tee b.
Reducton over
present aw.
mount.
Per c
500....
600....
700....
00....
900....
1,000..
1,100..
1,200..
1,300..
1,400.-
1,500..
1,750..
2,000..
2,250..
2,500..
2,750..
3.000..
3,250..
3.500..
3.750..
4,000--
4,2.50..
4,500-.
4,750..
2
4
7
n
12
15
36
7
77
9
150
2r|
2. I
SOS
357
411
4I I
51
574
631
6 7
743
799
SO
(1
0
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0
0
0
17
34
52
03
111
1S4
197
240
2 2
327
370
n
463
511
65
tot
6S2
0
.33
.57
.
1.11
1.20
1.36
3.00
4.3
5.50
6.53
.57
10.10
11.24
12.20
12.9
13.70
14.25
14. 0
15.31
15.7
16. 16
16.51
16. 2
0
0
0
0
0
0
0
1.42
2 62
3.71
4.60
6.34
7.70
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9.60
10.25
10.90
11.3
11. 9
12.35
12.7
13.13
13.44
13.73
0
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23
25
29
39
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65
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93
102
111
120
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13
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100.00
100.00
100.00
100.00
100.00
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4035
3147
29.99
2400
23.76
22.13
21.31
2101
2044
31 m
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1902
1 7
1 .57
1 .40
ssumes ony ono spouse has ncome.
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621
1945-22-12174
T R NU ILL O 1945.
Senate Report No. 655, Seventy-nnth Congress, rst Sesson. Caendar No. 65 .
October 23 (egsatve (ay, October 22), 1945.
reduce ta aton, and for other purposes, havng had the same under consderaton,
report favoraby thereon, wth certan amendments, and, as amended, recom-
mend that the b do pass.
G N R L ST T M NT.
Ths b has been desgned to ad both ndvduas and busnesses n the df
cut perod of transton from war to peace. Your commttee concurs wth the
Ways and Means Commttee of the ouse n beevng that to accompsh ths
ob|ectve t s necessary to reduce the hgh wartme ta rates n order to provde
ncentves for busness to e pand and to ncrease consumer purchasng power
Certan e pendtures necessary after the end of a war, however, w beep edera
revenue requrements at a hgh eve durng 1946 f a arge defct s to be avoded.
edera e pendtures for the fsca year 1946 have been estmated by the ureau
of the udget at 66.4 bon doars and the defct for fsca year 1946 at 30.4
bon doars. though edera e pendtures for the caendar year 1946 are
e pected to be much ower, t s antcpated that the defct w st be szabe.
In vew of the probabe e tent of the defct n 1946 t s necessary to mt the
over-a reducton n ta es. Your commttee beeves that wth ony a mted
ta reducton possbe n 1946, attenton shoud be drected toward removng or
reducng those ta es whch especay hamper the process of reconvertng our
economy from a war to a peace tme bass.
SUMM RY O C NG S IN ISTING L W.
. R. 4309, wth the amendments proposed by your commttee, makes the foow-
ng changes n e stng aw:
INDI IDU L INCOM T S.
I. Your commttee concurs wth the ouse In rankng present surta e emptons
appcabe to the norma ta . ccordngy, the norma ta e empton of 500
for each ncome recpent s repaced by e emptons of 500 each for the ta payer,
hs spouse, and each of hs dependents. Ths change w be effectve on and
after anuary 1, 1946.
2. The rate appcabe to each surta bracket s reduced by 3 percentage ponts,
effectve on and after anuary 1, 1946.
3. The combned norma ta and surta as computed under the proposed
e emptons and rates s reduced further by 5 per cent of the ta . Thus the
combned norma ta and surta rates begn, n effect, wth a startng rate of
19 per cent and reach a top rate of 0.45 per cent. owever, the present combned
mt on norma ta and surta of 90 per cent of net ncome s reduced to 5.5
per cent
PPLIC TION O INDI IDU L INCOM T S TO M M RS O T RM D
ORC S.
1. compensaton receved durng any ta abe year, begnnng after De-
cember 31, 1940, and before the termnaton of the war, for servce n the mtary
or nava forces of the Unted States by an ndvdua beow the grade of a com-
mssoned offcer s e cuded from ncome. ensted personne woud have no
ncome-ta abty wth respect to servce pay, and woud be reeved of fng
returns, wth respect to such pay.
2. The b e tends the tme for payng ta es attrbutabe to servce pay of
commssoned offcers the ta f so deferred, to be pad n 12 equa quartery n-
staments, wthout nterest.
3. Smar e tenson of tme for payment s provded n the case of ta es at-
trbutabe to preservce earned ncome for 1940 or 1941, whch became due after
the ta payer s entry nto the servce.
CORPOR T T S.
1. The e cess-profts ta Is repeaed, effectve anuary 1, 1946.
2. The 2-year carry-back of the unused e cess-profts credt s e tended for one
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622
year beyond the date of the repea of the e cess-profts ta . Thus an unused
e cess-profts credt arsng n 1946 may be carred back to reduce the e cess-profts
ta es of 1944 or 1945.
3. new schedue of corporate norma ta and surta rates and brackets s
provded for sma corporatons wth ncomes under 60, O, effectve on and
:fter anuary 1, 1946. The rates and brackets are as foows:
Norma ta
Surta rate
on ncome
n bracket.
Combned
norma ta
and surta
Income.
rate on
ncome n
bracket.
rate on
ncome n
bracket.
Per cent.
Per cent.
5
9
10
22
Per cent.
15
1
19
29
20
27
29
51
Over 20,000 but not over 25,000..
4. Your commttee concurs wth the ouse n repeang the capta stock ta
begnnng wth the ta payabe on uy 31, 1946, am the decared vaue e eess-
protts ta begnnng wth the reated ta abe year.
CIS T S.
1. Wth respect to the e cse war ta raes your commttee eaves un-
touched the provsons of e stng aw whch provde that such rates w be
reduced to the 1942 eves appro matey s months after the termnaton of
hosttes as procamed by the Presdent or as specfed n a concurrent resou-
ton of Congress. owever, when these e cses are thus reduced, ta refunds
to the e tent of the e cse ta rate reductons are to be made on foor stocks of
dsted sprts, wnes, fermented mat quors, and eectrc ght bubs.
2. Your commttee concurs wth the ouse n repeang the ta on the use of
motor vehces and boats, effectve uy 1, 1946.
MPLOYM NT T S.
1. Your commttee concurs wth the ouse n contnung the empoyment ta es
for the od-age and survvors nsurance program through 1946 at the present
rate of 1 per cent on wages pad by empoyers and 1 per cent on wages receved
by empoyees, nstead of ncreasng the rates n 1946, as provded by present
aw, to 2 per cent for each of these groups.
Summary of stmated Revenue ffect of Ta Reductons.
stmated ta abtes for 1946 and 1947 under the present aw, the ouse
b, and your commttee s b are shown In tabe 1. The ta abty reductons
n 1946 and 1947 from present aw arsng from the ouse b and from your
commttee s b are shown n tabe 2. Tota ta abtes under your com-
mttee s b for 1946 are estmated at 26, 57,000,001) 5,633,000,000 ess than
under e stng aw, and 2 S3,000,000 ess than under the ouse b.
If genera economc condtons reman the same n 1947 as estmated for 1946,
there woud be no further ta reductons arsng from your commttee s b.
owever, the ta abtes under the ouse b woud be further decreased by
1,902,000,000. Thus, f the tota reductons n ta abtes n 19415 and 1947
are consdered, the reducton under the ouse b for the two years e ceeds
that under your commttee s b by 1,336,000,000. Ths does not take nto
consderaton the possbe automatc reducton n e cse ta es under e stng
aw n 1946 or 1947.
Of the 5,633,000,000 ta reducton arsng from your commttee s b n 1940,
2,644,000,000 s attrbutabe to reductons n the ndvdua ncome ta es
2,555,000,000, to the repea of the e cess-profts ta 294,000,000 to the reduc-
ton of other corporate ta es and 140,000,000 to the repea of the use ta on
motor vehces and boats.
The addtona oss n 1946 under your commttee s b over that of the ouse
b can be argey accounted for by the fact that your commttee s b repeas
the e cess-profts ta n 1946 whereas the ouse b merey reduces the rate.
If ths were the ony dfference n the two bs, the oss under your commttee s
b n 1946 woud e ceed that of the ouse b by 1,255 00,000. owever,
neary 1,000,000,000 of ths amount s offset under your commttee s b by
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623
smaer reductons n other corporate ta es and by not reducng wartme e cse
ta rates. Ta abty osses n 194 attrbutabe to the ndvdua ncome ta
are appro matey the same under your commttee s b and the ouse b.
The reducton n ta abtes n the ouse b n 1947 e ceeds that of the
b of your commttee by ,619, 00,000. Ths can be accounted for argey by
the repea of the e cess-profts ta n 1947 under the ouse b and by the fu
year effect of the reducton n wartme e cse ta rates.
Tabe 1. stmated ta abtes under present aw, under the ouse h, and
under the nance Commttee b, caendar years 1946 and 1947.1
In mons of doars.)
stmated yeds.
IMS
nance
1047
nance
Present
u:
Com-
Present
ouse
Com-
aw.
b.
mttee
aw.
b.
mttee
b.
b.
9,054
7. 166
0,205
9.054
5. 610
6.205
13.340
10.713
10, 006
13. 340
10,713
10. 696
22.394
17, 79
16,901
22,394
16,323
16,901
1,473
1,224
1,473
1,473
1,001
1,473
MS
513
545
545
4 2
515
47
36
47
47
29
47
2,005
1,773
2.065
2,065
1.512
2,065
201
153
201
201
102
201
90
65
90
90
46
90
79
61
79
79
40
79
62
47
62
62
32
02
432
326
432
432
220
432
120
111
126
126
97
126
12
107
12
12
7
12
1
100
1
1
12
1
26
M
26
26
139
26
14
10
14
14
4
14
11
9
11
11
c
11
4
2
4
4
2
4
3,236
2,701
3,236
3.236
2, 195
3.236
140
140
2,97
2,97
2,97
2,97
2,97
2,97
6.354
5,079
6,214
6,354
5, 173
6,214
392
M2
392
392
392
392
450
450
450
450
450
450
2,900
2,900
2,900
2,900
2900
2. 900
32,490
27,300
26, 57
32, 490
25,23
26, 57
160
32,490
27, 140
26, 57
32. 490
25.23
26, 57
1. Interna revenue:
(1) Income, e cess-profts, and capta stock
ta es
(a) Corporaton ta es
(6) Indvdua ncome ta es
Tota ncome, e cess-profts, and
capta stock ta es
(2) Msceaneous nterna revenue, e cud-
ng capta stock ta
(a) cses sub|ect to war ta rates-
Lquor ta es-
Dsted sprts
ermented mat quors
Wnes
Tota quor ta es.
Retaers e cse ta es
ewery, etc
urs
Toet preparatons
Luggage, etc
Tota retaers e cse ta es..
Teephone, teegraph, rado, and
cabe factes, etc
Loca teephone servce __.
Transportaton of persons
dmssons _
Cubduesand ntaton fees
owng aeys, bard and hh )
Tota
war ta rates
h|ect to
3.
(6) Use ta on
boats
tc) other....
and
Tota msceaneous nterna
revenue e cudng capta
stock ta
2. mpoyment ta es (net)
3 ustoms
Msccaneous recepts..
Net recepts, genera and speca accounts
eunds on foor stocks
_Ngt recepts ess refunds
Proft
awUn m . . a he ese
the same genera condtons n 1947 as n Wo.
and your commttee s b t Is estmated that the unused e cess-
edera Government revenue to the e tent of 235,000,000.
war ta rates are not reduced to the 1942 rates, by operaton of e stng
pnmmtM. g h
T or 1M7 Thus no reducton s shown under present aw or your commttee s b,
w refunds are cassfed by the edera Government as e p
5 e pendtures.
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624
Tabe 2. stmated net reductons n ta abtes under the ouse b and
under the nance Commttee b as compared wth ta abty under present
aw, caendar years Sf and O /T.
In mons of doars.
Source.
Interna revenue:
(1) Income, e cess profts and capta stock ta es
(a) Corporaton ta es
cess profts ta
Norma ta and surta
Repea of capta stock and decared vaue
e cess-profts ta es
Tota corporaton ta es
ta r
(6) Indvdua
ow same e empton for norma ta as for
surta
Reduce surta rates by 4 percentage ponts
under ouse b and by 3 crccntage
ponts under nance Commttee
amended b .
Provson for reducton of ta by at east 10
per cent under ouse b
Reducton of 5 percent n norma ta and
surta under nance Commttee
amended b
Tota ndvdua ncome ta es
Tota ncome, e cess-profts and capta
stock ta es.
(2) Msceaneous nterna revenue, e cudng capta stock
ta
(a) cses sub|ect to war ta rates-
Lquor ta es-
Dsted sprts
ermented mat quors ,
W
Tota quor ta es
Retaers e cse ta es-
ewery, etc
urs
Toet preparatons
Luggage, etc
Tota retaers e cse ta es.
(f )
(0
Teephone, teegraph, rado, and cabe fac-
tes, etc
Loca teephone servce ,
Transudaton of persons
dmssons
ectrc ght bubs and tubes ,
Cub dues and ntaton fees
owng aeys, bard and poo tabes
Tota e cses sub|ect to war ta rates
se ta on motor vehces and boats
other
Tota msceaneous nterna revenue e cud-
ng capta stock ta
2. mpoyment ta es (net).-
3. Customs.
4. Msceaneous recepts.
Net recepts, genera and speca accounts.
Refunds on foor stocks
Net recepts ess refunds on foor stocks.
Reducton n ta abtes from present
aw.
1114
rouse
b.
1,300
405
1 3
1.73S
107
249
12
II
535
n
675
5.190
160
5.350
nance
Commt-
tee b.
2,555
63
2. S49
1,303
559
19471
ouse
b.
2.5.M
646
3. 444
7 2
1.73
107
2. 627
6.071
172
63
1
140
29
41
60
129
10
S
2
1.041
140
5,633
5.633
1.1 1
7,252
7,252 I
ssumes, for comparatve purposes, the same genera condtons n 1947 as estmated for 1946.
Takes nto account the foowng sequence n ta reducton or repea: rst, acton on the e cess-prom
ta second, acton on the corporaton norma ta and surta rates and thrd, acton on the capta stocs
and decared vaue e cess-profts ta es.
Takes nto account the foowng sequence n ta reducton: rst, acton on norma ta e em ||
second, acton reducng surta rates by 3 or 4 percentage ponts and thrd, acton reducng ta by at ew
10 per cent from present aw under the ouse b, and by 5 per cent (for a norma ta es and surta
under the nance Commttee b.
Ta refunds are cassfed by the edera Government as e pendtures.
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625
Genera Dscusson of Recommended Indvdua Income Ta Reductons.
1. pbovdno the same e emptons fob norma ta as for surta .
Your commttee concurs wth the ouse n makng the present surta e emp-
tons appcabe to the norma ta , effectve on and after anuary 1, 1946. Thus
the norma ta e empton of 503 for each ncome recpent1 s repaced by e -
emptons of 500 each for the ta payer, hs spouse, and each of hs dependents.
Ths provson woud reeve from ta appro matey 12,000,(100 of the 4 .0:10,000
pereons recevng ncome now sub|ect to ta . The revenue oss from ths provson
s estmated at . 7 2,000,000. Of ths amount, 310,000,000 represents the oss from
removng the 12,000,000 persons from the ta ros who are now sub|ect to the
norma ta but not the surta . In a cases these woud be marred ta pnyers
or ta payers wth dependents. ampes of persons n ths cass at the present
tme are ta payers wth one dependent and wth a net ncome before e emptons
rangng from 500 to 1,000 ta payers wth two dependents and wth a net ncome
rangng from 500 to 1.5:0 and ta payers wth three dependents and a net
ncome rangng from 51)0 to 2,000. The proposa woud aso reduce the ta of
a marred persons whose spouses have ncomes of ess than 500 and a ta -
payers wth dependents, snce for norma ta purposes an addtona e empton
of 500 woud be granted to a ta payer for hs spouse and each of hs dependents.
Ths woud n effect grant ta reef of up to 15 per spouse or dependent.
It s beeved desrabe to appy the surta e empton to the norma ta for
severa reasons. One of the most mportant of these s the fact that ta payers
sub|ect ony to the present norma ta were frst brought nto the ta base n
the Revenue ct of 1 42 when the vctory ta was enacted ony for the perod of
the war. Wth the war ended ths reason for retanng these ta payers n the
ta base s removed. Moreover, t s not beeved that an ncome ta shoud be
contnued n the postwar perod n whch e emptons do not recognz| famy
status. Ths provson s aso desrabe as an ad to ncome ta smpfcaton.
2. R DUCING STI T R T Y 3 P RC NT O POINTS.
The nance Commttee b reduces the rate appcabe to each surta bracket
by 3 percentage ponts, effectve on and after anuary 1, 1946. Ths woud reduce
the startng rate for the combned norma ta and surta from the present 23
to 20 per cent. The estmated revenue reducton n 104G resutng from ths
proposa woud be appro matey 1, 0:5,000,000.
The ouse b reduces the rate appcabe to each surta bracket by 4 percentage
ponts gvng a startng rate of 10 per cent. fter ad|ustment has been made for
a further 5 per cent cut n ta aowed under your commttee s b, the startng
rates used under the two bs are generay the same. Ths 5 per cent reducton
s dscussed n the foowng secton.
though your commttee does not beeve that t s desrabe to embody a
comprehensve revson of the ndvdua ncome surta rates n ths b, t does
beeve that some reef shoud be provded to everyone who has been payng hgh
wartme ta es. The provson reducng surta rates 3 percentage ponts grants
substanta ta reef to a ndvduas sub|ect to the ncome ta at the tme when
many of them must shft from wartme to peacetme empoyment. Ths reducton,
together wth the change n norma ta e emptons, s n effect the equvaent
of removng the present norma ta whch was frst enacted as the vctory ta
n the Revenue ct of 1042 and whch was enacted ony as an emergency wartme
measure. Thus wth the end of the war your commttee consdered t especay
approprate to reduce the ta on ndvduas by 3 percentage ponts.
3. R DUCING T COM IN D NORM L T ND SURT Y 5 P R C NT.
In addton to the reducton of 3 percentage ponts n each surta bracket,
ths b provdes that the combned norma ta and surta , before computng
the aternatve ta for capta gans, be further reduced by 5 per cent of the ta .
The estmated revenue oss from ths provson s . 550,000,000.
The present normn ta e empton for the spouse of a ta payer s aowed ony to the
e tent of the ncome of the spouse f the ncome s ess than 300.
1 Or wth spouse havng no ncome.
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626
The ouse b dd not provde for the 5 per cent ta reducton but rather
removed 1 percentage pont more n a of the surta brackets than does your
commttee s b, and read|usted the surta rates n the brackets above 20,CO9
to assure ta payers of at east an over-a ta reducton of 10 per cent. com-
parson of the effect of combned norma ta and surta rates of the ouse h
and nance Commttee b wth present aw s shown In tabe 3. Tabe 4
compares surta rates under the two bs wth present aw.
In comparng the bracket rates under the ouse and nance Commttee bs
n tabe 3, t w be noted that n the frst bracket ( 0 to 2,000) of ncome after
e emptons, the nance Commttee s 3 percentage ponts reducton pus the 5
per cent reducton n ta s e acty the equvaent of the ouse b s -t percentage
ponts reducton where the norma ta and surta b:ses are the same. In the
brackets between 2,000 and 20.0C0 the nance Commttee s 5 per cent reducton
provdes greater ta reef than the ouse b s addtona percentage pont above
the 20,000 bracket, however, the ouse b provson, ad|ustng surta rates so
that a ta payers w be assured of a 10 per cent reducton, provdes the greater
reducton.
Tabe 3. The combned norma ta and surta bracket rates of e ndvdua
ncome ta ouse b and Senate nance Commttee b compared wth
present aw.
Ta rates e pressed as percentages.
Income after e emptons, by brackets.
Ta rate on ncome n bracket.
ceedng
Not e -
ceedng-
Present
aw.
ouse b.
nance Commttee b.
Tentatve
ta rate.

2,000....
4.000....
6,000 -.-
,000-
10,000 ..
12,000--
14,000...
16,000...
1 ,000
20.000...
22,000...
26,000...
32,000...
3 ,000.-
4-,000-.
50,000...
60,000...
70,000...
0,000...
00,000...
100,000-
150,000-
210,000-
2,000
4,000
6,01 1
,000
10.000
12,000
14,000
16,000
1 ,000
20.000
22,000
26.000
32.000
3 .000
44,000
50.000
60.000
70.000
0,000
90.000
100,000
150,000
200,000
Per cent.
23
25
2 )
33
37
41
46
50
53
56
50
r,2
1-5
6
72
75
7S
SI
S4
7
96
92
03
04
Per cent.
19.0
21. 0
25. 0
29. 0
33. 0
37. 0
42 (I
46. 0
49.0
52. II
53. 0
56. 0
5 . 0
61.0
65 0
6 . 0
70.0
73.0
75. 0
79.0
1.0
2.5
4.0
: 4.5
Per cent.
20
22
26
. n
34
3S
43
47
5 1
M
50
59
62
65
69
72
75
7S
1
4
7
S9
90
91
Ta payers under present aw who are sub|ect ony to the norma ta cay a 3 ner cent rate.
Sub|ect to an over-a 90 per cent mtaton.
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627
Tabus 4. Comparson of ndvdua surta rates and cumuatve surta under
present aw, ouse b, and under nance Commttee b.
Surta rates,
Cumuatve surta at top of
bracket.
Reducton n
surta .
nance Commt-
Cumuatve
nance
tee b.
surta .
Present
ouse
Com-
Present
ouse
aw.
b.
mttee
aw.
b.
Tenta-
tve
ta .
Ta after
nance
b.
5 per cent
ouse
Com-
reduc-
b.
mttee
Per
Per
Per
ton.
b.
cent.
cent.
cent.
20
16.0
17
400
320
340
323
0
77
22
1 .0
19
40
6 0
720
6 4
oo
150
26
22.0
a
1,360
1,120
1, 1 0
1, 121
1,634
240
_ :
30
26.0
27
1,960
1,640
1,720
3211
326
34
30.0
31
2,640
2,240
2,340
2,223
400
417
3
34.0
35
3,400
2.920
3.0-10
2.
4 0
512
43
39.0
40
4.200
3.700
3, 40
3,643
500
612
47
43.0
44
6,200
4,500
4. 720
4, 4 1
III)
716
SO
46.0
47
6,200
5.4 0
5,660
6,377
72
23
S3
49.0
50
7. 2 0
6,460
6,660
6.327
00
933
56
50.0
53
,3 0
7,460
7, 720
7, 334
920
1,040
59
53.0
56
10,740
9,5 0
9,900
9, 1152
1.160
1,27
62
55.0
59
14,460
12, 0
13,500
12, 25
1,5 0
1,635
65
5 .0
62
1 .300
16.360
17,220
16.359
2.000
2,001
69
62.0
66
22.500
20.0 0
21.1 0
20,121
2,420
2,379
72
65.0
69
26, 20
23,0 0
25,320
24,054
2. 40
2,766
75
67.0
72
34,320
30, m
32,520
30. U4
3. 610
3,426
7
70.0
7
42,120
37,6 0
40.020
3 .019
4. 440
4, 101
1
72.0
7
50,220
44. 0
47. 20
45, 429
6,340
4,791
4
76.0
1
5 .620
52.4 0
65. 920
53, 124
6. 140
6,496
7
7 .0
4
67,320
60,2 0
64,320
61, 104
7,040
6, 216
9
79.5
6
111. 20
100.030
107. 320
101,954
11,790
9, 66
90
1.0
7
156. 20
140,530
150, 20
143, 279
16,290
13,541
91
1.5

Not
e ceed-
ng
2,000
4,000
6,1 10
,000
10,000
12. ( )
14,000
16,01 1
1 ,000
20.0110
22. ( )
26,000
32.000
3 .000
44.0( )
50,000
60.000
70.000
0.0(10
90.000
100,000
150. ( )
200,000
1 Does not ncude the 3 per cent norma ta rate.
1 Gves effect to the 10 per cent mnmum reducton.
1 Does not gve effect to the 5 per cent reducton n tota ta .
In terms of effectve rates on Income before e emptons or n terms of tota
ta pad your commttee s b provdes the same reef n the owest ncome
brackets as the ouse b, but n the mdde brackets up to 50,000 t provdes
more reef than the ouse b. Thus, t s ony n the hgher ncome brackets
above 50,000 that the ta actuay pad s smaer under the ouse b. These
effectve rates and ta burdens are shown n tabes , 9, and 10 n the foowng
secton.
4. COMP RISON O T URD NS UND R T OUS ILL ND IN NC COMMITT
ILL.
The foowng tabes compare the ndvdua ncome-ta burden, and effectve
ta rates on specfed net ncomes, before e emptons, under the present aw,
the ouse b, and the nance Commttee b. The tabes aso show the amount
and per cent of ta reducton and the amount by whch the ta reducton under
the nance Commttee b Is greater or ess than under the ouse b.
Tabes 5, 6, and 7 are based on the Suppement T ta tabe, whch s used by
most ta payers havng ad|usted gross ncome of ess than 5,000. In genera,
ad|usted gross ncome s gross ncome ess busness deductons and for most
wage earners represents gross ncome.
Tabes , 9, and 10 are based on net ncome. In genera, net ncome s gross
ncome ess a deductons, both busness and nonbusness.
G
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62
Tabe 5. Ta burden under Suppement T of present aw compared wth that
under the ouse b and under the nance Commttee b.
SINGL P RSON NO D P ND NTS.
d|usted gross
ncome of n-
dvduas usng
the standard
deducton.
Income-ta burden.
ffectve ta rate.
Reducton n ta .
Pres-
ent
aw.
ouse
bU.
nance
Com-
mttee
b.
Pres-.
ent
aw.
ouse
b.
nance
Com-
mttee
b.
ouse
b.
nance
Com-
mttee
b.
ouse
b.
nance
Com-
mttee
b.
mount.
mount.
Percent.
Per ent.
MOO
0
0
0
0
0
0
0
0
0
0
eoo
12
10
10
2.0
1.7
1.7
2
2
16.67
16.67
700
32
27
27
4.6
3.9
3.9
5
5
15.63
15.63
00
53
44
44
6.6
5.5
5.5
9
9
16.97
16.97
900
74
61
61
.2
6.
6.
13
13
17. 57
17.57
1,000
95
7
7
9.5
7.
7.
17
17
17. 9
17. 9
1.100
115
95
95
10.5
.6
.6
20
20
17.39
17.39
1,200
13
112
112
11.3
9.3
9.3
24
24
17.65
17.65
1,300
157
129
129
12.1
9.9
9.9
2
2
17. 3
17. S3
1,400
177
147
147
12.6
10.5
10.5
30
30
a 95
16 95
1,500
19
164
164
13.2
10.9
10.9
34
34
17. 17
17.17
1,750
250
206
206
14.3
11.
11.
44
44
17.60
17.60
2,000
302
249
249
16. 1
12.5
12.5
53
53
17.55
17.55
2,250
353
292
292
15.7
13.0
13.0
61
61
17 2S
17.2
405
335
335
16.2
13.4
13.4
70
70
17.33
17.33
2,750
457
377
377
16.6
13.7
13.7
0
0
17. 51
17.51
3,000
510
427
427
17.2
14.2
14.2
9
9
17.25
17.25
3,250
572
474
474
17.6
14.6
14.6
9
9
17.13
17.13
3,500
62
521
521
17.9
14.9
14.9
107
107
17.04
17.04
3,750
6 4
W-
56
1 .2
15. 1
15.1
116
116
16.96
16 96
4,000
741
616
615
1 .5
15.4
15.4
125
126
16. 7
17.00
4,250
797
663
662
1 .
15.6
15.6
134
135
16. 1
16 94
4,500
53
710
709
19.0
15.
15.
143
144
16. 76
16 S
4,750
909
757
756
19.1
15.9
15.9
152
153
16.72
16 3
4,900
943
7 6
7 4
19.2
16.0
16.0
157
159
16.65
16 6
1 ssumes ony one spouse has Income.
Tabe 6. Ta burden under Suppement T of present ate compared wth that
M RRI D P RSON NO D P ND NTS.
d|usted gross
ncome of n-
dvduas usng
the standard
deducton.
Income-ta burden.
Pres-
ent
aw.
d
2
7
I
12
15
36
57
77
9
uo
202
253
au
3.17
111
163
61
674
6S1
6 7
743
799
ouse
b.
0
0
)
0
0
0
(I
17
M
52
69
111
154
197
.
2 2
:v_ 7
370
416
463
611
55
605
662
an
nance
Com-
mttee
b.
0
0
(
0
o
(
17
34
62
62
111
154
1 I7
240
2 2
327
370
4 111
n
610
657
604
661
079
ffectve ta rate.
Pres-
ent
aw.
Percent.
0
.3
.6
.9
1.1
1.2
1.4
3.0
4.4
5.6
as
.6
10.1
11.2
12.2
13.0
13.7
14.2
14.
15.3
15.
16.2
16.5
16.
17.0
ouse
b.
Per cent.
0
0
0
0
0
0
0
1.4
2.6
3.7
4.6
6.3
7.7
.
9.6
10.3
10.9
11.4
11.9
12.3
12.
13.1
13.4
13.7
13.9
nance
Com-
mttee
b.
Percent
0
0
0
0
0
0
0
1.4
2.6
3.7
4.0
6.3
7.7
.
9.6
10.3
10.9
11.4
11.9
12.3
12.
13.1
13.4
13.7
13.9
Reducton n ta .
ouse
b.
mount
to
2
4
7
10
12
16
19
23
25
29
39
4
56
65
75
4
93
102
111
120
129
13
147
152
nance
Com-
mttee
b.
mount.
0
2
4
10
12
IS
19
23
25
29
39
4
56
65
75
4
93
102
111
121
130
139
14
154
ssumes ony one spouse has ncome.
G
e
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f
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#
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e
629
Ta|e 7. Ta burden under Suppement T of present aw compared wth that
M RRI D P RSON 2 D P ND T .
d|usted gross
ncome of n-
dvduas usng
the standard
deducton.
Income-ta burden.
ffectve ta rate.
Reducton n ta .
Pres-
ent
aw.
ouse
b.
nnnce
Com-
mttee
bU.
Pres-
ent
aw.
ouse
b.
nance
Com-
mttee
b.
ouse
b
nance
Com-
mttee
bU.
ouse
b.
nance
Com-
mttee
b.
mount.
mount.
Petctn.
Percent.
500

W
fo
0
0
0
0

0
0
woo
2
0
0
.3
0
0
2
2
100.
00
100.00
1700
4
0
0
.6
0
0
4
4
100
u
100.00
OO
7
0
0
.9
0
0
7
7
100.
00
100.00
woo
10
0
0
L 1
0
0
10
10
100
00
100.00
1.000
12
0
0
1.2
0
0
12
12
100
I )
100.00
11.100
15
0
c
1.4
0
0
15
15
100

100.00
11,200
I
0
0
1.5
0
0
1
1
100
)
t I
,3ro
20
0
0
1.5
0
0
20
20
100
oo
100.00
1.400
23
0
0
1.6
0
0
23
23
101)
1,0
100.10
1.500
2
0
0
1.7
0
0
26
26
100
11(1
100. 00
1,750
33
0
0
1.9
0
0
33
33
100
111
100.00
12.000
39
0
0
2.0
0
0
39
39
100
(II
100.00
.250
53
7
7
2.4
.3
.3
46
46
6
79
6. 79
e.sro
105
SO
60
4.2
2.0
2.0
65
65
52
3
52.3
2,750
157
92
92
5.7
3.3
3.3
65
65
41
40
41. 40
3,000
211
137
137
7.0
4.6
4.6
74
74
35
07
35.07
3,250
263
1 0
1 0
.1
5.5
5.5
3
3
31
56
31. 56
3,600
315
223
223
9 .0
6.4
6.4
92
92
29
- 1
29 21
3.750
366
266
266
9.
7.1
7.1
100
100
27
:r|
27. 32
4,000
41
30
3T
10.5
7.7
7.7
110
110
26
a
26.32
4,250
470
351
351
11.1
.3
.3
119
119
25.
32
25.32
4.500
523
395
395
11.6
.
.
12
12
24
17
24.47
4,750
579
442
442
12.2
9.3
9.3
137
137
23
f
23.66
4,900
613
471
470
12.5
9.6
9.6
142
143
23
16
23.33
1 ssumes ony one spouso has ncome.
G
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630
1 1hr
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636
Genera Dscusson of eterans and Servcemen s Provsons.
Your commttee had under consderaton the ta provsons of e stng aw
reatng to members of the armed forces. Whe n genera t was beeved that
these provsons have operated equtaby, and that n certan respects proposas
pendng n the Congress and esewhere requre further study, t was beeved
that In other respects certan provsons shoud be enacted at ths tme.
1. PRO IDING T ORGI N SS OR NLIST D M N.
The commttee b e cudes from gross ncome a actve-servce pay receved
durng the war years by members of the armed forces beow the grade of com-
mssoned offcer (or commssoned warrant offcer). Under ths provson ensted
men w have no ta abty as to actve-servce pay for ta abe years begnnng
after December 31, 1940, and before the termnaton of the war, and w not have
to te ncome ta returns for these years as to such pay. ny ta whch has
been pad for such years w be refunded.
2. PRO IDING T D RM NT OR COMMISSION D S R IC .
Under your commttee b, the e cuson provsons are contnued for comms-
soned personne, and abty deferred under e stng aw for the w-ar years
may be e tended, n so far as t reates to servce pay, for 36 months, payabe
n 12 quartery nstaments, wthout nterest.
Under e stng aw, commssoned personne, ke other servce personne,
f on sea or overseas duty, or f abty to pay ta was mpared by reason of
mtary servce, coud defer payment unt s months after return to the Unted
States n the former case, or s months from date of dscharge n the atter.
In addton, under secton 700 of the Soders and Saors Cv Reef ct,
by appcaton to the courts an e tenson perod can be obtaned on a showng
of hardshp for a perod equa to the ength of servce, wth nterest at 6 per cent
durng such e tenson perod.
Wthout takng away any rght under e stng aw, the b provdes the e ten-
son perod referred to as a matter of rght.
3. PRO IDING T D RM NT ON PR S R IC RN D INCOM .
The b aso provdes for smar e tenson n the case of preservce earned
ncome for the ta abe years 1940 and 1941, and earned before the servceman
entered upon actve servce, f such ta became due and payabe after entry
nto servce. or ths purpose, earned ncome s defned as n the Interna
Revenue Code, and has a ma mum mt of 14,000,. and a mnmum mt of
3.00 ).
Ta payers enterng the servce n 1G41 or 1942 were not on a current payment
bass and were payng ta n the year foowng the year n whch ncome was
earned. Therefore, many of them owed ta on the cvan ncome of the year
pror to entry nto the servce, when the servce pay was much ess than the pror
year cvan ncome.
Nothng n the veterans and servcemen s provsons n your commttee b
w operate to reduce or take away any rght to whch servce personne are
entted under e stng aw.
Genera Dscusson of Recommended Cokporate Reductons.
1. repeang the e cess-profts ta .
Your commttee s b repeas the e cess-profts ta , effectve anuary 1. 19 .
It s estmated that ths w resut n a reducton n ta abtes of 2,, 55.000,000
n 1941 .
The 2-year carry-back of unused e cess-profts credts s retaned for one
year beyond the repea of the e cess-profts ta . Thus t w be possbe to
cany back unused e cess-profts credts arsng n 1940 to 1914 and 1945 and
reduce the e cess-profts ta pad n these years. It s beeved necessary to
contnue the carry-back for one more year, to be sure that busness as the
opportunty to appy reconverson e pendtures to reduce wartme ta es. ow-
ever, t s recognzed that ths carry-back s sub|ect to abuse and nequty.
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037
Therefore, your commttee Is studyng ways of removng the abuses of ths
provson and e pects to propose retroactve egsaton on ths sub|ect n the
near future.
The prmary reason for advocatng the repea of the e cess-profts ta as of
the frst of 1040 s the beef that ths ta s a ma|or obstace n the way of
reconverson and e pnns|on of busness whch are essenta for the attanment
of a hgh eve of empoyment and ncome. The ta takes such a arge porton
of corporate profts that most busnesses are not wng to take the rsk of
e pandng ther busness whe ths ta s n operaton. Other reasons for
proposng the repea of ths ta at the end of 1046 are:
(1) One of the ma|or purposes of ths ta was to prevent war profteerng.
Wth the end of the war, ths reason for contnung the ta s removed.
(2) The onger the e cess-profts ta s retaned the ess the ncome of 1036-
1930 base perod s a proper measure of e cessve profts. Ths base perod
w be a partcuary poor measure of earnngs n the postwar perod when many
corporatons w be enterng new feds of enterprse or e pandng ther bus-
nesses.
(3) The ta tends to favor od and we-estabshed busnesses, snce many
of them have nvested capta whch has ong ago ceased to contrbute toward
earnngs, athough t s ncuded n the credt used to determne the e cess-
profts ta . New busnesses wthout such credts based on ,dated capta bases
are thus penazed by the ta .
2. PRO IDING T R DUCTIONS O SM.U.I. USIN SS S.
new schedue of norma ta and surta rates and brackets s provded for
corporatons wth ncome under 00,000, effectve on and after anuary 1, 1 46.
The schedue provdes a ower corporate ncome ta for a corporatons wth
ncome of 60,000 or ess. The rates and brackets are as foows:
Net ncome.
Norm o
ta rate.
Surta rate.
Com-
bned
ta rate.
Not over 10,000
Per tent.
16
1
19
29
Per cent.
5
9
10
22
Per cent
20
27
29
Over 10,000 but not over 20.000
Over 2S,000 but not over 60,000
n
The estmated ta abty oss n 1940 from ths new schedue s 03,000,000.
Under the ouse b the corporate ta rate s reduced 4 percentage ponts for a
corporatons. comparson wth present aw of the effect of the ouse b and
nance Commttee b on sma busnesses s shown n tabe 11. It w bo
noted that the ta burden of a corporaton wth 15,000 of net ncome s the
same under the ouse and nance Commttee proposas. The nance Com-
mttee b, however, gves a arger ta reducton to corporatons wth ncome
under 15,000, and the ouse b, to corporatons wth ncomes over 15.00:1.
Over 200,000 of the tota of about 200,000 corporatons estmated to have ta -
abe ncome n 1940 are e pected to have ncomes under 15,000. Tms your
commttee s b w gve more reef to neary SO per cent of the corporatons
wth ta abe ncome than does the ouse b. bout the same aggregate ta
reducton w be gven under the two proposas for corporatons wth ta abe
ncomes of ess than 00,000. Snce the reef under the ouse b s gven
to a corporatons, and not merey those wth ncomes of under 00,000, de
revenue oss s much greater than your commttee s proposa. In addton to the
59,000,000 ta reducton gven to corporatons wt ncomes under 10,000,
the ouse b gves ta reductons of 5 0,000,000 to the arger corporatons
makng a tota ta abty oss of about 646,000,000 n 1040. Ths can be
compared to the reducton of ta abtes n 1940 under the nance Com-
mttee b of 03,000,000.
Ths assumes the repea of the e cess-profts ta In 1940. If ths ta were not repeaed
unt 1947. the oss n 104(1 woud he 405,000,000. owever, there woud be an addtona
oss of 241,000,000 n 1947 when the e cess-profts ta s repeaed.
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63
Tabe 11. ffect of ouse b and nance Commttee b on corporate ncome
ta es of sma corporatons, comparson of bracket rates, ta burdens, and
effectve rates wth present ac.
Net ncome
racket rates.
nance
Cumuatve ta burden
at top of ncome cass.
nance
fectve rate at top of
ncome cass.
nance
ceed-
Not e -
Present
ouse
Com-
Present
ouse
Com-
Present
ouse
Com-
ng
ceedng
aw.
b.
rnrtee
aw.
b.
mttee
aw.
b.
mttee
b.
b.
b.
Per
cent.
25.0
26.0
26.3
26.5
27.0
31.3
34.4
36.
3S. 6
40.0
40.0
40.0
Per
Per
cent.
Per cent.
25
Per cent.
21
Per cent.
cent.
21.0
22.0
22.3
22.5
23.0
27.3
30.4
32.
34.6
36.0
3G.0
36.0
0
5,000 ...
10.000...
15,000...
20,000...
25.000...
30,000.. .
35.000...
40,000...
45,000...
50.000...
55,000. -.
00,000...
:
1,250
2,600
3,950
5.300
6,760
9,400
12,050
14,700
17. 350
20,000
22,000
24,000
1,050
2.200
3,350
4.500
5, 750
,200
10,650
13, 100
13,550
1 .000
19, 00
21,600
1,000
2,000
3.350
4.700
6. 150
,700
11,250
13. 00
16. 350
1 .900
21,450
24,000
20.0
20.0
22.3
23.5
24.6
29.0
32.1
315
36.3
37.
3 .0
40.0
5,ono
10.000.._.
I
I
15,000
20,000
29
25
49
29
51
25,000 ...
30,000
35,000....
53
40.000
45,000....
50,000....
55,000....
40 rate
on n
ncome
36 rae
on a
ncome
our commttee beeves t s especay desrabe to stmuate the startng and
e panson of sma busnesses, both because the postwar economy must depend
on them to suppy a substanta porton of the empoyment and because strong,
vgorous sma busnesses are necessary for the mantenance of competton.
3. R P LING T C PIT L STOC ND D CL R D LU C SS-PRO ITS T S.
Your commttee concurs wth the ouse n repeang the capta stock ta ,
begnnng wth the ta payabe on uy 1, 1946, and the decared vaue e eess-
profts ta . begnnng wth respect to the ta payabe for the reated years. The
capta stock ta s payabe n uy of each year and s mposed on the vaue
decared by the corporaton. It s presumaby determned n accordance wth
estmates of ncome to be earned n the current ta abe year, snce the decared
vaue e cess-profts ta s eved on the amount of ncome n e cess of specfed
rat#s of the decared vaue of the capta stock. The estmated oss u 1946 from
the repea of these two ta es w e 22 ,000,000.
Your commttee beeves that these ta es shoud be repeaed for the foowng
reasons:
(1) The ta es penaze corporatons whch can not successfuy guess the sze
of ther ncome 1 to 12 months ahead. Ths especay works a hardshp on
smaer frms, snce they generay have ess stabe ncomes than arger corpo-
ratons.
(2) Repea of these ta es woud smpfy the corporate ta structure, snce
one return woud be emnated and the present ncome-ta return somewhat
condensed.
Your commttee beeves that 1940 woud be an especay approprate tme to
repea these ta es because the transton perod w be a more than usuay
dffcut tme n whch to predct corporate ncome and thus the operaton of these
ta es w resut n unusua hardshps n 1046.
n addtona amendment, deang wth these ta es, has been made by your
commttee. Corporatons whch have recovered, n 1945, foregn propertes sezed
by the enemy are permtted by ths b to pay a decared vaue e cess-profts ta ,
equvaent to the capta stock ta , of 1.25 per cent of the amount recovered.
Under present aw most such corporatons woud have to pay the fu decared
vaue e cess-profts ta on such recoveres, snce n most cases they woud have
been unabe to determne the vaue of the recoveres n suffcent tme to aow
for them n ther capta stock decaratons. Under your commttee s b these
corporatons are paced n the same poston as they woud have been had they
known the amount of the ncome recovered at the tme they made ther capta
stock decaratons.
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639
comparson of the changes In the present corporate ta structure made by
your commttee s b and the ouse b are shown In tabe 12.
Tabe 12. .4 comparson of the present corporate ta structure wth changes
made by the ouse b and the nance Commttee b.
. INCOM T .
Descrpton of ta .
Present aw.
nance
ouse b. Commttee
b.
1. Norma tat:
(o) Corporatons wth norma-ta net ncomes of not
more than 50,000 under present aw and ouse
b or 60,000 under the nance Commttee b-
On frst 5,000
On amount over 5,000 but not over 10,000 ...
On amount over 10,noo but not over 20,000...
On amount over 20,000 but not over 25,000...
On amount over 25,000 but not over 50,000...
On amount over 50,000 but not over 60,000..
(6) Corporatons wth norma-ta net ncomes over
50,000 under present aw and ouse b or
60,000 under the nance Commttee b.
II. Surta :
(a) Corporatons wth surta net ncomes of not more
than 50,000 under present aw and ouse b or
60,000 under the nance Commttee b
On frst 10,000.
On amount over 20,000 but not over 25,000.
On amount over 25,000 but not over 50,000 .
(5) Corporatons wth surta net ncomes of over
5)1.000 under present aw and ouse b or
60,000 under the nance Commttee b.
(c) Consodated returns: consodated surta ncomes,
addtona.
15 per cent..
17 per cent..
17 per cent..
10 per cent..
31 per cent..
Sub|ect to
24 per cent
ta on a
ncome.
24 per cent..
10 per cent..
22 per cent..
Sub|ect to
16 percent
rate on a
ncome.
16 per cent..
2 per cent...
15 per cent..
17 per cent..
17 per cent..
19 er cent,
SI per cent
Sub|ect to
24 percent
ta on a
ncome.
24 per cent..
6 per cent..
1 per cent.
Sub|ect to
12 per cent
rate on a
ncome.
12 per cent.
2 per cent..
5 per cent.
1 er cent.
19 per cent.
29 per cent.
24 per cent.
15 per cent.
9 per cent.
10 per cent.
22 per cent.
16 per cent.
2 per cent.
. C SS-PRO ITS T .
( ) Net rate payabe
(ft) Over-a ncome and e cess profts ta mted to..
5 per cent
60
0 per cent
per
cent.
No
Re-
peaed
an.I,
Repeaed
an. 1 ,
of surta
m-
1047.
1946.
net In-
ta-
come.
ton.
C. C PIT L STOC ND D CL R D LU C SS-PRO ITS T S.
ft) Decared vaue e cess-profts ta :
1.25 for
each 1,000.
Repeaed
Repeaed.
Repeaed.
Porton of net ncome from 10 to 15 per cent of decared
vaue.
6.6 per cent..
Porton of net ncome n e cess of 15 per cent of decared
vaue.
13.2 per cent.
Repeaed
Genera Dscusson of Recommendfd cse Ta Reductons.
1. effect of the fnance commttee b on wartme e cse ta es.
The temporary e cse war ta rates mposed by Tte III of te Revenue
ct of 1943 provded that the addtona wartme ncreases woud be removed
appro matey s months after the termnaton of hosttes as procamed by
the Presdent or specfed n a concurrent resouton of Congress. The ouse
b removes ths termnaton date for the wartme e cses and substtutes the
specfc date, une 30. 1046.
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640
Your commttee dd not change present aw wth respect to the termnaton
date of these e cse war ta rates because t beeves that other ta reductons
are more desrabe for the economy, at ths tme, and t s not beeved that
revenues shoud be owered to the e tent that woud permt the reducton n
e cse ta rates. urthermore, there are many other e cse ta es whch were m-
posed or ncreased durng the war by the Revenue cts of 1941 and 1942. Some
of these were mposed, or ncreased, specfcay to mt the purchase by the
pubc of goods whch the Government needed for defense or war purposes. It
s beeved that consderaton shoud aso be gven to these ta es when e cse
rates are reduced. There s not suffcent tme to revse these e cses n the
present b, however, and thus t s recommended that genera e cse ta reduc-
tons awat a future b.
Your commttee concurs wth the ouse, however, n provdng that when the
war ta rate reductons are made, refunds of the addtona wartme e se
ta es be made on a foor stocks of dsted sprts, wnes, fermented mat
quors, and eectrc ght bubs hed for sae or use n producton at the effectve
date of the repea, on whch the wartme rates have been pad.
The Revenue ct of 1043 sub|ected foor stocks of acohoc beverages hed for
sae or use In producton on the effectve date of the wartme e cse ta rate
ncreases to speca ta es whch were the equvaent of the addtona war rates.
Ths b now reverses the process and provdes refunds on foor stocks hed at
the tme when the wartme rates are repeaed. In vew of the substanta ta
reducton, partcuary n the case of dsted sprts, your commttee beeves
that ths s necessary to avod sub|ectng retaers and manufacturers nvoved
to an unfar ta burden. |S ot to do so mght resut n substanta nequty,
snce those hodng such foor stocks on whch the wartme rates had been pad
mght be forced to reduce ther prces on such stocks and thus absorb the war
ta , f n competton wth others obtanng ncohoc beverages on whch the
addtona wartme e cse ta rate had not been pad. Therefore, refunds are
to be granted n those cases where such prce reductons actuay are made.
though no ta was mposed on foor stocks when the ta on eectrc ght
bubs was ncreased, your commttee beeves that refunds on foor sto:ks of
eectrc ght bubs are |ustfed by reason of the dfferences n the trade practces
of compettors.
2. R P LING T T ON T US O MOTOR ICL S ND O TS.
Your commttee concurs wth the ouse n repeang the ta on the use of
motor vehces and boats, effectve uy 1, 1046. The ne t use ta s due nt
that tme. The ta s an annua stamp ta of 5 on the use of automobes and
a stamp ta of from 5 to 200 on the use of certan boats, the ta n the atter
case varyng wth the sze of the boat. The estmated revenue oss n 1046 from
the repea of ths ta s 140,000,000.
The use ta was enacted by the Revenue ct of 1941 and was ntended pr-
mary as a source of revenue durng the emergency and war perod. Wth the
war ended ths reason for retanng the ta no onger e sts. Therefore your
commttee beeves that the ta shoud be dscontnued.
Genera Dscusson of Recommended mpoyment Ta Legsaton.
Your commttee concurs wth the ouse n contnung empoyment ta es for
the od-age and survvors nsurance program through 1040 at the present rates
of 1 per cent on wages pad by empoyers and 1 per cent on wages receved by
empoyees, nstead of ncreasng the rates n 1946, as provded by present aw,
to 2 | per cent for each of these groups.
It s beeved that t s desrabe to study further the fnancng of the od-age
and survvors Insurance program before makng any changes n empoyment ta
rates.
Genera Dscusson of Other Proposed Changes.
1. determnng effect of proposed ta bkdt ctons on ndvduas and
corporatons usng fsca years.
of the proposed ta reductons In the ndvdua ncome ta as we as the
repea of the e cess-profts ta and the reductons n the corporate ncome ta
requre speca egsaton for ndvduas or corporatons on a fsca-year rather
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641
than a caendar-year bass. Ths b provdes that fsca-yenr ta payers be
aowed a pro rata porton of any ta reducton, determned by the porton of
ther ta abe year fang n the caendar year n whch the ta reductons
become effectve. smar pro rata bass woud be used to determne any
unused e cess-profts credt carry-back avaabe to a fsca-year ta payer wth
respect to any fsca year begnnng n caendar year 1940 and endng n caendar
year 1947.
2. T NSION OP CLUSION OM GROSS INCOM O INCOM OM DISC RG O
IND T DN SS.
Your commttee s b e tends the appcaton of secton 22(b) (9) and (10)
to ncude ta abe years begnnng n 1940. These provsons provde for the
e cuson from gross ncome of ncome reazed by a corporaton by the purchase
of ts own bonds, debentures, or other evdence of ndebtedness and aso n the case
of raroads, the e cuson from gross ncome of any gans reazed from the can-
ceaton of Indebtedness n bankruptcy proceedngs. The appcaton of the pro-
vsons under e stng aw s mted to ta abe years begnnng before anuary
1, 1940. Ths b contnues the appcaton of these provsons for another year,
durng whch tme the whoe probem of the ta treatment of Income from the
canceaton of ndebtedness w be studed.
3. T NDING D R L GO RNM NT MPTIONS ROM C RT IN D R L CIS T S.
Your commttee concurs wth the ouse In provdng for the contnuaton of the
authorty granted by the Revenue ct of 1943 to the Secretary of the Treasury
to e empt from certan edera e cse ta es any artces or servces to be pur-
chased for the e cusve use of the Unted States, f the Secretary determnes that
the mposton of the ta wth respect to such artces or servces w cause
substanta burden and e pense whch can be avoded by ta e empton. The
Secretary s power, under present aw, to make such e emptons e pres s months
after the cessaton of hosttes.
D T IL D DISCUSSION O T T C NIC L PRO ISIONS O T ILL.
Tte I Income and cess-Profts Ta .
P RT I INDI IDU L INCOM T N S.
S CTION 101. R DUCTION IN NORM L T ND SURT ON INDI IDU LS.
Secton 101 of the b wth the amendments proposed by your commttee pro-
vdes reductons n the norma ta and surta on ndvduas. Subsecton (a),
for whch there s no correspondng provson n the ouse b, amends secton
11 of the Code to provde for an over-a reducton of 5 per cent n the amount
of the norma ta computed at the 3 per cent rate. The amendment, n tffect, re-
duces the norma ta rate from 3 to 2. 5 per cent. The reducton n the norma
ta reduces the ta effect of credts aowed for the norma ta , such as the
credts for partay ta -e empt obgatons under secton 25(a) (1) and (2).
Under e stng aw the surta rates on ndvduas range from 20 per cent
to 91 per cent. The aw aso provdes that the combned norma ta and surta
sha not, n the aggregate, e ceed 90 per cent of the net Income of the
ta payer for the ta abe year. Secton 101(a) of the ouse b amended secton
12(b) of the Code to provde a new schedue of surta rates, rangng from 10
to 1 /2 per cent.
Under secton 101 (b) of the b as proposed by your commttee the surta rates
provded n secton 12(b) of e stng aw have been reduced by 3 percentage
ponts n each bracket to provde a new schedue of rates for a tentatve surta
rangng from 17 to per cent. In addton to these changes, secton 12(b) of the
Code has been amended to provde for a reducton of 5 per cent n the amount
of the tentatve surta computed under the revsed rates. Thus the surta s
5 per cent ess than the amount computed under the tabe.
The amendment made by secton 101(b) of the ouse b to secton 12(g)
of the Code, reducng the mtaton on the aggregate, norma ta and surta
from 90 to 1 per cent, has been emnated by your commttee. In eu thereof,
secton 101(c) of your commttee b reduces the 90 per cent mtaton to 0M
per cent
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Secton 101(d) of your commttee b s dentca wth secton 101(c) of the
ouse b and provdes that the amendments made by secton 101 sha be ap-
pcabe to ta abe years begnnng after December 31, 1945. Speca provson
for fsca years begnnng n 1945 and endng n 1946 s made n secton 131(a)
of the b.
S CTION 102. LLOW NC O S M MPTIONS O NO M L T S O SU T .
Secton 102 of the b as reported by your commttee s substantay the same
as secton 102 of the ouse b.
Under e stng aw, secton 25(a)(3) provdes a snge e empton of 500
for norma ta purposes, e cept that n the ease of a |ont return of a husband
and wfe, each havng ad|usted gross ncome of 500 or more, the norma ta
e empton s 1,000. If a |ont return s fed by husband and wfe, one of whom
has an ad|usted gross ncome of ess than 500. the norma ta e empton s 500
pus the ad|usted gross ncome of such spouse. or surta purposes, the ta payer
s entted to e emptons n the amount of 500 for hmsef, 500 for hs spouse
f a |ont return s fed or f a separate return s fed and the spouse has no
gross ncome and s not the dependent of another, and 00 for each dependent
wn se gross ncome s ess than 500.
Subsecton (a) of ths secton of the b woud revse secton 25(b) of the Code
to make the present e emptons now aowabe n computng the surta aso
avaabe as credts aganst net ncome for the purpose of the norma ta . Sub-
secton (b) contans 10 technca amendments necesstated by the change n the
e emptons for norma ta purposes. It s proposed to emnate the frst
amendment contaned n subsecton (b) of the ouse b snce the approprate
correcton of secton 11, reatng to the norma ta on ndvduas, s made n
secton 101(a) of your commttee b. The 10 technca amendments n your
commttee b are the same as the remanng amendments n the ouse M.
The amendments made by ths secton sha be appcabe to ta abe years
begnnng after December 1, 1045. Speca provson s made n secton 131(a)
of the b for ta abe years begnnng n 1045 and endng n 1940.
SUCTION 103. INDI IDU LS WIT D UST D OSS INCOM S O I. -S T N 5,000.
Ths secton, ke the correspondng secton of the ouse b, amends the ta
tabe contaned n secton 400 of the Code, reatng to the optona ta on ndvd-
uas wth ad|usted gross ncomes of ess than 5,000. The ta tabe proposed
n your commttee b gves effect to the changes made n the norma ta and
surta under sectons 101 and 102. The tabe has been computed by aowng
the e emptons aganst both norma ta and surta and by takng nto account
the reduced norma ta and surta rates. Thus, the 5 per cent reducton, n
addton to the other changes, has been taken Into account n preparng the tabe.
The new tabe of ta es woud become effectve for ta abe years begnnng
after December 31, 1045. Speca provson s made In secton 131(a) Of the
b for ta abe years begnnng n 1945 and endng n 1940.
S CTION 104. R DUCTION IN WIT OLDING O T T SOURC ON W G S.
Ths secton s the same as secton 104 of the ouse b e cept for the sub-
sttuton of new tabes for the tabes n subsecton (b) and the addton of a new
subsecton (d).
Secton 1622(a) of e stng aw requres the use of three dfferent percent-
age rates n computng the amount of ta to be wthhed at the source, f the
empoyer eects to use the percentage method n eu of the wage-bracket tabes
provded In secton 1022(c). The severa rates are necessary h order to com-
pute the approprate amount of ta to e wthhed n respect of the norma ta
and the frst and second brackets of the surta . The rates provded under
e stng aw for such purpose are 2.7, IS, and 10. per cent, respectvey. The
separate rate for computng the amount of ta to be wthhed n respect of the
norma ta s occasoned by the dfference n the e emptons provded n secton
25 for norma ta and for surta purposes. s a resut of the amendment con-
taned n secton 102 of the b whch makes the present surta e emptons
avaabe for norma ta purposes, t s possbe to emnate the 2.7 per cent
rate entrey and to combne the norma ta wth the surta rates. The two
rates now correspondng to the frst and second surta bracket rates are revsed
to refect the amendments contaned n secton 101 of the b reducng the nor-
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ma ta and surta rates. ccordngy, subsecton (a) of ths secton amends
secton 1622(a) by emnatng the 2.7 per cent rate and by reducng the 1 and
19. per cent rates to 17 per cent and 19 per cent, respectvey. These rates
take nto consderaton the standard deducton of appro matey 10 per cent.
technca amendment s aso made to conform the percentage method wth-
hodng tabe to the new rate appcabe to the frst surta bracket.
Subsecton (b) of the ouse b substtutes for the present wthhodng ta
tabes under secton 1622(c) (1) new ta tabes whch refect the changes made
wth respect to the surta rates n secton 101 of such b and wth respect to
the norma-ta e emptons n secton 102 of such b. Subsecton (b) of your
commttee s b kewse provdes for new wthhodng tabes whch refect the
reducton made wth respect to the norma ta and the surta .
Subsecton (c) s a technca amendment to secton 1022(h) (1) (C) to conform
the reference to e emptons n the case of dependents to the changes made by
secton 102 of the b.
Subsecton (d), for whch there s no correspondng provson n the ouse
b, woud amend sectons 1625(a) and 1020 (a) and (b) of the Code. Under
secton 1025(a) of e stng aw every empoyer requred to deduct and wth-
hod a ta n respect of the wages of an empoyee s requred to furnsh to each
such empoyee, n respect of hs empoyment durng the caendar year, a wrtten
statement showng the wages pad by the empoyer to such empoyee durng such
caendar year and the amount of the ta deducted and wthhed under Sub-
chapter I) of Chapter 9 of the Code n respect of such wages. The amendment
to secton 1625(a) woud requre an empoyer to furnsh such a statement to
an empoyee, even though no ta s requred to be deducted and wthhed wth
respect to such empoyee s wages, f the wages pad to such empoyee e ceed the
amount of one wthhodng e empton. or e ampe, f an empoyee s pad
15 per week, there may be no ta requred to bo deducted and wthhed nas-
much as the empoyee may cam two or more wthhodng e emptons never-
theess, snce the wages e ceed the amount of one wthhodng e empton for a
weeky pay-ro perod, a statement woud be requred to be furnshed to such
empoyee under the proposed amendment. Such statement (known as orm
W-2) s used as a smpe ta return form by mons of ta payers. Under
the amendment such smpe return form woud be made avanbe to an em-
poyee who s requred to make a return but who has no ta deducted or wth-
hed from hs wages. The amendments of secton 1620 (a) and (b) consst of the
omsson of the e presson n respect of ta wthhed pursuant to ths sub-
chapter and the substtuton of statement for recept wherever appear-
ng theren. s a resut of such amendments, the penates for furnshng a
frauduent recept or faure to furnsh a recept woud appy n cases where no
ta s requred to be wthhed but a statement s requred under secton 1625(a)
as amended.
The amendments made by ths secton of the b are made appcabe to wages
pad on or after anuary 1, 1946.
P RT II CORPOR TION T S.
S CTION 121. R DUCTION IN NORM L T ND SURT O SP CI L CL SS S O
CORPOR TIONS.
Ths secton repaces secton 121 of the ouse b whch was emnated by
your commttee. The ouse b reduced the surta of corporatons by 4 per-
centage ponts, makng reated changes n the surta on corporatons wth surta
net ncomes of ess than 50,000 and on certan partcuar casses of corporatons.
In eu thereof secton 121 of your commttee b reduces the aggregate norma
ta and surta of smaer corporatons (. e., those wth net ncomes of ess than
60,000). The ta reductons are effected by ad|ustments n the norma ta
and surta rates and aso n the brackets whc effect the transton to the
reguary appcabe rates to obvate the notch whch woud otherwse e st.
The genera effect of the amendments s to provde reatvey more reef n the
ower brackets of ncome and proportonatey ess n the hgher brackets unt
the ta reducton entrey dsappears n the case of net ncomes of 00,000.
Certan casses of corporatons whch are sub|ect to speca ta provsons under
e stng aw are not affected.
Subsecton (b) of secton 121 amends secton 14(b) of the Code, reatng to
the norma ta on corporatons wth net ncomes of not more than 25,000.
Under the amendment the norma ta rate upon norma ta net Incomes not
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In e cess of 10,000 s f ed at 15 per cent, upon norma ta net ncomes n e cess
of 10,000 and not n e cess of 20,000 at 1 per cent, and upon norma ta net
ncomes In e cess of 20,000 and not n e cess of 23,000 at 19 per cent.
Subsecton (a) of secton 121 amends subsecton (b) (2) of secton 13 of the
Code whch at present provdes for an aternatve norma ta on corporatons
wth norma ta net ncomes over 25,000 and not over 50,000. The amend-
ment changes the rate from 31 to 29 per cent, and aso e tends the brncket
from the present 50,000 up to. 60,000. Ths provdes a transton from the
rates under the amendments made by subsecton (b) and (c) of the secton to
the generay appcabe 24 per cent norma ta rate mposed by secton 13(b)(1)
of the Code, whch remans unchanged.
Subsecton (c) of secton 121 amends secton 15(b) of the Code reatng to
the corporaton surta . The amendment breaks the e stng frst bracket of
surta net Incomes not over 25,000 nto three brackets and mposes rates runnng
from 5 per cent on the frst 10,000 of surta net ncome to 9 per cent on the
porton of surta net ncome over 10,000 and not over 20,000 and to 10 per
cent upon the porton of surta net ncome over 20,000 and not over 25,000.
s n the case of the norma ta , the amendment aso e tends the e stng
bracket provson, whch runs from 25,000 to SS .OOO. up to 00,000. The rate
n ths bracket remans at 22 per cent as under e stng aw. Ths ad|ustment
provdes a more satsfactory and equtabe transton to the generay appcabe
16 per cent surta rate, whch remans unchanged.
Subsecton (d) of secton 121 amends secton 207(a)(1)( ) of the Code
reatng to mutua nsurance companes other than fe or marne. Under
e stng aw the aternatve surta rnte under secton 207(a)(1)( ) s 20
per cent and appes on surta net ncomes over 3,000 and not over 6,000.
In order to mantan the pont at whch ths aternatve surta ceases to appy
at 0,000, as under e stng aw, the 20 per cent rate s reduced to 10 per cent.
Ths change s correated wth the reducton of the surta rate on surta net
ncomes not over 10,000 to 5 per cent, under the amendment made by sub-
secton (b).
Subsecton (e) of secton 121 makes the amendments made by the secton
appcabe wth respect to ta abe years begnnng after December 31, 1945.
Under secton 131 of the b speca treatment s prescrbed n the case of ta abe
years begnnng In 1945 and endng n 1946. Ths atter provson, however,
has no appcaton to the mutua nsurance companes to whch the amendment
made by subsecton (d) appes.
S CTION 122. R P L O C SS-PRO ITS T IN 1946.
Secton 122 of the ouse b contnued the e cess-profts ta through 1946,
but provded that the rate of ta shoud be 60 per cent for ta abe years begnnng
after December 31, 1945. Secton 123(a) of the ouse b repeaed the e cess-
profts ta wth respect to ta abe years begnnng after December 31, 1946.
Your commttee has emnated secton 122 of the ouse b and has renumbered
secton 123 as secton 122 and amended t to provde, n subsecton (a), that
the e cess-profts ta sha not be appcabe wth respect to any ta abe year
begnnng after December 31, 1945. Provson has been made by your com-
mttee under secton 131(b) of the b for ta abe years begnnng In 1945 and
endng n 1946.
Your commttee, however, has provded n secton 122(b) of the b that
the provsons of Subchapter of Chapter 2, whch reate to the e cess-profts
ta , sha reman n force for purposes of the determnaton of e cess-profts
ta es for ta abe years begnnng pror to anuary 1, 1946. The determnaton
of such ta es s to be made wth the appcaton of the amendments made by
sectons 122(c) and 131 of the b. Secton 131 reates to fsca-year ta payers,
fubse on (c) of secton 122 amends secton 710(c)(2) of the Code to provde
that there sha be no unused e cess-profts ta credt for any ta abe year
begnnng after December 31, 1946. There s, however, to be an unused e cess-
profts credt for a ta abe year begnnng n 1946. In the case of a ta abe year
whch begns n 194(5 and ends n 1947, the unused e cess-profts credt w _be
an amount whch s such part of the unused e cess-profts credt otherwse
determned as the number of days n such ta abe year pror to anuary 1, 1W7.
s of the tota number of days n such ta abe year. Thus, even though no
e cess-profts ta w be mposed for a ta abe year begnnng n 1946, there
may be an unused e cess-profts credt for such ta abe year, and such unused
e cess-prc fts credt may be carred back and may affect the e cess-profts t
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otherwse mposed for ta abe years begnnng n 1044 or 104.r . provsons of
aw necessary to compute the e cess-profts credt, the e cess-profts net ncome,
nnd the unused e cess-profts credt for a ta abe year begnnng n 1S)40, and
the unused e cess-profts credt carry-back from such ta abe year, s be taken
nto account n determnng the unused e cess-profts credt and the resutng
carry-back n the same manner as f an e cess-profts ta were mposed for such
ta abe year. In determnng the unused e cess-profts credt ad|ustment for
ta abe years begnnng pror to anuary 1, 1046, the unused e cess-profts credt
for a ta abe year begnnng n 104( may be computed by takng Into account a
constructve average base perod net ncome determned under secton 722 of the
Code. ta abe year begnnng n 1040 for purposes of the e cess-profts ta
sha be the same ta abe year as that for purposes of the ta mposed by Chapter
1 of the Code.
There s danger that the operaton of the unused e cess-profts credt carry hack
provson, partcuary n 19 6, may make possbe certan abuses. These poten-
ta abuses mght arse through varous devces or transactons entered nto
whoy or n arge part for the purpose of obtanng refunds of wartme e cess-
profts ta es through unused credt carry-hacks, or through transactons havng
the apparent effect of creatng carry-back refunds n stuatons unreated to the
purpose and ntent of the provsons aowng carry-backs. Whe varous ta -
avodance schemes are aready deat wth ether by e press provson n the
nterna-revenue aws or through court decsons, your commttee w gve fur-
ther consderaton to the necessty or desrabty of retroactve egsaton n
ths connecton.
Subsecton (d) of secton 122 appes wth respect to an affated group of
corporatons makng consodated returns. Unused e cess-pn fts credt carry-
backs from ta abe years subsequent to 1945 may become a factor n the case of
such corporatons. The consodated return nvoved may be a consodated
Income-ta return made for a ta abe year begnnng n 1046 or t may be a
consodated ncome or e cess-profts ta return made for the ta abe year 1044
or 104 ) or consodated returns may be made for the severa ta abe years
nvoved. Secton 122(d) provdes that, n a such cases, the carry-hacks from
a subsequent ta abe year, whether or not a consodated return s made for such
year, sha be gven effect n such manner as the Commssoner, wth the approva
of the Secretary, sha have prescrbed by reguatons pror to the ast day pre-
scrbed by aw for the makng of the return for such year, whch date ncudes
the ast day of any e tenson of tme granted by the Commssoner.
Subsecton (e) of secton 122 of the b, for whch there s no correspondng
provson n the ouse b, amends secton 322(b) (6) of the Code whch provdes
a speca perod of mtaton n the case of credts or refunds of overpayments
whch are attrbutabe to net operatng oss carry-backs or to unused e cess-
profts credt carry-backs. In genera, secton 322(b) (6), added by secton 5(b)
of the Ta d|ustment ct of 1945, provdes that f an overpayment of ta s
attrbutabe to a net operatng oss carry-back or to an unused e cess profts
credt carry-back, the perod wthn whch a cam for credt or refund of such
overpayment may be fed, or credt or refund aowed or made, sha be coe ten-
sve wth the perod wthn whch cam for credt or refund may be fed, or
credt or refund aowed or made, wth respect to the ta abe year of the net
operatng oss or the unused e cess-profts credt whch resuted n the carry-
back. Inasmuch as the perod wthn whch cam for credt or refund may be
fed, or credt or refund aowed or made, wth respect to the ta abe year of
the net operatng oss or the unused e cess-profts credt depends, under secton
322(b)(1) of the Code, on the date on whch the return for such ta abe year s
fed and nasmuch as no e cess profts ta return w be fed for a ta abe year
begnnng n 1946, t s necessary to amend secton 322(b) (6) to provde a sats-
factory perod of mtaton. Secton 322(b) (6) s accordngy amended by sub-
secton (e) of secton 122 of the b to provde that n the ease of an overpayment
attrbutabe to a net operatng oss carry-back or to an unused e cess-profts
credt carry-back the 3-year perod specfed n secton 322(b)(1) of the Code
wthn whch a cam for credt or refund may be fed, or credt or refund aowed
or made, sha be (1) that orod whch ends wth the e praton of the 15th day
of the thrty-nnth month foowng the end of the ta abe year of the net oper-
atng oss or the unused e cess-profts credt whch resuted n the carry-back, or
(2) the perod specfed n secton 322(b)(3), reatng to wavers, whchever
e pres ater. The amendment s to be appcabe wth respect to a ta abe
years begnnng after December 31, 1940, 1. e to a ta abe years whch may be
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affected by a carry-back aud to whch the orgna provsons of secton 322(b) (6)
were made appcabe.
Subsecton (f) of secton 122 of the b, to whch there s no correspondng
provson n the ouse b, amends secton 276(d) of the Code, reatng to
defcences attrbutabe to net operatng oss carry-backs and to unused e cess-
profts credt carry-backs. Secton 276(d) of the Code, whch was added by sec-
ton 5(e) of the Ta d|ustment ct of 1945 and whch s correatve of secton
322(b) (6) of the Code, provdes n genera that a defcency attrbutabe to a net
operatng oss carry-back or to an unused e cess-profts credt carry-back may be
assessed at any tme pror to the e praton of the perod wthn whch a def-
cency may be assessed wth respect to the ta abe year of the net operatng oss
or the unused e cess-profts credt whch resuted n the carry-back. Inasmuch
as no e cess-profts ta return w be fed for a ta abe year begnnng n 1046,
t s necessary to provde a proper perod of mtaton for assessng a defcency
where such defcency s attrbutabe to an unused e cess-profts credt carry-back
from a ta abe year begnnng n 1946. Moreover, there s kewse some doubt
under the present provsons of secton 276(d) as to the proper perod of mta-
ton n certan types of cases for assessng a defcency attrbutabe to a carry-
back. or e ampe, It s not cear whether a defcency attrbutabe to a unused
e cess-prcfts credt carry-back whch tsef was produced by a net operatng oss
carry-back may be assessed at any tme pror to the e praton of the perod
wthn whch a defcency may be assessed wth respect to the ta mposed under
Chapter 1 of the Code for the ta abe year of the net operatng oss or at any
tme pror to the e praton of the perod wthn whch a defcency may be assessed
wth respect to the e cess-profts ta for the ta abe year of the net operatng
oss. Subsecton (f) of secton 122 of the b accordngy amends secton 276(d)
of the Code to provde a rue to take care of the speca stuaton arsng out of
defcences attrbutabe to unused e cess-profts credt carry-backs from ta abe
years begnnng n 1946, and to remove any ambguty n the e stng provsons
of aw. The amendment made by subsecton (f) of secton 122 of the b s to
be appcabe to a ta abe years begnnng after December 31, 1940, . e., to a
ta abe years whch may be affected by a carry-back and to whch the orgna
provsons of secton 276(d) were made appcabe.
The perod wthn whch a defcency attrbutabe to a carry-back may be
assessed, under secton 276(d) of the Code as amended by secton 122(f) of the
b, w depend on whether an e cess-profts ta return was requred for the
ta abe year of the net operatng oss or the unused e cess-profts credt whch
resuted n the carry-back. If an e cess-profts ta return was requred to be
fed for such ta abe year, a defcency n any ta attrbutabe to such carry-back
may be assessed at any tme pror to the e praton of the perod wthn whch
(under the provsons of secton 275 or 270 (a) or (b) of the Code) a defcency
may be assessed wth respect to the same or any other ta mposed by Chapter
1 or by Subchapter or of Chapter 2 for such ta abe year. It s mmatera
whether an e cess-profts ta return n fact was fed for the ta abe year of the
net operatng oss or the unused e cess-profts credt, whether the defcency s
attrbutabe to a net operatng oss carry-back or to an unused e cess-profts
credt carry-back, or whether the defcency s n respect of the e cess-profts
ta or some other ta . If the perod wthn whch a defcency may be assessed
under any other appcabe provson of aw s onger than the perod provded
n secton 270(d), a defcency attrbutabe to a carry-back may be assessed at
any tme pror to the e praton of such onger perod.
If no e cess-profts ta return was requred to be fed for the ta abe year of
the net operatng oss or the unused e cess-profts credt, a defcency n any ta
attrbutabe to a carry-back whch resuted from such oss or unused credt may
be assessed at any tme pror to the e praton of the perod wthn whch (under
the provsons of secton 275 or 276 (a) or (b) of the Code) a defcency may be
assessed wth respect to the same or any other ta mposed by Chapter 1 or by
Subchapter or of Chapter 2 for such ta abe year. If a onger perod of
tme s provded under some other appcabe provson of aw than that specfed
n secton 276(d) of the Code, a defcency attrbutabe to a carry-back may be
assessed, as n the case where an e cess-profts ta return s requred, at any
tme pror to the e praton of the onger perod.
Subsecton (g) of secton 122 of the b, whch corresponds to subsecton (b)
of secton 123 of the ouse b, makes certan technca amendments wth respect
to ta abe years begnnng after December 31, 1945, to conform the provsons of
the Code to the amendment made by secton 122(a).
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647
Subsecton (h) of secton 122 of the b, whch corresponds to subsecton (c)
of secton 123 of the ouse b and whch reates to ta abe years begnnng n
1945 and endng n 19-16, s a cross reference to secton 131 of the b whch reates
to fsca year ta payers.
P RT III ISC L T R T P Y RS.
S CTION 1 1. ISC L Y t T P Y O.
Secton 10 of the Code contans speca rues for the computaton of the ta
n the case of ta payers makng returns on a fsca-year bass. Secton 131(a)
of the ouse b amended secton 10 of the Code by addng two new subsectons
to provde for the computaton of the ta mposed by sectons 11, 12. 13, 14, 15,
and 400 n the case of ta abe years begnnng n 1945 and endng n 1046, and
for the computaton of the tu mposed by sectons 13, 14, and 15 for ta abe
years begnnng n 1046 and endng n 1047. The computatons provded by these
amendments are smar to the computaton provded under e stng aw wth
respect to fsca years begnnng n 1043 and endng n 1044. Under the ouse
b the rue prescrbed for the computaton of the ta mposed by sectons 13, 14,
and 15 for ta abe years begnnng n 19 0 and endng n 1047 was necesstated
by the fact that the e cess-profts ta was contnued at a ower rate for 1046 and
was repeaed for 1047 by sectons 122 and 123 of the ouse b. These pro-
vsons were nserted as subsectons (c) and (d) of secton 10 of the Code
and subsecton (c) was redesgnated subsecton (e).
The b as reported by your commttee retans the provson of the ouse b
respectng the computaton of the ta for fsca years begnnng n 1045 and
endng n 10411 but strkes out the provson of secton 10 (d) reatve to the
computaton of the ta mposed by sectons 13, 14, and 15 for ta abe.years be-
gnnng n 1M0 and endng n 1047, snce under your commttee b there s no
dfference n the aw appcabe to 1046 and 1947 wth respect to such ta .
Secton 131(b) of the ouse b added new paragraphs (7) and ( ) to secton
710(a) of the Code to provde for the computaton of the e cess-profts ta for
ta abe years begnnng n 11)45 and endng n 1946 and for ta abe years begn-
nng In 1946 and endng n 1047, respectvey. The rue provded for ta abe
years begnnng n 1945 and endng n 1946 s smar to that provded n secton
710(a) (6) of the Code for ta abe years begnnng n 1943 and endng n 1044.
Snce the ouse b provded for repea of the e cess-profts ta wth respect to
ta abe years begnnng after December 31, 1946, paragraph ( ) added to secton
710(a) by the ouse b provded that the e cess-profts ta for fsca years be-
gnnng n 1946 and endng n 1947 shoud be an amount equa to that porton of
a tentatve ta . computed as f the aw appcabe to ta abe years begnnng on
anuary 1, 1040, were appcabe to such ta abe year, whch the number of days
n such ta abe year pror to anuary 1, 1947, bears to the tota number of days
n such ta abe year.
Under the b reported by your commttee, the e cess-profts ta s made In-
appcabe wth respect to ta abe years begnnng after December 31, 1945.
ence, paragraph (7), added to secton 710(a) of the Code by the ouse b, to
provde for the computaton of the ta for fsca years begnnng n 1045 nnd
endng n 1946. s emnated, and n eu thereof there s nserted a new para-
graph (7) to prescrbe for the computaton of the ta for such fsca years a
rue smar to that provded under the ouse b for fsca years begnnng n
1946 and endng n 1947.
The Ta d|ustment ct of 1945 ncreased the e cess-profts ta specfc
e empton from 10,000 to 25,000 for ta abe years begnnng after December 31,
1945, and provded a speca rue for computng the e empton for ta abe years
begnnng n 1945 and endng n 1940. ecause of the amendment made by
secton 131 (b) of the ouse b to provde for the computaton of the ta for such
fsca years, the ouse b contaned technca amendments emnatng the
gpeca rue for computaton of the e empton for such fsca years. Subsecton
(b) of ths secton of the ouse b aso amended secton 710(c) (2) of the Code
to provde a speca rue for the computaton of the unused e cess-profts credt for
a ta abe year begnnng n 1046 and endng n 1047. Under your commttee b
the e cess-profts ta s not appcabe to ta abe years begnnng after Decem-
ber 31, 1045. ence, secton 131(b) of the b restores secton 710(b) (1) of the
Code to read as t dd mmedatey pror to ts amendment by the Ta d|ustment
ct of 1945.
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64S
Ths subsecton of your commttee b aso strkes out the amendment made
by secton 131(b) (3) of the ouse b to secton 710(c) (2) of the Code to pro-
vde for the computaton of the unused e cess-profts credt for a ta abe year
begnnng n 1946 and endng n 1947. pproprate provsons for the computaton
of the unused e cess-profts credt for ta abe years begnnng after December
31, 1945, are contaned n secton 122(c) of the b as reported by your com-
mttee, and a dscusson of these provsons appears esewhere In the report.
P RT I T R NS ND S R IC M N S PRO ISIONS.
S CTION 141. DDITION L LLOW NC O MILIT RY ND N L P RSONN L.
Ths secton, for whch there Is no correspondng provson n the ouse b,
woud amend secton 22(b) (13) of the Code, reatng to the e cuson from gross
ncome for mtary and nava personne, and woud provde for certan credts
and refunds.
Under secton 22(b) (13) of e stng aw, a 1,500 e cuson from gross ncome
s provded n the case of mtary and nava personne wth respect to the com-
pensaton receved durng any ta abe year and before the termnaton of the
present war as procamed by the Presdent for actve servce n the armed forces
of the Unted States (or of any of the other Unted Natons, f the ta payer s a
ctzen or resdent of the Unted Sates) durng such war. Ths provson appes
ony wth respect to ta abe years begnnng after December 1, 1942.
Subsecton (a) of ths secton of the h woud amend secton 22(b) (13) so as
to provde for the e cuson from gross ncome of the entre amount of the com-
pensaton receved (urng any ta abe year and before the termnaton of the
present war as procamed by the Presdent, for actve servce as a member beow
the grade of commssoned offcer or commssoned warrant offcer n the mtary
or nava forces of the Unted States, durng such war. The 1,500 e cuson
woud, under the amendment, be contnued wth respect to the compensaton
receved durng any ta abe year and before the termnaton of the present war
as procamed by the Presdent, for actve servce as a commssoned offcer (or a
commssoned warrant offcer) n the mtary or nava forces of the Unted
States durng such war, or, n the case of a ctzen or resdent of the Unted States,
as a member of the mtary or nava forces of any of the other Unted Natons
durng such war. The parenthetca e presson reatng to a commssoned war-
rant offcer s ntended to be decaratory of the aw wth respect to perso.ne
beow the grade of commssoned offcer for the purposes of secton 22(h) (13)
pror to ts amendment by secton 7 of the Current Ta Payment ct of 1943.
Under the amendment, f the compensaton pertans to actve servce rendered
durng the present war and f t s receved before the termnaton of the present
war as procamed by the Presdent, the e cuson appes regardess of whether
such compensaton s receved n one ump sum or n perodc amounts and
regardess of whether receved before or after dscharge or reease from such
servce. Wth respect to the 1,500 e cuson for commssoned offcers, ony one
such e cuson sha be aowabe n respect of the compensaton of each such
offcer durng any ta abe year.
Subsecton (b) of ths secton provdes that the e cuson wth respect to
compensaton for actve servce as a commssoned offcer sha be appcabe wth
respect to ta abe years begnnng after December 31, 1942, and that the e -
cuson wth respect to compensaton for actve servce as a member beow the
grade of commssoned offcer sha be appcabe wth respect to ta abe years
Subsecton (c) of ths secton provdes that a credt or refund of any over-
payment of the ta for any ta abe year begnnng after December 31, 1940, and
before anuary 1, 1943, to the e tent that the overpayment s attrbutabe to the
enactment of ths secton may be aowed or made f a cam therefor s fed before
anuary 1, 1947, even though at any tme pror to such date the aowance of a
credt or refund of the overpayment for any such ta abe year s otherwse pre-
vented by the operaton of any aw or rue of aw other than secton 3701 of the
Code, reatng to compromses.
S CTION 142. D RM NT O C RT IN T S O T R NS ND S R IC M N.
Ths secton, for whch there s no correspondng provson n the ouse b,
adds a new secton 3 0 to Chapter 3 of the Code to prescrbe, n the case of
certan members of the mtary or nava forces of the Unted States, the tme
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649
for payment of the ta attrbutabe to servce pay and the ta attrbutabe to
preservce earned ncome for the war years. The tme for payment s pre-
scrbed n subsecton (b) of secton 3 0 . Defntons of the terms used In sub-
secton (b) are contaned n secton 3 0 (a).
Secton 3 0 (b) provdes, n genera, that the ta attrbutabe to servce pay
for any war year and the ta attrbutabe to preservce earned ncome for any
war year sha, n eu of the tme otherwse prescrbed by aw, be pad n 12
equa nstaments spread over a perod of three years begnnng wth the frst
nstament date as defned n secton 3 0 (a)(4). The benefts of secton
3 0 (b) are aowabe ony upon appcaton made, under reguatons prescrbed
by the Commssoner wth the approva of the Secretary, pror to the frst n-
stament date. In the case of ta payers who have been reeased from actve
duty n the mtary or nava forces pror to December 1, 1045, the term
frst nstament date means May 15, 1046. In other |ases the term frst
Instament date means une 15, 1047, or the 15th day of the s th month whch
begns after the date of the ta payer s reease from actve duty n such forces,
whchever s the earer. It s provded, however, that f the frst nstament
date wth respect to any war year woud otherwse occur before the 15th day of the
thrd month foowng the cose of such year, or before the end of the perod
of tme dsregarded under secton 3 04 wth respect to the ta for such year,
the frst nstament date wth respect to such year sha be the 15th day of such
thrd month or the day foowng the end of the perod dsregarded under secton
3. 04, as the case may be. Thus, n the case of a ta payer who s dscharged n
December, 1945, the frst nstament date wth respect to that porton of
the ta attrbutabe to servce pay for a war year woud be une 15, 1040, whch
s the 15th day of the s th month begnnng after the month of the ta payer s
reease from actve duty. If, however, the ta payer s reeased from actve duty
n the armed forces n the month of une, 1046, the 15th day of the s th month
whch begns after the ta payer s reease woud be the 15th day of December,
1946. Snce such date fas before the 15th day of the thrd month foowng the
cose of such year, the 15th day of suc thrd month, or March 15, 1947, woud be
the frst nstament date for the payment of the ta attrbutabe to that porton
of the servce pay receved n 1946. If approprate appcaton s made and
payment of the ta s deferred n accordance wth the provsons of secton
3f:6 (b), one-twefth of the ta n respect of whch the deferment s authorzed
s payabe on the frst nstament date, one-twefth thereof on the 15th day of the
thrd month foowng the frst nstament date, and one-twefth cn the 15th day of
each succeedng thrd month after the precedng nstament unt the fu amount
of ta s pad.
Inasmuch as the effect of secton 3 0 (b) s to prescrbe the tme for pay-
ment of the ta n eu of the tme otherwse prescrbed by aw, no nterest sha
be charged or pad f the ta s pad at the tme prescrbed n such secton. In-
terest at the rate of 6 per cent per annum sha he charged on nstaments not
pad at the tme prescrbed n such secton from the date the nstament became
due unt the nstament s pad. If the ta payer fas to pay an nstament
of the ta at the tme prescrbed n secton 3 0 (h), such faure sha not acce-
erate the cue date of the remanng nstaments.
The e tenson of tme provded n secton 3 0 (b) reates to ta attrbutabe
to servce pay and ta attrbutabe to preservce earned ncome for war
years. The terra war year as defned n secton 3 0 (a)(2) means, n the
wse of the ta attrbutabe to servce pay, any ta abe year begnnng after
December 31, 1939, and before anuary 1, 1947. In the case of the ta attrbut-
abe to preservce earned ncome, the term means ta abe year begnnng after
December 31, 1939, but before anuary 1, 19 2, and before the ta payer entered
upon actve servce as a member of the armed forces of the Unted States, but does
not ncude any year uness part of the ta mposed by Chapter 1 for such year
became due and payabe after the ta payer entered upon such actve servce.
If the ta payer had no gross ncome for a war year other than compensa-
ton for actve servce as a member of the mtary or nava forces of the Unted
States, the term ta attrbutabe to servce pay means the ta mposed under
Chapter 1 for such year. If the ta payer had gross ncome for a war year
n addton to the compensaton for actve servce as n member of the mtary
or nava forces of the Unted States, the term ta attrbutabe to servce pay
neans the e cess of the ta mposed under Chapter 1 for such year over the ta
whch woud have been mposed f the compensaton for such servce had been
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e cuded from gross ncome. Under the terms of the defnton an e cepton Is
provded wth respect to the servce pay of commssoned offcers of the reguar
component of the rmy, Navy, Marne Corps, or Coast Guard. Thus, n the case
of a reguar offcer of these servces the term does not appy to the servce com-
pensaton for a war year uness such offcer by reason of servce on sea duty or
outsde the contnenta Unted States s entted to the benefts of secton 3 04
of the Interna Revenue Code wth respect to the ta under Chapter 1 for such
year.
If the ta abe year consttutes a war year wthn the scope of the defnton,
the ta attrbutabe to preservce earned ncome n respect of such ta abe
year s the e cess of the ta mposed under Chapter 1 for such year over the
ta that woud have been mposed f there had been e cuded from tte net
Income the amount of the earned net ncome for such ta abe year. s used
n ths secton the term earned net ncome means the earned net ncome as
defned n secton 25(a) (4) of the Interna Revenue Code appcabe In respect
of such ta abe year, e cept that n computng the earned net ncome under the
defnton contaned n secton 25(a) (4) compensaton for actve servce n te
armed forces sha not be taken nto account. or the purposes of computa-
tons under secton 3 0 the term ta mposed under Chapter 1 means a ta
computed wthout regard to the credt provded n secton 31 of the Code reatng
to ta es of foregn countres and possessons of the Unted States, and the credt
provded n secton 32 reatng to the ta wthhed at the source.
Secton 3 0 (c) provdes for the suspenson of the perod of mtatons under
secton 270(c) of the Code on the coecton of the ta In respect of any ta
the tme for the payment of whch s prescrbed under secton 3 0 (b). The
perod of suspenson so provded Is the perod begnnng wth the date of the
fng of the appcaton under secton 3 0 (b) and endng s months after the
date prescrbed n such secton for the payment of the ast nstament of such ta .
Subsecton (b) of secton 142 provdes for the refund of nterest pad on
that porton of the ta for any ta abe year n respect of whch a new payment
date s authorzed by secton 3S0 , as added by secton 142 (a) and (b) ot the
b. The subsecton provdes that any such nterest pad pror to the date
of the enactment of the Revenue ct of 1045 sha be credted or refunded to
the ta payer f cam therefor s fed wth the Commssoner pror to anuary
1, 1947.
P RT MISC LL N OUS.
S CTION 151. R PORTS O R UNDS M) C 1)IT TO .10INT COMMITT ON INT . t
NU T TION.
Wth the end of the emergency perod specfed n secton 124, a arge voume
of appcatons for tentatve ad|ustments under secton 124(|) of the Code w
be ted. Under secton 124(k) the Commssoner s requred to make the ap-
proprate credts and refunds wthn a 90-day perod. Secton 3777(c) provdes
that carry-back refunds and credts, smary made wthn a 90-day perod, under
secton 37 0(b), do not requre pror report to the ont Commttee on Interna
Revenue Ta aton. In order that the refunds arsng through amortzaton ad-
|ustments may not be deayed, ths secton, for whch there s no correspondng
provson n the ouse b, provdes that the same e cepton to the requrement
of a report requred by secton 3777(a) as was provded by the Ta d|ustment
ct wth respect to carry-hacks shoud be made wth respect to refunds or credts
under secton 124(k).
S CTION 152. T NSION O TR TM NT O INCOM R SULTING ROM DISC RG O
INU T DN SS.
Secton 22(b) (9) of the Code provdes, n the case of corporatons, for the
e cuson from gross ncome of the amount of ncome attrbutabe to the ds-
charge of ndebtedness durng the ta abe year, provded that the ta payer con-
sents to the provsons of the reguatons prescrbed under secton 113(h)(3),
reatng to the ad|ustment of bass of property of the corporaton by the amount
e cuded from gross ncome. y ts terms secton 22(1)) (9) has no appcaton
to ta abe years begnnng after December 31, 1945. Secton 22(b) (10) of the
Code provdes for the e cuson from gross ncome of the amount of Income
attrbutabe to the dscharge of ndebtedness of a raroad corporaton, as de-
fned n secton 77m of the Natona ankruptcy ct, pursuant to an order
of a court n a recevershp proceedng or In a proceedng under secton 77 of the
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ankruptcy ct, as amended. Secton 22(b) (10) has no appcaton to ta abe
years begnnng after December 31, 1945. Secton 152 of your commttee b
woud amend secton 22(b) (9) and (10) to e tend the appcaton of such
sectons to ta abe years begnnng before anuary 1, 1947. There s no corre-
spondng provson n the ouse b.
S CTION 15 3. LOST POSTW R CR DIT ONDS.
Ths secton, for whch there s no correspondng provson n the ouse b,
amends secton (c) of the Government Losses n Shpment ct to confer au-
thorty for the ssuance of new certfcates to repace ost, stoen, or destroyed
e cess-profts ta refund bonds. Under the present provsons of the Govern-
ment Losses n Shpment ct, such bonds can not be repaced snce secton
of that ct appes ony to nterest-bearng obgatons or those ssued on a ds-
count bass. Ths amendment woud make secton of that ct appcabe to
bonds ssued under secton 7 0 of the Interna Revenue Code and woud obvate
the necessty for obtanng speca egsaton In cases where such bonds have
been ost, stoen, or destroyed.
Tte II. Repea of Capta Stock Ta and Decared aue
cess-Profts Ta .
secton 201. repea of capta stock ta .
Ths secton, whch s the same as secton 201 of the ouse b, repeas Chap-
ter G of the Code, whch mposes the capta stock ta . Ths ta s appcabe
wth respect to years endng une 30, and the repea s effectve wth respect to
years endng after une 30, 1945 n other words, the repea s effectve wth
respect to the year endng une 30, 1946, and succeedng years.
S CTION 202. R P L O D CL R D LU C SS-PRO ITS T .
Ths secton, whch s dentca wth secton 202 of the ouse b, repeas
Subchapter of Chapter 2 of the Interna Revenue Code, whch mposes the
decared vaue e cess-profts ta . The repea s technca, snce the ta appes
ony to corporatons sub|ect to capta stock ta , whch ta s repeaed by secton
201. The decared vaue e cess-profts ta s due wth respect to the ncome
ta ta abe years endng after the cose of the capta stock ta ta abe year.
The repea of Subchapter s accordngy made effectve wth respect to Income
ta ta abe years endng after une 30, 1946, the frst year w th respect to whch
the repea of the capta stock ta Is effectve.
S CTION 203. LT RN TI T W R W R LOSS R CO RI S INCLUD D IN N T
INCOM .
Secton 203, whch has been added to the b as passed by the ouse, amends
secton 600 of the Code by addng thereto a new subsecton (b) to mpose an a-
ternatve decared vaue e cess-profts ta . Ths ta s appcabe ony n cases
where the ta payer s net ncome ncudes any amount on account of war osses
recoveres under secton 127(c) of the Code. It s mted to ta abe years endng
after une 30, 1945, and of course to years endng before uy 1, 1946, snce the ta
s repeaed wth respect to years endng after une 30, 1946.
Secton 600(b) provdes that where the net ncome of the ta payer for pur-
poses of the decared vaue e cess-profts ta ncudes any amount on account
of war oss recoveres under secton 127(c), then, n eu of the ta computed
under secton 600(a) (the reguar ta ) the ta sha be the amount computed
under secton 600(a), after e cuson from net ncome of the amount of the war
oss recoveres, pus the esser of the foowng amounts: 1 per cent of the
amount of the war oss recoveres Incuded n the net ncome of 1 per cent of
such porton of the net ncome whch woud be sub|ect to ta under secton
600(a) n the absence of ths amendment.
Tte III. cse Ta es.
S CTION SOI. R P L O US T ON MOTOR ICL S ND O TS.
Ths secton, whch, e cept for numberng, s the same as secton 302 of the
ouse b, repeas Chapter 33 . added to the Interna Revenue Code by secton
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557 of the Revenue ct of 1941, ta ng the use of motor vehces and boats.
The repea s effectve wth respect to the perod after une 30, 1046, so that
the ta w be nappcabe wth respect to the use of motor vehces and boats
on and after uy 1, 1046. Secton 301 of the ouse b termnatng war ta
rates after une 30, 1046, was emnated.
S CTION 302. LOOR STOC S R UND ND T C NIC L PRO ISIONS R L TING TO
R DUCTION O COMMUNIC TIONS T .
Ths secton corresponds to secton 304 of the ouse b, whch added to
Chapter O of the Code two now sectons numbered 1656 and 1G5T. Secton 302
of |our commttee b further adds sectons 165 and 1650.
Secton 1056, as added by secton 304 of the ouse b, covers acohoc quors,
Incudng dsted sprts, mported perfumes contanng dsted sprts, wnes,
ncudng queurs and cordas, and fermented mat quors. It provdes for
refund or credt (wthout nterest) of the e cess of the ta es (ncudng foor
stocks ta es) pad wth respect to such quors on account of the war ta rates
over the ta es that woud have been payabe n the absence of the war ta rates.
To be entted to credt or refund, the quor must, on uy 1, 1046, be hed for
sae or use n the manufacture or producton of an artce ntended for sae the
person so hodng t must, pror to ugust 1, 1046. fe cam for credt or refund
and he must aso make, keep, and fe records as requred, and must estabsh
to the satsfacton of the Commssoner, wth respect to each knd of artce for
whch credt or refund s camed by hm under ths secton, that after une
30, 1046, and before October 1, 1946. the prce at whch artces of such knd were
sod (unt a number equa at east to the number on hand on uy 1, 1940, were
sod) refected, n such manner as the Commssoner may by reguatons pre-
scrbe wth the approva of the Secretary, the amount of ta reducton. The
Commssoner w be authorzed, under reguatons, to estabsh a system for
makng credt or refund where the beneft of the ta reducton s passed on to
the consumer. The reguatons may prescrbe the method of arrvng at the
prce at whch the artce was sod before the ta reducton. The reguatons
may aso prescrbe the method of ascertanng the reduced prce refectng the ta
reducton, f a credt or refund s to be aowed. Credt or refund s not to be
aowed under ths secton wt respect to any artce uness, wth respect to a
the artces of a the knds as to whch credt refund s camed, the requrements
of the secton and the reguatons are satsfed. The word artce. as thus used,
may under reguatons, mean a genera cass, such as dsted sprts, wne, etc.,
or a subcass, such as whsky, rum, etc., or rye whsky, bourbon whsky, etc., or
quor sod under a speca brand of a partcuar manufacturer.
Under the amendment of Code secton 1656 made by your commttee the quor
must be ntended for sae or use n the manufacture or producton of an artce
hed for sae on the rate reducton date, the cam for credt or refund must be
fed 30 days after the rate reducton date records must be made, kept, and
fed as requred both before and after the rate reducton date (but not e -
tendng beyond one year thereafter) and ta reducton must be passed on,
on and after the rate reducton date and before the e praton of three months
thereafter (unt a number equa at east to the number on hand on the ta
reducton rate has been sod). The term rate reducton date s defned n
secton 1650.
Under the ouse b secton 1(157 provdes for credt or refund of ta wth
respect to eectrc ght bubs hed n foor stocks on uy 1, 1040, and wth respect
to whch the manufacturer s ta under secton 3400(a) (10) was pad at the
war ta rate. The amount of the credt or refund s determned by the dfference
between the war ta rate and the ta that woud have been payabe n the
absence of the war ta rate n other words, the new ta rate. The credt or
refund s to be aowed ony to the e tent that the manufacturer has rembursed
the person hodng the artce n foor stocks for the amount of war ta passed on
to such person. The provson for credt or refund appes both to eectrc ght
bubs hed for sae on the effectve date of the change n rate and bubs hed for
use n the manufacture or producton of an artce ntended for sae. No nterest
s aowabe on such credt or refund, and cams are requred to be fed pror to
October 1, 1C40. The Commssoner s authorzed to prescrbe necessary regua-
tons, and no manufacturer or producer w be entted to credt or refund uness
he has n hs possesson such evdence respectng nventores of artces as to
whch he has made rembursement of ta as the reguatons precrbe
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Under the amendment made by your commttee, secton 1657 s appcabe to
eectrc ght bubs hed on the rate reducton date, and cam must be fed pror
to the e praton of three months after such date.
Secton 302 of the b, as amended by your commttee, aso adds Code secton
165 , whch corresponds to secton 301(c)(2) of the ouse b, estabshng
effectve dates for the reductons n rates of the ta mposed by secton 3465(a)
(1), (2), and (3) wth respect to teegraph, teephone, rado, and cabe factes.
Under secton 301(c) (2) of the ouse b, the reducton n the ta mposed by
secton 3465(a)(1) wth respect to teephone to cas and teegraph, cabe, or
rado dspatches or messages s appcabe as of one (ate, uy 1, 1946, wth a
dfferent date appcabe wth respect to servces ta abe under subsectons (2)
and (3). The reducton n the ta es Imposed by secton 3465(a) (2) and (3)
wth respect to eased wres, wre equpment servce, and oca teephone servce
for whch no prevous b was rentered was to be appcabe wth respect to
amounts pad pursuant to bs rendered on or after ugust 1, 1946.
s added by secton 302 of your commttee b, secton 165 provdes that wth
respect to secton 3465(a) (1), (2), and (3), the war rates sha appy n the case
of amounts pad pursuant to bs rendered pror to the rate reducton date, and
n the case of amounts pad pursuant to bs rendered on or after the rate reduc-
ton date for servces for whch no prevous b was rendered, the decreased rates
sha appy e cept wth respect to such servces as were rendered more than two
months before such date. In the case of servces rendered more than two months
before the rate reducton date, the provsons of sectons 1650 and 3465 n effect
at the tme the servces were rendered are to be appcabe to the amounts pad for
such servces.
Secton 302 of your commttee b aso adds to the Code secton 1659. Ths
secton defnes the term rate reducton date, ustd n other sectons of Chapter
9 as amended by your commttee, to mean 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.
S CTION 303. CONTINU TION O POW R O S CR T RY O T TR SURY TO UT ORIZ
GO RNM NT MPTION ROM C RT IN CIS T S.
Ths secton s the same as secton 305 of the ouse b. The secton deas wth
the authorty conferred by secton 307(c) of the Revenue ct of 1943 upon the
Secretary of the Treasury to authorze e empton from the ta es Imposed by
Chapter 19 of the Interna Revenue Code reatng to retaers e cse ta es,
Chapter 29 reatng to manufacturers e cse and mport ta es, and Chapter 30
reatng to transportaton and communcatons ta es, notwthstandng amend-
ments of the Interna Revenue Code made by secton 307 of such ct renderng
certan e emptons for beneft of the Unted States, States, etc., nappcabe wth
respect to the Unted States. To make permanent the authorty thus conferred
upon the Secretary, secton 305 of the b strkes out the ast sentence of secton
307(c) whch now makes the Secretary s authorty nappcabe to any contract
entered nto on or after the 1st day of the frst month whch begns s months or
more after the date of termnaton of hosttes n the present war. It was
beeved that admnstratve processes woud be smpfed f the person seng
artces or renderng servce to the Unted States pad over to the coector of
nterna revenue the ta es on such saes. The Secretary has authorzed e empton
n severa e ceptona stuatons where e empton was found to be admnstra-
tvey more effcent. It s admnstratvey desrabe that the authorty granted
to the Secretary be contnued. The authorty, as contnued, woud aso enabe
contnued e empton to be granted, shoud t appear desrabe, n the case of other
governmenta e cse ta e emptons whch w termnate at some perod after
the termnaton of hosttes, for e ampe, the e empton from the ta mposed
by secton 3404.
Tte I Soca Securty Ta es.
CTIOR 401. UTOM TIC INCR S IN 104C R T NOT TO PPLY.
Ths secton, whch Is the same as secton 401 of the ouse b, postpones the
ncrease n the rates of the ta es mposed by the edera Insurance Contrbutons
ct (Subchapter of Chapter 9 of the Code). Under e stng aw, the rate of
the ncome ta on empoyees mposed by secton 1400 ncreases from 1 to 2
per cent on anuary 1, 1946, and the rate of the e cse ta on empoyers of one
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or more empoyees mposed by secton 1410 aso ncreases from 1 to 2 per cent
on such date. In the case of each such ta the amendment provdes that the
1 per cent rate sha reman In force through the caendar year 1946, and that
the 2 | per cent rate sha be appcabe to wages pad and receved durng the
caendar years 1947 and 194 .
1944-22-12175
T R NU ILL O 1945.
ouse of Representatves Report No. 1165, Seventy-nnth Congress, rst Sesson.
October 29, 1945.
Mr. Doughton of North Carona, from the commttee of conference, submtted
the foowng conference report to accompany . R. 4309 :
The commttee of conference on the dsagreeng votes of the two ouses on the
amendments of the Senate to the b ( . R. 430 )) to reduce ta aton, and for
other purposes, havng met, after fu and free conference, have agreed to recom-
mend and do recommend to ther respectve ouses as foows:

ST T M NT OP T M N G RS ON T P RT O T OUS .
The managers on the part of the ouse at the conference on the dsagreeng
votes of the two ouses on the amendments of the Senate to the b ( . R.
4309) to reduce ta aton, and for other purposes, submt the foowng statement
n e panaton of the effect of the acton agreed upon by the conferees and rec-
ommended n the accompanyng conference report:
mendments Nos. 1 and 2: These are technca amendments and the ouse
recedes.
mendment No. 3: Ths s a cerca amendment and the ouse recedes.
mendments Nos. 4, 5, 0, and 7: The ouse b provded surta rates on nd-
vduas, rangng from 10 per cent to 1 per cent, and provded that n no case
shoud the aggregate of the norma ta and surta e ceed 1 per cent of the net
ncome.
The Senate amendments strke out the ouse provsons, provde for a 5 per
cent reducton n the norma ta , and estabsh a tentatve surta tabe, runnng
from 17 to per cent, wth a 5 per cent reducton u the tentatve surta so
computed, and provde that the aggregate of the norma ta and surta sha n
no case e ceed 5 per cent of the net ncome.
The ouse recedes on these amendments.
mendments Nos. to 19, ncusve: These are cerca amendments and the
ouse recedes.
mendment No. 20: The ouse b provded a ta tabe for Suppement T,
deang wth the ta on ndvduas wth ad|usted gross ncomes of ess than
5,000, whch emboded the norma ta and surta rates under the ouse b.
The Senate amendment substtutes another tabe based on the Senate s treatment
of norma ta and surta . The ouse recedes.
mendment No. 21: The ouse b provded tabes for wage bracket wth-
hodng by empoyers of ta from wages pad empoyees. These tabes were based
on the norma ta and surta rates provded n the ouse b. The Senate
amendment substtutes other tabes based on the norma ta and surta under
the Senate amendments. The ouse recedes.
mendment No. 22: Under both the ouse b and the Senate amendments the
e emptons appcabe to the surta are made appcabe to the norma ta . Thus
empoyers w no onger wthhod ta from those prevousy sub|ect soey to
abty for the norma ta . Under present aw an empoyer s requred to pro-
vde a statement (known as orm W-2) ony when ta has been wthhed. Such
statements are used by mons of ta payers as a smpe ta return. The amend-
ment requres empoyers to contnue to provde empoyees wth such wthhodng
statements where they woud be requred under present aw even though no ta
s wthhed under the new wthhodng provsons. The ouse recedes.
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655
mendment No. 24: The ouse b reduced the surta on corporatons by 4
percentage ponts In each bracket, effectve for ta abe years begnnng after
December 31, 1945. The Senate amendment strkes out ths provson and pro-
vdes for a reducton n norma ta and surta n the case of corporatons whose
norma ta net ncome or surta net ncome s ess than 00,000, effectve for
ta abe years begnnng after December 31, 1045. The ouse recedes wth an
amendment (1) provdng for a reducton of 2 percentage ponts n surta rates
on corporatons wth corporaton surta net ncomes of 50,000 and over, and (2)
retanng the ouse provsons for corporatons wth corporaton surta net
ncomes of ess than 50,000, sub|ect to a notch rate on the ncome between
25,000 and 50.000 so as to provde an equtabe transton between the 2 percent-
age ponts reducton on the one hand, and the 4 percentage ponts reducton pro-
vded n the ouse b on the other hand.
mendment No. 25: The ouse b reduced the e cess-pn fts ta rate from
the present effectve rate of 5 to 60 per cent, the reducton to be effectve for
ta abe years begnnng after December 31, 1945. The Senate amendment strkes
out ths provson of the ouse b. The ouse recedes.
mendments Nos. 20 and 27: These are cerca amendments and the ouse
recedes.
mendments Nos. 2 and 2): The ouse b repeaed the e cess-profts ta
effectve wth respect to ta abe years begnnng after December 31, 11140. mend-
ment 2 strkes out ths provson. mendment 29 provdes that the e cess-
profts ta chapter of the Interna Revenue Code sha not appy to any ta abe
year begnnng after December 31,1045. Senate amendment 29 aso provdes that,
despte the repea of the e cess-profts ta for 1940. the provsons of the e cess-
profts ta aw sha reman n force so as to permt carry-back of the unused
e cess-profts credt from 1946 to 1944 and 1945, and so as to assure the makng of
the necessary ad|ustments n the net operatng oss carry-backs. The amendment
provdes that there sha be no carry-back of unused e cess-profts credts from
ta abe years begnnng after December 31, 1940. The amendment aso makes
provson for the appcaton of the carry-back n the case of affated groups of
corporatons.
Technca changes are aso made wth respect to the perods of mtaton for
camng or aowng credts or refunds and assessng defcences, attrbutabe to
carry-backs. The ouse recedes.
mendments Nos. 30 to 33, ncusve: These are cerca amendments and the
ouse recedes.
mendment No. 34: Ths amendment chnnges the specfc e empton n the
case of ta abe years begnnng n 1945 and the Senate recedes.
mendments Nos. 35 and 0: These are cerca amendments and the ouse
recedes.
mendment No. 37: Ths s a cerca amendment and the Senate recedes.
mendments Nos. 3 and 39: These are technca amendments reatng to fsca
years and the ouse recedes.
mendment No. 40: Ths s a technca amendment and the ouse recedes wth
an amendment makng a further technca amendment.
mendment No. 41: Ths s a technca amendment and the ouse recedes.
mendment No. 43: Ths amendment provdes for the e cuson from gross
ncome of the entre servce pay of ensted personne for ta abe years begn-
nng after 1940 and preserves the 1,500 e cuson from gross Income n the
case of offcers for the ta abe years begnnng after 1942. the e cuson n ether
case to appy ony to pay receved before the termnaton of the war, whether
or not before separaton from the servce and the ouse recedes.
mendment No. 44: Under ths amendment the tme for the payment of the
ta abty of commssoned personne of the armed forces for the yenrs 1940
through 1940. ncusve, Is, upon appcaton of the ta payer, deferred, n so far
as such abty s attrbutabe to servce pay. The abty so deferred s pay-
abe over a perod of appro matey three years n 12 quartery nstaments.
The 3-year perod begns on May 15, 1946. n the case of ta payers reeased from
actve duty pror to December 1, 1945. and n other cases on une 15, 1947, or the
15th day of the s th month whch begns after the date of the ta payer s reease
from actve duty, whchever s the earer. Under the Senate amendment f the
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656
-year perod begns before the end of a perod of tme dsregarded under secton
3 04 (reatng to ta payers overseas) the begnnng of the 3-year perod does
not begn unt the end of the perod so dsregarded.
The Senate amendment aso provdes that ta for the year 1940 or 1941 (to
the e tent that t s attrbutabe to preservce earned ncome), whch became
due and payabe after the ta payer entered upon actve servce n the amed
forces, may aso be deferred and pad n 12 quartery nstaments over the
3-year perod specfed above.
ny nterest pad pror to the date of the enactment of the ct wth respect
to ta whch coud be deferred under the provsons of the Senate amendment
s to be credted or refunded f cam therefor s fed before anuary 1, 1947.
The conference agreement adopts the provsons of the Senate amendment
wth certan cerca and technca amendments thereto. The technca amend-
ments are as foows:
(1) The conference agreement does not authorze deferment of ta attrbut-
abe to servce pay In the case of rffcers of the reguar component of the rmy,
Navy, Marne Corps, or Coast Guard, uness at the tme prescrbed for the pay-
ment of the ta a perod of tme was beng dsregarded under secton 3 04
(reatng to ta payers overseas).
(2) In determnng when the frst of the 12 quartery nstaments s pay-
abe, the conference agreement omts the reference to secton 3S04 as unneces-
sary snce secton 3 04 n tsef w operate to postpone such frst nstament
date n proper cases.
(3) The conference agreement nserts a provson reatng to decaraton and
payment of estmated ta n order to make t cear that the deferment for whch
a ta payer mght appy n the future s not nufed by a requrement that the
ta payer currenty decare and make payments of estmated ta . Ths prov-
son does not appy to commssoned offcers of the reguar component of the
rmy, Navy, Marne Corps, or Coast Guard for the reason that the requrements
wth respect to decaraton and payment of estmated ta by them s adequatey
deat wth n secton 3 1)4.
mendment No. 46: Ths amendment provdes that where amounts n e cess
of 75,01)0 are aowed as tentatve amortzaton ad|ustments, the Commssoner
sha not bo requred to report such aowances to the ont Commttee on In-
terna Revenue Ta aton pror to ther payment but sha report them when the
correct amount of the ta has been determned. The ouse recedes.
mendment No. 47: Ths amendment e tends to ta abe years begnnng n
194(3, the provsons of secton 22(b) (9) and (10) of the Code reatng to ds-
charge of ndebtedness. The ouse recedes.
mendment No. 4 : Ths amendment appes to ost, stoen, or destroyed e cess-
profts ta postwar credt bonds the same treatment that s now apped to
other Government securtes by secton (c) of the Government Losses n Shp-
ment ct. The ouse recedes.
mendment No. 49: Ths amendment provdes that for ncome-ta ta abe
years endng after une 30, 1945, and before uy 1, 1946. the decared vaue
e cess-profts ta attrbutabe to war oss recoveres Incuded n net ncome
sha be at the rate of per cent n eu of the generay appcabe rate. The
ouse recedes.
mendment No. 50: Ths amendment strkes out secton 301 of the ouse b,
whch provded for the termnaton on une 30. 1946, of the ncreases made n
the Revenue ct of 1943 n varous e cse-ta rates. The ouse recedes.
mendment No. 51: Ths Is a cerca amendment and the ouse recedes.
mendment No. 52: Ths s a technca amendment and the ouse recedes.
mendments Nos. 53, 54, and 55: These are cerca amendments and the
ouse recedes.
mendments Nos. 56 to 7 , ncusve: These are technca amendments. The
prncpa effect of these amendments s to make the provsons of the ouse
b reatng to foor stocks ta refunds for acohoc beverages and eectrc ght
bubs appcabe so that the refunds w be made whenever the ncreases n the
rates made by the Revenue ct of 1943 termnate. The ouse recedes on these
amendments.
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657
mendment No. 79: Ths amendment provdes that the termnaton of the
ncreases made by the Revenue ct of 1943 n the rates appcabe to teegraph,
teephone, rado, and cabe factes sha, when payment s made pursuant to
bs rendered, take pace upon the bass of bs rendered on or after the rate
reducton date for servces for whch no prevous bs were rendered e cept
wth respect to servces rendered more than two months before such date. The
ouse recedes.
mendment No. 0: Ths s a technca amendment made necessary by the
Senate treatment of the e cse ta provsons and the ouse recedes.
mendment No. 2: Ths amendment repeas certan e cse ta es. The Senate
recedes.
R. L. Doughton,
oe Cooper,
ohn D. Dnqe,
. Ws Robertson,
arod nutson,
Dane . Reed,
Roy O. Woodruff,
Managers on the part of the- ouse.
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IND
bnormates, revew of, by Ta Court of Unted Sates, obu-
atons amended
cqustons made to evade or avod ncome or e cess profts
ta purpose of secton 129 of the Code
d|usted gross ncome:
Commsson bass, saesman, deductbty of e penses
ncurred
Computaton, Phadepha ncome ta
dmssons ta , games and other affars by schoos
ffated groups fng consodated returns:
Corporatons, reguatons amended
Credt for debt retrement, computaton
coho Ta Unt, dstrct supervsor s order annung permt to
operate whoesae quor busness, vadty .......
ens, ta aton of, dervng ncome from certan actvtes n
Unted States
mony and mantenance payments to former wfe, Caforna,
deductbty.
mendments:
ct of une 16, 1933, secton 2 --
Chef Counse s memoranda
4 (C. . -. 270 (1931)), modfed..
21373 (C. . 1939-2, 2). modfed
22034 (C. . 1940-1, 90), modfed
23251 (C. . 1942-2, 103), modfed
Crcuars
173 (C. . 1944, 461)
1715 (not pubshed) and 173 (C. . 1944, 461,
amended)
edera Insurance Contrbutons ct
Gaugng Manua
Paragraph 13 ---
Paragraph s 13, 60(k) (added)
Interna Revenue Code
Sectons 141(e), 276, 322, 322(b), 22(b)(5), 322(d),
710(b)(1), 729(b)(2), 7 0(a), 7 0(b), 7 0(c), 7 1(a),
7 1(b), 7 1(c), 7 3, 7 4 (added), 3777, 3779 (added),
37 0 (added), 37 1 (added)
Secton 732(d)
Secton 1426
Secton 2400 .
Sectons 2720(a) and 3260(a)
Secton 3126 (added)
Secton 3656
Merchant Marne ct, 1936, as amended
Reguatons revsed
Secton 511(c)
Mmeographs:
5764 (C. . 1944, 450), cted
5766 (C. . 1944. 156), restated and suppemented
Offce decsons (I. T.)
12 1 (C. . 1-1. 11 (1922)), modfed
1540 (C. . 1-2, 17 (1922)), modfed
1 (C. . -2, 121 (1926)), modfed..
Rung
No.
Page.
12121
2 0
12119
200
12019
7
12003
7
12007
446
119 9
214
1196
314
121 5
4 6
120 1
244
12151
76
12094
531
12021
235
12032
110
12134
237
12096
111
f 12053
327
1 12109
143
11924
44
12146
495
12091
496
12113
532
12094
531
12171
MO
12129
540
1212
539
12197
479
11930
543
11999
475
11931
544
12191
323
1210
131
12044
9
12024
36
11923
36
(659)
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mendments Contnued.
Offce decsons (I. T.) Contnued.
2666 (C. . I-2, 69 (1932)), renstated....
3057 (C. 13. 1937-1, 93), modfed
32 7 (C. . 1939-1 (Part 1), 13 ), ampfed
. 1939-2, 164), revoked
. 1940-1, 66, modfed
. 1942-2, 115), modfed
. 1942-2, 1 7), revoked
. 1943, 109), modfed
3315 (C.
33 6 (C.
(C.
3563
3572
3629
3731, revoked
Offce decsons (S. T.):
646 (C. . II-1, 422 (1933)) ampfed
732 (C. . III-1, 44 (1934)), revoked
Offce decson S. S. T. 237 (C. . 1937-2, 26 ), revoked
Reguatons 3, secton 1 2.7 (added)
Reguatons 6
Sectons 1 .56, 1 .70, 1 .72
Secton 1 .64
Reguatons 9, artce 27
Reguatons 11, sectons 1 9.65, 1 9.79, 1 9.91, 1 9.116,
1 9.117,1 9.11 ,1 9.119
Reguatons 12, artce 0
Reguatons 15
Sectons 190.9, 190.177
Sectons 190.190, 190.276, 190.326, 190.346, 190.353,
190.40 , 190.409, 190.410, 190.411, 190.414
Reguatons 23, sectons 1 1.3, 1 1.13, 1 1.15
Reguatons 29, secton 197.24
Reguatons 34 (192 )
Reguatons 51
Secton 320.23
Sectons 320.33 and 320.37
Reguatons 77, artce 221 (/)
Reguatons 79 (1936), artce 3
Reguatons 6, 94, 101, 103, and 111
Reguatons 6, artce 23(m)-(ff)
Reguatons , sectons 319.5 and 319.23
Reguatons 94, artce 23(m)-(p)
Reguatons 101
rtce 23(m)-(/)
rtce 27(a)-3
Reguatons 103, 101, 94, 6, 77, 74, 65, 62, 45, 33
Reguatons 103
Secton 19.23(m)- ( )
Secton 19.27(a)-3
Sectons 19.131-7 and 19.131-
Secton 19.262-3
Secton 19.322-7
Secton 19.3797-2
Reguatons 104 _
Sectons 23.31 (6)(2)()( ), 23.31 (6)(2,(m)(T ), 23.31
(6)(2)(v)(C), 23.31 (rf)(), 23.31(d) (2) (), 23.31(d)
(2)( ), 23.31(d)(3), 23.31(d|(10).
Secton 23.34
Reguatons 105
Secton 1.24
Secton 1.24(6)
Reguatons 106, sectons 402.302, 402.402, and 402.705
Reguatons 10
Secton 6.2 -
Secton 6.2(6).
12191
367
12076
357
11922
174
11935
129
120 1
244
12073
141
12191
367
1201
70
12165
3
12195
444
11957
430
11944
379
12197
479
120 9
490
12125
4 9
11977
453
12090
492
11942
462
12162
4 0
120
4 2
121 4
4 5
12104
494
119 5
454
12135
435
12144
437
120 6
2 4
12123
415
11949
15
120 6
2 4
1214
455
120 6
2 4
120 6
2 4
12075
260
12043
6
120 6
2 4
12075
260
12034
206
11921
250
11965
115
12111
332
12133
226
119 9
214
11961
401
12122
402
11956
369
11970
413
414
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mendments Contnued.
Reguatons 109
Secton 30.722-5(a).
Secton 30.729-3-- --
Secton 30.732-1
Sectons 30.735-2(t )(2), 30.735-4
Sectons 30.7 0-1, 30.7 0 2, and 30.7 0-3
Reguatons 110
Sectons 33.31(6)( ). 33.31(6 3), 33.31 (6)(4 (),
33.31(f)(1), 33.31(c)(2)(), 33.31(c)(3), 33.31(0(15)-
Secton 33.34_--
Reguatons 111
Sectons 29.11-1, 29.22(a)- , 29.22(b) (4)-4,29.23(a)-2,
29.23(b)-, 29.23(0-1. 29.23(e)-3, 29.23(g)-,29.23
(k)-6, 29.23(m)-, 29.27()-, 29.44-4, 29.47-1,
29.52-1, 29.101( )-1, 29.101(11)-1, 29.101(12)-1,
29.101(1 )-1, 29.102 4, 29.107-2. 29.113(a) (22 -1,
29.125- , 29.126-1, 29.131- ,29.162-1, 29.162-2,
29.207-4, 29.236-1, 29.311-1, 29.393-1, 29.394-2,
29.502-1( )
Sectons 29.11-1, 29.51-1, 29.400-1
Sectons 29.22(b)(12)-1, 29.127(c)-, 29.127(0-1
Sectons 29.22(c)-2, 29.22(c)-6
Secton 29.23(a)-16
Secton 29.23(m)- (f)
Sectons 29.23(p)-9, 29.165-5
Secton 29.23(v)-__
Sectons 29.27(a)-, -29.27(a)-2, 29.27(a)-3, 29.504-2
Sectons 29.45-1, 29.129-1, 29.129-2, 29.129-3,
29.129-4, and 29.129-5
Secton 29.113(a) (22)-
Sectons 29.124 0. 29.124 1. 29.124-2. 211.121 .
29.124-6, and 29.124-7
Secton 29.126-1
Sectons 29.131-7 and 29.131-
Secton 29.141-1
Sectons 29.143-3, 29.211-7, and 29.231-1
Secton 29.147-2
Secton 29.262-3
Sectons 29.271-1, 29.272-2, 29.322-7, and 29.3 01 (d)-.
Secton 29.3797-2
Reguatons 112
Sectons 35.710-1, 35.710-2, 35.710-3
Secton 35.722-5(a)
Secton 35.729-3
Secton 35.729-4
Secton 35.732-1
Sectons 35.735-2(t)(2), 35.735-2(0(2), 35.735-3(a),
35.736-6, 35.735-7-
Sectons 35.7 0-1, 35.7 0-2, 35.7 1-1, 35.7 3-1,
35.7 3-2, and 35.7 3-3
Reguatons 116, secton 405.209
Revenue ct of 1932
Secton 501(c)
Secton 1001(a).
Revenue ct of 1942
Sectons 162(d)(1)( ), 162(d)(2), 403(d)(3), 452(c)-.-
Sectons 403(d)(3), 452(c)
Revenue ct of 1943
02(b) -
Rung
No.
12173
12120
12121
120 6
11994
12133
119 9
12043
12070
11929
11917
12004
120 6
11965
12027
12075
11936
11949
11953
12074
12034
119 9
11993
12140
11921
1200(1
12111
12142
12173
12120
12034
12121
120 6
11994
11955
12092
12094
1192
12092
12093
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C62
Rung
No.
Page.
mendments Contnued.
Treasury decsons
4662 (C. . -2, 527)..
5173 (C. . 1942-2, 119).
5279 (C. . 1943, 952)..
5295 (C. . 1943, 1193).
5330 (C. . 1944, 720). -
5420 (C. . 1944, 353)
mortzaton deducton, nonnecessty certfcates, transfer of
functon to War Producton oard, Reguatons 111
amended
mortzaton perod, probems reatng to termnaton of
mortzed bond premum, computaton, earnngs and profts,
treatment
nnutant, cv servce, estate of, payment to of e cess of con-
trbutons to fund
nnutes, empoyees e empt organzatons or nsurance com-
panes as empoyer, appcaton of secton 22(b)(2) of the Code.
nnuty payments to retred empoyees of Lghthouse Servce,
ta abty
ppcaton for reef under secton 722:
Treatment
ng, reguatons amended
rgentna, satsfes smar credt requrements of secton 131
(a)(3) of the Code
rmed forces, member of, presumptve date of death for ncome
ta purposes
rmed forces of the Unted States, actua date rather than pre-
sumptve date of death recognzed for edera ncome ta
purposes
rmy offcers:
uthorty to admnster oaths
mpoyee of Unted States for ncome ta purposes
ssocaton, defnton reguatons amended
utomobes, parts or accessores
.
ankrupt partnershp estate, fducary return
ankruptcy, property acqured by corporaton, Reguatons 111
amended
anks, State and Natona, converson, etc.
ack market transactons, amounts pad n e cess of ceng
prces, deductbty ..
nd ndvduas, speca deductons, Reguatons 111 amended.
ond premum, amortzed, computaton n earnngs and profts..
onds, whoy ta -e empt, amortzed premum, treatment
ureau procedure under death duty conventon, Unted States
and Canada
usness e penses:
Contrbutons, post-war pannng and deveopment fund,
deductbty
Contrbutons of empoyers n cuador to La or Code
Contrbutons or dues pad to State of R Ta payers sso-
caton, deductbty
Contrbutons to empoyees heath nsurance fund by mem-
bers of a manufacturers assocaton
12013
1206
1199
12063
11962
12014
120 7
11999
12011
11953
12200
12156
12062
I1C64
12150
12099
12173
11967
12097
1217
12035
12106
12111
12037
12021
11949
11920
11923
11957
12010
12027
120
12156
1
12156
1
12064
3 1
11933
7
12167
204
12044
9
12047
DO
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663
usness e penses Contnued.
Lqudated damages and attorney fees, deductbty
Mcrofmng of newspaper fes, deductbty
Reconverson cost of war contractor, treatment
C.
Caforna, amony and mantenance payments to former wfe,
deductbty
Canada:
state ta reguatons, conventon between Unted States
and
ureau procedure
Capta changes, ad|ustments, e cess profts credt
Capta, day equty nvested
Defct n accumuated earnngs, treatment n the case of
dstrbutons of current earnngs
Determnaton of, for ncome ta purposes
Capta gans and osses:
Capta assets, hodng perod, determnaton
Lvestock rasers, method of determnng
Tmber, cuttng and dsposa of, partnershp tems
When ssued bass, securtes of corporatons
Capta stock ta :
ccrued, decaraton years, nondecaraton years
State bank converted nto natona bank
Catte rasers. (See Lvestock.)
Ceng prces, e cessve amounts pad n back market
transactons, deductbty .
Chartabe organzatons, hosptas requred to fe nformaton
returns
Chna Trade ct corporatons, meanng of terms used n con-
necton wth, reguatons amended
Chrstmas fund, dstrbutons to empoyees of nonproft
membershp organzaton
Cgarettes:
Statement of remova for consumpton
uv, ugust, September, and October, 1944 and 1943
November, 1944 and 1943
December, 1944 and 1943
anuarv, 1945 and 1944 -
ebruary, 1945 and 1944
March, 1945 and 1944 ,
pr, 1945 and 1944.
May, 1945 and 1944
une, 1945 and 1944
uv, 1945 and 1944
ugust, 1945 and 1944
September, 1945 and 1944
October, 1945 and 1944
Cgars, ta -free wthdrawas for use of mtary and nava forces,
reguatons
Ctzen of rench Repubc, resdng n Unted States, credt
foe ta es pad n rance
Cv servce annutant, estate of, payment to, n e cess of con-
trbutons to fund, ta abty
Cams for refund:
state ta , advance payment, mtaton
War osses, reguatons amended
Cams for unpad edera ncome ta es, prorty
Coast Guard Reserve, Temporary, members of, compensaton.
Rung
No.
12154
12031
12060
12151
12004
12065
11979
12157
1209
11922
11951
11952
11992
12096
11957
12010
1194
11921
12017
11900
11975
119 7
12000
12020
12039
12050
120S0
12103
12130
12152
12159
121
11974
120 5
12062
11972
11965
121 1
1201
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664
Coecton of ncome ta at source on vacaton aowances,
Reguatons 116 amended
Commssons, e ecutor or admnstrator of estate, deductbty
Commttee reports (Seventv-eghth Congress):
ouse Roport No. 201
Senate Report No. 1357
Commttee reports (Seventy-nnth Congress):
Revenue b of 1945
ouse Report No. 1106
Conference ( ouse Report 1165)
Ta d|ustment ct of 1945
ouse Report No. 49
Compensaton:
rmy offcer, empoyee Unted States, saary treatment
arnngs attrbutabe to pror years, Reguatons 111
amended
mpoyees unpad at tme of death, wthhodng at source-
udges of Lnted States courts, ta abty
Overtme, or retroactve wages, pad an empoyee under
ar Labor Standards ct, wthhodng ta at source
Penson or, receved under provsons of Pubc Law 314,
Seventy-eghth Congress, deductbty
Stock purchases, e ercse of opton
Ta payer, spouse n actve armed forces of Unted States,
recevng compensaton ony therefrom, entted to 500
surta e empton
War contracts, termnaton of, treatment
Concurrent resouton ( . Con. Res. 50, Seventy-nnth Con-
gress), approvng provsons of secton 23 of the Code, etc.,
and secton 29.23(m)-16 of Reguatons 111, etc
Condenser or w-orm, defnton, Reguatons 23 amended..
Consodated returns:
ffated corporatons, reguatons amended
ffated groups, credt for debt retrement, computaton..
Contract of empoyment, amount payabe to benefcares upon
death of empoyee
Contracts:
nnuty and nsurance, when proceeds ncuded n gross
estate
Retrement annuty, e empt organzaton or nsurance
company as empoyer, ta abty
War, termnaton of, compensaton, treatment
Contrbutons:
osptas recevng amounts under Government programs,
fng of nformaton returns
Post-war pannng and deveopment fund
Contrbutons to empoyees heath nsurance fund by members
of a manufacturers assocaton, deductbty
Conventon between Unted States and Canada, estate ta ,
reguatons
ureau procedure
Converson, nvountary, gan or oss, bass
Corporate profts, tabes and charts, determnaton of e cessve
ta
Corporatons:
ffated
ecton to fe separate ncome and e cess profts ta
returns
cess profts ta returns, consodated, Reguatons
110 amended
ng
No.
11955
12045
11945
11945
12161
12174
12175
12114
12115
12106
12074
12046
12190
12052
12049
11991
12051
1210
12116
121 4
119 9
1196
11935
12077
11964
1210
1194
11933
12047
12064
12065
12199
11940
1216
12133
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665
Rung
No.
Corporatons Contnued.
ffated Contnued.
ng consodated returns, reguatons amended
Income ta returns, consodated, Reguatons 104
amended
Chna Trade ct, meanng of terms used, reguatons
amended
Dstrbutons, qudatng dvdends, computaton of earn-
ngs and profts
Dstrbutons by, earnngs or profts..
Domestc, computng method producng esser amount of
e cess profts ta
New domestc, Western emsphere, treatment
Newy organzed, nta pad-n capta stock, treatment.-.
Opton to purchase stock
Property acqured through bankruptcy or recevershp
proceedngs, Reguatons 111 amended
Returns, when ony one requred
Sae of capta assets, qudatng dvdends
Western emsphere trade, Puerto Rco -
Costs, ntangbe deveopment, n the case of o and gas wes,
treatment
Country defned Western emsphere trade corporatons...
Court acqurng |ursdcton, tmey fng of petton for revew.
Court decsons:
mercan Sugar Refnng Co. v. Unted Staes
nderson Levers, admnstrator, etc., v
ngeus Mng Co. v. Commssoner
aker v. Commssoner
arnhU v. Commssoner
edford, state of dward T., Tte Guarantee Trust Co.,
e ecutor Commssoner v
eter usness ureau of Washngton, D. C, Inc., v. Unted
States
ngham, Mary Ly ager), Trust u/w of, trustees of, v.
Commssoner
och v. Commssoner
oehm v. Commssoner
Ceco Stee Products Corporaton v. Commssoner
Choae v. Commssoner .-
Cty ank armers Trust Co., admnstrator, etc., v. McGowen.
Commssoner ngeus Mng Co. v
Commssoner aker v
Commssoner arnhU v
Commssoner och v
Commssoner oehm v
Commssoner Ceco Stee Products Corporaton v
Commssoner Choae v
Commssoner v. Court odng Co., a orda Corporaton -
Commssoner v. Dsston
Commssoner v. state of dward T. edford, Tte Guaran-
tee Trust Co., e ecutor
Commssoner state of enry W.Putnam,Guaranty TrustCo.
of New York, e ecutor, v
Commssoner v. Lester ed, estate of
Commssoner ondren, estate, et a., v
Commssoner Industra ddton ssocaton v
Commssoner v. Shamberg
Commssoner v. Smth.
0 4354 46 13
119 9
214
12133
226
11921
250
12023
349
12132
159
11954
265
12119
200
1209
269
1202
52
12036
52
11949
15
11920
145
11923
30
12002
5
120 3
152
12155
113
120 3
152
11941
316
11924
44
121 5
4 6
12057
463
12190
54
1213
96
1205
357
121 3
375
12071
103
120 4
153
121 2
353
1219
2 1
11909
343
11971
403
12057
463
12190
54
1213
96
120 4
153
121 2
353
1219
2 1
11909
343
12002
5
12067
426
1205
357
12022
345
119 2
40
11973
421
11941
316
12109
335
11991
49
1202
501
12030
52
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66
Rung
No.
Court decsons Contnued.
Commssoner Trust u|w of Mary Ly (. ager) ngham,
trustees of, v
Commssoner Webre Seb Co., Ltd., v
Commssoner v. Wemyss
Commssoner v. Wheeer et a
Commssoner v. Whte
Commssuner Wnborne v
Commssoner Wnters Reaty Constructon Co. v
Court odng Co., a orda Corporaton Commssoner -
Dsston Commssoner v
ahs Merr v
dety-Phadepha Trust Co. and Robert . Workman,
e ecutors of estate of nna C. Sanson, v. ohenses
ed, Lester estate of Commssoner v
tch Co., The . W ., v. Unted States
o ndren, estate, et a., v. Commssoner
Gass Cty ank of eanette, Pa., v. Unted States
Gndstone and ondy, e ecutors, v. Unted States
Industra ddton ssocaton v. Commssoner
Levers, admnstrator, etc., v. nderson
McGowen Cty ank armers Trust, admnstrator, etc., v.
Merr v. ahs
Putnam, state of enry W., Guaranty Trust Co. of New
York, e ecutor v. Commssoner
Rosenman and Natona Cty ank, New York, e ecutors,
v. Unted States
Rothcnses dety-Phadepha Trust Co. and Robert
. Workman, e ecutors of estate of nna C. Stnson, v..
Shamberg Comnssoner v
Smth Commssoner v
Unted Staes mercan Sugar Refnng Co.
Unted States etter usness ureau of Washngton, D. C,
Inc. v
Unted States The . W. tch Co.
Unted States Gass Cty ank of eanette, Pa., v
L nted States Godstone and ondy, e ecutors, v
Unted States Rosenman and Natona Cty ank, New
York, e ecutors, v
Unted States v. Wadd, oand nn, Inc., et a
Wodd, oand nn, Inc., et a Unted States v
Webre Seb Co., Ltd., v. Commssoner
Wemyss Commssoner v
Wheeer et a. Commssoner v
Whte Commssoner
Wnborne . Commssoner
Wnters Reaty Constructon Co. v. Commssoner
Courts, Unted States, compensaton of |udges of, ta abty.-.
Courts of revew, venue, |ursdcton, tmeness, and ega effect
of stpuaton
Credt:
Contrbutons of cuadorean empoyers to Labor Code,
deductbty
Debt retrement, computaton, affated groups fng con-
sodated returns
Defct, and credt or deductons for amounts used or
rrevocaby set asde to retre ndebtedness, Reguatons
111 amended
oregn ta , reguatons amended
Insurance companes reserve and other pocy abty
Method producng esser amount
12071
119 3
11995
12023
12164
1213
12199
12002
12067
11906
119 1
119 2
1195
11973
121 1
12077
11941
121 5
11971
11996
12022
11972
119 1
12169
11991
1202
12036
11924
121 3
1195
121 1
12077
11972
11943
11943
119 3
11995
12023
12164
1213
12199
12190
11941
12167
1196
12075
12120
11937
11954 I
G
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2
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1
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-
0
1
-
2
2

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4
9

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3
9
0
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5
0
7
6
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3
1
6
4
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P
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#
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6 7
Credt for ta es, foregn countres and possessons of the Unted
States, reguatons amended
Credts aganst net ncome:
Meanng of terms used n connecton wth Chna Trade
ct corporatons, reguatons amended
Medca, denta e penses of dependents
Credts of ndvdua aganst net ncome, care of wdow of
wfe s brother, dependent defned
Curacao, Government of, ta es pad to, character, of, for ed-
era ncome ta purposes
D.
Date for performng certan acts postponed by reason of war,
reguatons amended -
Death
ctua rather than presumptve date of, recognzed for
edera ncome ta purposes
eneft payments, wthhodng at source
Presumptve date of, for ncome ta purposes
Debt retrement. (See Credt.)
Decedents:
Dvdends decared pror to death, when ncuded n gross
ncome
state of ncompetent person, transfer n contempaton of
death
Deductons:
mony and mantenance payments to former wfe,
Caforna
nd ndvduas, Reguatons 111 amended
usness e penses, congressona approva of the provsons
of secton 23 of the Code, etc., and secton 29.23(m)-16
of Reguatons 111, etc -
Chartabe contrbuton, renegotaton of Government contracts. _
Contrbutons of empoyer toward retrement annutes,
reguatons amended
Contrbutons or dues pad to ta payers assocaton
penses, nontrade or nonbusness, trust estate
Medca, denta, etc., e penses of dependents
Payments of qudated damages and attorney fees under
ar Labor Standards ct
Phadepha ncome ta , n computng ad|usted gross
ncome
Retroactve wage ncreases, wage and saary ad|ustments-
Saesman s e penses, commsson bass
Wages pad by father to mnor chd as a egtmate em-
poyee, treatment
Defcency defned, Reguatons 111 amended ....
Dependent, defnton
Depeton:
Capta and e penses n case of o and gas wes
Certan natura deposts, reguatons amended
O and gas property, transfer, subease or sae
Dsted sprts:
otted-n-bond, Reguatons 6 amended
ottng n bond, Reguatons 6 amended
ottng ta -pad, Reguatons 11 amended
Drawback cams, supportng data, Reguatons 29 amended
ermented quors, etc., authorzaton and sancton of suts
for recovery of ta es
Gaugng Manua amended
Rectfcaton of sprts and wnes, Reguatons 15 amended .
Rung
No.
12034
11921
11919
12072
12193
11946
1217
12097
12046
12022
11971
121.51
12027
12116
12033
11965
12044
12071
11919
12154
12003
11966
12019
12166
12006
12072
12155
120S0
11969
120 9
12125
12090
12104
12013
12146
120
12102
G
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-
0
1
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2
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4
9

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3
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0
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5
0
7
6
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3
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#
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C6
Dstrbutons:
Corporatons
Current earnngs, reducton of day equty nvested
capta, treatment
Income by estate durng ta abe year resdue became
payabe, ta abty
Lqudatng dvdends, earnngs and profts
Dstrct supervsor, coho Ta Unt, vadty of order annu-
ng whoesae quor deaer s permt
Dvdends:
Decared pror to decedent s death, when ncuded n gross
ncome
change of stock for stock and cash, ta abe gan
Domestc corporatons. (See Corporatons.)
Doube ta aton, conventon and protoco between Unted
States and rance
Drawback cams, dsted sprts, supportng data, reguatons
amended
Due date, members of armed forces of Unted States, postponed
by reason of war
.
arnngs and profts, dstrbutons by corporatons, qudatng
dvdends
cuador, empoyers contrbutons to Labor Code, deductbty.
ectrca energy sod to regous, etc., organzatons, ta abty
mergency perod, termnaton of, probems reatng to
mpoyee, wages pad by father to mnor chd for servces as,
deductbty
mpoyees:
Payments to, return of nformaton as to, reguatons
amended
Retred, Lghthouse Servce, annuty payments
mpoyees benefcares, amount payabe pursuant to empoy-
ment contact
mpoyees trusts:
Contrbutons of empoyer toward retrement annutes,
reguatons amended
tenson of tme for reease of powers of appontment
mpoyer contrbutons to New York unempoyment nsurance
aw, treatment.
mpoyment ta es:
Interna Revenue Code
mpoyees, buk pant operators
cepted servces, better busness bureau
edera Insurance Contrbutons ct, rate ncrease
postponed, Reguatons 106 amended
Payment durng emergency by War Shppng dmnstra-
ton and Unted States Martme Commsson (Pubc
Law 21).
Soca Securty ct
Wages
Constructve payment and recept of
Payment after ta -return perod for pay-ro perod
ended n such perod, treatment
Unpad ta es, prorty cam of Unted States :.
quty nvested capta, accumuated earnngs and profts,
e cess profts ta
rrors, Reguatons 111 amended to correct mnor
Rung
No.
12157
12141
12023
121 5
12022
1205
12025
12104
12063
12023
12167
12145
12200
12166
12140
12150
11935
11965
1192
12177
12143
121 3
11956
12012
11944
11944
11943
119 0
12070
G
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-
0
1
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2
2

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4
9

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3
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0
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5
0
7
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#
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669
state ta :
Cam for refund, mtatons, advance payment n cash
bond
Conventon between Unted States and Canada
ureau procedure
Gross estate, transfer n trust
Power of appontment
y decedent, Reguatons 105 amended
Reease of, Reguatons 105 amended
Transfers n contempaton of death, ncompetent person -
states and trusts:
Dstrbutons out of ncome durng ta abe year resdue
becomes payabe, ta abty
Income, capta gan dstrbutons durng admnstraton
perod, G. C. M. 22034 (C. . 1940-1, 90) modfed
state and gft ta es, powers of appontment, reease of, Regua-
tons 10 amended
stmated ta , speca rue for computaton of penates
cess profts credt:
Capta changes, accrua bass, ad|ustments
Determnaton for reef
Corporate profts, tabes and chart
Industra groups
cess profts ta :
ccumuated earnngs and profts, determnaton of day
equty nvested capta
cquston to evade or avod, Reguatons 111 amended..
Domestc corporatons, debt retrement, method producng
esser amount
Increase n specfc e empton..
Postwar refunds, reguatons amended
Refund bonds, tme requred to be ssued, reguatons
amended
empt organzatons:
mpoyees annutes, appcaton of secton 22(b)(2) of the
Code
osptas requred to fe nformaton returns..
emptons:
Persona and surta , dependent defned
Servceman s famy aowance, persona, and surta
Specfc, ncrease, e cess profts ta
Ta payer, spouse s ony ncome compensaton receved for
servces n actve armed forces of Unted States, entted
to 500 surta e empton
penses:
Character of, to be reported on orm 1099
Commssons, etc., pad n connecton wth royaty ncome
from terary compostons.. ,
Nontrade or nonbusness, commssons, e ecutor or admn-
strator, deductbty
Partnershp, Indana gross ncome ta
Traveng, etc., treatment
Trust estate, nontrade or nonbusness, deductbty
tenson of tme:
ppontment, powers of, reease of (Pubc Law 95)
Powers of appontment, reease of
Pubc Law 511
Reguatons amended
Renegotaton ct, termnaton of (Pubc Law 104)
Rutns
No.
11972
12064
12065
119 1
119 2
11961
12122
11971
12141
12131
11970
12011
11979
11940
1193
119 0
11936
11954
12142
11994
11994
11964
1194
12072
12005
12142
12051
12179
12192
12045
/ 12030
12165
1213
12071
12092
1192
11965
12093
G
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-
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2

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4
9

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5
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6 0
.
ar Labor Standards ct:
Payment of qudated damages and attorney fees, deduct-
bty . - ...
Payments of wages under, for pror years, deductbty
armers and vestock rasers, nventores, Reguatons 111
amended
edera Insurance Contrbutons ct, rate of ta , caendar year
1945 (Pubc Law 495) ....
edera Securty gency, permsson to nspect certan returns..
ees, counse, trust estate, deductbty
rearms, machne guns and certan other
oor stocks ta , payment wth respect to, treatment
oregn countres, credt requrements, rgentna
oregn countres and possessons of Unted States, credt for
ta es, reguatons amended
orm W-2:
Crcuar 173 (C. . 1944, 461) amended ...
1946, rues for reproducton. _
orm 1099, character of e penses to be reported on
rance:
Ctzen of, resdng n Unted States, credt for ta es pad
n
Ta , e empton from wthhodng, conventon and proto-
co, Reguatons 111 amended
rance and the Unted States, doube ta aton, conventon and
protoco
G.
Gan or oss:
ass, ad|ustment to
Capta assets, hodng perod, determnaton
Invountary converson, bass
Sae of
Rea estate, capta assets defned
Stock receved n ta -free e change ,
Securtes, when ssued bass
Gaugng Manua (193 ), paragraph 13, amended paragraph
60(k), added
Gfts, tuton and mantenance payments to personne by States,
treatment
Gft ta :
Power of appontment, reease of, Reguatons 10 amended.
Property n trust, transfer, renqushment of dower and
other marta rghts
Stock transfer, donatve ntent and consderaton of mar-
rage
Trust for beneft of mnor
Chdren
Grandchdren
Trusts, certan dscretonary, Reguatons 79 (1936),
amended
Gross estate:
Insurance and annuty contracts, ncuded n
Transfers n trust, estate ta
Gross ncome:
mounts receved whe n servce n Netherands West
Indes
Cv servce empoyee, deceased, payments to estate n
e cess of contrbutons to fund, ta abty
Rung
No.
12154
12073
11917
1191
11927
12041
12071
12160
12076
11967
12034
12053
121 0
12179
120 5
11993
12025
12132
11922
12199
11950
120 4
11992
12091
1211
I 12
I 11
12124
970
11996
11995
12067
11973
12123
12077
f 119 1
119 2
12016
12062
G
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d

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)

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2
0
1
3
-
0
1
-
2
2

0
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:
4
9

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0
2
7
/
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3
9
0
1
5
0
7
6
0
3
1
6
4
3
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,

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#
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671
Ru
No.
Gross ncome Contnued.
Compensaton for servces, opton to purchase stock
Compensaton of Coast Guard Temporary Reserve, e cu-
son from
Compensaton of |udges of Unted States courts, consttu-
tonaty of ta ng statute
Compensaton receved under provsons of Pubc Law
314, Seventy-eghth Congress, deductbty,
Cost of ncdenta repars by war contractors reconvertng
to peacetme actvtes, deductbty
Dstrbutons to
mpoyees of nonproft membershp organzaton,
Chrstmas fund
Members of empoyees heath nsurance fund
Dvdends decared pror to decedent s death, when ncud-
be
oor stocks ta es, payment wth respect to
Interest on State obgatons, treatment for ncome ta
purposes ,
Interest pad n advance, ta payer on cash bass
New York temporary emergency ta on certan busnesses,
deductbty
Opton to purchase stock as compensaton for servces
Partnershp earnngs, n the case of a decedent, Reguatons
111 amended
Recovery of certan tems prevousy deducted, deduct-
bty
Traveng and other e penses, deductbty
Trust estate, nontrade or nonbusness e penses, deduct-
bty ,
Gross ncome-ta , deductbty, partnershp e penses
Guns, sma-game, Reguatons amended
.
ospta recevng amounts under Government programs,
nformaton returns
usband and wfe:
ont return, abty
ont tenants, Wsconsn
Tenants by entrety, ncome returns, Oregon
11991
1201
12190-
12049
12000
12017
12047
12022
12076
12191
12050
12107
12036
12074
12043
1213
12071
12165
1214
1194
12139
1210 )
12001
Income, nonta abe, from e cess output, and nonta abe
bonus ncome, computaton, reguatons amended
Income ta :
cqustons made to evade or avod, Reguatons 111 amended-
Coected at source, use of 1945 ct wthhodng tabe
Puerto Rco ctzens, temporary empoyment essenta to
war effort, status
Indebtedness, credt or deducton for amounts rrevocaby set
asde to pay
Indana:
Gross ncome ta :
Deductbty, partnershp e penses
Partnershp e pense, deductbty
Interest oh obgatons of, treatment for ncome ta pur-
poses
Indvdua ncome ta , smpfcaton, Reguatons 111 amended,.
Industra groups, determnaton of e cessve and dscrmna-
tory ta
120 6
11936
12194
1193
12075
12165
12030
12191
11929
1193
G
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1
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-
0
1
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2
2

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4
9

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0
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7
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m
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3
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5
0
7
6
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3
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6
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,

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#
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672
Rung
No.
Informaton returns, hosptas requred to fe
Inspecton of returns:
edera Securty gency, permsson
Offce of Prce dmnstraton, permsson
Insurance, annuty and nsurance contracts, gross estate
Insurance companes, empoyees annutes, appcaton of sec-
ton 22(b) (2) of the Code
Interest, pad n advance, ta payer on cash recepts and ds-
bursements bass
Interest upon obgatons of a State or potca subdvson
thereof, ta abty
Interest remander, rrevocabe trust, deductbty
Inventores, vestock rasers and other farmers
Invested capta, newy organzed corporaton, treatment
Items prevousy deducted, e cuson from gross ncome
L.
Legsaton:
Seventv-eghth Congress
Pubc Law 495__.
Pubc Law 511
Pubc Law 541 . _
Pubc Law 552
Seventy-nnth Congress
Concurrent resouton ( . Con. Res. 50)
Pubc Law 95
Pubc Law 104.
Pubc Law 105
Pubc Law 172
Pubc Law 177
Pubc Law 1 0 -.
Pubc Law 201.
Pubc Law 210
Pubc Law 214
Len for edera ta es, prorty
Lfe nsurance companes, fgure to be used n determnng
reserve
Lghthouse Servce, retred empoyees of, annuty, ta abty
Lterary compostons, royates, treatment for ncome ta
purposes
Ltgaton, e penses of, n the case of trust estate
Lvestock:
Capta gans and osses from saes, method of determnng..
Inventores of vestock raser and other farmers
Losses:
Dsted sprts n bond, Reguatons 6 amended
actes abandoned by war contractors n reconvertng to
peacetme actvtes, deductbty
Stock, test for determnng year stock became worthess
M.
Machne guns and certan other frearms, regstraton
Ma, frst-cass, contnuaton of temporary ncreased rates
(Pubc Law 105)
Manufacturers e cse ta es:
utomobe parts or accessores, rebut or recondtoned
ectrca energy sod to regous, etc., organzatons, ta -
abty
Toet preparatons, advertsng and seng e penses
1194
12041
1206
12077
11964
12050
12164
12169
11934
11917
1191
1209
12043
11927
1192
11930
11931
12116
12092
12093
12094
12113
1212
12129
12171
12172
121 7
121 1
11937
12150
12192
12071
151
103
11951
11917
1191
176
70
72
12125
4 9
12000
121 2
91
353
12160
457
12094
431
12037
431
12145
1195
432
433
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673
Martme Commsson, Unted States, payment of empoyment
ta es durng emergency (Pubc Law 21)
Medca, denta, etc., e penses of dependents, deducton
Merchant Marne ct, 1936, as amended:
Depost of certan proceeds (Pubc Law 552)
Revsed reguatons amended
Messages, teegraph, etc., of admnstratve nature, ta abty..
Mcrofmng of newspaper fes, busness e pense
Mners, coa, occupatona e penses, treatment for ncome ta
purposes
Msceaneous ta es:
dmssons ta , athetc games and other affars by schoos
Guns, sma-game, Reguatons amended
Machne guns and certan other frearms, regstraton
Processng ta , sugar, recovery
Stamp ta es, securtes, admsson of new partner, date rue
appes
Sugar, manufactured, effectve date of ta ng ct
Teegraph, etc., messages of admnstratve nature
Transportaton of property
Mortuary benefts payabe under empoyment contract, ta -
abty
N.
Net ncome, constructve average base perod, appcaton for
reef under secton 722
Netherands West Indes, apprecaton of currency, osses sus-
taned whe n servce
New York:
Temporary emergency ta on certan busnesses, treat-
ment
Unempoyment nsurance aw, contrbutons to, by em-
poyers, treatment
Newspapers, cost of mcrofmng fes, deductbty
Nonnecessty certfcates, transfer of functon to War Produc-
ton oard, Reguatons 111 amended
Nonresdent aen ndvdua, ncome from transactons on stock
market, etc., ta abty
Notary pubc, rmy offcers to have genera powers of, n
admnsterng oaths under rtces of War
0.
Obgatons, State, nterest on, treatment
Offcers, ensted men, etc., currency e change osses sustaned
whe n servce n Netherands West Indes
O and gas property, aowance for unrecovered cost of equp-
ment
O and gas wes:
Congressona approva of secton 29.23(m)-16 of Regua-
tons 111, etc., reatng to drng and deveopment costs
treatment
Depeton, capta and e pense charges
Oeomargarne, etc:
duterated butter, process or renovated butter bonds,
and oeomargarne, Reguatons 9 amended
ed cheese, wthdrawa free of ta , for use of Unted
States, Reguatons 34 amended
Schedue of producton and materas used
November, 1944 and 1943-.-
December, 1944 and 1943 -..
Run
No.
12012
11919
530
127
11931
11999
12195
12031
544
475
444

12110
321
12007
1214
446
12160
119 3
11997
11924
12195
12066
452
44
444
444
11935
129
12099
276
12016
60
12107
2
12177
12031
13

11953
1 0
120 1
244
12035
257
12191
367
12016
60
11969
343
12116
12155
545
113
11964
453
119 5
454
11925
11976
497
49
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674
Oeomargarne, etc. Contnued.
Schedue of producton and materas used Contnued
anuary, 1945 and 1944
March, 1945 and 1944
pr, 1945 and 1944
May, 1945 and 1944
une, 1945 and 1944
uy, 1945 and 1944
October, 1945 and 1944
Oregon, tenants by the entrety, ncome returns
Organzatons, chartabe, regous, etc., sae of eectrca
energy to. (See Manufacturers e cse ta es: ectrca
energy.)
P.
Partnershp, Indana gross ncome ta , deductbty
Payment of ta es, etc., authorzaton to receve certan checks
and money orders (Pubc Law 541)
Payments of wages for pror years, under ar Labor Standards
ct, deductbty
Penates, estmated ta , speca rue for computaton
Pencs, mechanca. (See Retaers e cse ta es: Mechanca
pencs.)
Penson, or compensaton, receved under provsons of Pubc
Law 314, Soventy-eghth Congress, deductbty
Phadepha ncome ta , deductbty n computng ad|usted
gross ncome
Post-war pannng and deveopment fund, contrbutons, de-
ductbty
Post-war refund of e cess profts ta , reguatons amended
Postage rates, frst-cass matter, contnuaton of ncreased rates
(Pubc Law 105)
Power of appontment, reease of:
tenson of tme (Pubc Law 95)
Pubc Law 511 -
Presdent, procamaton termnatng emergency perod, ques-
tons and answers reatng to
Processng ta , sugar, statutory prma face evdence and pre-
sumpton, recovery sut
Property:
cqured by corporaton through bankruptcy or recever-
shp proceedngs, Reguatons 111 amended
uture nterest n trusts for beneft of
Grandchdren
Mnor chdren
Trust, transfer, renqushment of dower and other marta
rghts..
Property ta es, Wsconsn, accrua date 1
Puerto Rco:
Country wthn provsons of Code reatng to Western
emsphere trade corporatons
R.
Rea estate:
Owned and operated as source of ncome, oss on sae of
Wsconsn, |ont tenancy, renta ncome and proceeds from
sae of, ta abty ... -
Rung
No.
119 6
12009
1203
12054
1207
12112
12126
12147
12170-
12196
12061
12165
11930
12073
12011
12049
12003
11933
11994
12094
12092
1192
11901
12122
11970
12124
12200
119 3
11949
11973
12067
1199G
12032
120S3
11950
12109
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675
Recevershp proceedngs, property acqured by corporaton,
Reconverson, to factate (Pubc Law 172)
Record 21, sezure and sae of rea estate, pubc nspecton,
Refund bonds, e cess profts ta , tme requred to ssue, regua-
tons amended
Reguatons:
(Ser mendments: Reguatons.)
Ta -free wthdrawas of cgars from customs bonded ware-
houses
Tme for performng certan acts postponed by reason of
war, amended
Reguatons 111 amended to correct mnor errors
Reef:
ppcaton for, under secton 722
Secton 722 of the Code-
Corporate profts, tabes and chart
Industra groups, determnaton
Reef under secton 722, fng of appcaton for, reguatons
amended
Renegotaton ct, termnaton of, e tenson of tme (Pubc
Law 104)
Renegotaton of Government contracts, chartabe deductons, _
Repacement fund, created wthout permsson of Commssoner,
treatment --
Reproducton of orm W-2, Crcuars 1715 (not pubshed)
and 173S (C. . 1944, 461), amended
Reserve and other pocy abty credt for fe nsurance com-
panes
Retaers e cse ta es:
Lst of toet preparatons (ncompete) sub|ect to 20 per
cent, ta
Mechanca pencs, Reguatons 51 amended
Pencs, mechanca, certan e emptons from (Pubc
Law 1 0)
Saes by retaers of artces for resae at reta, Reguatons
51 amended
Shampoos
Retroactve wage ncreases, deductbty
Return, |ont, fed by wdow after husband s death, abty
Return of nformaton, Reguatons 111 amended
Returns:
Coa mners, occupatona e penses, treatment for ncome
ta purposes
Consodated
cess profts ta , affated corporatons. Reguatons
110 amended
Income ta , affated corporaton, Reguatons 104
amended
Corporatons, when ony one requred
usband and wfe, tenants by entrety, Oregon
Income and e cess profts ta , eecton of affated cor-
poratons to fe
Inspecton of, by
edera Securty gency
Offce of Prce dmnstraton
Revenue ct of 1945 (Pubc Law 214, Seventy-nnth Congress).
Rues for reDroducton of orm W-2 for 1946
Rung
No.
11949
12113
11942
11994
11974
12063
12070
12099
11910
11939
f 12173
11219
12093
12033
12199
12100
11937
119 4
12144
12129
12135
12101
11966
12139
12140
12109
12133
12133
119C0
11923
12061
1216
12041
1206
121 7
121 0
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676
Rung
No.
S.
Saary stabzaton:
onus payments customary to empoyment, reguatons
amended
Payments made n contraventon, reguatons amended
Saares and wages, stabzaton of, amendments
Saes:
reedng catte, method of determnng capta gans and
osses
Capta assets of corporaton, qudaton of dvdends
Rea estate owned and operated as source of ncome
Schoos, admssons ta on games and affars
Securtes:
dmsson of new partner, date rue appes
When ssued bass, purchase and sae
Servceman s famy aowance, ncome ta and surta e emp-
tons
Shampoos, retaers e cse ta es
Smar credt requrements, rench ctzen resdng n Unted
States, treatment -
Srups, emergency producton of, n ndustra acoho pants
(Pubc Law 210) .
State or potca subdvsons thereof, obgatons of, ta abty
State proceedng, prorty cam of Unted States for unpad
empoyment compensaton ta es
St (Reguatons 23 amended):
Defnton ,
Regstry _-
Ta abe status
Stock:
change of, for cash and stock, ta abe gan
Losses, determnaton of worthessness of the stock
Opton to purchase, as compensaton for servces
Receved n ta -free e change, sae of, gan or oss
Transfer, donatve ntent and consderaton of marrage
Sugar:
mergency producton of, n ndustra acoho pants
(Pubc Law 210)
Manufactured, effectve date of ta ng ct
Statutory prma face evdence and presumpton, recovery
sut
Sugars and srups, emergency producton n ndustra acoho
pants, Reguatons 3 amended
Surta e empton, ta payer s spouse, whose ncome s receved
ony from servce n armed forces of Unted States, entted to
e empton of 500
T.
Ta d|ustment ct of 1945 (Pubc Law 172)...
Ta Court of the Unted States, The, formery Unted States
oard of Ta ppeas:
Decsons of, st of acqucscenccs and nonacquescences
ursdcton
Revew of abnormates by, reguatons amended
Ta credt, foregn, reguatons amended .
Ta es:
nayss of credt for, pad Government of Curacao
Capta stock ta , accrua, decaraton years, non-decara-
ton years
120S7
12014
11962
11951
12002
11950
12007
11997
11992
12005
12101
120 5
12172
12164
12169
11943
121 4
121 4
121 4
1205
121 2
1202
12036
120 4
11995
12172
11924
119 3
12197
479
12051
124
12113
532
121 9
1-9
1219
2 1
12121
2 0
12120
279
12193
304
12096
111
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677
ng
No.
Page.
Ta es Contnued.
New York temporary emergency, on certan busnesses,
deductbty
Processng, cam for refund, procedura requrements
Recept for ta es wthhed at source, Crcuar 173 (C .
1944, 461), amended..-
Recovery, dsted sprts, etc., authorzaton and sancton
for
Teegraph, etc., messages of admnstratve nature, ta abty
Tenants by the entrety, Oregon
Tmber, cuttng and dsposa of
Tme for performng certan acts postponed by reason of war
Tobacco:
Statement of manufactured, produced, by casses
October, 1944 and 1943-.
November, 1944 and 1943.
December, 1944 and 1943 t
anuary, 1945 and 1944
March , 1945 and 1944
pr, 1945 and 1944 _
I av, 1945 and 1044
une, 1945 and 1944
uy, 1945 and 1944
Toet preparatons:
dvertsng and seng e penses, ncudbe n ta base
rtces, ncompete st, sub|ect to 20 per cent ta
Saes to operators of beauty parors, etc. (See Retaers
e cse ta es.)
Shampoos, retaers e cse ta es
Transportaton of property, shpment beyond boundares of
Unted States
Treaty, rance and the Unted States, doube ta aton
Trusts:
Certan dscretonary, Reguatons 79 (1936) amended
Investment, defnton, reguatons amended
Mnor grandchdren, net gfts, future nterests and benefts.
Remander nterest, rrevocabe
Stock bonus, penson or proft sharng pan, reguatons
amended
Transfers durng fetme, estate ta
Trust and estates, dstrbuton of ncome durng ta abe year
resdue s payabe
Tuton and mantenance payments to personne by States under
Soca Securty ct, treatment
U.
Unempoyment nsurance aw, New York, contrbutons of em-
poyers to, treatment
.
acaton aowances, coecton of ta at source, Reguatons 116
amended
enezuea, smar credt requrements
enue, |ursdcton, tmeness and ega effect of stpuaton
ctory ta repeaed, Reguatons 111 amended
12107
12057
12053
12013
12195
12061
11952
1199
11926
11959
119
1200
12040
12055
12079
12102
12127
12136
1215
121 6
1195
119 4
12101
12066
12025
12123
12111
11973
11934

11965
119 1
19S2
12141
1211
12177
11955
12020
11941
11929
2
403
327
479
414
142
17
474
514
514
515
515
515
516
516
516
517
517
517
51
433
43
4-10
444
522
4 15
332
421
114
115
406
40
241
64
13
320
206
316
10
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67
Rng
No.
w.
Wages:
onus payments, Saary Stabzaton, reguatons amended
Coa mners, occupatona e penses, treatment for ncome
ta purposes
Contrbutons to empoyees heath nsurance fund by mem-
bers of a manufacturers assocaton, wthhodng at source
ar Labor Standards ct, defcency of, for pror years,
pad under, treatment
Mnor chd, egtmate empoyee of father, deductbty...
Retroactve, or overtme compensaton, of empoyee, w th-
hodng of ta at source
Tuton, etc., payments to personne by States under Soca
Securty ct, wthhodng
Unpad, deceased empoyees , wthhodng at source
acaton aowances, coecton of ta at source, Reguatons
116 amended
Wages and saares:
d|ustments, retroactve ncreases, deductbty
Payments, contraventon of mtatons, Reguatons 111
amended
Stabzaton of, amendments
War:
Contracts, termnaton of, compensaton, treatment
Tme for performng certan acts postponed by reason of,
reguatons amended
War Shppng dmnstraton, payment of empoyment ta es
durng emergency (Pubc Law 21)
Western emsphere domestc corporatons, new, treatment
Western emsphere trade corporatons, Puerto Rco
Wdow, fng |ont return after husband s death, abe for ta due
Wnes, rectfcaton of, Reguatons 15 amended
W sconsn:
usband and wfe, |ont tenants
Rea property ta es, accrua date
Wthhodng recept:
orm W-2, revson of
1945 ( orm W-2), Crcuar 173 (C. . 1944, 461), amended
Wthhodng statement for 1946, rues for reproducton of orm
W-2
Wthhodng ta at source:
rance, conventon and protoco, Reguatons 111 amended
Puerto Rco ctzens, temporary empoyment essenta to
war effort
Requrement, use of ta tabe
Unpad wages of deceased empoyees
Wages, or overtme compensaton, pad empoyee under ar
Labor Standards ct
Wthhodng ta e emptons, servceman s famy aowance
120 7
473
12110
321
12047
90
12076
12166
357
101
12052
320
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Bureau of Internal Revenue Cumulative Bulletin 1945

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Copyright:

Bureau of Internal Revenue Cumulative Bulletin 1945

Caricato da

Copyright:

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

The Commssoner does NOT acquesce n the foowng decsons:

or Is authorzed to make a fndng of death. When a fndng of death s made It

Number of ncome recpents.

Nw cc-NCfe-f-ts-cn y.N Cf aces

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